B and B Group Investments Pty Ltd v Broughton
[2016] VCC 1873
•7 December, 2016
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-15-05203
| B & B GROUP INVESTMENTS PTY LTD | Plaintiff |
| v | |
| DAVID BROUGHTON | Defendant |
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JUDGE: | HER HONOUR JUDGE COHEN | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 23-26, 29-31 August, 9 September 2016 | |
DATE OF JUDGMENT: | 7 December, 2016 | |
CASE MAY BE CITED AS: | B & B Group Investments Pty Ltd v Broughton | |
MEDIUM NEUTRAL CITATION: | [2016] VCC 1873 | |
REASONS FOR JUDGMENT
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Subject:CONTRACT
Catchwords: Construction of special conditions; whether unfettered right to terminate by purchaser; whether implied term to act in good faith; whether defendant’s decision to terminate based on findings during due diligence; measure of damages where promise retains subject of sale but it becomes unsaleable
Cases Cited:Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2005) 256 CLR 104; Fiorelli Properties Pty Ltd v Professional Fencemakers Pty Ltd (2011) 34 VR 257; Silverbrook Research Pty Ltd v Lindley [2010] NSWCA 357; Robinson v Harman (1848) 1 Ex 850; Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; Clark v Macourt (2013) 253 CLR 1; BP Refinery (Westernport) Pty Ltd v Shire of Hastings [1997] 180 CLR 266 at 283 (Privy Council)
Judgment: For plaintiff
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D Carlile | RTC Legal |
| For the Defendant | Mr E Moon | Madgwicks |
HER HONOUR:
1 In December 2014, the parties entered an agreement for a sale by the plaintiff to the defendant of the business of the City Garden Hotel (“the business”). During the due diligence period, the defendant gave notice of his intention not to proceed with the purchase. The plaintiff disputed his entitlement to do so. It originally issued this proceeding seeking specific performance of the agreement, however, as the option to renew the lease of the premises was not exercised, its claim was amended to one for damages for breach of contract. The plaintiff now claims as damages the balance of the purchase price under the agreement, and associated costs. The defendant counterclaims for return of the deposit.
2 A contract of sale of the business was signed by both parties on 12 December 2014. Both parties had lawyers acting for them at the time. It is the construction of that contract, and in particular special conditions relating to due diligence investigation, which is at the core of this case.
3 The plaintiff’s case is that the defendant’s purported termination was in breach of that contract, was not accepted by the plaintiff, and that the defendant was bound to complete by paying the agreed purchase price. Specifically, the plaintiff argues that although the defendant gave notice of his intention not to proceed within a time frame provided under the special conditions, those conditions on their proper construction only entitled him to do that if he was relying upon information discovered during the due diligence process. It alleges that his decision not to proceed was not, in fact, based on what he learned from the due diligence investigation, so special condition 3.6 did not entitle him to give notice of intention not to proceed. Alternatively, the plaintiff alleges that there was an implied term that the purchaser must act in good faith in deciding whether to not proceed, and that the defendant was not acting in good faith, or acted unreasonably or arbitrarily, when he gave that notice.
4 The defendant denies that there was wrongful termination. His case is that on proper construction of the special conditions of the contract, specifically 2.1(b) and 3.6, he was entitled to “resile” by serving a Notice such as he did of his intention not to proceed, and that provided it was during the specified period of the due diligence process or three following days, he could do so for any reason. Alternatively, he claims to have had reasonable grounds to terminate as a result of information discovered during the due diligence review which threw into doubt the financial viability of the purchase. He denies that there was any implied term to act in good faith but, if there was, he claims to have so acted. Finally, he argues that even if he wrongfully terminated the agreement, the plaintiff has not proven that it suffered loss as a result, so that it is entitled to no further damages than retention of the deposit.
5 The issues to be decided therefore are as follows.
(i) Whether on proper construction of special conditions 2.1(b), and 3, particularly 3.6, the purchaser’s entitlement to terminate the contract was limited to being based on something adverse being discovered during the due diligence investigation, or whether it was unfettered.
(ii) If the right to terminate under special conditions 2.1(b) and 3.6 was dependent upon the emergence of relevant adverse facts in the due diligence investigation, was the defendant’s decision to terminate in fact a result of adverse information learnt from the due diligence investigation?
(iii) If the purchaser had an unfettered right to terminate the contract during the due diligence period, was there an implied term that he only exercise it in good faith?
(iv) If there was an implied term for the purchaser to act in good faith if exercising the right to terminate the agreement, was it breached by the defendant?
(v) If the defendant breached the contract by terminating it, what is the proper measure of the plaintiff’s damages, including whether the plaintiff failed to mitigate its loss?
Evidence
6 Much of the evidence consisted of documents tendered as set out in the attached schedule. In addition, the plaintiff called two witnesses: Mr Bing Han (also known as Jason Han), director and shareholder and the person who actively carried on the business of the plaintiff company; and Mr Allan Qian, the plaintiff’s agent at BBG Business Brokers who participated in relevant negotiations for the sale. The defendant’s witnesses were Mr Broughton himself, and Mr Tony Rossiter of Holman Accountants, whom the defendant had retained to conduct the due diligence investigation for him for this purchase.
7 There are issues as to the credibility and reliability of witnesses for both parties, which I have taken into account in assessing relevant parts of their evidence.
8 First, I found the evidence of Mr Han lacking in much detail or specificity. I have made allowance for the fact that he gave evidence entirely through an interpreter, and accept that his understanding of English and ability to speak it is very limited, although from my observations not non-existent. I had the impression that there may have been some misunderstanding of questions, and possibly some misunderstanding of answers through the translation process. It was not my impression that he was deliberately avoiding answering, but I did have the impression that I had not heard fulsome or entirely frank answers on some matters. In the end, however, the documentation was more important to most of the key issues, so even where I could not confidently rely on his answers alone, most issues did not ultimately turn on his evidence.
9 Mr Qian at the outset of his evidence asked to give evidence through an interpreter, although at times he answered directly in English. As it was through him that Mr Broughton had communicated and negotiated to the point of agreeing to purchase the business, and that was wholly in English, I take Mr Qian to have more proficiency in English than he was inclined to reveal in court. I take into account that many people whose first language is not English may manage to communicate in English in everyday life, but need or want the assistance of an interpreter to give evidence because of the formality of a court setting, legalistic language, and possible lack of precision in their understanding of English, including differentiating tenses. However, Mr Qian’s role as a selling agent for businesses can be assumed to require him to communicate quite specialist or complicated business matters with people who speak or negotiate in English, as even if his clients usually speak Mandarin, other participants in negotiations may not, such as Mr Broughton, and documentation will usually be in English. Although he explained that documentation such as contracts were prepared in his office by other personnel, I would have expected him to read and understand enough English to deal with contractual documentation in English. My impression was that Mr Qian was using the language barrier to avoid answering some questions. Also, I did not believe Mr Qian when he denied having acted as informal interpreter for Mr Han during meetings with Mr Broughton.
10 Notwithstanding these reservations about Mr Qian’s reliability as a witness, overall there were relatively few factual issues on which his credibility was relevant, and I shall deal with those specifically.
11 My initial impression of Mr Broughton as a witness was that he was intent on presenting as reasonable and truthful, and a little over-anxious in attempting to do so. As his evidence progressed, I formed the view that what he was saying was heavily reconstructed. I make no finding as to whether that was deliberate. My impression was that he was not nearly as confident in his own decision making as he had wanted first Mr Qian and Mr Han, and more recently the Court, to believe. My impression was that he was trying to justify his decisions, to himself, and more recently to the court, both as to signing the contract and as to giving notice that he would not proceed, and in doing so he blurred the lines of what he actually remembers.
12 Mr Broughton’s evidence also revealed efforts by him to portray the plaintiff’s business, and Mr Han, in bad light, inviting the court to infer illegal actions. These attempts I am satisfied were deliberate, both in his oral evidence, and in his requests for changes to the Due Diligence report of Mr Rossiter.
13 Another aspect of the evidence which in my view undermined Mr Broughton’s credibility generally, was that during the negotiations for the purchase of the business he had provided information about his own business experience and in particular about his financial situation which was considerably exaggerated[1]. This had been provided at various stages to be passed to the landlord for approval of a transfer and better lease terms, and no issue in this case turns on the accuracy of the information he provided. However, in my view it showed him to be willing to exaggerate to improve his position in achieving his business goals.
[1]On 7 November 2014 (Exhibit 5) he provided a CV which exaggerated his own involvement in running accommodation businesses, and a letter from his accountant that he or associated entities had $2million in funds available. In February 2015 (exhibit 37) he had provided to the landlord’s solicitors by his accountant a statement of his personal assets and liabilities showing cash assets of $3million and no liabilities. In contrast, in his oral evidence he disclosed that he personally had $200-300,000 to contribute had the purchase proceeded.
14 Overall these matters in combination have caused me to approach Mr Broughton’s evidence about the key issues with considerable caution, and where there is objective evidence available I have given more weight to it than to his word.
15 Mr Rossiter’s evidence I have accepted as generally reliable as to events or his memory of them. However, his admitted willingness to alter his report on his due diligence investigation, repeatedly, to include his client’s wishes - even when that involved changing his originally expressed opinions or changing the impact of some of his findings - led me to regard the final version of his report as what he calls “a collaboration” with his client, and not a reflection of his expertise and experience. As it was not put forward as an independent or expert report, there is nothing untoward in the process in which he engaged with his client, but I do not believe that the final version of his report reflects the professional opinion he would have given had he been retained to give independent expert advice to the defendant.
Findings as to Background facts and key events
16 As at December 2014, the City Garden Hotel was a residential hotel of about 62 rooms, operated from leased premises in Lt Bourke Street, Melbourne[2]. The plaintiff had acquired the business in 2011. It was operated by the Australian-resident director and shareholder, Mr Bing (“Jason”) Han, albeit mainly through staff. There was another shareholder and business partner who lived in China and took no active role in running the business nor in the attempted sale of it.
[2]There were two parcels of land and so two leases, but both from the same landlord and nothing turns on the fact of there being two leases.
17 Mr Han had moved to Australia from China in 2005. He speaks and understands very limited English, and does not read English, but had operated the business by retaining Mandarin-speaking people to assist, including the hotel manager, accountant and solicitor, and, when it was decided to sell the business, Mandarin-speaking agents. His daughter who is a student in Melbourne apparently speaks English well, and at times interpreted for him, but was not called as a witness[3].
[3]There was nothing made of the failure to call her, and no submission that I should draw inferences based on Jones v Dunkel
18 In 2013, due to a business opportunity in Laos which would attract his time and financial resources, Mr Han decided to put the plaintiff’s business on the market for sale. The evidence is unclear as to precisely which selling agents acted when, and is very limited about the level of interest in the purchase, but clearly a sale was not achieved before December 2014. I am satisfied that there had been a previous offer, at a price in the vicinity of $1million, and that it did not proceed because the landlord after taking some months to decide, did not approve the prospective purchaser as a tenant.
19 By mid-2014, Mr Han had appointed BBG Business Brokers (“BBG”) to sell the business, and within that agency the handling of the matter was allocated to Mr Allan Qian, although he had not negotiated the terms of the retainer nor taken the original listing.
20 Mr Broughton had been interested for some time in acquiring a leasehold hotel business in the city centre of Melbourne, but had found that such opportunities did not often arise as leaseholds of city hotels were tightly held, and some sales occurred without being advertised or openly marketed.
21 Mr Broughton intended to purchase such a business with one or more partners, from amongst a recent business partner (Mr Cooper), another previous partner Mr Burton, Mr Broughton’s father, and one or more of his brothers[4]. Although he described himself as an experienced accommodation operator, in fact he had no experience in running a hotel business in a metropolitan area, as his family had owned caravan and holiday park accommodation, and he personally had owned and run only one previous such business – a holiday park in Merimbula NSW. He had more recently co-owned a franchise of a serviced apartment business in a regional town in Victoria, but his business partner in that (Mr Cooper) had been the resident manager.
[4]T 353, lines 15-26. He subsequently said a Mr Jackson might have been interested but Burton would not be interested in this particular venture - T
22 On one or two occasions in the six to 12 months before these events, Mr Broughton had made telephone inquiries about an advertised hotel business for sale, which was probably the City Garden Hotel, but he had been told that the advertised business was not then available as it was subject to an offer. On one of those occasions he spoke to Mr Allan Qian at BBG, and was told that the business was under contract. As months went by he saw again advertised what appeared to be the same hotel business. I am satisfied that it was the City Garden Hotel business that was advertised, and in at least one of the advertisements described as in a “good or great location”, CBD, with a turnover of $2.1million and 15 years lease.
23 In October 2014, Mr Broughton again contacted Mr Qian, and on being told that the previous contract was unlikely to proceed because the landlord had not approved the purchaser due to lack of experience, he offered to send details or references as to his own long history. Mr Qian invited him to do that and said he could potentially organise an inspection. Mr Broughton forwarded CVs of himself and Mr Cooper[5] and Mr Qian contacted him to arrange a site inspection.
[5]By email 21 October 2014, contained in Exhibit 4
24 In late October or early November he met Mr Qian and Mr Han at the hotel. He was shown through the premises, and during this inspection there was some discussion of turnover and of the lease terms. He asked for confirmation of details in the advertisement. I am satisfied that Mr Qian answered when he could, and gave interpreting assistance when questions had to be referred to Mr Han. Both Mr Han and Mr Qian claimed very limited recollection of detail of these and later conversations at the hotel that day. I am satisfied that Mr Broughton did ask about turnover and was given the impression that the details in the advertisement were correct, at least in a general sense. I am also satisfied that he asked about the tenure under the lease, and was told that there was the balance of the lease – approximately two years- plus two options for further terms of 5 years each, being a total of 12 years available.
25 Mr Qian then suggested he take Mr Broughton for a coffee nearby to discuss further Mr Broughton’s level of interest. Mr Broughton said he was interested, at a price of around $950,000. He said he would like to proceed by way of heads of agreement to incorporate the opportunity for a due diligence process, but was told by the agent that that would not be likely to be agreed because there was already a contract in place with someone else, and although it was not likely to proceed, the vendor would not want to withdraw it from the landlord’s consideration without having another contract to put to the landlord. Mr Qian thought the price range $950,000 was in acceptable range, so they both then returned to the hotel for it to be put to Mr Han. Mr Han indicated that price range would be acceptable, and there was some further discussion and questions for Mr Han, through Mr Qian.
26 Although perspectives and exact recollections varied of what was said and done, there is only one relevant difference in the three men’s accounts of what occurred on the day of their first meeting. That difference relates to whether Mr Han gave Mr Broughton a copy of what is called the “Manager’s Yearly Report” from the RoomMaster computer booking system on which the business operated. That document would have given an up-to-date record of room bookings, and through it gross receipts, over the previous year.
27 Mr Han said that he printed that off from his computer in his office, with Mr Broughton present in his office, and gave it to him[6], and then discussed some financial matters with him. Mr Qian said he saw Mr Han give Mr Broughton “papers”, but did not know what it contained because the office was so small that he could not fit inside with the other two men[7]. Mr Broughton also recalled the office being very small, but said he could not recall receiving this document and has subsequently looked for and cannot find such a document.
[6]T143-4
[7]T233
28 The defendant’s counsel submits that I should not believe Mr Han about this, because while Mr Qian said that occurred after he and Mr Broughton had returned from having coffee, Mr Han had described the RoomMaster report being provided before the other men went for coffee. Given the manner in which Mr Han’s evidence was elicited, I do not regard that as a significant difference, because Mr Han was essentially led into that chronology, and ultimately he said he could not recall what happened after the other men returned from the café. Neither he nor Mr Qian were cross-examined as to the specific timing.
29 I was inclined to believe Mr Broughton’s evidence that he could not recall receiving that document on that occasion nor finding it on later searches. Further, while not recalling receiving it is not necessarily inconsistent with the evidence of Mr Han, I put some weight on the submission from the defendant’s counsel that it is objectively unlikely that Mr Broughton was given that document that day because Mr Broughton showed a pattern of reading material provided and questioning it promptly if not in accord with what he had otherwise understood or been told, and there is no evidence that he questioned the content of the Manager’s report, even after he received copies of the plaintiff’s 2013 financial statements soon afterwards which showed lower receipts.
30 However, Mr Broughton’s subsequent elaboration[8] caused me to doubt his reliability altogether on this issue. He said that he did not believe that Mr Han would have had been willing to pay for the RoomMaster software to be installed on the computer in the small office because he knew it was expensive and he did not believe that Mr Han visited often enough to warrant paying for that[9]. He even intimated that he did not believe Mr Han would have used it enough to remember how to produce such a report quickly. Not only was that explanation pure speculation by Mr Broughton, the fact of the software and particular document being accessible from the computer by Mr Han was confirmed by Mr Rossiter, who spent some hours on 4 May, 2015 at the hotel premises asking questions and requesting copies of documents during his due diligence investigation, and who confirmed being given a printout of this and other documents by Mr Han from the RoomMaster system on the computer in the office.
[8]T 369 l30
[9]T369, l30 – 31; T370, l 4-19
31 This part of Mr Broughton’s evidence appeared to me to be embellishment on his part, and a reflection of his trying to produce explanations to justify his subsequent actions, and to make those explanations derogatory about Mr Han and the plaintiff’s business. I find that he was not giving reliable evidence about this issue when he made those comments.
32 As to whether that document was in fact provided on the first inspection as Mr Han says, I find Mr Han’s evidence about it the most credible of any of the witnesses, and it was not in my view significantly undermined. However, I accept the point made by the defendant’s counsel and regard it as a more objective measure of likelihood about this disputed fact, that there was no query by Mr Broughton after receiving the 2013 tax return in the next week or so about the discrepancy between it and the figures for receipts that would have been shown in the Manager’s report, and as his other actions all reflect a prompt reading and response to other information provided, I should infer from lack of query about that discrepancy that he in fact did have the Manager’s Yearly report. In the end, although I found Mr Han’s evidence on this more reliable than the other two witnesses about it, I am not satisfied on the balance of probabilities that the Manager’s yearly report from the RoomMaster system was given on that day to the defendant.
33 Soon after the meeting and discussions at the hotel premises, some further documentation was requested by Mr Broughton from the plaintiff’s solicitors and accountant. A copy of the leases of the hotel premises, and the plaintiff’s 2013 tax return and financial statements were provided. He queried why the lease only appeared to have one option for a further 5 years, and was given as an explanation that the landlord had promised a further option for a further term of 5 years but it had been agreed to be left without documentary confirmation until the next renewal. He queried the lower income (receipts of $1,769,000) than had been advertised ($2.1million), and was told by Mr Qian that this had increased since June 2013 and the 2014 financial statements would show it as about $2 – 2.1million.
34 On 7 November, the defendant emailed Mr Qian asking for a meeting with the landlord, and forwarding resumes for his own and Mr Cooper’s business history, and also a letter from his accountant as to his financial resources, and other references. He also outlined his intentions, in that he was interested in carrying out extensive renovation to a cost of up to $1million, and wanted lease terms affording a minimum of 20 years availability but ideally 25-30 years, and allowing a security by bank guarantee of three months’ rent rather than cash deposit[10]. In this material his personal experience in accommodation businesses, and his financial resources, were in fact greatly overstated[11], but that is relevant only to Mr Broughton’s credibility as a witness.
[10]Exhibit 5
[11]The accountant’s letter (part of Exhibit 5) stated that Mr Broughton and associated entities had up to $2million funds available, which was not correct – T 377. He had owned and run only one of the accommodation businesses he listed.
35 The defendant had retained lawyers for his proposed purchase. A draft contract had been prepared by someone in the office of BBG other than Mr Qian. On 20 November the defendant’s lawyer forwarded to that person at BBG a set of proposed special conditions to be inserted into the contract[12], which although containing an equivalent to what ultimately became 3.6, also had significant differences from the eventual version[13].
[12]Exhibit 6
[13]Two conditions precedent were different and not included in the final version – the second significantly as to new terms of lease to be obtained, providing options for 20 more years, market rent reviews on renewal, and security deposit of 3 months rent by bond. Further, the due diligence period was to be 28 days.
36 There was a form of contract signed by Mr Broughton before a final agreement had been reached, which he says he was told by Mr Qian was to be put to the landlord to get the approval of transfer process started.
37 Agreement in principle was reached at a further meeting between Mr Han and Mr Broughton, with Mr Qian present, and also Mr Han’s daughter to help interpret. This was at Crown Casino[14]. At this meeting there was some further discussion of terms, which I am satisfied included that the defendant wanted a due diligence process, a concept apparently understood by Mr Han. There was negotiation on price (to a modest degree), and Mr Broughton offered $930,000 to purchase the business, which was accepted. The provision of more financial information, and the drawing of terms for a written contract, was to be referred to lawyers for both sides, and the plaintiff’s accountants.
[14]Working back from correspondence of 8 December, this must have been on either December 6 or 7, 2014.
38 On Monday 8 December the defendant’s solicitor emailed the plaintiff’s solicitor advising that he had been instructed that their clients had agreed over the weekend on a purchase price of $930,000 inclusive of all stock, and a settlement date of 2 February 2015. That solicitor attached special conditions to be included in Schedule 7 of the Sale of Business contract. The following day the plaintiff’s lawyer responded that she would obtain instructions. There was no further debate about the proposed special conditions, and a contract was prepared by the plaintiff’s solicitors including those special conditions.
39 On 8 December, Mr Broughton emailed the plaintiff’s accountant asking if the 2014 financials had been completed and could be provided to him. The accountants responded that the 2014 financials were not finalised but they would do their best to complete them by that Friday[15].
[15]Exhibit 9
40 On Thursday 11 December there was communication about the defendant needing confirmation of the extra 5 year lease option (taking the total lease terms available to 12 years). Mr Broughton told his solicitors he would not want his due diligence period to start before the extra option was confirmed. The situation was resolved by the insertion of another special condition - 2.1(a).
41 Both parties signed the contract on Friday 12 December, 2014.
42 Mr Broughton enquired of his solicitors for confirmation of exchange of signed contracts, and whether he should or could now pay the deposit and whether to pay it directly to the agent’s business account[16]. His solicitor responded that the contract allowed the deposit to be paid to the vendor’s selling agent but it should be paid to a trust account and not business account[17]. Mr Broughton paid the deposit of $93,000 to the agent’s trust account that day[18].
[16]Exhibit J
[17]Exhibit K
[18]Exhibit L
43 The 2014 financial statements had not been provided by Friday 12 December to Mr Broughton, and although he did follow up later the following month[19], they were not in fact provided until the beginning of May 2015 for the due diligence investigation. When provided they showed gross receipts of $2,017,537, and an operating profit of $157,725.
[19]Exhibit M
44 It took much longer than had been hoped[20] for the landlord’s lawyers to confirm and forward agreement to vary the lease by adding an option for one further 5 year term, and to transfer the tenancy on the proposed purchase. Those agreements were received on 23 April 2015. On 27 April 2015 the defendant’s solicitors confirmed satisfaction that those agreements had been obtained, thereby activating the due diligence process.
[20]Eg Exhibit N
45 The defendant had appointed an accountant, Mr Tony Rossiter, whom he knew to be experienced in conducting due diligence investigations of businesses. Financial and other documentation and information was requested and provided.
46 On 4 May, 2015, Mr Rossiter flew from Brisbane to Melbourne and attended at the City Garden Hotel where he was met by Mr Qian and introduced to Mr Han and his daughter. He interviewed Mr Han over a three hour period, from his check-list of questions, with Mr Han’s daughter interpreting. He was provided with documents he requested, including documents produced from the RoomMaster reservation system with which he was familiar, and which included a print-out of a Manager’s yearly report. He also received documents he requested from the MYOB book-keeping system. He received responses to most of his questions[21]. He was also taken on a tour of the property.
[21]T 486, lines 17-22
47 Mr Rossiter questioned Mr Han about the reception staff, whom he thought were being paid below the award. He also formed the view that the amount being paid for cleaning staff through a contractor was very low and doubted a purchaser could replace that labour requirement with a contractor who would accept so low an amount. He considered that considerable upgrading of the state of the premises was required and would be costly.
48 I am satisfied from Mr Rossiter’s evidence that he questioned a difference between the reported income in the 2014 tax return and financial statements, and sales reflected in the RoomMaster records, the latter being higher. Further, although he did not give oral evidence about it, there was mention in his correspondence with the defendant that he had been shown a separate cashbook by Mr Han which reflected higher receipts than shown in the 2014 tax return and statements. Mr Han agreed that he had shown Mr Rossiter a cashbook[22]. Mr Rossiter spent a full morning at the hotel carrying out his inquiries.
[22]T 217, l 12-17
49 The following day Mr Rossiter had a telephone conversation with the defendant from a taxi on his way to the airport. He raised the following concerns.
· The condition of room fit-out was quite poor and would require significant money spent.
· Employees appeared to be receiving payment below award rates which would not be sustainable so extra cost had to be expected from those of the vendor.
· There appeared to be some discrepancy between the reported income in financial reports and cash sales, and as that is very difficult to verify, it created some significant uncertainty generally about the quality of the records provided.
He told Mr Broughton that it would take some days to analyse the information that he had obtained in detail and to issue a draft report. The whole conversation took about 10 minutes.
50 Mr Broughton says that in the next two to three days he discussed the situation with his father and elder brother, both of whose advice he often sought and trusted.
51 On 8 May 2015 the defendant’s lawyers wrote to the plaintiff’s lawyers, advising that the defendant did not wish to proceed with the transaction in its current form, but wanted to vary the contract to obtain better tenure terms from the landlord.
52 Under a heading “Notice of Intention not to Proceed”, the letter stated:
• That the due diligence inquiries revealed that if they proceed in the current form the purchase of the business “is not commercial and will not provide them with an acceptable return on their investment.”
• The client’s view was that the business will require the injection of significant capital for a required full refurbishment of the apartments and common areas;
• Given what the due diligence investigation had revealed regarding the profitability of the business and the onerous terms (particularly with regard to the bond and fixed rates of rental increase) and lack of tenure in respect of the leases, the opportunity to recover their investment and derive and an acceptable return was limited and too risky to be acceptable.
53 Then, under a heading “Contract Variation”, the same letter stated that the defendant was prepared to proceed with the transaction if the conditions precedent could be varied to the effect that by 30 June 2015 the landlord and purchaser enter either new leases or variations to the current leases -
- removing the security bond requirement to be replaced with the payment of three months’ rent in advance;
- granting three further five year options to extend the possible leases to a total of 25 years;
- maintaining 4% annual rental increases within each term, but granting to the tenant an option for a rent review to market at the commencement of each new term;
- the tenant having the right to assign or transfer the lease after 30 days of notifying the landlord unless the landlord objected on reasonable basis;
- the landlord agreeing to the purchaser conducting capital works to attract a 4 Star rating or equivalent within six months of completion.
The variation sought also proposed return of the deposit to the purchaser if the purchaser could not procure the lease conditions it wanted by 30 June 2015.
54 The letter asked to be notified of the vendor’s agreement to the variation within five days, and if that were not received, the correspondence was to be treated as notice of the purchaser’s intention not to proceed with the transaction under Special Condition 3.6, and if that occurred, the deposit would be expected to be returned to their client promptly.
55 On 14 May, the plaintiff’s solicitors responded, disputing the right of the purchaser to terminate the contract and setting out reasons. The defendant’s solicitors responded disputing the plaintiff’s solicitors arguments.
56 The first draft of Mr Rossiter’s Due Diligence Review[23] was forwarded to Mr Broughton on 18 May, 2015. The covering email invited advice as to any queries he might have or whether he was happy for them to finalise the report. Next morning Mr Broughton responded, with a number of points on which he considered the expenses should be much higher, and noted that it would result in a loss projection, and also urging reference to cleaning contractor payments not being legal. Mr Rossiter responded, and explained why he was reluctant to refer to mentioning cash receipts or calling them illegal.
[23]Dated 19 May 2015, contained in Exhibit 25
57 Mr Rossiter did send a revised draft report which significantly changed some sections. Mr Broughton again asked for changes, pressing that the rates being paid to the cleaning contractor would not be legal so much higher rates would need to be paid, increasing a budget for advertising, and pointing out that the projected profit for 2016 would be likely instead to be a loss, and emphasising the poor state of bookkeeping.
58 The last version of the Due Diligence Report is dated 22 May but was in fact finalised on 2 June. It incorporated all that Mr Broughton had requested as changes. The most significant changes were:
(i) The 19 May version stated[24] that “nothing has come to our attention that causes us to believe that the Profit and Loss Statement for the 12 months ended 30 June 2014 is materially misstated except for the matters raised below[25]”. By the final version the same paragraph read that they had identified several matters which caused them to believe that the Profit and Loss Statement for the 12 months ended 30 June 2014 was misstated. The areas of concern included :
[24]Para 2.2 – Exhibit 25
[25]These included poor booking, that the Vendor’s Profit and Loss Statement include a significant number of misallocated expenditure and poor classification of business expenses, and also raise unsustainably low wages to reception staff and payment to cleaning contractor. They do not mention cashbook or undisclosed cash
- there appeared to be significant undeclared cash sales which are reported in the booking stem but omitted from the Financial Statements;
- the cleaning contractor’s rates and reception wages appeared to be unsustainably low;
- generally the quality of the record keeping was considered poor.
(ii) The 19 May version produced a projected Cashflow and Profit and Loss projections for the next 12 months (to 30 June 2016) showing projected gross cash inflow of $2,216,000 and a projected net profit of $157,725, said to be an accurate representation of the achievable cashflow[26]. The last version had reduced the projected net profit to $17,501[27].
(iii) The final version had additional paragraphs including – “We note there is a significant discrepancy between the gross income reported in the Vendors Room Master booking system gross revenue and that reported in the Accountant prepared Financial Statements. The Vendor was unable to provide a reliable reason for the discrepancy however the Vendor did provide a journal which allegedly recorded cash sales made by the business which were not entered into the MYOB bookkeeping system nor shown in the Accountants Financial Statements.”
[26]Exhibit 25
[27]Exhibit 27
59 In June 2015 the plaintiff appointed two different agents on a general authority to try to sell the business, at an asking price of $850,000. No offers were received. In February 2016 the plaintiff gave one of those agents an exclusive authority, at higher commission and lowered the asking price to $500,000.
60 On 22 March 2016, a contract was signed with a different purchaser, Ausuni Investment Management Pty Ltd, for a price of $420,000. That was only nine days before the final day for exercise of the option to renew the leases, and as the new purchaser failed to provide information required to obtain the landlord’s approval to a transfer of lease before 31 March 2016, the plaintiff decided not to exercise the option to renew the lease. When the purchaser’s information was eventually provided, the plaintiff asked the landlord to allow later exercise of the option but that was refused. The new purchaser was therefore released from its contract and the deposit returned.
61 The leases on the business premises were to expire on 30 September 2016, and the plaintiff’s business was expected to cease as at that date.
Did the contract entitle the Defendant to resile for reasons other than information discovered in the due diligence process?
62 The key special conditions in the contract signed by both parties are as follows.
“2. Conditions Precedent to Completion
2.1 Completion is conditional on the conditions set out…below (Conditions) being fulfilled, or waved under clause 2.3, on or before the Completion Date or any other date agreed by the Vendor and the Purchaser in writing.
(a) The Vendor providing proof to the satisfaction of the Purchaser that the Landlord of the Premises has agreed to provide the Vendor (as tenant) with an additional option (over and above that currently enjoyed) to extend the lease for a further term of 5 years
(b) That the Purchaser will not have delivered a written notice to the Vendor stating that it thereby elects to resile from this agreement in terms of 3.6 below on or before 17:00 on the third day following the expiry of the Due Diligence Period set out in Special Condition 3.”
Both conditions precedent specified that the purchaser was the party entitled to benefit.
63 “3. Due Diligence
3.1 From the date of satisfaction of condition 2.1(b) [means (a)][28] and continuously thereafter for 14 days (Due Diligence Period) the Vendor will afford the Purchaser and its nominated advisers unrestricted access to all of the books, records, documents, assets, premises and personnel of the Vendor and the Business (Business Records) to conduct a thorough due diligence investigation into the past and current affairs and prospects of the Vendor and the Business (Due Diligence).
3.2 In the conduct of the Due Diligence, the Purchaser and its nominated advisors will be entitled, subject to 3.3 below, to have access to and take copies of and extracts from all of the books, records and documents referred to in 3.1 above all of which will be returned to the Vendor if the Conditions are not fulfilled or this agreement is terminated for any other reason.
3.3 The Purchaser will maintain the utmost confidentiality with regard to all information and documentation obtained by it in the conduct of the Due Diligence and will not use any such information or documentation save and except for the purpose of making its decision whether or not to deliver the notice contemplated in 3.6 below (read with 2.1(b) above) and otherwise for implementing and enforcing this agreement.
3.4 …
3.5 Without limiting anything aforegoing the Due Diligence will include verification of the Business Records and all warranties and indemnities given by the Vendors in terms of this Contract.
3.6 Having conducted the Due Diligence the Purchaser will be entitled to deliver a written notice to the Vendor recording its decision not to proceed with this Contract as contemplated in 2.1(b) above.[29]”
[28]The parties both agreed that this was an error and that clause in the contract was intended to refer to condition 2.1(a)
[29]Emphasis added
64 The defendant argues that on its plain words, and in its natural and ordinary meaning, condition 3.6 gave him as purchaser a right to deliver a written notice recording his decision not to proceed with this contract for any reason. The plaintiff argues that this condition required any notice of intention not to proceed to be as a genuine result of something discovered from the Due Diligence conducted.
65 The relevant principles for construction of a contract, as most recently summarised by the High Court[30] are as follows[31].
[30]Mount Bruce Mining Pty Ltd v WrightProspecting Pty Ltd (2005) 256 CLR 104; [2015] HCA 37 at paragraphs [46] – [51]
[31]Omitting footnotes.
“[46] The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
[47] In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry 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.
[48] Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.
[49] However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.
[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.
[51] Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption "that the parties ... intended to produce a commercial result". Put another way, a commercial contract should be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".
66 The defendant argues that the natural and ordinary meaning of the words at the beginning of special condition 3.6 - “Having conducted the due diligence” - is to impose a requirement as to timing only, namely when the purchaser could serve his notice of intention not to proceed, but not otherwise to tie or require the giving of notice to be dependent on the due diligence process contained in the preceding parts of special condition 3. It is argued that to construe the words as imposing an obligation to only exercise the power to terminate in circumstances that arose from the due diligence process would be to introduce words into the contract that are not there, were not the subject of the agreement, and are not necessary to give business meaning to that clause. The defendant submits that there are other wordings which could have been chosen to make clear that the parties intended any exercise of the right to terminate under special condition 3.6 to be dependent on something arising during or as a result of the due diligence process.
67 The defendant submits that construction of these provisions should also take into account the evidence that they were included in the terms promoted by the defendant’s solicitor, and without any comment from the plaintiff’s solicitors.
68 Next, the defendant’s counsel argues that not only was clause 2.1(b) expressed to be for the benefit of the purchaser, but overall the terms of the contract were favourable to the purchaser to the extent that that is indicative that condition 3.6 should be construed in his favour. It is pointed out that the terms did not actually require the deposit to be paid until much later than it was, although I do not see that as having much significance as the defendant’s solicitor did not point that out to him but only advised him to make sure it was paid into the agent’s trust account. It is also submitted that the effect of these terms was to give the purchaser an option to purchase which at his discretion he could terminate provided that occurred during the time frame provided.
69 The plaintiff argues that the temporal requirement is already imposed through special condition 2.1(b), and that the position of clause 3.6, coming under the heading and at the end of other provisions as to due diligence, should lead the court to construe the right to terminate under 3.6 as reliant on matters arising from the due diligence process.
70 The plaintiff’s submissions outlined the content of the preceding clauses under Due Diligence, in particular that clause 3.1 provides for a 14 day due diligence period during which the vendor would afford the purchaser unrestricted access to all records, premises and personnel to conduct a thorough due diligence investigation into the past and current affairs and prospects of the vendor and the business, and clause 3.3 protects confidentiality and restricts use of all information and documentation so accessed “save and except for the purpose of making its decision whether or not to deliver the notice contemplated in 3.6 below (read with 2.1(b))”. It is submitted that this links the purpose of the making of the decision under 3.6 with the content of the due diligence investigation and information obtained.
71 Further, the plaintiff argues that as special condition 3.5 provides that the due diligence will include verification of the business records and all warranties and indemnities given by the vendor in terms of the contract, it again links the potential giving of notice under clause 3.5 to the process and scope of the due diligence.
72 The plaintiff goes further to submit that there must be implied into clause 3.6 an obligation to act in good faith and not for reasons that were capricious or arbitrary or unreasonable, relying on Silverbrook Research Pty Ltd v Lindley.[32]
[32][2010] NSWCA 357
73 Having read the relevant clause many times, and having considered the submissions of both sides, I am of the view that the opening words of special condition 3.6 are genuinely capable of two possible meanings - that is as a purely temporal limitation on when a notice of the purchaser’s intention not to proceed may be delivered, or requiring the giving of such notice to arise from or be based on the due diligence investigation.
74 Applying the relevant principles of construction, I turn first to consider the objective factors within the terms of the contract itself which are relevant to determining the meaning of special condition 3.6.
75 First, by its form and overall terms, this was a contract of sale and not heads of agreement, nor an option to purchase at the purchaser’s discretion. This tends to reflect an objective intention by the parties to be bound by their agreement, and not for there to be a purely discretionary right of the purchaser to notify that he did not intend to proceed, albeit within a time period determined by reference to a due diligence period.
76 Secondly, looking at the interplay between special conditions 2.1(b) and 3.6, if the latter were intended to give the purchaser an unqualified right to terminate the contract within a certain timeframe but not necessarily connected with the outcome or findings on due diligence, then viewed objectively there is no apparent reason to tie the timing of the exercise of the notice of intention not to proceed with the due diligence process itself. If it were merely a “cooling off” period, there is no reason for the existence of clause 3.6 because special condition 2.1(b) could have achieved that result with the omission of the words “in terms of 3.6 below”. Further, coming as it does at the end of provisions as to due diligence, there is no reason for the entitlement to give notice of intention not to proceed to appear unless “having conducted the due diligence” is to be construed as requiring a causative connection between the result of the due diligence and the entitlement to deliver written notice of intention not to proceed by the purchaser.
77 Thirdly, the placement of 3.6 under a heading “Due Diligence” and noting in particular that 3.3 ties the use of confidential information not merely to the performance of the investigation but to the making of the decision whether to give notice under 3.6, in my view points towards the meaning contended by the plaintiff.
78 I do not overlook that 2.1(b) specifically states that the party entitled to the benefit of 2.1(b) is the purchaser. However, that is not specifically repeated in respect of special condition 3, and even though there is reference to 3.6 in 2.1(b), the meaning of 2.1(b) itself is not undermined nor the benefit to the purchaser lost by giving an otherwise warranted construction to 3.6.
79 Next, it is necessary to ask what a reasonable businessperson would have understood this term to mean. In my view, in the context of a contract for sale of a business, a reasonable business person would understand the very existence of terms as to due diligence to be for the purpose of allowing the purchaser access to the business records and information so as to verify commercial information and assess the past current and future profitability of the business. The only reason for there to be such a process provided would be to enable a purchaser who found that the facts or records were not as had been anticipated or represented during negotiations, or something else adverse about the business the subject of the agreement, to take what recourse might be available or chosen. In my view a reasonable businessperson on reading special condition 3.6 would not take the initial words to refer only to a time limit for electing to withdraw from the purchase, but as importing some content of the due diligence process into the exercise of the right to give notice of not proceeding.
80 For these reasons I consider that it is possible to determine the meaning of clause 3.6 without recourse to circumstances outside the terms of the contract itself. However, if I am wrong, and as I have found the clause to be ambiguous, there are some circumstances external to the contractual document itself, which I consider relevant to this question of construction. First, there is evidence that this document was intended to be a contract of sale, and not heads of agreement. Mr Broughton himself gave that evidence, in that he said he asked that the purchase proceed by way of a heads of agreement dependent on conclusion of a due diligence process, but was told by the agent that only a contract would be acceptable because an earlier contract would be withdrawn before this one could be put to the landlord. That in my view supports the construction that it was not intended to be in effect only an option to purchase which could be terminated wholly at the instance of the purchaser provided it was done within a specified period.
81 The defendant’s submission that it is relevant that the clause was proposed by the purchaser’s solicitor and not challenged by the vendor’s, does not in my view assist the defendant on this issue of construction. That is because if clause 3.6 was understood by the vendor or its solicitors to connect the right to serve a notice to something adverse being discovered during due diligence investigation, it would be consistent that there was no perceived need to change the wording proposed.
82 Finally, I have taken into account that the applicable principles of construction also include that a court is entitled to approach the task of giving a commercial contract a construction on the assumption that the parties intended to produce a commercial result. The defendant’s counsel submitted that the effect he urges in the construction of condition 2.1(b) with 3.6 is that the contract effectively was no more than an option to purchase which the defendant could terminate for any reason whatsoever provided it occurred during the period of due diligence or the following three days. In my view, that submission assists to crystallise why the defendant’s contention should not be accepted as to the proper construction of these provisions in this contract. In my view there is nothing to indicate that the parties did not intend by this contract to produce the commercial result of a sale of the business, subject to due diligence investigation not revealing anything adverse of relevance, but not merely to create an option for the defendant to purchase at his discretion.
83 For these reasons I find that on its proper construction, special condition 3.6 limited the purchaser’s right to serve a notice not to proceed to circumstances where the due diligence investigation had resulted in information being discovered which was adverse to the purchaser proceeding.
Was the defendant’s decision to not proceed in fact a result of adverse information learnt from the due diligence investigation?
84 Mr Rossiter’s initial written report was not forwarded to the defendant until 10 days after the defendant gave notice of his intention not to proceed, but I find that he had a conversation with Mr Rossiter as to his initial findings on 5 May 2015. I also infer that he had access to much of the documentation by way of financial records that had been provided in the days before Mr Rossiter came to Melbourne and had been requested for the due diligence investigation.
85 Mr Rossiter said that he spoke by telephone to Mr Broughton on 5 May for about 10 minutes, and in his evidence isolated three main issues raised. One was the poor state of fit-out and that significant funds would need to be spent on upgrading the standard of fit-out in rooms and common areas. I am satisfied that this issue was already known to the defendant who had not only inspected the hotel himself, but had expressed his intention to spend up to $1 million in upgrading the premises and furnishings[33].
[33]Exhibits 4 & 5 – emails of 7 November 2014
86 Mr Rossiter also raised with Mr Broughton that employees appeared to be receiving payment below award rates which would not be sustainable, so extra cost had to be expected from those of the vendor. He also told Mr Broughton that there appeared to be some discrepancy between the reported income in financial reports and cash sales, and as that is very difficult to verify, it created some significant uncertainty generally about the quality of the records provided. I am satisfed that he must have mentioned seeing a cashbook because Mr Broughton urged it be mentioned in the report when responding to the first draft of the review report.
87 I am satisfied that there were matters discovered by Mr Rossiter during the due diligence investigation which, viewed objectively, could well have had relevance to the commercial decision of the defendant as to whether or not to proceed with the purchase of the business. Although not all of these became known to Mr Broughton before he received the initial written report[34], I shall mention them anyway for completeness. The matters I find of relevance which were discovered through the due diligence investigation are the following:
[34](vi) and (vii)
(i) There were differences between records of the recorded income or receipts of the hotel. Specifically, receipts in the income tax returns and profit and loss statements, as prepared by the plaintiff’s accountants, for the financial years ending 30 June 2013 and 30 June 2014, were less than the amounts recorded in the computer records under the RoomMaster program. For the 2014 year, the room rental receipts recorded in the financial records prepared by the accountant, and declared in the tax return, were $1,972,320, whereas the RoomMaster Manager’s yearly Report recorded the total as $2,123,715. For the year ending 30 June 2013, the total for rental receipts in the tax return was $1,769,030, whereas the total in the RoomMaster Manager’s yearly report was $2,017,052.[35] Further, there was mention[36] in Mr Rossiter’s reports of a cashbook shown to him by Mr Han, and a list of what was said to be cash amounts recorded in it, for 2014 totalling $183,988.53[37]. However, the evidence does not enable any direct finding as to what that might have represented, and in particular, if it represented undeclared cash income, whether that was additional to the amounts shown in the tax return or the RoomMaster records.
[35]Room Master manager’s yearly reports – Exhibit P
[36]At Mr Broughton’s urging and against Mr Rossiter’s initial intentions
[37]Exhibit 25, CB 666
(ii) The discrepancy between income stated in the RoomMaster records, possibly a cashbook, and the amounts disclosed in the taxation returns and financial statements could, objectively, raise some overall doubt as to the reliability of the records.
(iii) Mr Rossiter found the standard of bookkeeping to be poor, and considered that the Vendor’s Profit and Loss Statement was not a particularly accurate representation of the trading result of the business for the 12 months ended 30 June 2014, with a significant number of misallocated expenditure items and poor classification of business expenses[38]. However, his initial draft of his report also stated[39], that he was able to cross-check key expenditure amounts against industry benchmark expenditures, and conducted sample testing of income to bank deposits and expenses to original invoices.
[38]Exhibit 25, 19 May 2015 report, end para 5.1
[39]Exhibit 25, 19 May 2015 version, para 6.1
(iv) The total wages being paid to reception staff appeared to Mr Rossiter inadequate having regard to award rates, and if the purchaser was to maintain 24 hour a day staffing at reception at anticipated occupancy rates. This meant a likely greater expense for such wages for the purchaser than was recorded in the vendor’s 2014 profit and loss statements.
(v) The amounts being paid for cleaning appeared considerably lower than would be expected or could be sustained by an incoming purchaser. The plaintiff was paying for this work through a contractor, at an hourly rate which was below award rates for hotel cleaners, so the purchaser was unlikely to be able to sustain the current level of cleaning costs particularly if the current contractor were not retained. That meant a likely greater expense for cleaning than the vendor’s.[40]
[40]The defendant was determined throughout this case to press upon the court that the payments to cleaners were illegal. What that overlooks is that from the plaintiff’s position it was paying a contractor, which charged out its services at a rate that was apparently low by industry standards. If the cleaning staff were being paid less than award rates, it would have been improper for the hotel operator to knowingly condone that, but as it was not the direct employer it may well not have been illegal.
(vi) Mr Han was drawing a wage of some $50,000 and also expenses for private travel and motor vehicle, which would not continue after the purchase.
(vii) The room occupancy rate in 2014 was 75%, lower than for 2013, and both being below expectations for a hotel in that location. That left scope for improved occupancy and income;
88 The question for me to decide is whether any of those matters, or any I am satisfied were likely to have been known to Mr Broughton by 8 May, were genuinely part or all of the basis for him giving notice that he did not intend to proceed under special condition 3.6 of the contract.
89 The defendant’s solicitor’s letter giving his notice of intention not to proceed, touched only indirectly on any of the matters that were actually newly discovered through the due diligence investigation, in stating that the due diligence inquiries revealed that if they proceeded in the current form, the purchase of the business “is not commercial and will not provide them with an acceptable return on their investment.”
90 Insofar as the letter also stated that the client’s view was that the business will require the injection of significant capital for a required full refurbishment of the apartments and common areas, I am satisfied that that was not discovered during due diligence but already well known and anticipated by Mr Broughton before he signed the contract.
91 It was then stated that given what the due diligence investigation had revealed regarding the profitability of the business and the onerous terms (particularly with regard to the bond and fixed rates of rental increase) and lack of tenure in respect of the leases, the opportunity to recover their investment and derive and an acceptable return was limited and too risky to be acceptable. I am satisfied that the onerous terms and limited tenure were already known to the defendant before he signed the contract, and although he had wanted to have those terms changed, he signed the contract knowing them, with only a condition precedent to ensure that the tenure included a second option for 5 years. That leaves the much less specific reference to what was revealed through diligence “regarding the profitability of the business”.
92 I note that the letter made no mention of any allegation of breach of warranty or representations having been discovered by the due diligence investigation.
93 By scrutinising what was set out in the 8 May letter, I do not mean to imply that I accept the plaintiff’s solicitor’s argument at the time that the defendant was required to give reasons for his decision. The purpose of my examination of what was said in the letter is to assess whether it sheds light on whether Mr Broughton’s decision was genuinely based on matters arising from the due diligence investigation.
94 I turn next to Mr Broughton’s own evidence about his reason for seeking to terminate the contract. He said:
“After he told me his findings or concerns, whichever way you want to put it, I'd say findings, this information mostly was, if not all of it, was the first time I'd heard of it. I'd never heard that the financial statements wouldn't be $2.1m for the current year; I hadn't heard that there was - I don't - I know you don't like referring to it, but a cash journal; I hadn't heard that - I didn't know the wages were underpaid, so everything that I based, or everything I'd been told, as in the figures will be $2.1m and so on and so forth, now had been shot out of the water. So I asked Tony during that conversation, are you - like, are you saying that none of these financials can be relied upon, because that - I'd been on the project for a long time and now I'm hearing that I can't rely upon any of the financial documents, which is going to make it very difficult to trust anything.
MR MOON: What did Tony say?---He said, "Yes, from my inspection this morning, from what I've gone through, I've found" - well, he didn't find that - the 2014 figures were provided for him, but they did not equal the roomMaster reports that he had a look at and they did not equal the cashbook.”[41]
“Okay, so obviously we were in the due diligence period. I put together and reviewed all of the information, and I obviously went through the verbal things as well in my head from the start to current time; I went from when I'd seen the ad, what I'd been told at the meetings, what I'd been told along the way, also the emails. 1 May we received a large sum of information with regards to DD with Tony picking up the rest on the Monday, so I reviewed all the information at hand and part of that information was Tony's findings, his to me, I went through all that. Then, having reviewed it myself, I then discussed the potential purchase, or the due diligence, with some close advisors and potential business partner, and once again we discussed - I put to them all the information from start to finish, some of the things that aren't on paper and the verbal things, what had I been told at this point and that point, and I then came to a conclusion.
MR MOON: What was the conclusion?---The conclusion was that I couldn't trust the deal any more, the financials could no longer be relied upon, amongst another - other issues, but the conclusion was that I could not trust the deal any further.”[42]
[41]T 337, lines 3 – 26
[42]T 338, line 18 to T 339 line 10
95 I have already noted aspects of Mr Broughton’s evidence which caused me to conclude that much of it was heavily reconstructed, and also why I regard his credibility with caution. I find much of the above evidence to be reconstructed, and difficult to believe. First, he asserts that he formed a total loss of trust in anything he had been told, which is focused on the revenue side only, and in particular having been told the figures would be $2.1 million for the current year. In fact the figure for revenue in the RoomMaster records was $2,123,715 for the financial year ending 30 June 2014, although less in the financial statements at $1,972,000. I do not regard these figures as showing a discrepancy reasonably giving rise to a total loss of trust in what he had previously been told. Further, although I do not mean in any way to condone what might have been understatement of income to the Australian Taxation Office, what Mr Broughton was being told, in particular on mention of a cashbook being kept, was likely to indicate that real revenue was higher than he had been led to believe. Finally, as his stated plans on the purchase were to carry out a substantial upgrade so as to raise the hotel to 4 star-rating, the ultimate profitability was not likely to depend on the revenue being achieved by the plaintiff from the hotel in its current condition, except in the very short term.
96 There is also other evidence which indicates that as opposed to what he said was his reaction to finding that the financial records did not show the $2.1 million in receipts of which he had been told, the defendant had not shown himself to be particularly concerned about or reliant on the business’s actual turnover or expenses. That is the evidence that he had signed the contract without receiving the 2014 financial statements and tax return, even though he had been told by the plaintiff’s accountants that they expected to have those records ready on the very day that he signed the contract. Nor did he chase them up immediately afterwards but waited until the end of January.
97 There is also the evidence of the contract variation proposed by the defendant through the same letter as his solicitor gave his notice of intention not to proceed. The profitability of proceeding with large capital expenditure required when there was limited tenure under the lease was known from the outset by Mr Broughton as a substantial risk. Neither the limited tenure nor large expenditure on improvements emerged during the due diligence process. The new lease terms he sought in the proposed variation were substantially those he had sought from the outset, or at least from well before he signed the contract. It is very difficult to believe, and objectively inconsistent, for him to assert that he had totally lost faith in the plaintiff’s financial records due to the issues discovered in the due diligence about variations in recorded receipts and about higher expected expenses, but be willing to proceed with no suggested reduction in price.
98 I accept that the defendant’s concerns about the lease terms were genuine and legitimate, and that it was understandable that to make such a significant capital investment in renovations he wanted much longer security of tenure of the premises. However, these matters were all known in advance, and a condition precedent was inserted into the contract about tenure, but only to the limited extent under 2.1(a) for obtaining confirmation of obtaining the landlord’s agreement to one further option of 5 years, bringing the total to about 11 years.
99 While he says that having lost trust, he reconsidered all of the effort he had put into this purchase and came up with a new proposal, it was in my view still logically not based on discovery of different operating expenses or even income, because the projected income was likely to be of relevance only in the short term because of the stated desire to significantly upgrade the property to become a 4 Star (rather than 3.5 Star or, in Mr Broughton’s personal assessment, 3 Star) and with it prospective increases in revenue together with higher occupancy rates from its improved presentation.
100 There are then the communications by Mr Broughton to change the Due Diligence Report. I believe he did that to build justification for his decision after the event, but as it was after the event, I have not taken those actions by him into account in reaching my decision as to whether his decision not to proceed as at 8 May was based on what he had learnt through the due diligence process.
101 Mr Rossiter agreed that his initial draft had been significantly altered, but he believed that as Mr Broughton was his client he was entitled to have input, and the resultant report was a “collaboration”. There was no obligation on Mr Rossiter to provide an independent report. He was entitled to do his client’s bidding. However I do not regard the final report as objectively his opinion.
102 Taking all of these matters into account, I do not accept Mr Broughton’s evidence that his decision not to proceed was based on what was discovered during the due diligence investigation. At most, in my view, there was a broad assertion that those matters impacted the commercial viability of the purchase, but I am not satisfied that anything discovered in that process influenced his decision to any significant degree.
103 I am satisfied on the balance of probabilities that Mr Broughton’s reason for terminating the agreement was not the discovery on due diligence investigation that the business may have been making more income than it disclosed in its official financial records, nor that the prospective costs of cleaning and of desk staff was higher than being paid, nor of any other potentially higher expenses such as advertising, nor that he could not be confident about the standard of overall book-keeping. While I do not make a positive finding as to his actual reason or reasons, I consider them more likely to have been concerned about the inadequate tenure under the leases, and onerous lease terms, and that in the 4 months that had passed since the contract was signed he had been considering those, and possibly taking his father’s and brother’s advice about that issue.
Was there an implied term as to good faith?
104 The plaintiff also alleged that there was an implied term that the entitlement to give written notice not to proceed with the contract pursuant to special condition 3.6 must be exercised in good faith, and not capriciously or unreasonably.
105 The principles relating to whether a term will be implied into an agreement are:
(i)it must be reasonable and equitable;
(ii)it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
(iii)it must be so obvious that “it goes without saying”;
(iv)it must be capable to clear expression; and
(v)it must not contradict any express term of the contract.[43]
[43]BP Refinery (Westernport) Pty Ltd v Shire of Hastings [1997] 180 CLR 266 at 283 (Privy Council)
106 Both parties referred me to a considerable number of cases which have dealt with the issue of whether a term of good faith will be implied into a contract. Without closely analysing these cases, it is clear that the success of such claims has been very closely confined, and seemingly reliant on the existence of words associated with an act of good faith such as not to unreasonably withhold consent or approval.
107 In my view the simple answer in the current case is that it is not necessary for me to consider whether an implied term of good faith should be found, because of the construction I have decided to special condition 3.6 of the contract. Because of that construction, the implied term sought by the plaintiff could not be fairly found to be necessary to give business efficacy to the contract. In my view under principle number 2, a term is not necessary to be implied as the contract is effective without it. This is because in my view special condition 3.6 only entitles the purchaser to deliver a notice of intention not to proceed if genuinely reliant on information that has emerged or arisen out of the due diligence.
Damages
108 The plaintiff claims that the measure of its loss should be the balance of the agreed purchase price. It also claims some additional costs, being costs payable to the landlord’s solicitors for acting on the approval of transfer and variation of lease to the defendant, the plaintiff’s own solicitors’ fees on acting on the sale of business, and counsel’s fees incurred soon after the breach.
109 The defendant argues that even if he breached the contract, the proper measure of loss would be the difference, if any, between the value to the plaintiff of the performance of the contract, namely, the balance of the purchase price, and any loss in value of the business. He argues that as the business was not resold, that loss should be measured at the time or immediately following the breach by the purchaser. That is because the plaintiff retained the business that was the subject of the proposed sale, and there is no evidence to indicate that the business was worth anything less on 8 or 9 May 2015 than the price which Mr Broughton had contracted to pay.
110 The principle according to which damages for breach of contract are awarded is that the damages should put the promisee in the same position, so far as money can do, as it would have been had the broken promise been performed.[44] The practical operation of that ruling principle may vary depending on the commercial context.[45] That may, in some cases, depend on when the loss crystalizes, and that can differ under contracts for sale, depending upon whether the party in breach was vendor or purchaser and whether the promisee seeking damages is vendor or purchaser.
[44]Robinson v Harman (1848) 1 Ex 850 at 855; Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 at 286 [13]; Clark v Macourt (2013) 253 CLR 1 at 6[7], 11[26], 19[60], 30[106]
[45]Clark v Macourt at [107], Cheshire & Fifoot at paragraph 23.25
111 In Clark v Macourt,[46] the High Court examined such issues for a purchaser promisee to whom goods supplied in conjunction with a business did not comply with their warranted condition. When it is a purchaser who has defaulted and the vendor seeks damages for non-completion of the contract, the measure of damages would depend on whether there is a ready market for the subject of the sale. Thus, for sale of goods, unless they are unusual, there will normally be an ascertainable market value. For the sale of real estate, it is normally recognised that an alternative sale will not be instant at the time of breach. For contracts of sale of land, the usual measure of damages will be, if the property is resold within 12 months, any deficit in the resale price from the price in the breached contract or, alternatively, the vendor may elect to retain the land and keep the deposit.
[46]Op cit
112 In the present case the subject of the sale, a business being sold as a going concern, does not neatly fall within the above outlined categories of cases, and the situation was further complicated because it ultimately became worthless before being resold.
113 The evidence relevant to the value of the business at relevant times in this dispute is the following.
· The defendant was willing to pay $930,000 to purchase the business as at December 2014.
· The defendant was still willing to pay $930,000 to purchase the business as at 8 May 2015, provided there were longer and more favourable lease terms.
· The business had been on the market for more than 12 months prior to the defendant signing the contract to purchase it.
· There is evidence of only one previous firm offer to purchase, at approximately $1 million, but that purchaser had not been approved by the landlord.
· At the time the defendant terminated the contract, there was less than 17 months to run under the current leases, and only 10 months until the decision of whether to exercise the option to renew for a further five years needed to be made.
· Despite two other agents being appointed to sell the business from June 2015, and the price being lowered to $850,000 at that stage, and to $500,000 in February 2016, there were no offers received until March 2016.
· In March 2016, a contract was signed with a different purchaser, Ausuni Investment Management Pty Ltd, for a price of $420,000. That was only nine days before the final day for exercise of the option to renew the leases.
· The new purchaser failed to provide information required to obtain the landlord’s approval to a transfer of lease before 31 March 2016, and the plaintiff decided not to exercise the option to renew the lease as it did not wish to bind itself by a further lease for five years at a rental of over $1 million per year, nor even to continue to run the business at all, given Mr Han wished to move his personal input and capital resources to Laos.
114 Applying the principle that the proper measure of damages should put the promisee in the same position, so far as money can do, as it would have been had the broken promise been performed, that appears to favour the plaintiff’s claim that it should receive the balance of the purchase price under the contract. However, it retained the business and would not have done so had the promise been performed.
115 The defendant argues that the applicable measure of damages if he breached the contract is the difference in value between the contract price and the value of the asset which the plaintiff retained immediately after his breach. If that were the proper measure, the only evidence before me of the value of the business immediately after the defendant’s breach is that the defendant was still willing to pay the price of $930,000, even though dependent on his obtaining different lease terms.
116 Whether that was a realistic value of the business even when he signed the contract is impossible for me to determine, as there is no evidence of alternative offers at that time, and although an earlier offer is described as being of at least $1 million, it did not proceed. The evidence of both Mr Han and the agent, Mr Qian, is that the landlord was difficult, and obtaining approval of a proposed transferee was anticipated to be difficult, although it was achieved albeit after four months’ consideration for the defendant. The time and difficulty in obtaining that approval was clearly a factor relevant to the ability to sell the business and, therefore, an influence on price.
117 Also relevant to the ability to sell the business was the tenure available under the leases and clearly obtaining further options for renewal from the landlord was also a slow and difficult prospect which also impacted on the ultimate marketability and price of the business.
118 The defendant argues that the loss of the value of the business ultimately was caused by Mr Han’s decision not to exercise the option to renew the leases and that was because he did not want to continue running the business in Australia, did not want to commit to five more years of rent in excess of $1 million per year, and also because he wanted his security deposit of some $800,000 returned from the landlord in order to use it in his new Laotian business opportunity. His decision not to exercise the option by 31 March 2016 to renew the lease is claimed to be a failure by the plaintiff to mitigate its loss.
119 The defendant argues that in these circumstances, his termination of the contract, even if wrongful, did not cause the plaintiff loss in the value of its business, but that that was solely caused by Mr Han’s own decisions. In my view, that argument is too simplistic, as it ignores the fact that Mr Han’s decision to sell in the first place was already based on his wish both to leave Australia himself and to regain his security deposit, both to take up an opportunity in Laos. Therefore, those factors were not new after the defendant’s termination of the contract, but did impact the price at which he would be prepared to sell the business as the deadline for exercise of the option to renew the lease approached, and also the expiry of the then current lease.
120 On the other hand, in my view, it is also simplistic of the plaintiff to claim that it is entitled to the entire balance of the contractual purchase price. That is simplistic because the plaintiff did retain the business after Mr Broughton indicated he would not complete the purchase. Further, although reasonable and understandable in the circumstances, the decision not to exercise the option to renew the lease for another five years doomed the saleability of the business from that time, especially as there was a buyer committed had the lease continued. Finally, although there is no evidence as to how profitable the business was after 8 May 2015, there was evidence that it was continuing to operate up to and at the time of the hearing, and any profits would need to be brought into account. I assume from the tone of the evidence, that it would have operated up until the expiration of the lease at the end of September, which has now passed.
121 Ultimately I have decided that there is simply inadequate evidence to enable me to properly assess the plaintiff’s loss from what I have found to be the defendant’s breach of contract. There is no other evidence of the market value of the business than the amount willing to be paid by Mr Broughton. I am not convinced by the defendant’s submission that the proper measure of the plaintiff’s loss would be the value of the business the day after his breach, because of the total impracticality of reselling the business that soon, the partial similarity in this regard to sales of land, and because the business was placed with agents in attempts to resell it. However, there is no evidence to enable me to assess whether there were any reasonable attempts at marketing it. Nor do I know why it took until February 2016 for the price to be lowered, and there is no evidence about what advice was being received by the plaintiff in that regard over the intervening eight months. It was clearly not readily saleable, as proven by the 12 month period before Mr Broughton made his offer. Whether that was a reflection of the lower value of the business even at that stage I am unable to decide.
122 Ultimately, I am not satisfied that a proper measure of damages is the balance of the whole purchase price under the contract. I am also not satisfied that there is any other appropriate measure on the evidence available.
123 I consider that the only order I should make in the circumstances is that the plaintiff is entitled to the deposit paid under the contract by the defendant, namely $93,000 which I assume is still held in a trust account of either BBG or one controlled by lawyers for the parties. I accept that the deposit constitutes “an earnest”, to bind the bargain, and a guarantee of due performance.[47] In the circumstances that I have found, that the defendant was not entitled to terminate the contract as he purported to do, I consider that the plaintiff is entitled to retain the deposit.
[47]Fiorelli Properties Pty Ltd v Professional Fencemakers Pty Ltd (2011) 34 VR 257
124 Finally, I note that the plaintiff also claimed some associated costs. One amount was for legal costs charged by the solicitors for the landlord for their work done in relation to obtaining approval of a transfer and variation of lease to Mr Broughton. There was no evidence about this apart from an invoice tendered, and no proof that it was paid or is still an expense owed by the plaintiff. Had the sale proceeded to completion, those costs would have been incurred, and so would not be a loss in addition to the balance of the purchase price. However, as I have not found for the plaintiff for the balance of the purchase price, I am satisfied that such costs, if indeed paid by the plaintiff, would be a recoverable loss. The same reasoning would apply to the plaintiff’s solicitors costs for acting on the sale of business, however there was no evidence of payment or continuing indebtedness for those amounts.
125 An amount claimed for counsel’s fees I infer must have been incurred after the breach, and in relation to either advice or drawing documents to take remedial action. These seem to me to relate to costs of this proceeding rather than loss recoverable from the defendant’s breach of the contract.
Conclusion
126 For the reasons stated, I am satisfied that when the defendant served notice of his intention not to proceed with the purchase under the contract of sale between the parties, he breached that agreement. I am not satisfied that damages should be assessed as the balance of the purchase price, and nor am I satisfied that other loss by the plaintiff has been proved. I am satisfied that the plaintiff is entitled to retain the deposit of $93,000 and if specific order is required to direct from whom that be paid I shall make that specific order.
SCHEDULE OF EXHIBITS
| Number and identifying mark on Exhibit | Short description of Exhibit | Court Book Reference | Date tendered | Tendered By |
| 1 | Email from plaintiff’s accountant to defendant dated 6 November 2014 with copy of financial statements Y/E 2013 | 0037-0072 | 25 August 2016 | Plaintiff |
| 2 | Email from plaintiff’s solicitor to Defendant dated 6 November 2014 attaching copy of leases | 0073-00151 | 25 August 2016 | Plaintiff |
| 3 | Email from defendant to plaintiff’s estate agent dated 6 November 2014 | 0152-0153 | 25 August 2016 | Plaintiff |
| 4 | Email from defendant to plaintiff’s estate agent dated 7 November 2014 | 0154-0155 | 25 August 2016 | Plaintiff |
| 5 | Email from defendant to landlord’s solicitor dated 7 November 2014 | 0156-0165 | 25 August 2016 | Plaintiff |
| 6 | Email from defendant’s solicitor to plaintiff’s estate agent dated 20 November 2014 | 0937-0943 | 25 August 2016 | Plaintiff |
| 7 | Email from defendant’s solicitor to plaintiff’s estate agent dated 21 November 2014 | 0201-0239 | 25 August 2016 | Plaintiff |
| 8 | Email from plaintiff’s solicitor to defendant dated 5 December 2014 | 0245-0249 | 25 August 2016 | Plaintiff |
| 9 | Email from plaintiff’s accountant to defendant dated 8 December 2014 | 0250-0252 | 25 August 2016 | Plaintiff |
| 10 | Email from defendants solicitor to plaintiff’s solicitors dated 8 December 2014 | 0983-0988 | 25 August 2016 | Plaintiff |
| 11 | Email from plaintiff’s solicitor to defendant’s solicitor dated 9 December 2014 with attached draft special conditions and contract | 258-262, 989-1026 | 25 August 2016 | Plaintiff |
| 12 | Email from defendant’s solicitor to defendant dated 10 December 2014 with attached draft contract of sale | 0267-0308 | 25 August 2016 | Plaintiff |
| 13 | Email from defendant to defendant’s solicitor dated 11 December 2014 | 0310-311 | 25 August 2016 | Plaintiff |
| 14 | Email from defendant’s solicitors to plaintiff’s solicitors dated 12 December 2014 with attached executed contract of sale | 0319-0356 | 25 August 2016 | Plaintiff |
| 15 | Sale of business contract signed by both parties | 0401-0436 | 25 August 2016 | |
| Plaintiff | ||||
| 16 | Email from plaintiff’s solicitor to defendant’s solicitor dated 23 April 2015 with attached forms of transfers and variations of leases | 0471-0501 | 25 August 2016 | Plaintiff |
| 17 | Email from defendant’s solicitor to plaintiff’s solicitor dated 27 April 2015 with due diligence checklist | 0504-0521 | 25 August 2016 | Plaintiff |
| 18 | Email from defendant to plaintiff’s solicitor dated 29 April 2015 | 0522-0536 | 25 August 2016 | Plaintiff |
| 19 | Email from defendant to Mr Rossiter dated 1 May 2015 with attached financial statements | 0537-0620 | 25 August 2016 | Plaintiff |
| 20 | Email from plaintiff’s solicitor to defendant’s solicitor dated 6 May 2015 attaching Business Name extract | 0631-0642 | 25 August 2016 | Plaintiff |
| 21 | Letter from defendant’s solicitors to plaintiff’s solicitors dated 8 May 2015 | 0643-0644 | 25 August 2016 | Plaintiff |
| 22 | Letter from plaintiff’s solicitor to defendant’s solicitor dated 14 May 2015 attaching form of transfer and variation of lease and letter from landlord’s solicitor | 0645-0659 | 25 August 2016 | Plaintiff |
| 23 | Letter from defendant’s solicitor to plaintiff’s solicitor dated 15 May 2015 | 0660-0662 | 25 August 2016 | Plaintiff |
| 24 | Letter from plaintiff’s solicitor to defendant’s solicitors dated 18 May 2015 | 0663-0664 | 25 August 2016 | Plaintiff |
| 25 | Emails between defendant and Holman Accountants between 18 and 29 May 2015 with attached drafts of due diligence review report | 0667-0737 | 25 August 2016 | Plaintiff |
| 26 | General Sale Authority to New Century Real Estate and Business Broker 1 June 2015 | 0738-0739 | 25 August 2016 | Plaintiff |
| 27 | Email from Holman Accountants to defendant dated 2 June 2016 with final version of due diligence report | 0742-0778 | 25 August 2016 | Plaintiff |
| 28 | General Business and Property Sale Authority to Balance Business and Real Estate dated 23 June 2015 | 0779-0786 | 25 August 2016 | Plaintiff |
| 29 | Exclusive sale authority to New Century dated 26 February 2016 | 0789-0790 | 25 August 2016 | Plaintiff |
| 30 | Sale Business Contract between plaintiff and AUSUNI Investment Management Pty Ltd dated 22 March 2016 | 1027-1137 | 25 August 2016 | Plaintiff |
| 31 | New Century trust account receipt dated 22 March 2016 | 0792 | 25 August 2016 | Plaintiff |
| 32 | Correspondence between plaintiff’s solicitor and landlord’s solicitors 31 March 2016 | 1139,1140,1138,1141 | 25 August 2016 | Plaintiff |
| 33 | Letter from plaintiff’s solicitor to AUSUNI Investment Management Pty Ltd dated 12 May 2016 attaching notice of default | 0799-0801 | 25 August 2016 | Plaintiff |
| 34 | Correspondence between plaintiff’s solicitor and landlord’s solicitor between 24 and 30 May 2016 | 0802-0803 | 25 August 2016 | Plaintiff |
| 35 | Correspondence between solicitors for AUSUNI solicitors and plaintiff’s solicitors 16 June and 27 July 2016 | 0804-0808 | 25 August 2016 | Plaintiff |
| 36 | Email from Plaintiff’s solicitors to New Century dated 27 July 2016 | 0936 | 25 August 2016 | Plaintiff |
| 37 | Letter from Defendant’s accountant to landlord’s solicitors dated 20 February 2015 | 0456 | 30 August 2016 | Plaintiff |
| 38 | Bundle of documents as to legal costs | 1142-1145 | 30 August 2016 | Plaintiff |
| A | Email from plaintiff’s agent to defendant dated 18 November 2014 attaching draft sale of business contract | 0166-0199 | 30 August 2016 | Defendant |
| B | Email from defendant’s solicitors to plaintiff’s agent attaching signed contract of sale sent on 21 November 2014 at 2.13pm | 0944-0982 | 30 August 2016 | Defendant |
| C | Email from defendant’s solicitors to plaintiff’s agent sent on 21 November 2014 at 2.32pm | 30 August 2016 | Defendant | |
| D | Email from defendant to plaintiff’s solicitor dated 4 December 2014 | 0243-0244 | 30 August 2016 | Defendant |
| E | Email from plaintiff’s accountant to defendant dated 9 December 2014 | 0255-0256 | 30 August 2016 | Defendant |
| F | Email from defendant’s solicitor to defendant dated 10 December 2014 | 0263-0266 | 30 August 2016 | Defendant |
| G | Email from defendant’s solicitors to plaintiff’s solicitors dated 11 December 2014 | 0309 | 30 August 2016 | Defendant |
| H | Email from defendant’s solicitor to defendant dated 11 December 2014 | 0312-0318 | 30 August 2016 | Defendant |
| H2 | Email from plaintiff’s agent to defendant dated 12 December 2014 | 0357-0358 | 30 August 2016 | Defendant |
| J | Email from defendant to defendant’s solicitors dated 12 December 2014 | 0359-0360 | 30 August 2016 | Defendant |
| K | Email from defendant’s solicitors to defendant dated 12 December 2014 | 0361-0363 | 30 August 2016 | Defendant |
| L | Trust receipt from the plaintiff’s agent dated 15 December 2014 | 0437 | 30 August 2016 | Defendant |
| M | Email from plaintiff’s accountant to defendant dated 27 January 2015 | 0446-0449 | 30 August 2016 | Defendant |
| N | Email from defendant to plaintiff’s solicitor dated 15 February 2015 | 0453-0455 | 30 August 2016 | Defendant |
| O | Email from Holmans to defendant dated 23 April 2015 | 0502-0503 | 30 August 2016 | Defendant |
| P | Manager’s Yearly Report printed on 4 May 2015 and other financial documents | 0621-0630 | 30 August 2016 | Defendant |
| Q | Chinese language advertisement dated 18 March 2016 | 0791 | 30 August 2016 |
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