Shorefair Pty Ltd as trustee of the CDSI Superannuation Fund & Ors v Multiplex Facilities Managemenet Pty Ltd [2007] ACTSC 50 (11 July 2007)

Last Updated: 28 July 2008

SHOREFAIR PTY LTD as Trustee of the CDSI SUPERANNUATION FUND & Ors v MULTIPLEX FACILITIES MANAGEMENT PTY LTD

[2007] ACTSC 50 (11 July 2007)

CONTRACT - sale of business - interpretation - whether the cut-off date for inclusion of contracts in assessment of "annual gross project turnover" had been postponed

No. SC 777 of 2003

Judge: Higgins CJ

Supreme Court of the ACT

Date: 11 July 2007

IN THE SUPREME COURT OF THE )

) No. SC 777 of 2003

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: SHOREFAIR PTY LTD

(ACN 087 944 107) as Trustee of the CDSI Superannuation Fund

First Plaintiff

I & J ANDERSON NOMINEES PTY LTD (ACN 007 967 928) as Trustee of the Anderson Family Trust

Second Plaintiff

IAN PETER ANDERSON and JENNIFER ANDERSON

Third Plaintiffs

AND: MULTIPLEX FACILITIES MANAGEMENT PTY LTD

(ACN 064 638 197)

Defendant

1. CORRIGENDUM

Judge: Higgins CJ

Date: 16 November 2007

Place: Canberra

-2-

By consent of parties, under the `slip rule' and pursuant to Court Procedure Rules 2006 r 6906, the following amendments be made to judgment [2007] ACTSC 50 handed down on 11 July 2007:

1. Strike from par 21 the following words:

It further follows that the plaintiffs' claim will fail.

2. Strike from par 22 the following words:

There will be judgment for the defendant.

3. Replace Order 1 at the head of the judgment with the declaration contained at para (i) on page 2 of the application dated 18 October 2007 as follows:

(i) The Court declares that for the purposes of calculating the amount of the deferred price, sub-paragraph 2(a) of Schedule 11 of the contract for the sale of CSPM Pty Ltd to the defendant was on or about 21 September 2000 varied to provide that, in addition to the existing terms:-

(a) If a Comprehensive Maintenance Contract (CMC) with the Company, as defined, or the purchaser commenced on or before 31 October 2000; and

(b) If that CMC was for Sydney or the Northern Territory;

the annual gross project turnover of such a contract was to be included in the calculation of the forward estimated annual gross project turnover.

Associate to his Honour,

Chief Justice Higgins

Dated: 16 November 2007

IN THE SUPREME COURT OF THE )

) No. SC 777 of 2003

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: SHOREFAIR PTY LTD

(ACN 087 944 107) as Trustee of the CDSI Superannuation Fund

First Plaintiff

I & J ANDERSON NOMINEES PTY LTD (ACN 007 967 928) as Trustee of the Anderson Family Trust

Second Plaintiff

IAN PETER ANDERSON and JENNIFER ANDERSON

Third Plaintiffs

AND: MULTIPLEX FACILITIES MANAGEMENT PTY LTD

(ACN 064 638 197)

Defendant

ORDER

Judge: Higgins CJ

Date: 11 July 2007

Place: Canberra

THE COURT ORDERS THAT:

2. There be judgment for the defendant.

1. This matter involves the construction of an agreement for the sale of the business of a company. The Agreement dated 8 June 1999, varied by an agreement dated 23 June 1999, effected a sale of all the issued shares in a company known as CSPM Pty Ltd - ACN 006 266 735 (CSPM) from the plaintiffs as vendors to the defendant as purchaser.

2. CSPM carried on the business of facilities management and maintenance throughout the Commonwealth of Australia in respect of defence facilities. The profitability of CSPM clearly depended on the contracts it was able to negotiate with the Commonwealth.

3. The initial agreement by cl 1.1 defined the purchase price as:

... Three million dollars ($3,000,000.00); payable as to Two million dollars ($2,000,000.00) on completion and One million dollars ($1,000,000.00) as a deferred price in two parts as provided in Schedule 11 and apportioned between the shares as provided in Schedule 4.

4. The completion date for the sale was defined as:

... the latest of:

(a) 23 June 1999;

(b) the day which is five business days after fulfilment (or waiver under cl 3.4) of the conditions referred to in cl 3; and

(c) any other date which is agreed in writing by the parties before the later of the dates referred to in paras (a) and (b);

5. It is relevant next to refer to Schedule 11 which contained further provisions with respect to the purchase price:

1. The purchase price means the amount of Three million dollars ($3,000,000.00), subject to these further provisions, payable as to Two million dollars ($2,000,000.00) on completion and One million dollars ($1,000,000.00) as a deferred price in two parts:

(a) As to the first remaining part of the deferred price of $500,000.00 on or before 30 June 2000 provided that if from Peter and Jennifer Anderson using their best endeavours to assist the company and the purchaser to achieve annual gross project turnover of $15,000,000.00 for the financial year 1/7/99 to 30/6/2000 such first part shall be paid immediately on such contracts being awarded.

(b) As to the remaining part as the deferred price, Five hundred thousand dollars ($500,000.00) on or before 1 July 2000 subject to these conditions.

2. The payment of the deferred price (clause 1(b)) above shall be payable on 1 July 2000 if on that date the company has contracts with the Commonwealth, or otherwise with corporations (contracts), for general building facilities maintenance and management work, having forward estimated annual gross project turnover including actual and design revenue of Fifteen Million dollars $15M, and the assessment to be made on 1 July 2000 shall have several provisos as follows:

"Annual gross project turnover" shall mean the forward estimated value of actual revenue design revenue and works for all the contracts and for which such work shall be carried out for the period between 1 July 2000 and 30 June 2001, and shall include such forward and expected actual revenue of works arising from contracts which may have commenced prior to 30 June 2000, but which will carry over for works during the financial year 1 July 2000 to 30 June 2001, and shall include such anticipated and expected gross value work for contracts in place or renewed from 1 July 2000:

(a) if any contracts commencement dates are postponed beyond 1 July 2000 the calculation of the annual gross project turnover may be made and postponed on the basis that such contracts commence up to 1 September 2000 and that a sum is paid on 1 July 2000 pro rata in accordance with the next proviso and the balance by 1 September 2000;

(b) and if the total annual gross project turnover is not demonstrated to be achieved from such assessment of the contracts to reach Fifteen million dollars ($15,000,000.00) as at 1 July 2000, or as calculated during the period up to 1 September 2000, then the sum of Five hundred thousand dollars ($500,000.00), as the deferred price shall be reduced and shall be calculated in accordance with the following formula:

A x $500,000

$15,000,000.00

Where A = the annual gross project turnover calculated between 1 July 2000 and 1 September 2000

If either party is dissatisfied with the assessment either party can call for an independent assessment by a chartered accountant nominated by the President of the Institute of Chartered Accountants. The nominee's decision shall be final and binding.

(c) If contracts for forward estimated value of annual gross project turnover of $15,000,000.00 is reached during the financial year ended 30/6/2000 for the year ended 30/6/2001 then the second deferred payment of $500,000.00 shall be paid immediately.

6. After that agreement was executed there followed correspondence between the lawyers for the parties.

7. Minter Ellison, for the defendant, wrote to Barker Gosling, lawyers for the plaintiffs as they were then known, on 29 June 2000 enclosing payment for the full sum provided for in Schedule 11 1(a) and $73,535.00 being the sum the defendant asserted to be all that was due in respect of the sum provided for in Schedule 11 1(b). That represented the shortfall between annual gross project revenue of $15 million and that alleged to be the amount locked in ($3,537,858.00) by the due date for the financial year 1 July 2000 to 30 June 2001.

8. Replying on 30 June 2000, Barker Gosling addressed the second deferred payment issue, expressing dissatisfaction with the defendant's assessment of annual gross project revenue for the relevant period. In accordance with the agreement, they requested the President of the Institute of Chartered Accountants to appoint an assessor to calculate the "annual gross project turnover" for the 2000/2001 year.

9. On 20 July 2000, Mr Frank Lo Pilato of RSM Bird Cameron Partners wrote advising of his nomination as assessor.

10. On 4 August 2000, Minter Ellison wrote noting the appointment asserting that the period for assessment of contracts to be valued should include the period up to 1 September 2000. The reason for the latter assertion was that there was, as at that date, a large contract with Department of Finance and Administration (DOFA) under negotiation in respect of facilities in Sydney and the Northern Territory. Hence, it was suggested, the assessment should be delayed to allow for either or both of those contracts to be included if awarded to CSPM (or associated companies).

11. It is apparent that unless it was agreed that the deadline in Schedule 11 1(b) should be extended there was no purpose in delaying the assessment to be undertaken by Mr Lo Pilato. Mr Badgery, of Barker Gosling, agreed to the request. That, of course, ensured that the plaintiffs had an incentive to pursue the award of those contracts to CSPM.

12. However, it was not until 11 December 2000 that the defendant was informed by the Department of Defence that associated companies of CSPM, in the form of a joint venture company, was the preferred tenderer for the Sydney region contract. A "Letter of Intent" so to contract issued on 21 December 2000.

13. The plaintiffs, in their Statement of Claim, put forward a number of contentions. One was a claim that the defendant, in effect, subverted the tender process for new contracts so that the annual gross project turnover would be less. That allegation has not been pursued.

14. The plaintiffs further claimed that it had been agreed that Schedule 11 2(a) was to be varied to include "the DOFA contract and the CMC Contracts for Sydney and the Northern Territory" insofar as those contracts were awarded by 1 September 2000. Rectification of the agreement to that effect was sought.

15. When the matter came on for hearing, it was by then agreed that the contract should be rectified as claimed. The assessment of contracts awarded for the year 1 July 2000 to 30 June 2001 was to be postponed until 1 September 2000. However, it was also contended that that date had been further postponed until 31 October 2000. The challenge to Mr Lo Pilato's assessment was not pursued as a separate issue. In it, dated 4 September 2001, the turnover was estimated to be as the defendant had calculated it. However, if the contract for the Sydney region awarded in December 2000 was included, it was conceded that the target of $15 million would be met so as to justify payment of the whole of the deferred price, notwithstanding the delay in commencement of that contract.

16. The plaintiffs, despite the literal terms of the contract, even as rectified, contended that the time for a contract to be included in the calculation of turnover extended for the whole of the 2000-2001 financial year. However, they conceded that the later in the year each commenced so as to generate turnover, the less it would contribute to the $15 million target.

17. The Sydney contract was awarded after 31 October 2000. Mr Erskine nevertheless contends that, on its true construction, the agreement, as so varied, required it to be taken into account. That is, that the variation should be construed as simply omitting 1 September 2000 as the cut-off date for commencement in respect of these two pending contracts. The reference to the end of October in the correspondence, he submitted, was merely by way of expectation rather than by way of prescription of the time by which contracts should be won and then commenced so as to be included in the assessment of turnover for the financial year 2000-2001.

18. However, as I raised with Mr Erskine in argument, the apparent intent of the agreement was that turnover during the 2000-2001 year should reach or exceed $15 million in order to justify the payment of the final instalment of $500,000.00. It would not do so without one or other of the pending contracts being awarded but nor would it if the commencement date even for those contracts was too close to the end of that period to contribute significantly to the company's turnover for that year (2000-2001).

19. The defendant had proposed the postponement of the assessment of turnover. It would have been in its interests to insist on the 1 September 2000 cut-off date. The `review' would assess turnover on contracts by then awarded and due to commence. To postpone the review to end October 2000, whilst an indulgence to the plaintiffs, also gave them an incentive to continue to press for an early award of the Sydney and Northern Territory CMCs. It is not, however, a reasonable interpretation of the correspondence concerning that issue that the defendant was agreeing to or proposing an indefinite extension of the cut-off date. It is reasonable to infer that the postponement was up to, but no later than, 31 October 2000.

20. The fact that one of the pending contracts was awarded, at least in principle, on 11 December 2000 does nothing to disturb this inference. Indeed, the commencement date of that contract, even then, remained to be agreed.

21. It follows that the contentions of the plaintiffs, despite Mr Erskine's eloquence, must be rejected. It further follows that the plaintiffs' claim must fail.

22. There will be judgment for the defendant. I will hear the parties as to costs.

I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Chief Justice Higgins.

Associate:

Date: 11 July 2007

Counsel for the plaintiffs: Mr C Erskine

Solicitor for the plaintiffs: Dibbs Abbott Stillman

Counsel for the defendant: Mr R Crowe SC

Solicitor for the defendant: Minter Ellison

Date of hearing: 16 April 2007

Date of judgment: 11 July 2007