Ulladulla Creative Images Pty Ltd ACN 089 098 073 v Ian Tibbles

Court of Appeal (NSW)|2021-11-10|Before: Leeming JA, McCallum JA, Beech-Jones JA

Background

Unless stated otherwise, the following is taken from the primary judge's unchallenged findings or was otherwise common ground.
UCI carried on the business of kitchen renovations and design. It was incorporated in 1999. Its original Directors were Mr and Ms Tibbles, John Corrin and his then wife, Karen Corrin. They owned one share in UCI each.

The Share Sale Agreement

By around February 2017, the four shareholders had agreed upon terms for Mr Corrin to acquire the three shares he did not own. On 14 February 2017, each of Mr and Ms Tibbles, Mr Corrin and Karen Corrin attended a meeting at the offices of a solicitor who drafted the agreement, Mr Hozack. Mr Hozack acted for all of them and UCI. Towards the end of that meeting, the shareholders and UCI executed an agreement entitled "Agreement for Transfer and Sale of Shares Ulladulla Creative Images Pty Ltd" (the "Share Sale Agreement").
The recitals to the Share Sale Agreement noted the respective shareholdings and the agreement of Mr Corrin to purchase the shares of the other three shareholders. Clauses 3 and 4 provided in effect that Mr Corrin was to pay to Mr and Ms Tibbles and Karen Corrin $60,000.00 each for their shares. In the case of Mr and Ms Tibbles that payment was to be made on the "Completion Date" which was intended to be 1 March 2017. In fact, completion took place in April 2017.
Clause 5.1 was an entire agreement clause. Clause 15 provided: "Insurance Claim 15.1 The Company has made a claim against the Company's Insurers for loss arising out of a fire that took place in the premises known as Unit 83 Collers [sic] Road, Ulladulla, being Lot 18 in Strata Plan 82760 (the 'Premises'). 15.2. The Company agrees that if it receives any further moneys from the Insurance Company beyond those monies received up to the date of this Agreement then any such monies shall be divided equally between the shareholders Debbie, Ian, Karen and John and paid to each of the parties within seven (7) days from the date of receipt of any such moneys from the Insurance Company."
It was this clause that Mr and Ms Tibbles sued upon in the District Court. At this point I note that so much of clause 15.1 as defines the "premises" is problematic. The address in clause 15.1 is the address at which the fire started. It was not the unit owned by UCI. However, clause 16 obliged UCI to repay a debt secured by a mortgage over the "Premises" which was no doubt not meant to be a reference to property owned by somebody else.

UCI's Dealings with QBE up to February 2017

As at the time of the fire, UCI had, inter alia, property cover under the Policy with QBE for contents and accident each up to a limit of $65,000.00 and business interruption cover up to a limit of $20,000.00.
After the fire and before the Share Sale Agreement was entered into, UCI made a claim on the insurance policy which in turn generated two claim numbers, one for property damage and one for business interruption. On 24 June 2016, UCI received $20,000.00 for property damage. It received another payment of $48,949.67 for property damage in August 2016.
In or around 14 and 15 December 2016, Mr Corrin contacted Derek Jorgensen of Claim Partners Pty Ltd to act for UCI in its dealings with QBE. Mr Jorgensen was experienced in dealing with insurers on behalf of claimant insureds.
On 23 January 2017, Mr Jorgensen sent an email to "Elders Insurance Ulladulla" who were the insurance agents for QBE. The email was copied to UCI's email account. In that email, Mr Jorgensen confirmed that his firm had been retained by UCI "to assist in the settlement of [the] Material Damage and Business Interruption claims lodged against [its] Elders Policy, underwritten by" QBE. The email discussed aspects of the cover provided under the Policy and stated: "With respect to the Recovery, it would appear that the Insured will have a significant uninsured loss that will need to form part of the Recovery Action being undertaken against the party responsible for the event. As such, the full quantum of the loss (both Material Damage and Business Interruption) needs to be calculated so that QBE's solicitors can properly document their claim."
The next part of the email sought various information to assist Mr Jorgensen in his review including "[d]etails of the solicitor appointed by QBE to pursue a Recovery Action against the responsible party". He stated that he was "happy to discuss any aspect of the claim". The email produced a response from Elders Ulladulla referring Mr Jorgensen to the "National Claims Department".
On 25 January 2017, Mr Jorgensen sent an email to the relevant claims department of QBE which was again copied to UCI. The email stated inter alia: "I am aware of claims that may be in excess of $500,000 between your respective policies + uninsured losses. Given that it would appear that there is no conflict between your respective positions, can I suggest that you have a factual investigator attend to the interview of both [another insured] and John Corrin in relation to events on the day so that your recovery prospects are not jeopardised should either be unavailable later on."
The primary judge found that Mr Corrin gave instructions to Mr Jorgensen about the circumstances of the fire. His Honour also found that Mr Corrin also "advised Mr Jorgensen that the actual losses of the defendant might be $0.5 million and that included 'uninsured losses'" and he did so for the purpose of seeking recovery of "uninsured losses". There was no challenge to those findings.
On 2 February 2017, QBE responded to the request for information made by Mr Jorgensen in his email of 23 January 2017. Amongst other matters, they told him that no solicitor had yet been appointed "by QBE to pursue Recovery Action against the responsible party" as they were waiting for the claim to be finalised.
One of the grounds of appeal concerns the use of the evidence of Mr Jorgensen's dealings with QBE prior to the Share Sale Agreement being executed. In any event, at this point four matters should be noted about UCI and Mr Jorgensen's dealings with QBE up to and including the time of the execution of the Share Sale Agreement.
First, in light of the degree of interruption to UCI's business from the fire, it appeared to have suffered, and was stating that it had suffered, significant losses from business interruption well above the $20,000.00 cover that was provided under the Policy. In 2018 Mr Jorgensen submitted emails to QBE claiming substantial amounts for trading losses.
Second, prior to 14 February 2017, Mr Jorgensen clearly put QBE on notice that his client, UCI, was looking to QBE to recover uninsured losses on its behalf. The reference to "the claim" in his email of 23 January 2017 not only included the claim to recover under the policy but also extended to the uninsured losses.
Third, on the hearing of this appeal the terms of the Policy were not available although they were tendered before the primary judge. However, it was common ground that it included the following clause: "Subrogation If you've suffered loss that wasn't covered by your Policy as a result of the incident, we may offer to attempt to recover this. You may also specifically ask us to recover this for you. You'll need to give us documents supporting your loss. Before we include any uninsured loss in the recovery action, we'll also ask you to agree to the basis on which we'll handle your recovery action. You may need to contribute to legal costs in some circumstances."
Although this clause is headed "subrogation", it is not addressing that topic but a related one, namely, the potential for an insurer exercising rights of subrogation in respect of an insured loss also to pursue on behalf of its insured loss suffered by the insured which is not covered by the policy, i.e. the "uninsured loss". Aspect of this issue are addressed in R Derham, Subrogation in Insurance Law (Law Book Company, 1985) esp at p 56. Similar clauses were considered in Johnton v Endeavour Energy [2015] NSWSC 1117.
Fourth, the primary judge found as follows about the meeting that preceded the execution of the Share Sale Agreement: "It appears that on any objective basis Mr Corrin would have been given certain advice by Mr Jorgenson about recovering "uninsured losses", from a potential third party and, according to Mr Hozack, this was raised at the meeting on 14 February 2017 which led to the signing of the contract." (emphasis added)
The evidence of Mr Hozack in relation to this meeting is addressed below. At this point it suffices to state that there is some ambiguity with this finding. In light of the evidence of Mr Hozack noted below, it appears that "this" is a reference to recovering uninsured losses from an action against the putative tortfeasor and not from any action that QBE might have taken against the putative tortfeasor.

Events after February 2017

On 20 April 2017, Mr Hozack wrote to Mr Corrin confirming that the Share Sale Agreement had settled. His letter reminded Mr Hozack of clause 15.2. He asserted that it provided that "any insurance monies that may be received by [UCI] following any claim for damages prior to completion" were to be paid between the four shareholders.
In the meantime, Mr Jorgensen continued his efforts to obtain funds from QBE. On 5 October 2017, QBE paid UCI $14,875.00 and on 23 April 2018 it paid UCI $30,000. Both payments were made in respect of the business interruption cover provided for under the Policy. UCI did not pay Mr and Ms Tibbles their share of those payments although it was accepted before the primary judge that they were entitled to a quarter each.
These payments appear to have exhausted the available cover under the Policy for loss arising from the fire. However, Mr Jorgensen continued his efforts to recover uninsured losses, including liaising with QBE's recovery agent about identifying the proper entity that owned the premises where the fire occurred. In September 2018, it was discovered that QBE was also the insurer of that entity. This appears to have accelerated negotiations. In December 2018, Mr Jorgensen and QBE exchanged many emails concerning the quantification of UCI's total trading losses.
On 14 December 2018, QBE advised Mr Jorgensen that QBE's "full and final offer" for uninsured losses for business interruption was $380,000.00. Mr Jorgensen accepted that offer on behalf of UCI on 17 December 2017. On 18 December 2018, UCI executed a release in favour of QBE acknowledging that the payment was made "in full and final settlement satisfaction and discharge of any claims, demands, actions, suits or proceedings whatsoever". The payment of $380,000.00 was made on the same day.

The Primary Judgment

By their amended statement of claim, Mr and Ms Tibbles each sought a judgment against both UCI and Mr Corrin for their share of the $380,000 payment. During the hearing, their claim was amended to include the further payment of $44,875.00 noted above (at [30]).
The primary judge gave judgment for Mr Corrin on the basis that clause 15.2 only imposed an obligation to pay on UCI and not on him. He entered judgment in favour of Mr and Ms Tibbles for $120,124.06 against UCI, being one quarter of the sum of $380,000.00, and $44,875.00 with interest. Although the final order that was taken out lacks clarity, it was accepted that the judgment entered against UCI was for $120,124.06 in favour of each of Mr and Ms Tibbles.
In the primary judgment, his Honour identified as an issue whether the potential recovery of uninsured losses was the subject of discussion at the meeting on 14 February 2017. Having regard to some evidence given by Mr Hozack, his Honour found "that it was intended by each of the four parties that any further moneys recovered would be shared equally between the four individuals who were party to the agreement of the 14 February 2017". The circumstances in which the evidence was adduced from Mr Hozack are addressed below.
Having made that finding, his Honour then posed the question "is it legally permissible to construe the terms of the contract in accordance with the intention that can be inferred from what was said at the meeting and what on the evidence of Mr Hozack was agreed to?". The balance of the judgment does not expressly answer that question although it construes clause 15.1 and 15.2 to determine whether the $380,000 payment was caught by clause 15.2 and concludes that it does. In construing the clause, his Honour noted the error in the description of the premises referred to above, described "Cl 15.1 [as] little more than a recital", referred to the passage in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [40] ("Toll") and noted that the parties were not commercially sophisticated.
His Honour ultimately found that "four shareholders at the time of the fire and the commencement of the losses would have expected to share in the proceeds not only of their own insurance policy but any moneys that their insurer could collect on their behalf" and that clause 15.2 is "apt to include the $380,000 received by UCI on 20 December 2018".

Grounds 1, 2 and 2B of the Appeal: Evidence of Subjective Intention

Grounds 1, 2 and 2B of the Amended Notice of Appeal provide: "1. The learned trial judge erred by failing to exclude from evidence paragraphs 8 and 9 of the affidavit of John Hozack sworn on 13 May 2021, and annexure "B" to that affidavit. 2. The learned trial judge erred by relying upon paragraphs 8 and 9 of the affidavit of John Hozack sworn on 13 May 2021, and annexure "B" to that affidavit as an aid to the interpretation of clause 15.2 of the contract the subject of the proceedings below, being the 'Agreement for Transfer and Sale of Shares Ulladulla Creative Images Pty Limited' made on 14 January 2017 (Contract). 2B. The learned trial judge erred by having regard to what the learned trial judge believed to be the subjective belief of the parties to the Contract when construing clause 15.2 of the Contract."
These grounds relate to the admission and use of paragraphs 8 and 9 of Mr Hozak's affidavit in which he described the meeting on 14 February 2017 just prior to the execution of the Share Sale Agreement. In paragraph 8, he noted that the issue of the insurance payment was raised. He said he could not recall the exact words used but did recall that the "effect of the views expressed by those at the meeting was that 'we do not know whether any claims made by the company will be successful but any further benefits received from any actions as a result of the fire would be shared equally.'" He said he then drafted and inserted clause 15 into the draft of the Share Sale Agreement.
In paragraph 9 of his affidavit, Mr Hozack attached his contemporaneous notes of the meeting which included a notation "Query Action S.E. Power Lines Pty Ltd any action to be split 4 ways", this being a reference to the owner of the premises where the fire broke out. He said that he said words to the effect that UCI could sue the "next door neighbour" and that those present stated words to the effect that "the benefits of any action would be split equally".
At the hearing before the primary judge, Mr and Ms Tibbles sought to read these parts of Mr Hozack's affidavit. His Honour rejected them on the basis that they were contrary to the "parol evidence rule". However, during the cross-examination of Mr Hozack by Counsel for UCI and Mr Corrin, it was suggested to Mr Hozack that clause 15.1 of the Share Sale Agreement related to a claim that had been made arising out of the loss from a fire that occurred at UCI's premises, which he agreed. It was then suggested that clause 15.2 was governed by clause 15.1. In response, Mr Hozack sought to refer to his notes of the meeting on 14 February 2017. Counsel sought to cut him off by pointing out they were not in evidence. His Honour then noted that the cross‑examination had made them relevant. After further debate, his Honour admitted paragraphs 8 and 9 of Mr Hozack's affidavit along with the annexed notes.
The principal contention made on behalf of UCI in support of grounds 1 and 2 is that the relevant paragraphs of Mr Hozack's affidavit were not "evidence of surrounding circumstances" but were at most "evidence of the antecedent oral negotiations and expectations of the parties". It was submitted that, as such, they could not be used for the purpose of "construing the words of a contract intended by the parties to comprehensively record the terms of the agreement which they have made" (Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 606; [1979] HCA 51 per Mason J).
Mr and Ms Tibbles contended that this aspect of Mr Hozack's evidence "concerned the surrounding circumstances in which clause 15.2 came to be inserted into the agreement, the commercial purpose of inserting the clause and the objective facts known to both parties at the time of contracting" such that it was admissible and able to be used in construing the Share Sale Agreement.
By framing their submission in this way, Mr and Ms Tibbles sought to bring this evidence within the principles stated in Mount Bruce v Wright Prospecting (2015) 256 CLR 104; [2015] HCA 37 at [47] to [50] per French CJ, Nettle and Gordon JJ ("Mount Bruce"). In Mount Bruce, their Honours noted that the construction of a contract involves an objective inquiry as to what a "reasonable businessperson would have understood" the terms of the contract to mean and observed that such an inquiry "will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract" (at [47]). Ordinarily that process is undertaken by reference the contract alone although "sometimes, recourse to events, circumstances and things external to the contract is necessary" (at [48] to [49]). In that regard their Honours observed (at [50]): "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..." (emphasis added)
Subject to two matters, the emphasised portion of this passage is dispositive of these grounds of appeal. The evidence adduced from Mr Hozack was not addressing the purpose or object of the Share Sale Agreement or clause 15.2. At most, it was evidence concerning (his assessment of) the parties' expectations in relation to what might transpire if UCI commenced its own action against the tortfeasor and received a payout or settlement. On any view of clause 15.2, that would not result in a payout to Mr and Ms Tibbles because it would not involve a payment of "further monies from the Insurance Company", namely QBE. However, even if the discussion concerned a payout from QBE, the evidence adduced from Hozack still only concerned the parties' expectations and was not able to be used in the construction of the Share Sale Agreement.
As noted, two matters remain to be considered.
First, ground 1 complains about the admission of this part of Mr Hozack's evidence. As noted by Leeming JA in Cherry v Steele-Park (2017) 96 NSWLR 548; [2017] NSWCA 295 at [49] ("Cherry"), there is potentially a significant difference between the admission of such evidence and its use in the construction of an agreement. As noted, in this case the admission of the evidence arose from the cross examination of Mr Hozack's understanding of the meaning of clause 15.2. Had Mr Hozack's belief on that topic been relevant to a fact in issue then, in light of his evidence that suggested that his understanding of the effect of the clause was informed by the notes he took of the meeting on 14 February 2017, his evidence of that meeting would have been admissible. However, his understanding of the meaning of clause 15.2 was not relevant to any fact in issue. Thus, even though the questioning of him on that topic was not objected to, his Honour erred in initiating the admission into evidence of material that only informed an irrelevant opinion. Accordingly, I would uphold ground 1 of the appeal.
Second, regardless of whether Mr Hozack's evidence was admissible, it was certainly not able to be used to construe the Share Sale Agreement. Whether it was so used by the primary judge is not entirely clear. As noted, based on Mr Hozack's evidence the primary judge made a finding about the subjective intentions of the parties to the Share Sale Agreement but did not expressly answer his own question as to whether it was legally permissible to construe the contract by reference to those subjective intentions. Nevertheless, it appears that his Honour assumed the answer was "yes" in that his conclusion that clause 15.2 captured the payment of $380,000.00 was immediately preceded by a finding "that the four shareholders at the time of the fire and the commencement of the losses would have expected to share in the proceeds not only of their own insurance policy but any moneys that their insurer could collect on their behalf". This latter finding appears to be a factual assessment determined by reference to the evidence of the parties' subjective understandings. Accordingly, I would also uphold grounds 2 and 2B of the appeal.
However, just because these grounds of appeal are made out does not mean that the appeal succeeds. At the hearing of the appeal, Counsel for UCI, Mr Walker with whom Ms Edwards of Counsel appeared, accepted that, to succeed on the appeal, ultimately it would have to be shown that on a proper construction of clause 15 of the Share Sale Agreement the payment of $380,000.00 was not caught by clause 15.2.

Grounds 2A, 2C and 3: Evidence of Action to Pursue Uninsured Losses and the Proper Construction of Clause 15

Grounds 2A, 2C and 3 of the Amended Notice of Appeal provide: "2A. The learned trial judge erred by interpreting clause 15.1 of the Contract in a way which treated clause 15.1 as redundant, instead of interpreting clause 15.1 in a way which gives it effect in the proper construction of clause 15.2 of the Contract. 2C. The learned trial judge erred by having any regard to the steps taken by the appellant before entry into the Contract to pursue uninsured losses when construing clause 15.2 of the Contract. 3. The learned trial judge erred by interpreting clause 15.2 of the Contract to contemplate the sum of $380,000 received by the appellant on 20 December 2018 in respect of uninsured losses."
These grounds can be dealt with together. Ground 2B is directed to the reliance by the primary judge on the evidence of the actions of Mr Jorgensen before 14 February 2017 in raising with QBE UCI's desire to recover its uninsured losses as described above. In its submissions in reply UCI contended that it was not clear that the primary judge relied on that evidence in construing the contract but, if his Honour did, it was erroneous because it was not evidence of surrounding circumstances known to all the parties at the time the contract was made (citing Cherry at [63] and [116]). They contended that, if Mr Hozack's evidence was rejected, then there is "otherwise no evidence the respondents were aware of the possibility action could be taken to recover the uninsured loss at the time" the Share Sale Agreement was signed. It was contended that the fact that uninsured losses were being pursued prior to the entry into of the Share Sale Agreement was not a surrounding circumstance to be taken into account when construing clause 15.2.
Mr and Ms Tibbles contended that this ground was inconsistent with the manner in which UCI conducted its case before the primary judge in that it did not object to the evidence but in fact adduced it, did not submit to the primary judge that his Honour could not consider the steps taken by Mr Jorgensen to recover uninsured losses and did not cross examine Mr and Ms Tibbles about their knowledge of the pursuit of uninsured losses. They also noted that the primary judge found that Mr Corrin mentioned pursuing the uninsured losses at the meeting on 14 February 2017 and that finding was supported by the evidence.
It has long been accepted that "when there is a contract for the sale of a specific subject matter, oral evidence may be received for the purpose of shewing what that subject matter was, of every fact within the knowledge of the parties before and at the time of the contract" (MacDonald v Longbottom (1859) 1 El & El 977 at 983; 120 ER 1177 at 1179 per Lord Campbell CJ; see Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 348-350; [1982] HCA 24 per Mason J). Hence in MacDonald the subject matter of an agreement for sale was described as "your wool" and evidence was adduced of a precontractual conversation between the parties in which the vendor advised the plaintiff that he obtained wool from his own farms and wool sourced from other farms. The contract was held to extend to both sources.
UCI contends that cases in which evidence was used to identify the subject matter of the contract did not assist in this case because it was not established that, at the time of the entry into of the Share Sale Agreement, Mr and Ms Tibbles were aware that UCI was seeking to recover uninsured losses from QBE. This in turn led to a debate about whether the finding of the primary judge noted above (at [27]) addressed Mr and Ms Tibbles' knowledge of the efforts to seek recovery of uninsured losses from QBE as opposed to directly from the tortfeasor and whether the evidence supported that finding.
It is unnecessary to resolve that debate because, at least on Mr and Ms Tibbles' construction of clause 15, the evidence of Mr Jorgensen's dealings with QBE prior to 14 February 2017 was admissible to at least determine the scope of "the claim made against the Company's insurers for loss arising out of a fire" in clause 15.1 as opposed to the meaning of that phrase.
To explain this it is necessary to turn to the parties' competing submissions about the proper construction of clauses 15.1 and 15.2. UCI's submission effectively involves two steps. First, it contends that, properly construed, the phrase "a claim against the Company's insurers for loss arising out of a fire" in clause 15.1 refers to "claim" in respect of the cover provided by the insurer under the Policy. Second, it then contends that clause 15.2 is to be read subject to that construction of clause 15.1 and the heading to clause 15 such that clause 15.2 is only referable to further monies paid in respect of such a claim, ie a claim for the cover provided by the Policy.
Mr and Ms Tibbles dispute each step. They contend that, on its proper construction, clause 15.1 refers to any form of claim made against the insurer for loss arising out of a fire simpliciter. Hence, on that construction, the scope of a claim is ascertained by examining what was raised by UCI with QBE prior to the Share Sale Agreement. On that approach evidence of what was raised with QBE prior to 14 February 2017 is not adduced to construe the meaning of clause 15.1 but simply to enable its application to the facts that transpired. Further, and in any event, Mr and Ms Tibbles contend that clause 15.2 is to be applied according to its plain terms such that it is apt to include all moneys received by UCI from QBE.
The passage from Toll at [40] noted by the primary judge states that the "meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean" which "normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction." In construing clause 15 I note that the parties to the agreement, to the knowledge of each other, were not commercially sophisticated and were not to be taken as having any specialised understanding of the concept of a "claim" on an insurer. The purpose and object of the transaction was to effect the sale of a small business that had been recently affected by a fire. Further, while Mr and Ms Tibbles had some involvement in the business and could access emails sent to UCI, up to the time of the Share Sale Agreement responsibility for the conduct of the business and recovery of the losses it incurred as a result of the fire rested with Mr Corrin.
In these circumstances I can see no reason for reading down the plain words of clause 15 so as to exclude any funds that UCI might receive from its insurer after the sale that is reflective of the value of UCI at the time of the sale including any payment from QBE referable to UCI's losses resulting from the fire. In particular, I would construe clause 15.1 according to its terms namely as referable to whatever claim had been made against QBE for loss arising out the fire as at the date of the agreement. On the evidence, that included Mr Jorgensen's notification that UCI looked to QBE to recover its uninsured losses. More importantly a consideration of the text, surrounding circumstances, purpose and object to the transaction also means that the ordinary words of clause 15.2 should not be read down so that there needs to be a strict correspondence between the "claim" referred to in clause 15.1 and the "further moneys" that may be received. Instead, given that it is a sale that is presumably meant to reflect the value of the business, the "further moneys" that are received from QBE should be in respect of "loss arising out of [the] fire". It is in that way that clause 15.1 and the object and purpose of the Share Sale Agreement inform the interpretation of clause 15.2. It follows that the obligation imposed on UCI by clause 15.2 was engaged by the payment of $380,000.00 received in December 2018.
As noted, ground 2A of the appeal contends that the primary judge erred by interpreting the Share Sale Agreement in a manner that "treated clause 15.1 as redundant". This was taken up in UCI's submissions and is a reference to a statement by the primary judge that "Clearly cl 15.1 is little more than a recital". The description of clause 15.1 as a recital is accurate. Although clause 15.1 does not precede all the operative parts of the Share Sale Agreement, it does not have any operative effect and is simply a statement of the factual background to clause 15.2 (Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407 at [379]; "Franklins"). That said, I do not accept that, on the construction of clause 15 that I prefer, clause 15.1 is redundant as contended for by UCI and as may have been implied by the primary judge. As noted by Leeming JA in argument, clause 15.1 and the purpose and object of the transaction could be called in aid to construe clause 15.2 so that it was only referable to further monies received after the Share Sale Agreement was entered into in respect of loss arising out the fire (see Franklins at [379] to [390]). Read literally, clause 15.2 is capable of requiring UCI to make payments to Mr and Ms Tibbles if any further moneys are received from its insurance company at any point in the future regardless of whether they are referable to loss arising from the fire. Such a literal reading could extend to claims that arise from events after the Share Sale Agreement was entered into and potentially include insurance rebates. A consideration of clause 15.1 and the object and purpose of the Share Sale Agreement avoid that outcome. Clause 15.1 is not "redundant".
Otherwise, I note that UCI repeatedly described the fact that it transpired that QBE was the insurer of the owner of the premises where the fire broke out as "fortuitous". It also contended that its construction of clause 15.2 made commercial sense because Mr and Ms Tibbles wanted to disassociate from UCI but if they "expected to continue to share in any future potential benefit or payment to the appellant which was not already being pursued at the time they sold their shares" then they should have retained them. However, it was not accurate to describe the circumstance that QBE was the insurer of the owner of the premises where the fire broke out as fortuitous. In the construction I prefer, clause 15.2 would also be triggered if QBE was not the owner's insurer but instead, pursuant to the clause noted in [25], had successfully pursued the owner to recover insured and uninsured losses. That is exactly what Mr Jorgensen was urging them to do both before and after the Share Sale Agreement was signed.
Further, contrary to UCI's submissions, recovery of uninsured losses from QBE was being pursued at the time the Share Sale Agreement was signed. Finally, in terms of the commerciality of the above construction of clause 15.2, there is a justifiable difference between requiring UCI to pay over a portion of what it might recover from QBE for loss arising from the fire and it retaining all the proceeds of any direct claim it might have made against the owner of the premises at which the fire broke out. The latter course would have involved greater ongoing risk, expense and stress for UCI (and Mr Corrin) than the former.
It follows that I reject grounds 2A and 3. I also reject ground 2C as I do not accept that the primary judge considered the evidence concerning Mr Jorgensen's efforts prior to 14 February 2017 to recover the uninsured losses in "construing clause 15.2". I have not relied on that evidence for that purpose either.

Conclusion

It follows that I consider that the primary judge was correct to uphold Mr and Ms Tibbles claim against UCI although not for all the reasons given by his Honour.
I propose the following orders: 1. Appeal dismissed. 2. The Appellant pay the Respondents' costs of the appeal.

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Solicitors: Venus & Smart (Appellant) Paladin Law (Respondents) File Number(s): 2021/241737 Decision under appeal Court or tribunal: District Court Jurisdiction: Civil Citation: Tibbles v Ulladulla Creative Images Pty Ltd (No 1) [2021] NSWDC 404 Date of Decision: 2 June 2021 Before: Neilson DCJ File Number(s): 2019/387037

HEADNOTE [This headnote is not to be read as part of the judgment] The Respondents were two of four shareholders in the Appellant. In February 2017 the Respondents, the Appellant and the other shareholders entered in a Share Sale Agreement pursuant to which one of the shareholders, Mr Corrin, agreed to buy the other shareholdings. Clause 15.2 of the Share Sale Agreement obliged the Appellant to pay each of the outgoing shareholders one quarter of "any further moneys" it received from its Insurance Company "beyond those moneys received up to the date" of the agreement. Clause 15.1 of the Share Sale Agreement stated that the Appellant had a made claim against its insurer for loss arising out of a fire. Around 9 months prior to the Share Sale Agreement the Appellant's plant and business had been affected by a fire at nearby premises. It made claims on its insurance policy with QBE Insurance for contents and business interruption and received interim payouts. Prior to the Share Sale Agreement the Appellant appointed a claims agent to act on its behalf who advised QBE that the Appellant had large uninsured trading losses and looked to QBE to recover them on its behalf from the entity responsible for the fire. After the Share Sale Agreement was entered into, the claims agent pursued QBE for both insured and uninsured losses. It was discovered that QBE was also the insurer for the entity responsible for the fire. QBE paid the Appellant $380,000.00 in respect of its uninsured trading loss. The Respondents sued the Appellant in the District Court contending that each of them was entitled to one quarter of the payment pursuant to clause 15.2 of the Share Sale Agreement. The primary judge upheld the Respondents' claims and in doing so relied on evidence from a solicitor about his recollection of a conversation between the shareholders immediately prior to the entry into of the Share Sale Agreement. The Appellant appealed. The issues arising on the appeal were: (i) Whether the primary judge erred in relying on the evidence of the solicitor about the conversation between the parties in construing clauses 15.1 and 15.2 of the Share Sale Agreement; (ii) Whether the primary judge erred in supposedly relying on evidence of the activities of the claims agent in seeking recovery of the uninsured losses prior to the entry into of the Share Sale Agreement without finding that the Respondents were aware of his conduct in doing so, and (iii) Whether the primary judge erred in concluding that clause 15.2 was engaged by the payment made by QBE. The Court held, dismissing the appeal: As to issue (i) per Beech-Jones JA (Leeming and McCallum JJA agreeing): The primary judge erred in relying on evidence from the solicitor as to the parties' expectations in construing the Share Sale Agreement. Mount Bruce v Wright Prospecting (2015) 256 CLR 104; [2015] HCA 37 applied. As to issues (ii) and (iii) per Beech-Jones JA (Leeming and McCallum JJA agreeing): In some circumstances, evidence may be received of facts within the knowledge of the parties before and at the time of the contract, for the purpose of demonstrating the subject matter of a contract for sale. However, it was not necessary to determine whether the Respondents had knowledge of the claims agent's attempts to seek recovery of uninsured losses prior to entering into the Share Sale Agreement because, on the proper construction of clause 15.1, evidence of those attempts was relevant to determine the application of the clause to the facts that transpired as opposed to its meaning. On its proper construction clause 15.2 was engaged by the subsequent payment made by QBE in respect of uninsured losses. MacDonald v Longbottom (1859) 1 El & El 977; 120 ER 1177; Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; [1982] HCA 24 considered; Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407 and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 applied.

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