Ausdoc Information Management P/L v Central Document Storage P/L

[2003] NSWSC 1013

Reported Decision: (2003) DFC 95-276

Supreme Court

CITATION:	AUSDOC INFORMATION MANAGEMENT P/L v CENTRAL DOCUMENT STORAGE P/L & ANOR [2003] NSWSC 1013
HEARING DATE(S):	29 & 30/10/2003
JUDGMENT DATE:	30 October 2003
JURISDICTION:	EQUITY
JUDGMENT OF:	Bryson J at 1
DECISION:	Interlocutory Injunction refused: see [53].
CATCHWORDS:	SALE OF BUSINESS - time for completion was specified after which each party had express power to terminate - held, time was of the essence - contractual date for completion was 30 September, neither party could or did tender performance, inconclusive communications about price adjustments after due diligence continued until 17 October when vendor terminated - vendor entered into another sale agreement with second defendant - purchaser sought specific performance and interlocutory injunction based on waiver estoppel implied representation etc. arising from vendor having continued communications with purchaser while entitled to terminate - no express reference to whether or not right to terminate would be exercised - on the facts, purchaser had poor prospects of success - interlocutory injunction refused.
CASES CITED:	Tanwar Enterprises Pty Limited v Cauchi [2003] HCA 57
PARTIES :	Ausdoc Information Management Pty Ltd - Plaintiff Central Document Storage Pty Ltd - First Defendant Brambles Australia Limited - Second Defendant
FILE NUMBER(S):	SC 5457 of 2003
COUNSEL:	Mr J. Sexton SC and L. Gyles - Plaintiff Mr Hancock & Mr Donohoe - First Defendant Mr W.G. Muddle - Second Defendant
SOLICITORS:	Deacons Lawyers - Plaintiff Blessington Judd - First Plaintiff Cowley Hearne Lawyers Pty Ltd - Second Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRYSON J.

THURSDAY 30 OCTOBER 2003

54572003 AUSDOC INFORMATION MANAGEMENT P/L v CENTRAL DOCUMENT STORAGE P/L & BRAMBLES AUSTRALIA PTY LTD

JUDGMENT

1 HIS HONOUR: These proceedings were commenced by summons on 24 October 2002, now amended summons of 29 October 2002. The plaintiff seeks specific performance, and many other remedies including an interlocutory injunction, relating to its claim for completion of a business sale agreement dated 20 September 2003, in which the first defendant is the vendor and the plaintiff is the purchaser.

2 The business sale agreement is document PTR.16 in exhibit A. The parties are the first defendant as vendor and the plaintiff as purchaser and the directors of the first defendant are also parties.

3 Provisions which it is significant to note now begin with the recital of an agreement to sell the plaintiff’s business as a going concern and the purchaser’s agreement to buy the business at the request of the Directors, and the statement in the recital “It is intended that this agreement will be legally binding on the parties, subject to the satisfaction or waiver of the conditions precedent.”

4 In clause 1.1(12) it is provided “Settlement date to be 30 September 2003 or such other date agreed to in writing by [the vendor and the purchaser].” By clause 2 the agreement is to be binding on the vendor’s Directors.

5 Clause 4 is the operative agreement for sale and includes the following in (ii):

Subject to the conditions precedent being satisfied or waived completion of the sale and purchase of the business, including the total assets, will take place on the settlement date at which time possession and ownership of the business including the total assets will pass to [the purchaser].

6 Clause 5 deals extensively with conditions precedent. Clause 5.1(i) lists five conditions precedent with the introductory words “The sale and purchase contemplated by this agreement is subject to and conditional upon ...” and goes on to refer to five conditions, summarised as purchaser’s approval of the outcome of due diligence, purchaser being satisfied with its due diligence investigations, the vendor’s landlord entering into a standstill agreement, which is dealt with further elsewhere in clause 5, execution of a consultancy agreement which refers to clauses 8.2 and 9.3 and shows that the reference is to a consultancy agreement with Mr Rodan, a director of the vendor and a party to the proceedings. The final condition is that National Australia Bank provide a release document to the satisfaction of the purchaser.

7 Clause 5.1(ii) requires each party to use reasonable endeavours “... to satisfy these conditions precedent prior to the settlement date,” and (iii) entitles the purchaser by written notice at any time to waive all or any of the conditions precedent.

8 Clause 5.2 deals in great detail with due diligence investigations which the purchaser was to conduct. Sale and purchase were stated to be subject to completion of due diligence investigations satisfactory to the purchaser. The matters to be investigated were set out. Limitations were imposed on the manner in which the due diligence investigations were to be conducted and the use to be made of information.

9 Clause 5.3 spelled out the earlier reference to a condition precedent relating to an agreement between the purchaser and the vendor’s landlord. Evidence shows that the vendor was, at the time of entering into the agreement and earlier and for all that appears still is in great difficulty with its landlord, in arrears of rent, at risk of forfeiting its tenancy of the business premises and receiving threats of adverse action from the landlord.

10 This explains a further aspect of the agreement which is of some importance, that is, there was no provision in the agreement for the vendor to sell to the purchaser any leasehold or any interest in land of any kind, the purchaser, with the aid of conditions precedent, relying on its ability to make some terms for occupation of the premises with the landlord.

11 Clause 5.4 is entitled “Failure to Satisfy or Waive Conditions Precedent” and provides:

(i) If the conditions precedent are not satisfied or waived on or before the settlement date either AIM or CDS may at any time thereafter by written notice to the other of them, terminate this agreement.

(ii) If the conditions precedent relating to due diligence are not satisfied AIM and CDS agree to negotiate in good faith to endeavour to find a resolution to any issues that are identified in the due diligence investigations of AIM.

12 Clause 5.5 relates to the standstill agreement, which for some reason was the name given to an agreement to be made between the purchaser and the landlord within a limited time

... such that the landlord agrees not to take any action or step to terminate the lease of the premises ... for the period to 30 September 2003 or such later date as may be agreed with the landlord.

13 Clauses 6 and 7 deal with the purchase price and with adjustments contemplating, and dealing in some detail with the prospect of there being adjustments arising out of what might be found on the due diligence investigations, with principles stated in clause 7.2 for calculating adjustments, including notably “(i) the value of goodwill is fixed at $1,707,310” meaning that the value of goodwill was not open to adjustment after due diligence.

14 This is rather significant as the agreement authorises other elements in the price to be opened up and arguably to be adjusted as a result of the due diligence investigation. After 30 September the vendor sought and obtained indications from the purchaser of readiness to agree to an adjustment downwards of the value of goodwill brought into account in calculating the price, a departure from what the terms of the agreement authorised and a departure from the course of due diligence and carrying out the terms of the agreement, into a new course of re-negotiation of what had earlier been agreed about the price.

15 Clause 10 relates to exclusivity and restrained the vendor from negotiating with anyone else for the period up to the settlement date, the definition of which I have referred to earlier.

16 The contract is a commercial contract relating to the sale of the plaintiff’s business and not of real estate. It appears to me that the correct understanding of the provisions of the agreement about time for settlement is that settlement at the time provided for was of the essence of the agreement. That is the usual approach taken for commercial contracts not involving sales of interests in land and is reinforced at a number of points by the manner of expression of references to time in the agreement, not least by the introduction at at least two places of references to the conditions precedent, using the words “subject to”, which is usually taken, and in my view in this case ought to be taken, as an indication that compliance with the conditions precedent in all respects, including as to time, was essential.

17 I have not seen or been referred to any reason to import into the relationship of the parties here the approach usually taken in equity to references to time in agreements for sale of land, or of interests in land. These had their origins in the distant past in the difficulties of showing title to land and in the presumed intentions of the parties. In the absence of a clear indication to the contrary, the approach which I take, and which I understand is appropriate to take, is that provisions about the time for completion or, indeed, other times of engagements are to be taken as of the essence of the agreement. It must be understood of the references in the agreement to conditions precedent that they too were intended to be of the essence of the agreement.

18 On a strict or black letter view of the agreement, there can be no doubt of the vendor’s entitlement after the passing of the settlement date, 30 September, and in the absence of any written agreement between vendor and purchaser fixing some other day, to give notice of termination as authorised by clause 5.4(i).

19 The plaintiff’s case is, however, to the effect that the vendor was not in a position to terminate, as it purported to do by a written notice on 17 October 2003, because the vendor waived reliance on the time provisions and the absence of satisfaction of conditions precedent, or in some way, by a representation or by conduct, led the purchaser into acting on the basis that the time for completion was not fixed in accordance with the agreement at all, but remained open.

20 It was the purchaser’s position that the time for completion had become open and remained open until it had been made essential by reasonable notice of sufficient time that completion was required. Whatever the basis of this contention is, it has no basis whatever in the terms of the agreement and is altogether inconsistent with those terms in a number of ways.

21 The proceedings were commenced on summons and there was on the first day of hearing no document which set out in a clear way the grounds on which the plaintiff contends that the vendor is or ought to be restrained in equity from exercising the right to terminate which the contract, according to its express terms, confers on it.

22 I asked whether there was a draft statement of claim and was told that there was not. It is important that debates of this kind take place in the presence of some definition of the grounds and of the facts which are said to give rise to equities restraining reliance on contractual entitlements. My sense of the importance of such definition has been refreshed by the decision of the High Court in Tanwar Enterprises Pty Limited v Cauchi [2003] HCA 57. Debates of this kind cannot take place in the middle of the air or without definition, and summary proceedings are a very inadequate vehicle for them.

23 This morning the plaintiff’s counsel produced a draft statement of claim, the purpose of which was to do no more than illustrate counsel’s submissions as he was not, naturally enough, prepared to commit the plaintiff forthwith and in all details to the terms of the draft. At the time when, on 17 October, the vendor terminated or purportedly terminated the agreement by written notice, almost all the conditions precedent remained unfulfilled and none had been waived.

24 According to the plaintiff’s evidence, which has not been tested and for present purposes should be accepted, Board approval of the outcome of the due diligence investigations was given on the previous day, 16 October. A difficulty with this position is that it is not apparent to me from the evidence precisely what the outcome of the due diligence investigations was and what contractual adjustments finally were required. This had been the subject of exchanges and communications of a fairly unsatisfactory nature, between vendor and purchaser during the previous week, but no decision or resolution had emerged. For that reason, at a contested hearing the terms in which the Board resolved would require some attention. As far as the evidence shows, the vendor had not entered into a standstill agreement by 17 October: although the terms of the proposed arrangement with the landlord appear to have been well advanced, they do not appear to have been completed. No consultancy agreement with Mr Rodan had been achieved and negotiations with him were taking a somewhat lengthy path. There was no evidence that NAB had provided the release document.

25 The plaintiff’s purported waiver of conditions precedent was made on 24 October after the vendor’s notice of termination had taken whatever effect it may have had.

26 Simply on the terms of the contract, without the assistance of some equitable remedy, the plaintiff has no prospects whatever of achieving any success. The contractual time for completion was 30 September. Neither party was in a position to insist on completion then as the conditions precedent had not been fulfilled or waived, and neither party made even a gesture towards tendering performance so as to be in a position to allege that the other party was in breach of the obligations to complete in accordance with the terms of the agreement.

27 The plaintiff relies on some conversation between Mr Riley and Mr Lyttle which preceded the parties’ entering into the agreement on 20 September. The terms of the conversation are disputed and what would be established by either version in terms of implications for the rights of the parties is far from clear. To my mind the most that can be said is that the conversation showed that the parties contemplated that the date for settlement in the agreement might well not be achieved and that settlement might take place at some later date, up to or about 3 October.

28 There was nothing of agreement in any version of what was said, and no arrangement was made which to my mind could reasonably be understood to be a commitment. The fact that the parties proceeded almost immediately afterwards to enter into an agreement to an altogether different effect makes it, to my mind, extremely unlikely and in practical terms impossible that the plaintiff would establish that it relied upon some representation by Mr Lyttle made before contract. By immediately entering into a plain and distinct contractual obligation to an altogether different effect, the plaintiff has demonstrated that it did not regard any such event as the true source of any entitlement.

29 The plaintiff also relies on some further conversations during the period available for due diligence and about the time of commencement of due diligence, in which Mr Lyttle is also said to have referred to a possibility, not at all in clear terms, of settlement taking place after 30 September and by 3 October.

30 The evidence does not, to my mind, make it at all likely that there could be a finding based on those conversations that any representation of real clarity or specificity was made to the effect that settlement would take place by 3 October, or that there would be no reliance on contractual rights if settlement did not take place by 30 September.

31 Generally at this point and throughout the whole narration, the idea that the purchaser’s concept of its rights and entitlements, surrounded, as it was, with consultants, legal advisers and sophisticated persons in charge of its affairs, could be formed by something Mr Lyttle said rather than an overall understanding of its contractual entitlements has very little claim to attention.

32 If Mr Lyttle did say anything to indicate that time for settlement would be held open to 3 October, that cannot have any influence on the outcome because there was no attempt or gesture towards settling within that time.

33 After 30 September passed, each party continued until 17 October to act on a basis which appears to show that it continued to contemplate that the agreement might be settled, indeed would be settled, but I see nothing in any of the conduct of this kind to indicate that either party was doing more than pursuing its own perceived interests, as they perceived them from time to time.

34 There was no statement which to my mind had any rationally available interpretation that the right to terminate conferred in the plaintiff’s terms by clause 5.4 has been given up or would not be exercised.

35 With the aid of the draft statement of claim, it can be seen that the plaintiff would wish to contend that there was a collateral agreement to the effect that the settlement date would not be that in the written agreement. The elements necessary to constitute a binding collateral agreement, including consideration, do not appear from any matter put in evidence. That the parties intended to form a collateral agreement altogether different in effect to the document they were proceeding to sign or had just signed would require full and clear proofs, which are not available.

36 It was then said that the vendor, by conduct after 20 September 2003, waived any entitlement to rely on the settlement date. The conduct referred to is the same conversation early in the due diligence period, continuing to deal with communications from the purchasers after 30 September, and by letter of 9 October 2003 offering to agree to 10 October as the date for practical settlement of the agreement.

37 I have already indicated what I think is the overwhelmingly likely interpretation to be placed by persons finding the facts on these events, that the vendor, like the purchaser, was pursuing its own perceived interests as it saw them at the time, and was not telling or indeed presuming to tell the other side what its rights were or what it should assume.

38 The whole relationship of sophisticated commercial parties dealing with each other over transactions in millions of dollars is altogether inconsistent with the idea that either side looked to the other to guide it through the dark woods and to find a pathway out.

39 It is particularly significant to dwell on the letter of 9 October 2003, document PTR.19, which is one of many communications passing between the parties during the period from 30 September to 17 October. That letter stated the vendor’s position about terms on which completion should take place and the impact of due diligence adjustments on the price. In this letter the vendor went beyond the terms of the due diligence adjustments which the contract authorised, as the purchaser had prompted it to do, as the vendor was prepared to agree to a reduction in goodwill of $351,000 as part of the calculation of the price to be paid, directly contrary to the provisions of the contract relating to matters open to adjustment on due diligence.

40 It appears plain to me that the purchaser was seeking a further advantage in terms of variation of the purchase price to those entitlements which the contract conferred on it, and had brought the vendor to the position where it was prepared to make a concession of that kind. The vendor proposed adjustments totalling $500,000 and made a number of other proposals, including “5: Practical settlement will be on Friday 10 October or such other date as CDS approves in writing. Please confirm your acceptance of these arrangements by return.”

41 As I said in the course of argument, I find it difficult to suppose that the vendor could have maintained that the purchaser was not entitled to settle up to 10 October in view of this letter. The basis, if there is one, for this line of thinking need not be explored because there was no attempt to settle within the time so indicated, and no other conduct which could arguably be put forward by the purchaser as conduct in reliance on any indication in the letter. As its own terms show, the letter attempted to bespeak written acceptance from the purchaser. There was never, in fact, any clear answer or complete answer to this letter.

42 It is extremely unlikely that it would be found at the hearing that, by offering to agree to settlement on 10 October, or some other date to be approved in writing, the vendor in some way caused the purchaser to form beliefs or views, or shaped the conduct of the purchaser in any respect, bearing in mind that the purchaser did not accept what the letter proposed.

43 After 9 October, as before, communications continued in which, to my reading, at no point did the purchaser state a clear or complete position for the information of the vendor about what the purchaser regarded as the due diligence adjustments or other adjustments, or what the purchaser was prepared to pay on settlement of the contract.

44 There was no clear point where these exchanges concluded; they were cut off by the vendor’s purported termination on 17 October. So if the purchaser had any good intentions or clear intentions about payment for goodwill, or about any other prospective favourable outcome, it remains unknown what precisely they were, and it cannot be known whether the vendor would have fallen in with them.

45 In my view the validity of the notice of 17 October 2003 does not fall to be tested by the grounds expressed in it, but by the entitlement, on the facts which actually then existed, of the vendor to give such notice at that time. Its contractual entitlement under cl.5.4(i) is altogether clear as the settlement date had passed.

46 In my view the plaintiff has very poor prospects of establishing that there are some grounds in equity on which the vendor should be restrained, or should be treated as having been restrained, from giving such a notice.

47 With respect to the balance of convenience the outcome of this application for an interlocutory injunction must have a very large impact on the controversy. If the plaintiff does not obtain its injunction, its prospects of ever obtaining specific performance will, to a high degree of likelihood, disappear soon, as it is likely that the vendor will complete another agreement it has made for the sale of part of the business to the second defendant.

48 Further, in the circumstances I have mentioned relating to the plaintiff not apparently being in a position to allege a breach of the express terms of the written contract, it is uncertain whether any remedy in damages at common law is available to the plaintiff at all.

49 The subject matter is a business. It must be operated, and someone must operate it, finance it and provide it with premises. All these are in peril. The vendor has to seek refuge in a sale to somebody, and with fair certainty will settle whichever sale it is able to settle in the very near future. I do not see any real prospect of the business being kept alive and marking time and being provided from its own resources with management, finance and housing for a continuing period while the litigation is resolved in detail.

50 Although there is no evidence on the subject, the probability that if there were an injunction the second defendant would lose interest and bring its commitment to an end, as it would soon be contractually entitled to do, has to be regarded. Any attempt to keep the business in existence in the hands of the vendor but not transferred to anybody at all appears to me to be likely to lead to its collapse, probably in a catastrophe as extensive as ejectment from its premises.

51 In my view, the balance of convenience very strongly favours withholding an interlocutory injunction. For those reasons an interlocutory injunction will be refused.

52 I am not prepared to reserve costs. The defendants achieved a full and clear success on the issues, which are not the same as the issues if the proceedings went to trial, and in my view they should recover costs. In terms of the undertaking as to damages, my impression is that there is unlikely to be significant loss and that does not attract a costs order.

53 The order is:

(i) Interlocutory injunction refused.

(ii) The first defendant is discharged from further compliance with its undertaking to the Court of 29 October 2003.

(iii) Order that the plaintiff pay the defendants’ costs of the application for interlocutory injunction on 27, 28 and 29 October 2003.

(iii) The first and second defendants have liberty to apply with respect to the plaintiff’s undertakings as to damages.

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Last Modified: 11/13/2003