208 There was no contest that Mr Campbell was the author of the formula agreed. Nor, however, could there be any doubt that the source of the $300,000 profit figure, was the applicants. Both Mr Pak and Professor Kennett understood this formula and were content with it at the time. On all of the evidence, it appeared that Excelsior was by then an anxious vendor. This was denied by the applicants who, however, provided no other explanation as to how and why this formula was agreed.
209 Mr Pak also claimed that at the meetings he attended with Mr Campbell and Professor Kennett, he did not get deeply involved in the discussions. He explained that he was only a 40% shareholder and as such, he listened to Professor Kennett. He agreed, however, that the offer price which Excelsior received, always depended on profitability of at least $300,000. He understood that if that level of profit was not reached, the sale price would reduce. Mr Pak agreed that he was content with the offer received on that basis and that when the offer was discussed at a meeting on 2 July, Mr Campbell asked that the profit figure of $300,000 be confirmed again, and that he did so.
210 Mr Pak also agreed that while Professor Kennett was in Iran for a period, that it was he, who was negotiating with Mr Campbell. On 5 July, the written offer was made. Mr Pak agreed that he understood that offer, including how net profit was to be calculated and that a due diligence was then to be conducted by the purchaser. He discussed the offer with Professor Kennett on his return and then met with Mr Campbell. Mr Pak agreed that Professor Kennett wanted the transaction completed quickly. After the meeting, the offer letter was signed by he and Professor Kennett, on 9 July.
211 Mr Pak also agreed that he then discussed the sale with Mr Campbell and told him that he was happy about the sale; that he did not agree with how Professor Kennett operated and that it was he, Mr Pak, who did most of the work. Mr Pak disagreed, however, that any disagreements with Professor Kennett about management style, was his reason for wishing to sell the College.
212 Mr Pak also explained that while he later executed the deed of sale, his English was not good enough to permit him to completely understand it. He relied on his solicitor's advice. He agreed, however, that the sale price reflected the agreement earlier reached. His advice to Mr Campbell reflected his understanding, obtained from Mrs Brash, that the College profit was about $300,000, but on his evidence, Mr Pak had not checked this figure independently. On Mr Pak's evidence he did not have responsibility for the College's financial affairs. He was a 40% shareholder and Professor Kennett 60%. Financial matters were Professor Kennett's concern, not his. This evidence entirely contradicted that of Professor Kennett.
213 Evidence was called from Mrs Brash. She had control of the College accounts and banking at the time of the sale. She denied ever having an understanding that the College was operating on the basis of a profit level of $300,000 in 2002, when the College was sold. She also denied that she had ever provided such advice to Mr Pak. That denial was consistent with the documents which Mrs Brash provided to Mr Campbell, which initially advised that in May 2002, profit stood at $101,815. In early July, that figure was revised, downwards to some $25,000 for the 2001/2002 financial year.
214 In considering the applicants' evidence, it cannot be overlooked that a call option deed was signed on 19 July. There the price formula was renegotiated, on terms then proposed by the applicants, to exclude certain 'extraordinary' expenses, in calculating profit. This was to the applicants' undoubted advantage.
215 It would appear on the applicants' evidence, that the concept of the College operating at a profit level of $300,000, only ever arose because of Mr Pak's misunderstanding of advice Mrs Brash had given him, and because neither Professor Kennett, nor Mr Pak, themselves then checked the basis of that understanding, by looking at the College's financial records. On the applicants' case, they never sought any confirmation as to the accuracy of their understanding from people such as Mrs Brash, the College's external accountant Mr Rodgers, or anyone else. Nor did they ever themselves look at the College's financial records, to satisfy themselves as to the accuracy of their understanding. Given the renegotiation of the price formula in the 19 July call option deed, that evidence was difficult to accept.
216 Clearly, before the call option deed was entered by Excelsior on 19 July, the applicants had a concern as to what sale price the agreed price formula would produce, which they sought to address in their negotiations with Mr Campbell. That the applicants would have given no thought at all to what the price formula would produce, given what it depended upon, would have been quite surprising. The case which the applicants pursued in these proceedings was that the various systems which Excelsior operated were entirely unreliable. The applicants themselves gave no detailed evidence about this. It was a concept which emerged in Mr Prior's amended opinion evidence. It would seem that this was not a matter of concern to the applicants at the time of the negotiations about the sale price of the College, which all revolved around representations that the College was operating profitably and the purchaser being given access to the College's records and employees, so that a due diligence exercise could be conducted, to satisfy the purchaser as to the College's financial performance.
217 A fundamental aspect of the attack mounted by the applicants on the fairness of the sale agreement, through Mr Prior's expert evidence, was the complaint that the College's systems and financial records were unreliable, so unreliable, in fact, that Mr Traynor ought not only to have uncovered their unreliability, but ought to have advised the applicants of the difficulty and ought to have assisted them in the renegotiation of the sale price with his clients, Garratt's.
218 The curious thing about the claim so advanced, was that Professor Kennett and Mr Pak were the working proprietors of Excelsior, the vendor company of the College. It was they who managed the College business and the records which it maintained, with the assistance of the employees they engaged, such as Mr Brash and Mrs Brash. The College business had to be managed in a way which satisfied various statutory requirements, in relation to how students' fees were dealt with and accounted for by Excelsior. The finances of Excelsior were independently audited by Mr Rodgers. It was the applicants who made representations as to profitability to the respondents. Given the applicants' evidence, particularly that given by Professor Kennett in cross examination, it cannot be doubted that, in reality, they had a real understanding of the systems Excelsior operated and of difficulties inherent in the way in which those systems were maintained.
219 Despite all of this, it was common ground that Mr Campbell was repeatedly assured that the College was operating at a $300,000 profit level, at least by Mr Pak, even though, at the same time, Mrs Brash was providing advice to entirely different effect.
220 Mrs Brash was directed to provide various information to Mr Campbell. She did so in June 2002. That information included advice that the College had an operating profit to May, of only some $102,000. Despite the suggestions by Mr Pak and Professor Kennett, that they had not understood this to be the position at the time, I am well satisfied that if that truly was the case, it can only have been the result of a total failure by Professor Kennett and Mr Pak, to pay attention to their own affairs, in any sensible fashion. I believe this to have been exceedingly unlikely, given the evidence as to the advice which they sought from Mr Rhodes on 19 July and the note he made of this discussion, which referred to the need to change the price formula. That formula was then in fact renegotiated in Excelsior's favour. It was Professor Kennett's evidence that it was he who negotiated these amendments to the formula with Mr Campbell, in relation to how the College's profit was to be assessed, Mr Campbell agreeing to exclude back payments to English teachers and costs of relocation of the College premises in December 2001, in calculating the College's profit.
221 Somewhat incredibly, on the evidence, despite their understanding of the formula, to which they had agreed and its renegotiation in July, Professor Kennett and Mr Pak claimed they had not taken any steps to satisfy themselves as to the actual result of the application of the price formula. Neither of them, for example, asked either Mrs Brash or Mr Rodgers to undertake the proposed calculation, or to advise them what the outcome of the application of the formula would be, given the College's financial performance. Nor did they seek, themselves, to make any attempt at the calculation. Nevertheless, when the call option and sale agreement were both signed for Excelsior in July, the result was that Garratt's had until 31 August 2002, to exercise the call option.
222 The fairness of the original price formula was challenged, as I noted, as being unfair, in having regard to profitability of the College. On the evidence, that complaint was not made out. Purchase of a business as a going concern by reference to its profitability, is hardly an uncommercial basis for a sale. On the evidence, there was nothing inherently unfair about the agreement reached on that basis, in this case.
223 It was apparent that profitability was clearly understood to be a concern of Garratt's, from the outset of the negotiations, which followed Mr Campbell's approach to Mr Pak. On the applicants' case, they did not have to sell the College. It was they who made representations as to profitability, which had no foundation in fact. The complaints about the inadequacy of the financial records which had been maintained for the College by Excelsior, provided no basis for any complaints as to the unfairness of the bargain which the applicants freely made, which involved the sale price for Excelsior being determined by reference to its profitability. The applicants were, after all, the managerial mind of the vendor of the College, Excelsior, which accepted the offer made in early July. They were working proprietors of the business. The records Excelsior maintained were entirely within their control, even though they disagreed in their respective evidence as to which of them, in fact, had responsibility for such matters. After further consideration, the applicants renegotiated more favourable terms, before signing the call option deed in July, when Excelsior agreed to sell the College as a going concern. The evidence showed that the applicants had legal advice, which confirmed the risk flowing from the formula, if profitability was less than represented. I can find no unfairness in any of those circumstances.