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[2026] NSWSC 825
Supreme Court of NSW
2026-07-14
Schmidt AJ
Original judgment source is linked above.
Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: Lee v Kim [2026] NSWSC 825
Hearing dates: 24 June 2026
Date of orders: 14 July 2026
Decision date: 14 July 2026
Jurisdiction: Common Law
Before: Schmidt AJ
Decision: 1. The usual order under the Uniform Civil Procedure Rules 2005 (NSW) is that costs follow the event: r 42. In this case that is an order in favour of Mr Kim.
2. Unless the parties approach to be heard within 14 days, with short written submissions, that will be the Court’s order.
3. In the meantime, for the reasons given, I order that the appeal be dismissed.
Catchwords: CONTRACTS — appeal from Local Court — share purchase agreement — where disputed term ambiguous — whether term should have been implied — parties’ commercial purpose — no error established — appeal dismissed
Legislation Cited: Uniform Civil Procedure Rules 2005 (NSW), r 42
Cases Cited: Baltic Shipping v Dillon (1991) 22 NSWLR 1
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Burger King Corporation v Hungry Jack's Pty Limited (2001) 69 NSWLR 558; [2001] NSWCA 187
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7
Ellmore (Maitland) Pty Ltd v Tull (1995) 7 BPR 14,305
Hide & Skin Trading Pty Limited v Oceanic Meat Traders Limited (1990) 20 NSWLR 310
Kim v Lee (Local Court (NSW), Brender LCM, 22 October 2025, unrep)
Life Insurance Company of Australia Ltd v Phillips (1925) 30 CLR 60; [1925] HCA 18
Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104; [2015] HCA 37
Paciocco v Australia and New Zealand Banking Group Limited (2015) 236 FCR 199; [2015] FCAFC 50
Provident Capital Ltd v Naumovski [2013] NSWSC 40
Reid v Moreland Timber Co Pty Ltd (1946) 73 CLR 1; [1946] HCA 48
South Sydney District Rugby League Football Club v News Ltd [2000] FCA 1541; (2000) 177 ALR 611
South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478; (1999) 10 BPR 18,961
Category: Principal judgment
Parties: Seong Woong Lee (Plaintiff)
Jihoon Kim (Defendant)
Representation: Counsel:
YLR Chen (Plaintiff)
J Raftery (Defendant)
Solicitors:
A Quantum Leap Legal (Plaintiff)
Dahan Lawyers (Defendant)
File Number(s): 2025/00432652
In 2023 Mr Kim entered into an agreement with Mr Lee, the sole director and soon to be sole shareholder of JAC Korean Barbecue Pty Limited Pty Ltd, by which he acquired 50% of its shares for $80,000, paid by a deposit and later instalments.
Mr Lee and Mr Kim are both native Korean speakers who conducted their negotiations in both Korean and English. Neither was legally advised and their one page English language agreement was prepared by Mr Lee. They appear to both have been experienced in the operation of restaurants and there is no suggestion that either was legally trained.
When the disputed agreement was entered the company was operating a restaurant which had been trading, unprofitably, for some 12 months. There is no issue that its earnings were being paid into an account of Mr Lee’s family trust; that the restaurant had been operating with Mr Lee’s financial support; and that before they entered the agreement, he had disclosed to Mr Kim that it had outstanding liabilities.
After the shares were transferred to Mr Kim, he also became a director. He later opened a company bank account, which resulted in takings no longer being paid into Mr Lee’s family trust. Mr Kim also began to ask questions about the payment of the outstanding liabilities.
On his case, because Mr Lee did not give him access to the company’s business activity statements, accounting records and the bank statements, Mr Kim accessed its ATO records. They disclosed that the company had not lodged BAS or tax returns.
The resulting disagreement about uses which Mr Lee had been making of the company’s income and his failure to clear its past liabilities, led to Mr Kim seeking the return of his investment. That was refused.
In the Local Court the parties’ dispute was wide ranging. Mr Kim pursuing the return of his investment, given Mr Lee’s alleged breaches of their agreement, as well as claimed misrepresentations. Mr Lee pursuing a cross-claim, contending that Mr Kim had failed to comply with other terms which they had agreed orally.
What Mr Kim relied on included Mr Lee’s failure to pay what the company owed its meat supplier, its outstanding liquor licence fee, which resulted in the suspension of its licence, and its tax obligations.
The cross-claim was dismissed, but Mr Lee’s breach of contract was established by his failure to meet the company’s prior liabilities within a reasonable time. With the result that Mr Kim was awarded $80,000 damages: Kim v Lee (Local Court (NSW)), Brender LCM, 22 October 2025, unrep). His Honour having concluded that:
“82. ... Mr Kim’s evidence was that the failure to pay the past liabilities, which I have found was a breach of contract, lead to the impasse that forced the closure of the restaurant. There was no funding available for continued operations. That was at least in part because the meat supplier was not paid, and the company may well have been trading insolvent. The takings were being diverted into Mr Lee’s family trust. The rent was in arrears from time to time. The liquor licence was suspended. The company was in breach of tax law at least in not lodging returns. Mr Lee was not taking steps to clear the company’s debts. Mr Kim was not prepared to fund the company in those circumstances.
- As a direct result of the breaches, the shareholders and directors were at an impasse. The company ceased to trade. The $80,000 paid for the shares has been lost or wasted. The shares are realistically of no value - the restaurant is closed and not trading. There is no realistic prospect of the shares recovering any value. Given arms-length parties negotiated the $80,000 price for the shares, that is some evidence that the value of the shares at the time of contract was $80,000. It was what was paid. The breach of contract has lead directly to the loss of all value.”
This appeal turns on the proper construction of only one clause of the parties’ agreement, although Mr Lee calls in aid a second provision, to support his contention that his Honour erred in his construction of the disputed clause.
The one ground of appeal pressed is:
“The learned primary judge erred in his interpretation and construction of the ‘Business Equity Contract of Sale’ dated 26 April 2023 by holding that said contract imposed a positive obligation on the vendor of the shares to pay out the company’s liabilities which had been incurred prior to the sale of shares.”
“The Vendor, Seong Woong Lee acting on behalf of JAC Korean BBQ PTY LTD, accept full responsibility of all liabilities previously to the completion of sale, including but not restricted to, rent/suppliers/wages/utilities. It is a condition of sale, the Purchaser, Jihoon Kim will have zero accountability on the above incurred (if any) previous to the date of purchase.”
There was little issue about the applicable principles, although for Mr Lee it was submitted that there is no generally accepted implied duty of faith in share purchase agreements, relying on Paciocco v Australia and New Zealand Banking Group Limited (2015) 236 FCR 199; [2015] FCAFC 50 at [289]. And even if there is, that duty does not require a vendor to cause the company’s prior liabilities to be discharged.
In Pacio**cco it was claimed unconscionable conduct and the “obligation to act honestly and with a fidelity to the bargain; an obligation not to act dishonestly and not to act to undermine the bargain entered or the substance of the contractual benefit bargained for; and an obligation to act reasonably and with fair dealing having regard to the interests of the parties (which will, inevitably, at times conflict) and to the provisions, aims and purposes of the contract, objectively ascertained” which arose to be considered: at [288].
At [289], it there being concluded that:
“None of these obligations requires the interests of a contracting party to be subordinated to those of the other. It is good faith or fair dealing between the parties by reference to the bargain and its terms that is called for, be they both commercial parties or business dealing with consumers. As Posner J said in Market Street Associates Limited Partnership v Frey [1991] USCA7 746; 941 F.2d 588 (1991) the contractual notion of good faith varies in what is required for its satisfaction by reference to the nature of the contract. But the notion is rooted in the bargain and requires behaviour to support it, not undermine it, and not to take advantage of oversight, slips and the like in it. To do so is akin to theft, and if permitted by the law led to over-elaborate contracts, and defensive and mistrustful attitudes among contracting parties.”
It is long settled that “Whoever may be the parties to the agreement, it is the fundamental rule, that a court should give the words of a written agreement the natural meaning that they bear. Subject to that rule, in giving meaning to the words of an agreement between commercial parties, courts will endeavour to avoid a construction which makes commercial nonsense or is shown to be commercially inconvenient. This is because courts will infer that commercial parties would not themselves normally agree in such a way.”: Hide & Skin Trading Pty Limited v Oceanic Meat Traders Limited (1990) 20 NSWLR 310, 313-314.
In Burger King Corporation v Hungry Jack's Pty Limited (2001) 69 NSWLR 558; [2001] NSWCA 187, to which his Honour referred, the law in relation to the implication in a contract of terms of reasonableness and good faith were explained. Applying South Sydney District Rugby League Football Club v News Ltd [2000] FCA 1541; (2000) 177 ALR 611.
The principles which need to be borne in resolving what is in issue on the appeal include:
Parties should be held to the bargains which they freely enter, the general policy of the law being that people should honour their contracts, that forming “part of our idea of what is just”: Baltic Shipping v Dillon (1991) 22 NSWLR 1 at 9 per Gleeson CJ, applied in Provident Capital Ltd v Naumovski [2013] NSWSC 40 at [297]-[299];
Questions of contractual construction raise issues of law. There being, “always one and only one true meaning to be given to fully expressed words.” Even when different constructions are suggested, if a “true construction can be arrived at with reasonable certainty, although with difficulty, then it cannot be properly said that there are two meanings to the contract.” That meaning depending on the words used in the contract: Life Insurance Company of Australia Ltd v Phillips (1925) 30 CLR 60 at 78-79; [1925] HCA 18;
In the event of dispute, the meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean, in context: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35];
That requiring “consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract”: at [35];
“Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning”: Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104; [2015] HCA 37 at [48], applying Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352; [1982] HCA 24;
“However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’. It thus may be necessary in determining the proper construction where there is a constructional choice. In which case the events, circumstances and things external to the contract may be resorted to”: Mount Bruce Mining Pty Limited at [49];
“Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties, or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations”: Mount Bruce Mining Pty Limited at [50];
“Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption ‘that the parties ... intended to produce a commercial result’. Put another way, a commercial contract should be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience’”: Mount Bruce Mining Pty Limited at [51];
Implication of a term in a contract depends on the five conditions specified in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-283, being satisfied:
(i) the term must be reasonable and equitable; (ii) the term must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (iii) the term must be so obvious that “it goes without saying”; (iv) the term must be capable of clear expression; and (v) the term must not contradict any express term of the contract.
By their written and oral submissions, the parties disputed the correct construction of the clause in issue between them.
Mr Lee contending that:
his Honour had fallen into error, the disputed clause imposing no obligation on him to pay outstanding liabilities within a reasonable time;
the meaning of the clause having to be approached from a consideration of what the verbs used in the clause dictated. They not imposing any obligation on him to discharge or pay the company’s outstanding liabilities.
the clause having to be construed in context, which required that attention be paid to the operation of the following clause, a reasonable businessperson understanding their close connection;
disclosing that the company was not then at break-even point, that being what the parties hoped to achieve, so that, they would then be paid dividends, according to their ownership percentages; and
his company’s prior liabilities would then be accounted for as if they were debts owed by Mr Lee personally and not those of the company.
Mr Lee also contended that the construction Brender LCM had arrived at, had also unnecessarily created obligations in favour of the company’s third party creditors, regardless of whether any prior liability was overdue at the time of contract.
In the alternative, Mr Lee submitted that the disputed clause resulted in him giving Mr Kim an indemnity against any personal loss, if he was ever made personally liable for the company’s pre-existing liabilities.
Mr Lee contended that it was obvious that the agreement had not been drafted by lawyers. Its terms, the language used and the confusion it evidenced showing that the parties had not properly differentiated between assets owned by the company and those of the shareholders, debts owed by the company and Mr Lee’s personal liabilities.
He urged that the clause should thus be construed as an indemnity. That being consistent with what most reasonable businesspeople would expect, because a buyer of shares should never be made liable for any of the company’s liabilities, merely because of the shareholding acquired.
In the further alternative, it was argued that Brender LCM had erred in implying a term that the liabilities had to be paid within a reasonable time, that not satisfying the BP Refinery (Westernport) test.
Mr Kim’s case was his Honour had not erred. The construction arrived at, having considered the alternative then advanced, which had been pleaded and argued, having in part rested on the conclusion that without the implication of a term that the past liabilities had to be paid within a reasonable time, the promise that Mr Kim would not be accountable for them, would be valueless. That being open, given that the company was otherwise likely to fall into insolvency and being unable to continue trading.
It was pertinent that what had been pleaded by the defence below was:
“The defendant says upon proper construction of the Agreement, the effect of the Agreement is that when calculating dividends as between the plaintiff (50% shareholder) and defendant (50% shareholder), any of the pre-Agreement liabilities of JAC Korean BBQ PTY LTD shall be accounted for as if they had been debt owed by the defendant to JAC Korean BBQ PTY LTD.”
The construction which Mr Lee had urged, for all the reasons argued on the appeal, was submitted to be commercial nonsense. Given the parties’ common intention. Namely, that the company was to start afresh, in the sense that Mr Lee was to be responsible for its outstanding liabilities, that requiring him to pay for them, so that it could continue to trade.
The construction arrived at in the Local Court thus having correctly identified the objective, commercial intention of the parties’ agreement.
The constructions urged on appeal were submitted to be entirely inconsistent with the words the parties had used and the objective intention they disclosed. They not being concerned with the parties’ liabilities, in the event that the company was placed into liquidation.
It would thus be accepted that the correct business-like interpretation of the words used was as his Honour had concluded.
“Business Equity Contract of Sale
Type of Sale:
Sale of Shares/Equity by the Vendor to the Purchaser.
A complete sale of 50% business ownership, assets/equipment, stock and rights to business IP usage (Mosman only) to the Purchaser: Jihoon Kim, by the Vendor: Seong Woong Lee (aka Anthony), to the total of 50% (half of total ownership) at the agreed value of $80,000.
Purchase Price, Deposit and Balance
A 20% agreed deposit ($16,000) of which $4,000 has been received by the Vendor on the 23rd of April 2023 with the balance of $12,000 to be completed on the 24th of April 2023.
An agreed date for the remaining balance of $64,000 has been set for the 8th of May 2023. However, the Vendor will not be setting above mentioned date as the ‘Sunset’ clause date for the completion of sale. Vendor expresses much leniency for completion of sale and not to impose restrictions or limitations to the Purchaser once the deposit agreements have been satisfied.
Business Assets and Liabilities
Business trading as ‘Smokey’s Korean BBQ’ located shop1/143A Raglan Street Mosman NSW 2088 registered as JAC Korean BBQ PTY LTD - ABN 34 658462796 Director Seong Woong Lee as the Vendor and Jihoon Kim as the Purchaser.
All assets and equipment within the boundary of the premise is completely owned by the Vendor and all 50% will be the property of the Purchaser, Jihoon Kim at completion of sale.
The Vendor, Seong Woong Lee acting on behalf of JAC Korean BBQ PTY LTD, accept full responsibility of all liabilities previously to the completion of sale, including but not restricted to, rent/suppliers/wages/utilities. It is a condition of sale, the Purchaser, Jihoon Kim will have zero accountability on the above incurred (if any) previous to the date of purchase.
Vendor will also agree to profit allocation in the form of dividend payments to the Purchaser according to the ownership percentage after the completion of sale moving forward when the ‘break-even’ point is met.
Additional Terms & Conditions
Both the Vendor and the Purchaser agree that this Sale of Business Share/Equity is based on the mutual benefit and trust of both parties. Thus, accept and acknowledge, all decisions made for the business by the partners should be together and individual actions should never be of malice or of sabotage to the other and the business
Vendor agrees to a full refund of the deposit amount if for any reason(s) the Purchaser wishes to withdraw from the Purchase before the 8th of May 2023.”
The language which the parties used is not very clear, that giving rise to a constructional choice and the resulting need to consider the context in which it was arrived at. Reference to surrounding circumstances always being permissible whenever the intention of the parties is, for whatever reason, doubtful: South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478 at 35.
What should also be noted is that this agreement made no provision for:
Mr Lee continuing to provide the financial support on which the company’s ongoing operation depended;
the company’s earnings continuing to be paid into the account of Mr Lee’s family trust;
Mr Lee using the $80,000 Mr Kim paid him for the shares, to pay the company’s outstanding liabilities; or
the time by which Mr Lee had to pay the company’s outstanding liabilities.
There was no issue that:
Mr Lee had sought a new business partner by a post he placed on Gumtree, at a price of $150,000;
$80,000 was the later agreed price, that being reflected in a “statutory declaration” Mr Lee sent by text to Mr Kim, which contemplated that further conditions would be drafted and executed, after Mr Kim paid a deposit; and
Having discussed the company’s financial position and debts, they documented their agreement, without obtaining any advice and Mr Lee not disclosing all the information he had, about the company’s operations, income and liabilities.
On Mr Lee’s affidavit evidence, the discussions included:
“(3) Jihoon: What’s the financial situation like and does the company have any debts?
(4) Anthony Lee: We are not making a profit at the moment. That’s why I need a partner with fresh ideas. There is some debt because we have not been making a profit. However, the biggest creditor is in fact me. How it has been working is that because my family trust’s company needs to have some cashflow because we are looking at refinancing our properties and our mortgage broker told us that it would be easier if the family trust company had activities and monies coming in and out, and therefore I have connected the POS machine to our family trust’s company account, and so the earnings go directly into my family trust’s company account, however I also paid expenses of the restaurant from that account.
(5) Jihoon: So how have you been putting money back into the restaurant?
(6) Anthony Lee: Because there was no profit, I didn’t have to put money back into the restaurant. The company doesn’t have its separate bank account. In fact, because I used money in my family trust to pay the restaurant’s expenses, the restaurant owes my family trust money. But don’t worry, when you come in, you will only be responsible for any debt from that date onwards. You won’t be responsible for the debt before you come on board. The existing debts will be between me and my two other partners. I will liaise with my two other partners for them to transfer their shares to me and after that I can transfer half of the shares to you.
(7) Jihoon: That’s good. Please include that in the contract.
(8) Anthony Lee: Is it ok that after you come onboard, we continue directing the earnings into my family trust’s account until the refinancing is done? I don’t think it will take too long.
(9) Jihoon: That should be fine, so long as the numbers of sales and expenses are transparent. Also as long as the expenses to continue coming out of your family trust’s account, until we make a profit. But I think we should make a bank account for the company for the online orders first.
(10) Anthony Lee: No worries.
(11) Jihoon: I’m quite confident and excited to bring my experience with takeaways and deliveries.”
On Mr Lee’s own evidence before they entered the agreement, what he had disclosed and he and Mr Kim had discussed, included that the company was not making a profit; the restaurant’s earnings were paid into his family trust’s account, from which the company’s expenses were being met; Mr Lee being its biggest creditor as a result; that Mr Kim would have no responsibility for its existing debts; so long as its expenses kept being met out of the family trust’s accounts, with the earnings continuing to be paid into the trust account, until a profit was made.
On Mr Kim’s affidavit evidence, their discussion included:
“9. On or about the same day, Mr Lee and I had a conversation to the following effect:-
Me: How is the financial situation for the business?
Mr Lee: There are some outstanding trading debts but they are not an issue.
Me: I don’t want to be responsible for any outstanding debts which are incurred prior to my involvement. Can you add a clause stating that all liabilities incurred prior to the completion of sale will be your sole personal liability?
Mr Lee: Sure, I will use the payment I receive from you for the shares to pay the outstanding debts and I will include a clause that I will personally be responsible for any debts incurred prior to the completion of the Agreement.
Me: Please insert that condition into the Agreement.
Mr Lee: Sure.”
“Every debt that’s incurred prior to him coming in is my responsibility, and all the suppliers I have enough - they have enough trust and issue with me for me to take my time to pay them back and which is what happened, I’ve paid them all back.”
Although Mr Lee acknowledged that he had still not met the liabilities due to the Commissioner of Taxation.
This evidence thus reflects that when the agreement was entered, the parties were aware that the company had been and would need to continue trading with Mr Lee’s support, until it became profitable and that they agreed that Mr Lee alone would bear its existing liabilities.
This reflecting their appreciation that without Mr Lee providing that ongoing support, the company could not continue to trade.
The evidence thus establishes the parties’ commercial purpose, they being aware that the company had not yet traded profitably and continued to need financial support, in order to continue trading. That was what their agreement would permit it to do. Mr Lee continuing to provide it with the financial support it required and he, not Mr Kim, assuming liability to meet its existing debts. They then working together, in order to increase the restaurant’s earnings, so that the company could became profitable.
That it was well known to them both that if Mr Lee did not pay the company’s outstanding liabilities and provide it with his ongoing financial support, it would be unlikely to be able to continue trading, must also be accepted. That explained their commercial purpose, that it would be Mr Lee who would provide that support.
“54. The clause is directed to ensuring that the plaintiff is not responsible (or accountable) for the past debts. In the context of the plaintiff’s purchase of half the shares, that is to be understood as meaning that the defendant would be responsible for those debts. Otherwise the company would still owe the debts and the plaintiff would be responsible or accountable for half of them, albeit indirectly, in his capacity as a 50% owner of the shares in the company that owned the business and owed the liabilities.
- I accept that there is no suggestion that the plaintiff has somehow been made directly responsible or accountable for any past debts. But the only way to effectively ensure that Mr Kim was not made indirectly responsible or accountable for the past debts, would be to pay them, or make some other suitable arrangement. That is the objective intention of the clause.
- Another way of approaching the matter is to treat the obligation to pay the debts off within a reasonable time as a term to be implied to do all things necessary in good faith reasonably required to be done to give the parties the benefit of their bargain (see eg Burger King Corporation v Hungry Jack's Pty Limited [2001] NSWCA 18).
- If the promise to be responsible for the debts as between the two of them was not performed by paying the debts within a reasonable time, or making some other effective arrangement, the promise to make sure the plaintiff was not accountable for the debts would be valueless. The company would be at risk of falling into insolvency, being evicted (if rent was not paid) , ceasing to be able to obtain meat or other materials (if the supplier’s bills were not paid), to sell liquor (if the liquor licence fee was not paid - assuming it is in arrears), and ultimately ceasing to be able to pursue profitable trade. That would prevent the parties conducting the company and its restaurant and undermine the possibility of any benefit arising from the clause, and the plaintiff's acquisition of half the shares in the company.
- The promise that the defendant would be responsible for the debts was made to the purchaser not the Company.
59 The evidence is that the three categories of debts identified were not paid within a reasonable time.
- The defendant submitted as to each that the ‘prior liability’ of the meat supplier has all been paid; the liquor license fee is not an obligation of the company; and there is no evidence that any notice has been issued for an overdue tax bill...”
“Meat supplier
61 I find the meat supplier was not paid within a reasonable time. It was unpaid for many months in 2023. As at Feb 2024 it was still owed $30,552.60 for supplies in the period from February up to August 2023, none of which had been paid (CB 226).
- Mr Kim’s evidence was that meat supplier had refused supply as at 5 July 2023 (CB 73). This is supported by the document showing that the debt at the time was $28,787 (CB119), being past liabilities. Mr Kim then says that he confronted Mr Lee who said he needed more time (CB 76). That conversation was when Mr Kim conveyed his unwillingness to remain as a shareholder and director. This was not denied by Mr Lee.
Tax
- The company never paid any tax. It is inconceivable that nothing was due. An obligation to remit GST at least must have been breached.
Licence
- The liquor licence was in another company’ name, but Mr Lee’s position was that he maintained a good relationship with his former co-shareholder whose company still held the license. I construe the obligation to pay prior liabilities to include paying the liquor licence fee referable to the prior period. The company had to pay the fee to keep that licence valid. I infer there was at least an implied informal arrangement with the licence holder to pay the fee if it was to ‘use’ the licence. Mr Lee was the one receiving the communications.
- The licence for 2022-2023 was overdue and suspended on 6 July 2023 (CB127). It was a past liability and not paid within a reasonable time.”
“66. Mr Lee took the view that that he required Mr Kim to agree to a shareholders equal funding arrangement. Mr Kim was unwilling to do that.”
“67. In relation to the past liabilities, he did not pay those with any expedition. I accept Mr Kim’s evidence that the suspension of the liquor licence due to non payment, the failure to pay past tax obligations and the failure to pay the meat supplier were all examples of Mr Lee breaching his obligations under the contract to pay past liabilities and that he was refusing or failing to rectify those breaches. This ultimately caused the parties to cause the company to not seek to renew the lease and to abandon the business. Mr Kim’s position and actions in contributing to this state of affairs were justified. He was not prepared to personally fund the company when the past liabilities remained unpaid. Conducting the company in those circumstances would have potentially exposed him to responsibility for tax offences, and would have made profitable trading more difficult without a liquor licence and with suppliers refusing credit. He was justified in refusing to fund or operate the company as a consequence of breach of the past liabilities contractual obligation.
- This lead to loss and damage in loss of value of the shares.”
I am not satisfied that his Honour erred.
The commercial context in which the parties entered their agreement was the acquisition of shares in a company which had never traded profitably, still depending on the support of its sole director, it having had unpaid liabilities of an undisclosed nature and amount, which it could not meet, without his continuing support.
The objective purpose of the share sale agreement, I am satisfied, clearly included not exposing Mr Kim to the obvious risk that the company could not continue to trade, with the resulting loss of his investment, if Mr Lee did not meet its outstanding liabilities.
The parties understanding that the company could not itself pay its liabilities out of the restaurant’s earnings, they all being paid into the account of the family trust of its largest creditor, Mr Lee, because it was not trading profitably and he was meeting its expenses out of that account.
It must thus be accepted that his Honour did not err in concluding that the disputed clause provided that Mr Lee would bear the existing liabilities.
That being an important part of the basis on which these commercial parties reached their agreement. They intending that with Mr Lee’s ongoing financial support and Mr Kim’s assistance, together, they could develop the restaurant to the point that the company could break even and eventually make a profit. Which would then generate the payment of dividends to them both.
When Mr Lee failed to pay the company’s outstanding liabilities, the predictable outcome resulted. The business failed. This, it seems to me, was commercially obvious at the time the parties entered their agreement, given what was known and then discussed. It was also reflected in their written agreement, despite the ambiguous terms in which it is written.
It does, however, provide for Mr Lee having responsibility for “all liabilities previously to the completion of sale, including but not restricted to, rent/suppliers/wages/utilities” and Mr Kim having “zero accountability on the above incurred (if any) previous to the date of purchase”.
This helps explain why his Honour accepted that a requirement that Mr Lee pay the company’s outstanding liabilities within a reasonable time had to be implied into the parties’ agreement. That, I too am satisfied, having met the BP Refinery (Westernport) Pty Ltd conditions earlier explained. That term, in the circumstances being so obvious, that it was not addressed in the parties’ agreement and not contradict its express terms. That obligation being necessary to give business efficacy to the parties’ agreement, it not being effective without it. Without that obligation being imposed, that the Company would be able to continue trading, being entirely unlikely.
This is supported by the company ceasing to do trade, when Mr Lee failed to pay both its liquor license and meat supplier. Despite what Mr Kim had paid him for the shares and the company’s earnings still being paid into his family trust account.
It must thus be accepted that were a term that the outstanding liabilities would be paid within a reasonable time not implied, as was Mr Lee’s case, Mr Kim would not have received the benefit which the parties intended him to have under their agreement.
It must be accepted that the language which the parties used evidenced that they did not have an appreciation of applicable laws. But they did understand the commercial risks with which they were dealing and agreed how they were to be allocated. In order that both the company could continue to trade, with the ongoing support it required, and Mr Kim got the benefit of what he had paid for.
I am satisfied that Mr Lee’s approach to the construction of the disputed clause thus cannot be accepted. Despite the assistance which he sought from what was agreed in the following paragraph. That not reflecting what a reasonable businessperson would have understood the disputed term to mean, in the context which arises to be considered.
The following clause deals with profit allocation, in the undoubted hope that the company would continue to trade, until a profit was achieved. That depending on Mr Lee meeting his obligation to pay outstanding liabilities, within a reasonable time.
The result is that the appeal must be dismissed, his Honour’s conclusion that Mr Lee failed to pay the outstanding liabilities within a reasonable time, not being challenged on this appeal.
The usual order under the Uniform Civil Procedure Rules 2005 (NSW) is that costs follow the event: r 42. In this case that is an order in favour of Mr Kim.
Unless the parties approach to be heard within 14 days, with short written submissions, that will be the Court’s order.
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Amendment to Counsel on the front page.
Lee
Kim
(1991) 22 NSWLR 1
(1977) 180 CLR 266
(2001) 69 NSWLR 558
(1982) 149 CLR 337
(2014) 251 CLR 640
(1990) 20 NSWLR 310
(1925) 30 CLR 60
(2015) 256 CLR 104
(2015) 236 FCR 199
(1946) 73 CLR 1
(2000) 177 ALR 611