Antzen Pty Ltd v Steven James Howe Pty Ltd
[2013] NSWDC 124
•06 June 2013
District Court
New South Wales
Medium Neutral Citation: Antzen Pty Ltd v Steven James Howe Pty Ltd [2013] NSWDC 124 Hearing dates: 5 and 6 June 2013 Decision date: 06 June 2013 Jurisdiction: Civil Before: P Taylor SC DCJ Decision: 1. Judgment for the first plaintiff against the third defendant for the sum of $75,000.
2. Judgment for the first and second defendants against the plaintiffs.
3. Order the third defendant pay the first plaintiff's costs.
4. Order the plaintiffs pay the first and second defendants' costs. These costs not to include an amount for 6 June 2013.
Catchwords: CONTRACT - breach - failure to pay moneys owing - termination - damages Legislation Cited: Conveyancing Act 1919, s 13 Cases Cited: Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64
Fink v Fink (1946) 74 CLR 127
Gagner Pty Ltd (t/as Indochine Café) v Canturi Corporation Pty Ltd (2009) 262 ALR 691
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115
Louinder v Leis (1982) 149 CLR 509
McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457
Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286
Robinson v Harman (1848) 1 Exch 850; (1848) 154 ER 363Category: Principal judgment Parties: Antzen Pty Ltd ACN 109 797 328 (first plaintiff)
Anthony Beuzen (second plaintiff)
Steven James Howe Pty Ltd ACN 069 020 284 (first defendant)
Steven James Howe (second defendant)
Mastercraft Marine Pty Ltd ACN 089 186 443 (third defendant)Representation: Mr J Spinak (plaintiffs)
Mr M Izzo (defendants)
Ramensky Lawyers (plaintiffs)
Horton Rhodes Legal Pty Ltd (defendants)
File Number(s): 2012/202998 Publication restriction: No
ex tempore Judgment
Anthony Beuzen's parents owned and operated a business involving the construction of luxury sailing boats. His father wanted to retire. Mr Beuzen did not think he could operate the business alone and he approached his life-long friend, Steven Howe, to ask if he was interested in jointly buying the business. Mr Howe was very keen.
In July 2006, Mr Beuzen and Mr Howe purchased the business for $620,000. Mr Beuzen's father contributed Mr Beuzen's share, $310,000, as a gift to his son. In the result the business was owned by Mastercraft Marine Pty Ltd ("Mastercraft") as trustee for the Mastercraft Marine Unit Trust. The directors and shareholders of Mastercraft were Mr Howe and Mr Beuzen. They also equally owned units in the trust through their respective companies, Steven James Howe Pty Ltd ("SJH") and Antzen Pty Ltd ("Antzen").
At or some time after the purchase, with the consent of all parties the equity contributed by Mr Howe and Mr Beuzen came to be treated as a loan to Mastercraft by respectively SJH and Antzen. Each of Antzen and SJH contributed a further $40,000 over time so that (if one ignores payments in the nature of wages paid to Antzen and SJH) by 2009, loans by Antzen and SJH to Mastercraft were about $350,000 each.
By late 2009, Mr Beuzen had lost his passion for the business and was not willing to risk further money in it. He was prepared to sell the business. But Mr Howe did not want to sell. Mr Howe was prepared to ride out the difficult times. Further, Mr Howe or his family had invested significant further funds into the business. Mr Howe wrote to the company accountant, Mr Steven Jones, in December 2009 in the following terms:
"...as advised Tony wants to leave the business but I am unable to purchase his shares given the loss situation occurring at the moment.
There are also question marks over the continuing business viability. I am still enthusiastic about the business and want to continue. I have offered Tony an arrangement where I commit to a debt payout over time in exchange for his share of the business which he will consider.
Tony has asked if you could put together an equitable proposal/debt payout contract should Tony elect to go that way.
Ie Tony would sell his units in Mastercraft to me in exchange for a structured fixed debt payout arrangement. I believe that fixed debt should be set at his original investment ie $310,000 + a subsequent $40,000 he has invested.
Tony understands currently the company is not making money and accumulating debt and that I can only make payments to him if the company has orders and has good cash flow.
There are also a few things to consider, Tony wants some comfort that I could not just mount up costs in the company (ie build another 'stock' boat) to eat up any profit and avoid making payouts to him, so we need to consider insulating him from costs which would only benefit me. I agree with him that it would be easy to create 'costs' to avoid showing profit so perhaps there are other ways of Tony extracting his debt other than waiting for a declared accounting profit. Perhaps he can receive a guaranteed commission on future boat orders in addition to other lump sum payments.
By him leaving and entering into this arrangement we both understand that I would be liable for all the company's liability if we never built another boat or an unviable number of boats Tony also accepts that If I decided in the future that the business was not able to continue at an acceptable profit level and closed the business then Tony's debt would be extinguished.
Could you start to think how an equitable arrangement could be structured by giving Tony some comfort that he would be paid.
Thanks,
Regards
Steve Howe
Director".
On 23 December 2009, Mr Jones wrote to Mr Beuzen:
"Dear Tony
Steve Howe has briefed me on your plans to exit the business known as "Mastercraft Marine" and has asked me to come up with a proposal for a fair and equitable financial arrangement between yourself and Steve in regards to Mastercraft Marine and the equity amounts owed to both of you.
This proposal only deals with the business known as Mastercraft Marine and NOT with the property at Myoora Rd. This will be dealt with between the two of you as I understand it.
I will not go into the current financial position of the business as you are fully aware of its current position.
My suggestion is as follows -
1) Moving the current equity account balances for both yours and Steve's Equity amounts from Equity to Debt (i.e treat them as loans owing from Mastercraft Marine to your entities.
2) Bring these equity/loan account amounts backup to the original amounts ($310,000) plus the further capital amounts of $40,000. Therefore showing the equity/loans as $350,000 owing to each of you.
3) Every 6 months a calculation is done to determine the "Amount Available to distribute" (See calculation on attached page).
4) Pay to each of you the "Amount Available to Distribute" as an instalment of the equity/loan.
5) Pay to Tony only as a loan repayment an amount of $10,000 for every 48' sold and $20,000 for every 52' sold. This is to be paid once the first progress payment amount is received from the customer.
6) The above payment arrangement to continue until the Equity/loan accounts are repaid in full.
7) Tony to transfer his Units in "Mastercraft marine Unit Trust to Steve Howe or his nominee for their nominal issue price i.e $50.
8) Tony to transfer his shares in Mastercraft Marine Pty Ltd for their nominal value of $50.
9) Steve Howe to provide Tony with a release from all liabilities of Mastercraft Marine Unit Trust and of Mastercraft Marine Pty Ltd and will indemnify Tony for any debts or liabilities of the entities.
10)
Yours faithfully
KIRBY JONES FINANCIAL GROUP".
In the result, an agreement was entered between the parties. Mr Howe stated that the agreement replicated the letter from Mr Jones save that the loan repayment amount upon the sale of a Buizen 48 ft and a Buizen 52 ft was doubled. That might not be the only difference. The agreement, presumably drafted by Mr Jones or Mr Howe, was dated 3 May 2010 and was between each of Mr Howe, Mr Beuzen, SJH, Antzen, and Mastercraft. Among other matters, the agreement contained the following recitals:
"G The parties have shareholder equity loans owing by Mastercraft (as trustee for the Trust) for the amounts as set out opposite their respective names in item 5 of the schedule.
H The parties wish to record the terms and conditions of their financial relations in regards to the Shareholder Equity Loans owing by the Trust, once Beuzen resigns from his position as Director of Mastercraft and transfer his shareholding in Mastercraft to Howe and units in the Trust to Howe".
The agreement provided:
"THE PARTIES AGREE THAT:
1 OBJECTIVES
1.1 The objectives of the parties are:
(a) to formulate an equitable financial agreement to deal with the repayment of the patties Shareholder Equity Loans to the Trust, following Beuzen's resignation as Director of Mastercraft, his transfer of shares in Mastercraft and his transfer of Units in the Trust.
(b) to do all such things as are incidental or conducive to the attainment of the above objectives.
2 SHAREHOLDER EQUITY LOANS
2.1 Shareholders Equity Loans
The Shareholder Equity Loans owed by the Trust to Howe Pty Ltd and Antzen are to be dealt with as follows.
(a) It is agreed by each party that the balance of the Shareholders Equity Loans as at the date of this agreement is as set out in schedule 5.
(b) It is agreed by each party that these Shareholder Equity Loans have been provided to the Trust as loans with NO Interest payable and No security has or will be provided by any party.
(c) Within 30 days of the end of each half year, a calculation is to be prepared by Howe to estimate the "Amount available to Distribute" from the Trust, (e.g. Calculation to be completed by end of January after July to December half year)
(d) Within a further 10 working days after the calculation is completed Howe will attend to the payment of an instalment of capital for each Shareholder Equity Loan. This instalment is to be the same amount for each Shareholder Equity Loan.
(e) Within 10 working days of the Trust receives the first progress payment from a customer for a "Buizen 48", Howe will attend to the payment by the Trust of an amount of $20,000 to Antzen as an instalment of capital towards the Antzen loan only.
(f) Within 10 working days of the Trust receives the first progress payment from a customer for a "Buizen 52", Howe will attend to the payment by the Trust of an amount of $40,000 to Antzen as an instalment of capital towards the Antzen loan only.
(g) The repayment of the equity loans is to continue for as long as it takes to repay the capital amounts of the Shareholder Equity Loans.
(h) Should Mastercraft, or the Trust cease business, then the balances remaining on the Shareholder Equity Loans will be extinguished, and neither party has any further rights to repayment of the balances from any party".
The agreement also contained a non-competition clause restricting Mr Beuzen from carrying on a competing business. The territory of any excluded competing business was not defined. Item 5 of the schedule listed the shareholder equity loans as SJC $350,000, Antzen $350,000. In accordance with the agreement, Mr Beuzen resigned as a director and transferred Antzen's units and his shares to Mr Howe and SJH.
Shortly after the agreement was entered, two Buizen 52 yachts were ordered. On 26 July 2010, Mr Howe received the first progress payment for the construction of the first of these two yachts and as to the second yacht a part deposit was paid in October 2010 but the balance of the first instalment was not paid until 1 June 2011.
Antzen did not receive $40,000 in respect of the first of these progress payments within ten working days of 26 July 2010 as provided in cl 2.1(f) of the agreement.
On a number of occasions in the period July 2010 to February 2011 Mr Beuzen asked Mr Howe for the $40,000. Mr Howe asked for more time to pay and Mr Beuzen said, "Okay." In February 2011, Mr Howe called Mr Beuzen and said, "Look, mate, all I can offer you at this time is a ute. Things are really tight," and Mr Beuzen responded, "Okay. I've got mounting debts too. I need to be paid."
Mr Beuzen accepted the ute, paid for some repairs, sold it on 12 March 2011 and received $6,000 net of the repair costs. Thus $34,000 still remained owing. On 4 May 2011, Mastercraft paid Antzen $20,000. This was nine months after the $40,000 was due. Thus $14,000 still remained owing.
As a result of the progress payment on the second yacht received in full by 1 June 2011, by about mid-June 2011, a further $40,000 became owing. Therefore, the total amount outstanding at that date was $54,000.
No payment was made in June or July 2011 by Mastercraft to Antzen. On 22 July 2011, the following letter was sent by Mr Beuzen's lawyers to Mastercraft:
"We act for Mr. Anthony Beuzen and Antzen Pty Ltd and have been handed a copy of an Agreement dated 3 May 2010 between Mastercraft Marine Pty Ltd ("Mastercraft"), Anthony Beuzen, Stephen James Howe, Stephen James Howe Pty Ltd and Antzen Pty Ltd which purported to regulate the repayment of shareholder loans to Mastercraft Marine Pty Ltd. Clause 2.1 (a) is an acknowledgement that the company, Mastercraft, owes each of the shareholders, Stephen James Howe Pty Ltd and Antzen Pty Ltd, $350,000.00.
Clause 2.1 (c) - (g) deals with how these loans are to be repaid.
We are instructed that your client has breached clauses 2.1 (c), (d), (f) and (g) of the Agreement and specifically has failed and/or refused to pay the instalment in accordance with clause 2.1 (f), despite the fact that 2 orders for a "Buizen 52" have been placed and progress payments made many months ago. We are instructed that the first progress payment was made in about June 2010 and the second payment for the second boat was made in about August/September 2010.
We are further instructed that Mr. Anthony Beuzen has made numerous demands for payment in accordance with the Agreement but that these demands have not been met.
Since Mastercraft is in a fundamental breach of the Agreement, our client accepts this breach and considers the Agreement at an end, and to be no longer bound by it.
We are further instructed that to date an amount of $20,000.00 has been paid by cheque and further that you have given our client a 2003 Toyota Hilux Ute, which he repaired, registered and sold. The sum cleared from the sale after deducting the expenses for the repairs and registration amounted to $6,000.00. Accordingly, our clients accept that they have been paid $26,000.00.
We are instructed to now demand payment of the balance of the loan outstanding; namely $324,000.00. Please note that unless these moneys are paid within 7 days, or suitable arrangements are made to pay them within 7 days, that legal action for recovery of this amount will be commenced without further notice".
On 19 October 2011, Antzen and Mr Beuzen commenced proceedings in the Local Court for the $54,000 outstanding plus interest and costs. At about that time, Mastercraft paid a further $10,000 and further payments of $10,000 were made in mid-November and late December 2011 as Mr Howe sought to resolve the proceedings. Nevertheless, default judgment was obtained on 20 February 2012. The judgment was set aside by consent on 20 April 2012 when Antzen was paid the remaining $24,000. Mr Beuzen agreed to waive interest and costs.
Mr Beuzen and Antzen sue Mr Howe, SJH, and Mastercraft in these proceedings for damages of $270,000 plus interest and costs.
Issues
The parties prepared a statement of issues in the proceedings as follows:
"1. Did the defendants breach cl 2.1(f) of the Agreement made on 3 May 2010?
2. Did the defendants repudiate the Agreement by their breach?
3. Were the plaintiffs entitled to terminate the Agreement made on 3 May 2010?
4. If so, did the letter of termination dated 22 July 2011 have the effect that the balance of a $350,000 debt (in the sum of $270,000) became payable on demand to the plaintiffs?
5. If so, are the plaintiffs precluded by an Anshun estoppel from claiming the $270,000 balance?
6. If the $270,000 became payable on demand, which of the defendants is liable to pay it?
7. Assuming the defendants or any of them have breached clause 2.1(f) of the 3 May 2010 Agreement and repudiated that Agreement, have the plaintiffs suffered any compensable damage as a consequence?
8. In the events that have happened, do the plaintiffs have a cause of action in unjust enrichment against the defendants or any of them?"
As to these issues, the defendants accepted the breach referred to in issue 1. Issues 2 and 3 cover the same ground and will be dealt with together. Issue 5 was abandoned by the defendants during submissions presumably on the basis that there was no judgment to which an Anshun estoppel could attach. In respect of issue 6, it was common ground that any liability attached only to Mastercraft, and the plaintiffs abandoned issue 8 in submissions.
Thus, the issues remaining may be summarised as:
1. were the plaintiffs entitled to terminate the 3 May 2011 agreement whether by reason of repudiation by the defendants or otherwise?
2. If so, did the balance of the $350,000 debt (namely $270,000) become payable on termination?
3. Alternatively to issue 2, what damages if any is the plaintiff entitled to recover?
1. Termination
In the absence of expressed rights to terminate under a contract a party generally has the right to terminate in three circumstances:
(a) breach of an essential term;
(b) serious breach of an intermediate term; and
(c) repudiation.
Mastercraft conceded in the submissions that it had acted in breach of cl 2.1(f). Thus, the first question is whether the obligation to pay $40,000 within 10 working days of receipt by Mastercraft of the first progress payment from a customer buying a Beuzen 52 was an essential term of the contract. This really involves two questions: whether payment was essential; and whether the payment on time was essential.
Payment remained a fundamental part of the consideration Antzen was receiving under the agreement. Mr Beuzen had transferred his shares in Mastercraft, Antzen had transferred its units in the trust and Mr Beuzen had resigned as director. The only residual interest either Mr Beuzen or Antzen had in Mastercraft was as a conditional creditor, and the only objective entitlement to payment arose under cl 2.1(e) and (f). Any entitlement under cl 2.1(d) depended, at least in part, on the profitability of the company.
In these circumstances, the payments under cl 2.1(f) were essential. Indeed, as things transpired they were the only real consideration received by Mr Beuzen and Antzen in return for the shares, units, and the directorship.
But this does not mean that payment within the stipulated period was essential. The time stipulated in the contract was not expressed to be essential. Equity generally treated time stipulations as non-essential and this rule prevailed over the stricter common law position as a result of the enactment of s 13 of the Conveyancing Act 1919.
In my view, there is no relevant circumstance in this case indicating that the payment "within 10 working days" was essential.
Accordingly, neither the failure to pay $40,000 by mid-August 2010 in respect of the first Beuzen 52 ordered nor the failure to pay $40,000 by mid-June 2011 for the second Beuzen 52 ordered of themselves entitled Mr Beuzen or Antzen to terminate the contract. It is rare that a failure to pay on time is sufficient to empower the party to terminate. In Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 at p 302, Barwick CJ and Jacobs J in respect of delay by a purchaser in completion stated:
"Even if the purchaser is in breach of some term of the contract (not being an essential term) and even if the purchaser is guilty of unreasonable delay a failure to complete does not of itself entitle a vendor to rescind unless time has been made of the essence of the contract. The purchaser's actions may amount otherwise either expressly or by inference to a repudiation of the contract which entitles the vendor to rescind, but the passage of time does not of itself do so because time is not and has not been made an essential term of the contract. The only exception to this may be such gross and protracted delay that the purchaser must be taken to have repudiated the contract. That is a special case more easily found in contract of a kind where time is usually of the essence. Though it is not impossible it is rare in the case of a sale of land where time is not an essential term."
In Louinder v Leis (1982) 149 CLR 509 at p 526, Mason J stated:
"Accordingly, delay beyond the stipulated date will give rise to a liability in damages. But because equity treats the time stipulation as non-essential, mere breach of it does not justify rescission by the innocent party and will not bar specific performance at the suit of the party in default. Unreasonable delay in complying with the stipulation in substance amounting to a repudiation is essential to justify rescission. It is to this end that, following breach, the innocent party gives notice fixing a reasonable time for performance of the relevant contractual obligation. The result of non-compliance with the notice is that the party in default is guilty of unreasonable delay in complying with a non-essential time stipulation. The unreasonable delay amounts to a repudiation and this justifies rescission."
Is the delay in payment in this case sufficiently unreasonable so as to amount to a repudiation? A pleading point was raised. Mastercraft argued that the plaintiffs did not plead repudiation. The plaintiffs initially appeared to agree with the need to specifically plead repudiation and proposed to seek leave to do so. Ultimately no application was pursued.
The evidence dealt not only with the breach by non-payment, but the circumstances surrounding the non-payment including the communications between the parties.
In my view, a pleaded allegation of termination for the breach that Mastercraft "failed and/or refused to pay Beuzen and/or Antzen" (as the plaintiffs allege in this case) is sufficient to allow the party to maintain a claim that the term breached was essential or that the term was breached in a sufficiently serious way to constitute a repudiation, at least unless some particulars narrowed the ambit of the allegation. Nor do I think the defendants were in any way prejudiced by the absence of any expressed reference in the pleading to "repudiation".
But was the delay a repudiation? The time stipulation in the contract was related to the first progress payment on a Beuzen 52 because I infer the parties intended that the $40,000 payment was to come from the first progress payment moneys. In the pre-contractual correspondence Mr Howe suggested that it was a "guaranteed commission" on boat orders.
Thus, the delay was not merely a delay in payment. It reflected the circumstance that payments were not going to be made from progress payments but only when Mastercraft was forced to pay. Eight months of requests for payment of $40,000, from June 2010 to February 2011, had resulted in Mr Beuzen being provided with a utility motor vehicle of net $6,000 in value. And when a further progress payment was made on another Beuzen in early June 2011 again no payment was made.
It is significant that so far as Mr Beuzen's obligations were concerned the contract was fully completed. That may have provided the reason why Mastercraft remained unable or unwilling to adhere to its contractual obligations unless compelled to do so. The later Local Court action illustrated this with payments being delayed until April 2012.
Further, the obligations under cl 2.1(c) and (d) to prepare six monthly calculations to estimate an "amount available to distribute" have not been done although it appears the accountant may have done a similar exercise on an annual basis. These matters are also, in my view, relevant to the question of whether the non-payment amounted to a breach or repudiation justifying termination.
In my view, the unreasonable delay in complying with the time stipulation in this case was so gross and protracted as to amount to a repudiation. Whatever else may have been said by Mr Howe, Mastercraft's actions spoke louder than his words: payment would not be made out of the funds from the progress payments and would not be paid at all voluntarily. That Mastercraft may have been in financial difficulties does not change this but may have been the reason why Mastercraft failed to adhere to its contractual obligations.
In these circumstances, this was a breach going to the root of the contract. It left Antzen as a mere creditor having to sue for the payments rather than receiving its share of the customer's progress payment. For this reason, damages in my view were not an adequate remedy, a matter relevant to whether the breach was sufficiently serious: see Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 at [54] to [55].
Accordingly, in my view the plaintiffs were entitled to terminate the agreement on 22 July 2011 and did so by the plaintiffs' solicitors' letter.
2. Did the balance of $350,000 become payable on termination?
The plaintiffs argued that the effect of termination was to take the parties back to the position they occupied prior to contract, which was that the $350,000 debt was owing. This submission is not consistent with authority. Termination for breach is not effective ab initio like rescission for fraud, mistake, and the like. Termination for breach is in futuro leaving accrued rights undisturbed. In McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at p 476-477, Dixon J explained:
"When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored so far as may be to the position they occupied before the contract was made. But when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition, or has committed a breach going to its root, the contract is determined so far as it is executory only, and the party in default is liable for damages for his breach..."
The object of damages for breach of contract is to place the innocent party in the position it would have been in had the obligation been performed. See Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at pp 50, 98, 117, 134, 148 and 161, approving Parke B in Robinson v Harman (1848) 1 Exch 850 at [855]; (1848) 154 ER 363 at p 365. "Loss of bargain damages" as this is often called describes the difference between the value of the promise or contract and what the innocent party has received or is able to obtain.
The value of the promise was traditionally assessed as at the date of the breach, but this is not an absolute rule. It has become more flexible in recent years. In any event, circumstances that occurred between the breach and trial can be taken into account in determining the value of the contract. As was stated by Campell JA in Gagner Pty Ltd (t/as Indochine Café) v Canturi Corporation Pty Ltd (2009) 262 ALR 691 at [54]:
"It follows that, even though a cause of action for breach of contract has accrued at the time the breach occurs, it cannot now be said that there is an accrued right at that time to receive any particular sum of damages. That is because it must await the trial to decide what is the most appropriate way, in light of events then known, to give effect to the compensatory principle of damages" (see also [51]).
So what was the value of this contract to Antzen? Did Mr Beuzen, like Esau of ancient times, sell his birthright for a mess of pottage? Neither party was prepared to submit a value of the contract, save that the defendants submitted it was nil and the plaintiffs submitted it was worth $270,000. There was no direct evidence of value. However, difficulty of assessment is no bar to recovery: Fink v Fink (1946) 74 CLR 127 at p 143. I must do the best I can.
Antzen had two avenues to receive payment under the contract. Either under cl 2.1(c) and (d), if there were moneys available, and under cl 2.1(e) and (f) if customers made a first progress payment on a Buizen 48 or a Buizen 52. As to the first avenue, Mastercraft had substantial revenue in 2007 to 2011 ranging from $1.3 million to $5.1 million, but no substantial profit has ever been made. On the last accounts in evidence, 2011, there was a negative equity of $354,074 and a loss of $155,911 was made in that year. Small losses were made in 2007, 2008 and a small profit in 2009 but thereafter the financial position has declined. No boat orders were received in the period 1 July 2011 to 21 December 2012 and there was no evidence that the position has improved since then.
Further, Antzen has received no payment under cl 2.1(c) or (d) since the agreement in 2010 and no suggestion that it should have done.
As at June 2011, the bulk of Mastercraft's assets comprised "goodwill at cost" and "Buizen 52 development costs", both of which might well list an optimistic value given the lack of new orders of Buizen 52s in recent years. In these circumstances, I could only attribute a nominal value to the entitlement to payments under cl 2.1(c) and (d). Any value appeared to be dependent largely on Mr Howe and his family's willingness to continue to support the business through, among other things, the injection of necessary funds. In those circumstances, I would allow an amount of $5,000 for the value of those provisions in the contract.
As to cl 2.1(e) and (f), there would have been no Buizen 48s built since the agreement, but in each of 2010 and 2011 one Buizen 52 was ordered. None were ordered in 2012. This might suggest that the plaintiffs might expect to receive $80,000 or two payments every three years. I think this is optimistic. The business has declined since 2010. Indeed, the progress payment completed in 2011 was partly paid in 2010, suggesting the lack of interest of potential customers is even longer than the 18 months to the end of 2012. Further, the financial position of the company is substantially worse now than in 2009 there being a negative equity of $354,074 now compared to nil equity in 2009. This suggests there is a real prospect the company may not continue and no more orders will be received.
Whatever I decide in respect to the value of these clauses is likely to be wrong. If the business continued for five years it will be because Mastercraft has obtained some orders. Also, any award I make against Mastercraft will worsen its financial position and render it less likely to continue. Doing the best I can in all the circumstances I propose to order the sum, in respect to the value of these clauses, of $70,000. This is a little less than the value of two orders in respect of Buizen 52s discounted because any orders will be in the future.
In the result, I propose to assess damages at $75,000 and accordingly grant judgment for the first plaintiff against the third defendant in the sum of $75,000.
I should also mention that the plaintiffs appeared to make a claim for interests and costs in respect to the late payment of the $80,000 that was ultimately fully paid in April 2012, but the evidence is clear that the plaintiffs waived the payment of those amounts. It was said that this agreement whereby these amounts would not be sought was without consideration. But the agreement involved the settlement of the disputed proceedings. That is valid consideration for the reduced amount paid.
It follows that Mastercraft should pay Antzen's costs. As to the other parties, it is clear that there is no basis to seek relief against Mr Howe or SJH, and no entitlement in Mr Beuzen to seek any relief. The counsel for the plaintiffs conceded this in substance on the first day of the trial. However, until that date the first and second defendants were subject to a claim for $270,000 plus interests and costs. Accordingly, there should also be judgment for the first and second defendants against the plaintiffs, with the plaintiffs to pay the costs of the first and second defendants, such order not to include any costs for today, being the second day of the trial.
Accordingly, the orders are:
1. Judgment for the first plaintiff against the third defendant for the sum of $75,000.
2. Judgment for the first and second defendants against the plaintiffs.
3. Order the third defendant pay the first plaintiff's costs.
4. Order the plaintiffs pay the first and second defendants' costs. These costs not to include an amount for 6 June 2013.
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Decision last updated: 02 August 2013
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