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[2008] NSWSC 241
Supreme Court of NSW
2007-08-16
Hulme J
Original judgment source is linked above.
CITATION : NET PARTS INTERNATIONAL PTY LTD V KENOSS PTY LTD [2008] NSWSC 241
(i) Verdict and judgment for the Defendants on the Plaintiffs' claim. DECISION : (ii) Order that the Third Defendant pay to the Second Defendant the sum of $255,050. (iii) Stand over the topic of interest until …. (iv) Order the Plaintiffs to pay the Defendants' costs of the proceedings, including proceedings on the Cross-Claim.
PARTIES : Net Parts International Pty Ltd Kenoss Pty Ltd
JE Robson SC: JW Dodd (P) COUNSEL : DM Loewenstein (1D) MB Evans (2D)
MGC Lawyers SOLICITORS : Gillespie-Jones & Co Kells The Lawyers
20373/2005 NET PARTS INTERNATIONAL PTY LIMITED AND ORS v KENOSS PTY LIMITED AND ORS JUDGMENT 1 HIS HONOUR: By written agreement dated 28 May 2004, the Plaintiffs in these proceedings agreed to sell to Kenoss Pty Limited and Zantown Pty Limited, 2 of the 3 defendants in the proceedings, shares in Crownview Developments Pty Limited, the principal and perhaps only assets of which were land situate at 2 Parkinson Street, Wollongong and 373 Crown Street, Wollongong. The contract provided for completion of the sale on 30 June 2004 and stipulated that in this respect time should be of the essence. It was common ground that by agreement made or reflected in letters of 16 and 19 July passing between the solicitors for the parties, this time was extended until 5pm on Friday 23 July 2004, time remaining of the essence. 2 There were difficulties in complying with this extended time and the sale of shares was never completed. It is the Plaintiffs' case that the operative default was committed by one or both of the purchasers, that on 14 December 2004 or alternatively by the issue of the Statement of Claim, the Plaintiffs rescinded the contract and that they are entitled to release of the deposit, monies payable under the agreement, and damages in consequence of the defaults of these two Defendants. The Third Defendant is an estate agent to whom the deposit provided for in the agreement was paid and a submitting appearance has been filed on behalf of that party. 3 For their part, Kenoss and Zantown deny that they repudiated the contract, contend that the Plaintiff was not at all relevant times ready, willing and able to complete, that the notice of 14 December amounted to wrongful purported termination by Crownview Developments or repudiation by the Plaintiffs and that they, Kenoss and Zantown, rescinded the contract in consequence. Other contentions advanced by these Defendants, though not pleaded, are that the agreement was abandoned or was illegal because it involved Crownview Developments providing assistance for the purchase of shares in itself. Illegality is required to be specifically pleaded and, both on this account and because the contention was one that could have possibly been met by evidence, I propose not to consider that issue further. 4 In a Cross-Claim the Second Defendant has repeated allegations in its Defence, alleged payment by it of $255,000 by way of deposit moneys under the share sale agreement, asserted that the Plaintiffs have no current entitlement to the deposit monies and seeks an order for the return of such moneys. There seems not to have been a Cross-Claim by the First Defendant. 5 The terms of the 28 May 2004 document seem to have been taken from at least 2 other forms of agreement and are rather less than a shining example of the draftsman's art. As executed, the Agreement included the following:- "RECITALS- A The Vendors are the registered holders or entitled to be the registered holders of issued Ordinary Shares in the capital of the company ("the Shares") in the proportions shown in the First Schedule hereto. B The vendors and the purchaser have agreed that the purchaser shall purchase the vendors' shares in Crownview Developments Pty Limited ("the Company") as outlined in this Agreement. C The principal asset of the company is land situate at 373 Crown Street, Wollongong and 2 Parkinson Street, Wollongong and the notional price of the land is $5,080,000.00.
1 The Vendors as beneficial owners shall sell to the purchaser and the purchaser shall purchase from the Vendors the shares, together with all rights, privileges, entitlements, restrictions and conditions accrued or attached to the shares, free from an encumbrance, lien, charge, mortgage, security or third party interest in favour of any person, corporation or legal entity for the sum of $5,800.00 per share which shall be paid as follows:- (a) On the date hereof the sum equivalent to ten percent (5%) of the purchase price of the shares; (sic). (b) On the 30th June 2004 and in this respect time shall be of the essence of the Agreement the balance of the sale price of the shares. 2 In addition to the consideration paid by the purchaser to the vendors in respect of the shares the purchaser shall pay the following on behalf of the Company:- (a) The amount of $167,640.00 to Huxley and Partners Real Estate Agent being commission in respect of the sale. … (b) The amount of approximately $40,000.00 to pay the following accounts… (c) The amount required to discharge the mortgage over the company's property at 373 Crown Street, Wollongong and 2 Parkinson Street, Wollongong which at completion is not expected to be more than $2,300,000.00 unless the Option in clause 6 is taken up. (d) The amount calculated by deducting the purchase price of the shares, the commission payable (exclusive GST), the outstanding amounts referred to in clause 2(b) hereof (exclusive of GST) and the amount required for the discharge of the mortgage on the completion date from the notional price of the land (see Recital C) shall be paid to the Vendors in proportion to their shareholdings (sic).
14 (a) … (b) … A power or right may only be waived in writing, signed by the party to be bound by the waiver.
7.8 The vendor warrants that: A Vendor's capacity and title to shares (a) The Vendor is the beneficial owners of the shares included in the sale and has, and will at the time of completion have, absolute title to those shares. (b) The shares included in the sale are not, and will not be on completion, subject to any mortgage, charge, encumbrance, or other liability which would attach to the shares or bind the Purchaser. E Real Property (a) The Company is the owner of the Property referred to in the Schedule. 6 There was no "First Schedule" as referred to in Recital A but there was a "Schedule One". It listed as shareholders the 9 persons described in the Agreement as the vendors and attributed to each a number of shares that totalled 443. Included in the group were Radebi Pty Ltd and Nessfar Pty Ltd. There was no Schedule that answered the description in Vendors Warranty 7.8E. 7 In large part the events relied on by the parties are recorded in correspondence between the solicitors who acted for the parties in 2004. In the case of the Plaintiffs the solicitor acting was a Mr Craig Gallagher of Mills Cameron Gallagher, a firm located in suburban Sydney. Kenoss' solicitor was Mr Alan Gillespie-Jones of Gillespie-Jones and Co, a firm located in Canberra. Zantown had as its solicitor the firm of "Kells The Lawyers", a firm located in Wollongong, although at times Mr Alan-Gillespie Jones also wrote on behalf of Zantown. The dates and events or contents of documents that seem to me principally relevant are as follows:- (i) On 22 June Gillespie-Jones & Co wrote noting that the firm acted for Kenoss but at that time had no instructions to act for Zantown, observing (contrary to the terms of Vendors' Warranty 7.8E) that the Agreement did not record particulars of the title of the land, asking for an extension of time for settlement, and also saying:- "You will appreciate that in order to finance the purchase of shares the purchaser is required to cause the company, Crownview Developments Pty Limited to grant a first registered mortgage over the real estate property. The lender is likely to require evidence that the purchaser will immediately following settlement be the proprietor of all the shares in the company and that its directors are the persons authorised to grant a mortgage by the company. We will be in touch again once we know our mortgagee's requirements but it may be that our mortgagee will need to sight before settlement draft transfers of the shares and resignations of each director of the company." (ii) On 8 July 2004, Gillespie-Jones & Co wrote to Mills Cameron Gallagher saying, inter alia,
"We are doing all we can to satisfy our lender's final requirements by that date (16 July). However, it is likely to be difficult and we formally request a further extension of time to 23 July 2004 on the basis that …". (iii) On 16 July Mr Gillespie-Jones wrote again saying that he had conferred with Mr Downs the solicitor for Zantown saying that his client Kenoss and Mr Down's client Zantown requested an extension of time until 5pm on Friday 23 July. As I have said, the extension was agreed to. (iv) On 20 July Gillespie Jones & Co wrote again to the Plaintiff's solicitors asking for settlement figures, a list of documents to be received on settlement, a time and place where such documents could be inspected and also observing that company extracts that had been received in relation to Radebi and Nessfar indicated that each had issued a fixed and floating charge in favour of the National Australia Bank. The letter went on to say that on settlement his client would require a form 312 notification of discharge from each charge "at least in relation to the shares being sold by each respective vendor company".:- (v) On 21 July, Mills Cameron Gallagher wrote listing the documents to be provided on settlement. These included "Form 312 from Radebi Pty Ltd and Nessfar Pty Ltd". (vi) In a letter faxed at 1718 hours on 22 July in the course of which Mills Cameron Gallagher confirmed that settlement had been booked in with St George Bank, 3/316 George St, Sydney at 2pm on 23 July 2004, they advised that, although Nessfar had discharged its obligations to the National Australia Bank years previously, it had not been the bank's customer for some years and was having difficulty in obtaining a Form 312. The letter went on to say that that Nessfar would not be in a position to provide a Form 312 on settlement, but one of its directors was willing to provide a personal undertaking to make good any loss. (vii) In a second letter, dated 21 July but also sent at 1718 hours on 22 July Mills Cameron Gallagher provided a list of documents to be provided settlement, said that the documents could be inspected at their office by appointment and provided settlement figures. (viii) On 23 July, at 10.56am Mills Cameron Gallagher wrote providing a different lot of settlement figures. At least the figure mentioned for the deposit was wrongly stated. (ix) On 23rd July Mills Cameron wrote to Gillespie-Jones & Co asking if Kenoss and Zantown were in a position to settle. The time of this fax is not apparent in the copy tendered but in evidence Mr Gallagher agreed that it was sent at 11.41. (x) The only response to that enquiry (if it was a response) was a letter sent at 12.45 on 23 July wherein Mr Gillespie-Jones wrote to Mills Cameron Gallagher referring to the advice concerning a Form 312 relating to Nessfar and advising that Kenoss' lender "has advised that it will require the Form 312 on settlement". The letter proceeded: "As it appears that the parties have difficulty in settling today at Sydney at 2pm, the Purchasers suggest that the parties agree to an extension of time for completion of the agreement for 14 days until Friday 6 August 2004 at 5pm, time remaining essential. Please advise whether this extension is agreed." (vi) At 1541 or 1547 that day, Mills Cameron Gallagher replied: "We are instructed that our clients will agree to an extension of completion of the agreement until 3.30pm on Friday 6 August 2004, 3 (sic) time remaining essential on the following basis:
We… note that your clients have not completed the contract for sale of shares within by the date agreed (sic). We are instructed that unless completion of the sale can take place by 5.00pm on Friday 29 October 2004, then we are instructed to terminate the contract. In this case our client shall require release of the deposit to them and reserve their rights to commence legal proceedings for any damages suffered by them." 11 Mr Gallagher deposed that, on or about 28 October he had a telephone conversation with Mr Paul Maganini of Kells Lawyers to the following effect:- Gallagher: "I wrote to you requiring settlement by 29th October. Will you be able to settle the matter by then? Maganini: No, my client won't be in a position to settle at all."
12 On 29 October Mr Gallagher also wrote to Kells purporting to confirm advice to the effect that "your clients are not in a position to complete the Share Sale Agreement". Mr Gallagher also wrote to Gillespie Jones saying that he had been advised by Kells Lawyers that "the purchasers pursuant to the Share Sale Agreement are not in a position to proceed with the purchase". (My emphasis). To neither letter was there a response. 13 Thereafter the Plaintiffs' solicitor sought instructions from the Plaintiffs and all instructed him to take steps to terminate the agreement. On 14 December 2004 Mr Gallagher wrote to Kenoss and Zantown in terms:- " TAKE NOTICE that Crownview Developments Pty Ltd have elected to terminate the agreement for sale of shares (the "agreement") dated 28 May 2004 made between the company as Vendor and Kenoss Pty Ltd and Zantown Pty Ltd as Purchaser for the sale of the company's shares because of your failure to complete the sale on or before 5pm on 23 July 2004 in accordance with the Agreement as extended by agreement between the parties and in consequence thereof being in breach of an essential term of the agreement." 14 On 1 November 2005 the Plaintiffs filed the Statement of Claim in these proceedings referring to the contract, alleging breach by the First and Second Defendants in failing to complete and asserting that on 14 December 2004 the Plaintiffs terminated the contract due to those Defendants' failure to complete. 15 On 1 March 2006 Gillespie-Jones & Co wrote to Mills Cameron Gallagher as follows:- "We act for Kenoss Pty Limited. We refer to the alleged termination of the contract dated 28 May 2004 by Crownview Developments Pty Limited. Our client asserts and maintains that Crownview Developments Pty Limited had no right to terminate the contract dated 28 May 2004. Nonetheless, Kenoss Pty Limited accepts the notice as repudiation of the contract. We note that as a consequence the contract has been brought to an end." 16 The circumstances of Nessfar and Radebi merit further mention. At all relevant times Nessfar was the Trustee of the Rengaswamy Family Trust and also of the Rengaswamy Superannuation Fund. As security for finance provided by the National Australia Bank in connection with the purchase of a property for the Family Trust, a charge over the assets and undertaking of Nessfar in favour of the Bank was created in May 1993. In about 1994 the monies owing to the Bank were repaid and the bill facility pursuant to which the moneys were "borrowed" terminated. It would seem that the charge was not discharged until 25 August 2004, the date of discharge noted on a Form 312 that came into evidence. The extent of discharge was recorded as "paid or satisfied in full and all property was released". Dr Rengaswamy gave evidence that he picked up the Form from the Bank in or about June 2005 and an ASIC Document Acknowledgment records the Form as having been received on 17 June 2005. 17 By a mortgage debenture dated 27 May 1994 Radebi granted security over its present and future assets and undertaking in favour of the National Australia Bank. Mr Rasa, a director of Radebi, gave evidence that he was contacted by his solicitors and told he needed to obtain urgently a Form 312 from the Bank. He contacted the Bank in the week preceding 22 July, picked up the form when it was ready and caused it to be hand-delivered, by his wife, to Kells The Lawyers on or about 22 July. There is no evidence as to the time of day or indeed precisely which was the day that the Form was delivered. 18 The Form is dated 22 July 2004 and records the release on that date of "45 Ordinary shares in Crownview Pty Ltd". The part of the Form as consists of a box for the notation of the extent of discharge as "paid or satisfied in full and all property was released" was not completed. As at 20 July 2007, the charge in favour of the National Australia Bank remained registered with the Australian Securities and Investment Commission. Mr Rasa gave evidence that he had never had any involvement with a company Crownview Pty Ltd but that Radebi did hold 45 shares in Crownview Developments Pty Ltd. Until shortly before the trial Mr Rasa was not aware that the Form referred to Crownview Pty Ltd. 19 I should say that I accept the evidence to which I have referred in relation to Nessfar and Radebi. 20 A convenient point at which to commence consideration of the consequences of the events referred to above is 23 July 2004. Clearly the Vendors were not then able to complete even if, as I am prepared to presently assume, provision at settlement of Forms 312 in the case of Nessfar's and Radebi's shareholdings was sufficient fulfilment of their obligations to deliver clear title to their shares free of any charge. In the case of neither Nessfar or Radebi was there a properly completed Form 312 available. It is unnecessary for me to consider whether there were other reasons also for the Vendors' inability at this time although I should record that there is much to be said for the view that the purchasers waived compliance by the vendors with the condition of the Share Sale Agreement that, pending completion, the shares of Nessfar and Radebi be not the subject of any charge. 21 There was disagreement between the parties on the issue of whether the purchasers were then in a position to complete. There was no direct evidence that they were or, but for the absence of the Forms 312 their lender apparently required, would have been. There is, on the other hand, the absence of any reply to the vendors' solicitors' enquiry whether the purchasers could settle except in terms "As it appears that the parties have difficulty in settling today at Sydney at 2pm …" 22 Furthermore, a notable omission from the correspondence is any claim by the purchasers that the vendors were solely responsible for the sale not completing. In circumstances where the purchasers were, pursuant to clause 7(b)(i) liable for the payment of interest or liquidated damages unless delay were solely attributable to the vendors, and it was thus in the purchasers' interests to blame the delay on the vendors if the purchasers were blameless, it seems to me that the proper inference to be drawn from this omission is that, additional to the absence of the Forms 312 for completion not occurring on the appointed day, there was a reason on the purchasers' side. Thus, both parties being unable to fulfil their obligations on the day fixed for settlement, neither was able to take advantage of the other's failure to settle on 23 July and to rescind. In fact neither purported to do so. The contract remained on foot though with no longer a date specified for completion. 23 In that connection it is also to be noted that, while the purchaser's solicitors attempted to reach an agreement for the substitution of 6 August as the settlement date, time remaining of the essence, the vendors' solicitors tried to add additional terms to that proposal and the purchasers did not agree with those additional terms. Hence there was no agreement for a further settlement date.
24 The silence of the parties after 23 July is in some respects remarkable although it may be explicable on the basis that they were then negotiating for a sale of the land. Certainly the evidence does not persuade me that the agreement for the sale of shares was then abandoned by either. The letter of 16 September from the vendors prevents any conclusion that they intended to abandon the contract at that time. The continuation of negotiations for the sale of the land or the exchange of contracts in that connection, together with the apparent absence of reference to the share sale agreement leads me to the view that agreement remained extant until at least the letter of 21 October. 25 That letter, while clearly an implied assertion by the vendors that the agreement for the sale of shares remained on foot, suffered from a number of deficiencies. It is doubtful whether its wording was sufficient to make time of the essence but in any event the time allowed - only 8 days until 29 October - was too short to be effective in a contract involving the purchasers in having to pay some millions of dollars, some of which was apparently to be borrowed. Clause 7(b)(iv) of the Agreement in its reference to "within 14 days" cannot mean any period less than 14 days, so the time allowed did not even comply with the terms of the Agreement. Accordingly, it is unnecessary for me to consider whether at the time that letter was sent, the vendors were sufficiently free of default to entitle them to send the letter. 26 The next significant event was the communication from Mr Maganini of 28 October to the effect that Zantown would not be able to settle at all. That, at least so far as Zantown was concerned, was a repudiation of the agreement - see Harold Wood Brick Co Ltd v Ferris (1935) 2 KB 198 at 205-206; Thorpe v Fasey (1949) 1 Ch 649 at 660. 27 Had Zantown been the only purchaser that would have entitled the vendors to rescind for anticipatory breach. However, Zantown was not the only purchaser and as rescission for anticipatory breach requires the assent of all parties to a contract - see Lion White Lead Ltd v Rogers (1918) 25 CLR 533 at 551 - and I am not persuaded there was any such agreement by Kenoss, the agreement remained on foot. In this connection it is appropriate to refer to the difference in terminology between the terminology attributed to Mr Maganini, "my client" and the plural used in Mr Gallagher's purportedly confirmatory conversations. The difference was not the subject of exploration during the hearing and, although the absence of any response to the letter from Mr Gallagher to Gillespie and Co provides evidence that Kenoss might have been suffering the same inability to complete, I do not believe that I should not prefer the account of the conversation to which Mr Gallagher deposed. Kells did not generally speak for Kenoss and repudiation is not to be lightly inferred. 28 For a number of reasons the notice of 14 December 2004 was inadequate to change this situation. In the first place, the vendors had been unable to complete on 23 July: In that situation, and not being excused by any conduct of the purchasers, the vendors could not rescind for the purchasers' failure to complete on that day - Foran v Wight (1989) 168 CLR 385. Secondly, the vendors in their letter of 21 October had maintained the continuation of the contract, a course inconsistent with maintenance of their right to rescind for an event as long ago as 23 July. Thirdly, the 14 December notice was in its terms one by Crownview Developments Pty Ltd. While that company was the company whose shares were the subject of the agreement of 28 May, the company was not itself a party to the agreement and not a person who had any rights in relation to the agreement. Nor is it possible to regard the notice as one from the Plaintiffs. It was not expressed to be such, nor is there any evidence that Crownview Developments was acting as agent for all or any of the Plaintiffs. 29 The matters following the reference "Thirdly" in the immediately preceding paragraph means also that the 14 December notice was not a repudiation by the Plaintiffs and was not capable of supporting the purported rescission by Kenoss in its notice of 1 March 2006. That notice also does not reflect any agreement by Zantown in the rescission and, there being no other evidence of Zantown's agreement in the course Kenoss then sought to adopt, there is much to be said, in accordance with Lion White Lead Ltd v Rogers, that there is a further ground for rejecting the notice of 1 March as effective to achieve what it purported to do. 30 I turn then to the effect of the proceedings in which this judgement is written. The Statement of Claim alleges default of the Defendants in "fail(ure) to complete the contract", the termination of the agreement on 14 December 2004 (presumably in consequence of specified default and the notice of that date), seeks forfeiture of the deposit, and claims moneys payable under the contract and damages. 31 I have indicated that I do not regard that notice as having the effect contended for and that the Plaintiffs cannot complain of the Defendant's failure to complete on 23 July. The Plaintiff's never took appropriate steps to require completion by the Defendants at any other time prior to the commencement of proceedings so the claim as formulated in the Statement of Claim fails. As I have said, so does the Defendants' contention that the 14 December notice was a repudiation that they accepted. 32 However when one looks at the history to which I have referred, it is clear that the Share Sale Agreement has been abandoned by both sides to it. That conclusion is reinforced by evidence or concessions made during the course of submissions on damages that on and after 1 September 2006, Crownview Developments entered a contract (later varied) to sell the land at 2 Parkinson Avenue and 373 Crown St, Wollongong, it being clear that the ownership of that land by Crownview Developments was a matter that was fundamental to the Share Sale Agreement. 33 Abandonment was argued and it is sufficiently within the assertion in the Cross-Claim that the "Cross-Defendants have no current entitlement to the deposit monies" for me to make a decision on it. Payment of the deposit monies by the Zantown is conceded and the contention just quoted is made out. 34 There was also a claim for interest on the deposit monies from 14 December 2004 pursuant to s100 of the Civil Procedure Act. Prima facie the Second Defendant would seem entitled to some interest but given the conclusions at which I have arrived, I am disposed to the view that it should not be from as early as 14 December 2004. There was no alternate date suggested. Furthermore, it may well be that there have been dealings by agreement of the parties with the deposit monies while they have been held by the Third Defendants that affect the rate of interest. The parties should have an opportunity of dealing with this topic further in the near future. 35 Accordingly, the orders that seem to me appropriate are:- (i) Verdict and judgment for the Defendants on the Plaintiffs' claim. (ii) Order that the Third Defendant pay to the Second Defendant the sum of $255,050. (iii) Stand over the topic of interest until …. (iv) Order the Plaintiffs to pay the Defendants' costs of the proceedings, including proceedings on the Cross-Claim. **********
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NET PARTS INTERNATIONAL PTY LIMITED AND ORS
KENOSS PTY LIMITED AND ORS
(1918) 25 CLR 533
(1989) 168 CLR 385