Christopher William Sorrell v Kara Kar Holdings Pty Ltd

[2010] NSWSC 1315

CITATION:	Christopher William Sorrell & Anor v Kara Kar Holdings Pty Ltd & Ors [2010] NSWSC 1315
HEARING DATE(S):	19.07.10, 20.07.10, 21.07.10, 22.07.10, 23.07.10
JUDGMENT DATE :	16 November 2010
JUDGMENT OF:	Nicholas J
DECISION:	Par 96
CATCHWORDS:	CONTRACTS – agreement for sale and purchase of shares – purchasers subsequently proposed variation of purchase price – sellers agreed to reconsider purchase price – purchasers declined to pay interest on remaining balance of purchase price while awaiting sellers’ response – whether purchasers repudiated the contract by this conduct – whether sellers entitled to terminate without notice – whether sellers in terminating without notice repudiated the contract – turns on the facts – no questions of principle - CONTRACTS – damages – whether purchasers entitled to recover first instalment of purchase price paid – whether purchasers entitled to claim relocation expenses as consequential loss for breach of share sale agreement – turns on the facts – no questions of principle - EMPLOYMENT LAW – whether wrongful dismissal by employer’s termination of contract of employment without notice – compensation in lieu of notice – reasonable period – whether purchasers entitled to claim relocation expenses as consequential loss under employment contract – turns on the facts – no questions of principle
LEGISLATION CITED:	Fair Trading Act 1987
CATEGORY:	Principal judgment
CASES CITED:	Balog v Crestani (1975) 132 CLR 289 Baltic Shipping Co v Dillon [1993] HCA 4; (1993) 176 CLR 344 BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 Byrne & Frew v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410 Carr v JA Berriman Pty Ltd (1953) 89 CLR 327 Hadley v Baxendale (1854) 2 CLR 517; (1854) 9 Exch 341 Irons v Merchant Capital Ltd (1994) 116 FLR 204 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623 Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567 Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632
TEXTS CITED:	Carolyn Sappideen, Paul O’Grady & Geoff Warburton, Macken’s Law of Employment, 6th ed (2009), Thomson Reuters (Professional) Australia Ltd
PARTIES:	Christopher William Sorrell – first plaintiff Tracey Blackmore – second plaintiff Kara Kar Holdings Pty Ltd – first defendant William John Yardy – second defendant Jennifer Margaret Yardy – third defendant Benjamin Browne – fourth defendant
FILE NUMBER(S):	SC 07/256914
COUNSEL:	P O’Loughlin - plaintiffs C Taylor – first, second, third defendants No appearance – fourth defendant
SOLICITORS:	MBT Lawyers – plaintiffs Carter Green Lawyers – first, second, third defendants No appearance - fourth defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Nicholas J

16 November 2010

07/256914 Christopher William Sorrell & Anor v Kara Kar Holdings Pty Ltd & Ors

JUDGMENT

1 His Honour: The plaintiffs claim damages from the second and third defendants for their repudiation of an agreement for the sale and purchase of shares in the first defendant. The plaintiffs also claim damages from the first defendant for its termination of contracts under which each was employed by the first defendant in its business. Alternatively, the plaintiffs claim damages for alleged misleading or deceptive conduct by the second and third defendants and their agent, the fourth defendant, in the course of negotiating the agreement in contravention of s 42 Fair Trading Act 1987 (the Act).

2 The defendants deny the claims for relief. The second and third defendants cross-claim (the first cross-claim) against the plaintiffs for damages for breach of the agreement. There is also the fourth defendant’s cross-claim (the second cross-claim) against the first, second and third defendants in which indemnity is claimed for any judgment in favour of the plaintiffs in these proceedings.

3 There was no appearance for the fourth defendant at the hearing. I propose to order that the second cross-claim be dismissed with costs.

Background

4 The first defendant (the company) carried on the business of manufacture and sale of trailers and horse floats, principally at Nambucca Heads, New South Wales. The second and third defendants (the sellers) were directors and shareholders of the company. (Where convenient to do so I refer to them as Bill and Jennifer respectively.) The fourth defendant (Mr Browne) was employed by the company as its general manager until about 8 August 2006.

5 The first plaintiff is the husband of the second plaintiff. (Where convenient to do so I refer to them as Chris and Tracey respectively.) They are residents of New Zealand where, for a long time, they have conducted a horse breeding business. From about February 2003 they were agents for the company for the sale of trailers and horse floats in New Zealand.

6 In September 2005 Mr Browne informed the plaintiffs that Bill wished to retire and sell the company’s business, and invited their interest. On 20 October 2005 they met Bill and Mr Browne at the company’s office at Nambucca Heads. Bill offered to sell the business for $5,000,000. The parties conducted negotiations for the sale and purchase of the business which resulted in the submission on 24 July 2006 of a “non-binding offer” [sic] by the plaintiffs to purchase the business and its assets for the price of $3,400,000.

7 On about 8 August 2006 Mr Browne’s employment with the company was terminated. Shortly afterwards, at Bill’s request, Chris travelled from New Zealand to Nambucca Heads to assist with the company’s operations. He worked for the company between 9 August and 17 August 2006.

8 On about 20 August 2006, on a social occasion in New Zealand, there was a discussion between the plaintiffs and the sellers. The discussion concerned the purchase of one half of the shares held by the sellers in the company.

9 On 22 August 2006 the plaintiffs flew from New Zealand and commenced employment with the company. From then until their departure on 23 April 2007 they managed the business and operations of the company.

A separate contract of employment was made with each, and signed on 22 August 2006. It is common ground that each document was dated 9 August 2006 to reflect the actual date on which Chris commenced work. Each contract includes the following:

“ RE: Your Employment at Kara Kar Trailers
I am pleased to offer you employment in the position of Managing Director.
Terms and Conditions:
1. The remuneration package will consist of:
* Salary of $75,000 per annum.
* Superannuation of 9% of the salary
2. Your salary will be paid on a weekly basis.
3. As a company director you will not accumulate any leave entitlements.
4. Your appointment will commence 29 ^th August 2006
Please signify your acceptance of these terms and conditions by signing in the space provided below.
The attached job description contains a description of your duties. Please sign the copy of the job description and return it with your acceptance.
I look forward to working with you and wish you every success in this appointment.”

The job description referred to was not in evidence.

10 On 20 September 2006 the parties entered into the share sale agreement. Chris and Tracey were the purchasers on behalf of the Sorrell Family Trust. Relevantly, the agreement included the following provisions:

“Recitals
A The Sellers are the owners of all of the issued share capital in the company Kara Kar Holdings Pty Ltd (the company).
B The Seller has at the request of the Purchaser agreed to sell to the Purchaser one half of the shares held by the Seller in the capital of the company on the terms and conditions hereinafter set out.
NOW THIS DEED WITNESSETH as follows:
1. The Seller warrants that they are the beneficial owners of 100% of the share capital in the company and agrees to sell to the Purchaser and the Purchaser agrees to purchase from the Seller 50% of the ordinary shares of the capital of the company for the purchase price of $1,500,000.00 (the purchase price).
2. The purchase price will be paid by the Purchaser to the Seller as follows:
2.1 The First Instalment in amount of $400,000.00 on execution of this Agreement;
2.2 The balance to be payable by the Purchaser to the Seller at the expiration of 12 months from the date hereof; or
on completion of the sale by the Purchaser of their real property being described as xx xxx Rd xxxx whichever is the sooner. However, after the expiration of 6 months from the date of this agreement, the remaining balance of the purchase price, if any, will be subject to interest at commercial bank rates. At the expiration of 12 months from the date of this agreement, any balance unpaid, will be refinanced.
3. On the payment of the deposit the Seller agrees as follows:
3.1 To execute an Instrument of Transfer of 50% of the ordinary shares of the capital of the company to the Purchaser;
3.2 To convene a company meeting and to have the company perform the following:
A Register the Instruments of Transfer of the shares in the Share Register of the company;
B Appoint the Purchaser as additional Directors of the company …
…
5 The Purchaser acknowledges with the Seller that prior to entering into this Agreement the Purchaser has undertaken due diligence in respect to the affairs of the company and acknowledges that the Purchaser has entered into the terms of this Agreement with complete knowledge of the current state of affairs of the company in respect to trading and creditors and that by entering into this Agreement it has not relied on any representation of the Seller which representation is not otherwise set out in the terms of this agreement. However the Sellers warrant that they have provided all material and financial documents to the Purchaser in order for them to carry out the due diligence and that the Seller has not retained any information vital to the Purchaser being able to make an informed decision regarding the purchase of the shares of the Company.
…
9 The terms of the sale will be cash, 30 days from agreement as to purchase price and the selling party will execute an Instrument of Transfer of shares within 7 days of presentation of the instrument …
…
11 Should the purchaser fail to pay the balance of the purchase price within 6 months, then the balance owing at that date will then incur interest at current bank commercial rates payable monthly. At the expiration of 12 months from the date of this agreement, any balance unpaid, will be refinanced.
…
18 The parties agree that the Sellers as Shareholders in the capital of the company that the Seller will have the right to nominate 2 Directors and the Purchaser will have the right to nominate 2 Directors to the Board of the company and that no Director nominated will have a casting vote. To the extent necessary for the constitution to reflect the agreement herein then the parties agree to amend the constitution of the company.
19. The parties agree to procure the company to pay their respective legal costs incurred in the preparation, advice and execution in respect of the terms of this agreement and that all stamp duty payable on the transfer of the shares from the Seller to the Purchaser will be payable by the Purchaser.”

11 The first instalment of $400,000 was paid on about 20 September 2006.

12 Between 11 October and 25 October 2006 Tracey requested Mr Tim Green, the solicitor for the sellers and the company, to attend to the documentation for the transfer of the shares.

13 On 30 October 2006 Mr Green sent the plaintiffs the requisite forms to record their appointment as directors. He requested information as to the date of the establishment of the trust.

14 On 3 November 2006 Tracey sought information as to the processing of the share transfers and advised that the directors’ papers would not be signed until the shares were sorted out.

15 By letter of 14 December 2006, Mr Green sent the share transfer forms to the plaintiffs. The letter included:

“The Transfers provide for 3 ordinary shares being transferred by Bill to your family trust and 2 ordinary shares being transferred by Jennifer to your family trust.
There are currently 10 issued ordinary shares and on completion of the Transfers your trust will own 5 ordinary shares.
The Share Transfers need to be signed by Bill and Jennifer and after execution by yourselves would you kindly return the Transfers to us and we shall arrange for Bill and Jennifer to sign.”

16 On 8 January 2007 the forms for the transfer of Bill’s three ordinary class shares, and for the transfer of Jennifer’s two ordinary class shares were signed by the plaintiffs and returned to Mr Green.

17 At about the end of January 2007 the plaintiffs received the company’s accounts for the year ending 30 June 2006 which disclosed, inter alia, an operating loss of $436,247.67 and accumulated losses of $541,327.07.

18 In her email of 8 March 2007 to Mr Green, Tracey sought confirmation that the share transfers had been effected. She also said:

“…Please be advised that the year we have to pay the balance will not start until the share transfer has been actioned, this was meant to be 7 days after the first instalment was paid.”

19 In response, by facsimile the same day, Mr Green advised that completion required payment of stamp duty in the amount of $9,477.50. He requested a bank cheque for this amount, and said he would then attend to the stamping of the transfer.

20 On 29 March 2007 Tracey requested Mr Green to advise the amount required for stamp duty as she had left the facsimile at home. She indicated she would send the amount that day to enable transfer to be arranged. She received no response. The plaintiffs did not provide funds for stamp duty.

21 On 1 April 2007 there was a meeting at the sellers’ house at which they and the plaintiffs were present. The discussion concerned the company’s management accounts for the period 1 July to 31 December 2006, and the items in a document prepared by Tracey headed “Differences between Expected and Actual values”. It included the question raised by the plaintiffs that the purchase price for the shares was higher than the business was worth.

22 By letter of 12 April 2007 to the plaintiffs, Mr Green requested authorisation to amend the transfer to ensure the names corresponded with those on the agreement. It included:

“As you are aware, under the agreement you are now paying interest on the balance of monies owing. We are instructed by Bill and Jennifer that “without prejudice” to their rights under the agreement that for the first three (3) months commencing 25 ^th April 2007 that they will accept interest at the rate of 2.5% per annum. If your New Zealand property has not sold and settled and the balance of monies paid, then at the expiration of three (3) months then the outstanding principal will attract interest at the commercial bank rates.
Interest payments should be made directly [sic] W & J Yardy.”

23 On 19 April 2007 there was a telephone conversation between Chris and Mr Green in which Chris referred to negotiations at the meeting on 1 April 2007 about the purchase price and indicated that interest would not be payable on the full amount under the agreement.

24 By letter of 23 April 2007 to the plaintiffs, Mr Green said:

“We refer to our telephone conversation of Friday last.
We confirm your advices that you will not be paying interest to our clients in the terms of the agreement.
Your conduct constitutes a repudiation of the agreement. Our clients reserve their rights under the agreement and at law.
We are instructed to demand that you remove all of your personal belongings and yourselves from the business premises by close of business Tuesday, 24 April 2007.”

25 On 23 April 2007 the plaintiffs were denied access to the company’s bank accounts. On 24 April 2007 they were denied access to the company’s premises.

26 By letter of 24 April 2007 to Mr Green from their solicitors, the plaintiffs denied they had repudiated the agreement as alleged.

27 Shortly thereafter the plaintiffs returned to live in New Zealand.

The repudiation claim

28 The plaintiffs’ principal claim is that the share sale agreement of 20 September 2006 was repudiated by Mr Green’s letter of 23 April 2007. Their claim for damages includes the sum of $400,000 paid under the agreement, and for amounts which were described as losses suffered as a consequence of the termination of the agreement.

29 By their cross-claim, the sellers contend that the agreement was repudiated by the plaintiffs in that they refused to pay the interest on the balance of the purchase price provided for under cl 2 and cl 11 of the agreement. The cross-claim is for nominal damages.

The evidence

30 I set out below a summary of what I found to be the relevant evidence on the repudiation issue.

31 Tracey said that towards the end of January 2007 she received the company’s accounts for the year ending 30 June 2006 which disclosed accumulated losses of $541,327.07. She said she and Chris believed they had been misled, and had paid too much for the shares. In about March 2007 she prepared a document which listed what she described as the differences between the expected value of the business at the time of the agreement and its actual value.

Her evidence of the meeting of 1 April 2007 included the following (T p 49, l 24 – l 44):


“Q. Don't tell us what you believed, just tell us as best you can what you said or what Chris said to Mr and Mrs Yardy?
A. Because what we were told when we were in the negotiations for the business were not the same as what actually the figures were for the business so we believed that the business actually wasn't worth anywhere near as much as what the agreement was for.

HIS HONOUR

Q. Is that what you said?
A. That is what I said, yes.

O'LOUGHLIN

Q. What did he say?
A He said, "well, what do you mean?" And so we put this document in front of them.

Q. Which document did you put in front of them?
A. Starting at page 209.”

And (T p 50-51, l 15 – l 7):


“Q. Did you hand them a copy of the financial statements to the end of December?
A. Of December 2005 - 2006.

Q. Yes, that is the document at 202?
A. Starting at 199?

Q. Yes?
A. Yes, that's correct.

Q. Did the conversation continue?
A. Yes, it did.

Q. What did you say and what did Mr Yardy say?
A So we went through each of the items separately. Bill and Jennifer did not disagree with any of the items. They - so I said, "well, you know, where do we go from here, do we want to keep working together, the business is doing well now" and they said "yes, we do" so we said, "we need to discuss the purchase price" and Bill said, "well, what do you think it is worth?" So I said, "well if you think--

OBJECTION. ABOVE MATTER NOT READ AND THE SUBJECT OF OBJECTION. LEGAL DISCUSSION

HIS HONOUR: I allow it, provided it is given in proper form: I said, he said.

Q. Speak slowly so that we can follow it.
A. Sure, so Bill said to us, "so what do you think the business is worth?" And I said, "well, if you think back to the very first documents that we were given by Chris Townsend when we started looking at the purchase you had a value of one and a half million dollars on the designs and licences for the business so I said that really this is all the business is worth, it was making a big loss, a lot of the figures we were told were incorrect so really the business is worth nothing but the designs and licences and move on from here" so I said "you know we will pay you $700,000 for half of the business". Bill said, "yep another 700,000 great, done" and I said, "no, 700 total" and he said, "oh oh, I will have to have a think about it" and that was pretty much the end of the conversation.

O'LOUGHLIN

Q. There was no threat of withdrawal from the arrangement by Mr and Mrs Yardy?
A. No.”

This evidence was not challenged and I accept it.

32 In cross-examination, she denied refusal to pay interest. She said, in effect, she had not assessed the amount of interest to be paid because the purchase price upon which it was to be calculated was then under negotiation with the sellers. She accepted that Mr Green was informed that interest would not be paid in accordance with the signed agreement.

33 The evidence of Chris of the meeting was substantially similar to Tracey’s account. He added that the discussion as to price concluded when Bill said he would like an external accountant to look into it. He said they were waiting for the sellers to come back to them.

34 Chris said that on returning from Melbourne on about 19 April 2007 he read Mr Green’s letter of 12 April 2007 concerning completion of the share transfer forms, and the requirements of the sellers for the payment of interest on the balance of monies owing under the agreement. He then had a telephone conversation with Mr Green in the following terms (affidavit 23.05.09):

“86. … I also told him, “We have had discussions with Bill and Jennifer and are in negotiations regarding the purchase price as a lot of the information we were told was incorrect and we don’t believe it is worth what was in the agreement and therefore the interest will not be on the full amount. We will also need some paper work with details on the amount and where to pay it to before any interest can be paid.” Tim Green said, “I will have to go back to Bill and talk to him and come back to you.”

This evidence was not challenged. Tracey was present whilst Chris was speaking and corroborated his evidence of what he said to Mr Green. I accept it.

35 According to the plaintiffs there was no further communication between the parties before they received Mr Green’s letter of 23 April 2007 in which it was alleged that they had repudiated the agreement, and the demand was made that they vacate the premises the next day.

36 Bill’s recollection of the meeting on 1 April 2007 was poor. He did not remember Tracey speaking to him about matters in the document she had prepared, or showing it to him. He recalled that the plaintiffs contended they had paid too much for the business. In cross-examination, his evidence included:

T p 315, l 10 – l 15:

“Q Do you remember her saying, "You know we will pay you $700,000 for half of the business", do you remember her saying that?
A. I remember that part of it, yes.

Q. And do you remember what your response was?
A. I said I would have to get the accountant to look into it.”

T p 317, l 9- l 16:

“Q. All right. So do you accept that the plaintiffs were left with the impression by your statement that you were going to think about what they had said and come back to them?
A. That's right, yes.

Q. And there was no threat on that occasion of the cancellation of the contract, was there?
A. No.”

37 Bill accepted that prior to instructing Mr Green to terminate the contract he did not respond to the proposal put at the meeting. He gave the following further evidence:

T p 322, l 30 – p 323, l 3:


“HIS HONOUR
Q. And so can I understand that you did tell Tracey and her husband that you would have your external accountants look at all the figures?
A. Yes.

Q. And that was your intention?
A. Yes your Honour.

Q. And I think you have told us that as a matter of fact you didn't have your accountants look at the figures?
A. No.

Q. But you told them that you would?
A. Yes.

Q. And did you also tell them that after that had been done you would get back to them?
A. That's right.

Q. And let them know what you thought?
A. Yes your Honour.

Q. And let them know what the accountants told you?
A. That's right.”

38 In his affidavit (15.11.09) Bill said:

“32 … On 23 April 2007 I received a telephone call from my solicitor who informed me he had spoken with the Plaintiffs and that he had been told that the Plaintiffs would not be paying any interest. On 23 April 2007 I instructed my solicitor to write to the Plaintiffs to inform the Plaintiffs that they were in breach and they had repudiated the terms of the agreement.
33. As a result of the Plaintiffs [sic] repudiation of the agreement I instructed the National Australia Bank as the banker for the First Defendant that the accounts of the company should be frozen.”

39 It was common ground that no notice was given prior to termination.

40 Neither Jennifer nor Mr Green gave evidence. I accept the evidence of the plaintiffs. Their version of events was not contradicted by Bill, or otherwise challenged.

41 Shortly stated, for the sellers it was submitted that on about 19 April 2007, in his conversation with Mr Green, Chris stated the common intention of the plaintiffs not to pay interest in accordance with the signed agreement, and thereby repudiated the agreement. It was put that the statement was properly treated as the plaintiffs’ unwillingness to perform the obligation under cl 2 and cl 11 to pay what would have been a substantial sum of money calculated on the unpaid balance of the purchase price after the expiration of six months from the date of the agreement.

42 It was put that the effect of the unwillingness to perform was sufficiently serious as to entitle the sellers to terminate without notice. Furthermore, it was argued that at the time of termination there had been no variation of the agreement as to the amount of the purchase price, and the plaintiffs remained bound by it.

43 It was submitted that it followed that the plaintiffs’ conduct in breach of the agreement entitled the sellers to relief under their cross-claim. It was accepted that if the obligation to pay interest was not an essential term of the agreement they would fail on the cross-claim.

44 For the plaintiffs it was submitted that at the meeting they had proposed that the total purchase price under the agreement of $1,500,000 be varied to $700,000, and they had referred to accounting details in support of the proposal. It was put that Bill then stated that he would have the proposal considered by his accountant after which he would respond.

45 It was put that when understood in the context of the circumstances, Chris’ statement to Mr Green on 19 April 2007 that interest would not be paid on the full amount could not reasonably be understood as an outright refusal to pay interest in breach of the agreement. In any event, it was submitted that the plaintiffs were entitled to rely on Bill’s representation to the effect that he would consider their proposal and would respond to it before demanding payment of interest. Alternatively, it was submitted that time for payment was not of the essence absent reasonable notice for payment, the sellers were not entitled to rescind.

46 Accordingly, the submission was that by their letter of 23 April 2007 and their conduct in immediately denying the plaintiffs any further involvement in the company’s operations, the sellers had repudiated the agreement and left the plaintiffs with no practical alternative but to accept the repudiation.

Determination

47 The ultimate question is whether the plaintiffs were entitled to accept the rescission by the sellers by Mr Green’s letter of 23 April 2007 as a wrongful repudiation of the agreement. The sellers contended they were entitled to terminate by treating the plaintiffs’ refusal to pay interest as repudiatory conduct in breach of an essential condition. If no such right had accrued to the sellers the letter is itself a repudiation of the agreement by them which entitles the plaintiffs to claim damages, if any, suffered as a consequence. Resolution of the issue turns on whether the conduct of the plaintiffs relied upon by the sellers evinced their intention not to be bound by the agreement.

48 If it is shown that the plaintiffs’ intention amounted to a refusal to be bound by the agreement the sellers were entitled to treat the agreement as at an end. The plaintiffs’ intention must be judged from their acts and with regard to the circumstances (Carr v JA Berriman Pty Ltd (1953) 89 CLR 327, pp 350, 351).

49 In Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623 Brennan J said (p 647-648):

“Repudiation is not ascertained by an inquiry into the subjective state of mind of the party in default; it is to be found in the conduct, whether verbal or other, of the party in default which conveys to the other party the defaulting party's inability to perform the contract or promise or his intention not to perform it or to fulfil it only in a manner substantially inconsistent with his obligations and not in any other way. In Freeth v Burr (1874) LR 9 CP 208 at 213, Lord Coleridge CJ spoke of acts or conduct which “do or do not amount to an intimation of an intention to abandon and altogether to refuse performance of the contract” or of acts and conduct which “evince an intention no longer to be bound by the contract”. This was followed by the Earl of Selborne LC in Mersey Steel and Iron Co (Ltd) v Naylor, Benzon & Co (1884) 9 App Cas 434 at 438–9:

I am content to take the rule as stated by Lord Coleridge in Freeth v Burr , which is in substance, as I understand it, that you must look at the actual circumstances of the case in order to see whether the one party to the contract is relieved from its future performance by the conduct of the other; you must examine what that conduct is, so as to see whether it amounts to a renunciation, to an absolute refusal to perform the contract, such as would amount to a rescission if he had the power to rescind, and whether the other party may accept it as a reason for not performing his part.
And in Carswell v Collard (1893) 20 R (HL) 47 at 48, Lord Herschell LC stated the question precisely:
‘Of course, the question was not what actually influenced the defender, but what effect the conduct of the pursuer would be reasonably calculated to have upon a reasonable person’”

Deane, Dawson JJ said (p 567-568):

“Lord Wright's oft-quoted admonition that “repudiation of a contract is a serious matter, not to be lightly found or inferred” Ross T Smyth & Co Ltd v T D Bailey, Son & Co [1940] 3 All ER 60 at 71 is, no doubt, a wise one. It should not, however, be allowed to cloud the fact that an allegation of repudiation of contract in a civil case does not involve an assertion that the alleged repudiator subjectively intended to repudiate his obligations. Thus, it is of little assistance in the present case to identify reasons the lessor was unlikely to have subjectively desired to repudiate its agreement to grant a lease. An issue of repudiation turns upon objective acts and omissions and not upon uncommunicated intention. The question is what effect the lessor's conduct “would be reasonably calculated to have upon a reasonable person” (per Lord Herschell LC, Carswell v Collard (1893) 20 R(HL) 47 at 48; Forslind v Bechely-Crundall [1922] SC(HL) 173 at 190). It suffices that, viewed objectively, the conduct of the relevant party has been such as to convey to a reasonable person, in the situation of the other party, repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it.”

Gaudron J said (p 666):

“There is no very precise formulation of the necessary import of conduct before it will be characterised as repudiatory. In Carr (at 349) Fullagar J (with whom Dixon CJ, Williams, Webb and Kitto JJ agreed) expressed the issue in terms of the only legitimate inference being that the party in breach was not going to perform the contractual obligation at all or was not going to perform it unless and until convenient so to do. His Honour characterised (at 351) the conduct under consideration in that case as such that “[a] reasonable man could hardly draw any other inference than that the building owner does not intend to take the contract seriously, that he is prepared to carry out his part of the contract only if and when it suits him”. The thrust of the observations in Carr is that for conduct to be characterised as repudiatory it should either convey an intention not to be bound at all or give rise to uncertainty as to whether the contractual obligation will be performed. But a less restricted view has developed. In Shevill (CLR at 625–6) Gibbs CJ (with whom Murphy and Brennan JJ agreed) referring, inter alia, to the decision in Carr , identified the manifestation of an intention “to fulfil the contract only in a manner substantially inconsistent with [the] obligations and not in any other way” as conduct constituting repudiation. That statement was accepted as correct in Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 33 and 44; 57 ALR 609. It was expressly recognised in Carr (at 349) that breach which did not itself entitle the other party to rescind might remain unremedied for so long and in such circumstances as to constitute repudiation. See also Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 at 339–40; Tabali , per Brennan J.”

50 A right to rescind depends on the importance of the term repudiated. The criterion was stated by Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632, pp 641, 642. His Honour said:

“The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor: Flight v. Booth ; Bettini v. Gye 7 ; Bentsen v. Taylor, Sons & Co. (No. 2) ; Fullers' Theatres Ltd. v. Musgrove ; Bowes v. Chaleyer ⁰ ; Clifton v. Coffey ¹ . If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight.”

51 Failure to perform an obligation which is fundamental or essential on a stipulated date or, if no date be stipulated, within a reasonable time does not entitle the other party to bring the contractual obligations to an end unless the time of performance is expressly or impliedly made essential by the contract or is made essential by an effective notice to complete. (Laurinda p 664; Carr p 348-349; Balogv Crestani (1975) 132 CLR 289 p 296.)

52 As to the issue of intention, the relevant acts and circumstances are the following.

53 In the agreement the provisions as to interest were cl 2.2 and cl 11. Clause 2.2 required payment of the balance at the expiration of 12 months from the date of the agreement or on completion of the sale of the plaintiffs’ real property in New Zealand whichever was the sooner. It also provided:

“… However, after the expiration of 6 months from the date of this agreement, the remaining balance of the purchase price, if any, will be subject to interest at commercial bank rates.”

54 Clause 11 provided that the balance of the purchase price owing six months after the date of the agreement would attract interest at commercial bank rates, payable monthly.

55 The first instalment of $400,000 towards the purchase price of $1,500,000 was paid in accordance with the agreement on 20 September 2006, the date on which it was signed. Interest on the balance was to be incurred from 21 March 2007.

56 I have set out above the evidence of the conversation at the meeting on 1 April 2007 about the purchase price under the agreement. The evidence shows, and I find, that Tracey proposed, in effect, that the purchase price be varied to the amount of $700,000. The evidence also shows that Bill replied that he would have his external accountants look at the figures after which he would let them know his response to the proposal. It also shows that Bill intended that this should happen. Bill accepted that he left the plaintiffs with the impression that he would consider their proposal and come back to them. The evidence was that he neither referred the matter to his accountant, nor responded to the proposal.

57 Relevantly, the first communication to the plaintiffs after the meeting was Mr Green’s letter of 12 April 2007 which included a demand for interest as follows:

“As you are aware, under the agreement you are now paying interest on the balance of monies owing. We are instructed by Bill and Jennifer that ‘without prejudice’ to their rights under the agreement that for the first three (3) months commencing 25 ^th April 2007 that they will accept interest at the rate of 2.5% per annum …”.

58 It was in response to this letter that, on 19 April 2007, Chris had the following telephone conversation with Mr Green:

“… I also told him, “We have had discussions with Bill and Jennifer and are in negotiations regarding the purchase price as a lot of the information we were told was incorrect and we don’t believe it is worth what was in the agreement and therefore the interest will not be on the full amount. We will also need some paper work with details on the amount and where to pay it to before any interest can be paid.” Tim Green said, “I will have to go back to Bill and talk to him and come back to you.”

59 Bill’s evidence was that on 23 April 2007 his solicitor informed him that he had been told by the plaintiffs “… that (they) would not be paying any interest”. He then instructed his solicitor to write to the plaintiffs to inform them they were in breach and had repudiated the agreement.

60 Doubtless in accordance with Bill’s instructions, Mr Green sent the letter of 23 April 2007 in which he referred to his conversation with Chris, and stated:

“We confirm your advices that you will not be paying interest to our clients in the terms of the agreement.
Your conduct constitutes a repudiation of the agreement. Our clients reserve their rights under the agreement and at law …”

61 As the authorities hold, the issue of repudiation turns on whether, viewed objectively, the conduct of the relevant party was such as to convey to a reasonable person, in the situation of the other party, repudiation or disavowal of the contract as a whole or of a fundamental obligation under it (Laurinda p 567-568). In this case, the conduct relied upon by the sellers was Chris’ statement to Mr Green on about 19 April 2007 which included the words (affidavit 23.05.09):

“… we don’t believe it is worth what was in the agreement and therefore the interest will not be on the full amount. We will also need some paper work with details on the amount and where to pay it to before any interest can be paid.”

62 In my opinion it was not reasonably open for the sellers, in the circumstances known to them, to conclude from the conversation with Mr Green that the plaintiffs refused to be bound by the agreement and no longer intended to continue with it. In other words, Chris’ statement provided no reasonable basis for Bill to treat what was said as repudiatory conduct which entitled the sellers to rescind. Reasonableness on Bill’s part required him to take into account that Chris was responding to the claim in the letter of 12 April 2007 for interest payable on the remaining balance of the original purchase price at a time when he had not yet responded, as he had said he would, to the plaintiffs’ proposal that the price be reduced. He should also have taken into account that until he made a response, the amount upon which interest was to be calculated was left uncertain. In my opinion, Chris’ statement could be reasonably understood to be no more than the plaintiffs’ explanation for declining to pay interest calculated on the remaining balance of the purchase price stipulated in the agreement whilst the proposal was still under negotiation. Furthermore, in my opinion his words “… we will also need some paper work with details on the amount and where to pay it to before any interest can be paid”, reasonably understood, demonstrated acceptance of the obligation to pay interest upon finalisation of the amount of the purchase price. Taken as a whole, what was said to Mr Green was incapable of evincing a repudiatory intention.

63 Accordingly, I find that the sellers were not entitled to terminate the agreement, and that by Mr Green’s letter of 23 April 2007 they had repudiated and put an end to it.

64 If it was necessary to do so, I would also uphold the plaintiffs’ alternative case that the failure of the sellers to give an effective notice to complete disentitled them to terminate. Relevantly, the agreement contained no provision which allowed either party to terminate or rescind if the other defaulted in the performance of their obligations thereunder. Furthermore, nowhere was it provided that time was of the essence with respect to the payment of interest or for compliance with other conditions, for example, cl 3 under which the sellers were obliged to execute share transfers and convene a company meeting upon the payment of the deposit. In my opinion the stipulation in cl 11 that interest was payable monthly did not operate to make time of the essence. The condition fails the test of essentiality stated in Tramways Advertising Pty Ltd p 641, 642. It is well settled that the failure by one party to fulfil his promise within the stipulated time does not entitle the other party to rescind and that, generally, he may only do so after giving a notice requiring performance within a specified reasonable time and after non-compliance with that notice (Balog p 296-297). In this case it was necessary to give notice to the plaintiffs limiting the time for payment of interest and stating that upon non-compliance the sellers would terminate the agreement. It was common ground that they did not do so.

65 It follows that the plaintiffs are entitled to damages, if any, suffered as a consequence of the sellers’ breach. It also follows that the sellers’ cross-claim against them must be dismissed.

Damages

66 The plaintiffs’ claim for damages is for the recovery of $400,000 paid with interest. They also claim damages for items described as consequential loss.

67 The payment of $400,000 was made in accordance with cl 2.1 of the agreement as the first instalment of the purchase price. The agreement was wrongfully terminated seven months later, before the sellers had transferred their shares to the plaintiffs. In my opinion, the plaintiffs are entitled to recover the amount paid, with interest, on the basis of a total failure of consideration alternatively, as monies had and received by the sellers to the use of the plaintiffs.

68 I have not overlooked the sellers’ submission that there was no total failure of consideration. It was put (T p 435) that the sellers provided partial consideration in that the agreement facilitated the plaintiffs’ entry into the business of the company which allowed them to participate in its operation, and thus went beyond an agreement limited to the sale and purchase of shares. In other words, as I understood it, the submission was that as the plaintiffs had been involved with the company’s operations for some time, they had received a substantial part of that for which the instalment was paid.

69 The short answer to the submission is that the plaintiffs’ management activities with the company were under separate employment contracts between each of them and the company to which the sellers were not parties. In my opinion it cannot be said that such benefits which the plaintiffs may have derived under the employment contracts should be taken as partial consideration under the agreement with the sellers for the purchase of shares in the company. The submission must be rejected.

70 The plaintiffs also claim damages being costs and expenses incurred in moving from New Zealand to Nambucca Heads in August 2006 and in returning to New Zealand after termination of the agreement in April 2007. The plaintiffs described these items as relocation expenses.

71 The items were listed in a document entitled “2^nd Updated Schedule of the Plaintiffs’ Damages” which, with the plaintiffs’ supplementary submissions, were sent to the court on 28 July 2010. These documents will remain with the court file. The items were for costs and expenses in the total amount of $33,389.84 incurred between 28 August 2006 and 15 May 2008.

72 The items for the period between 28 August 2006 and 20 April 2007 include expenses relating to transport of the plaintiffs’ horses and personal belongings from New Zealand to Australia, and related insurance, and for conveyancing costs for the purchase of property at Missabotti. The items for the period 3 May 2007 and 15 May 2008 include the plaintiffs’ fares to return to New Zealand, transport costs to New Zealand for their horses and personal belongings, and costs related to the sale of, and departure from, the Missabotti property.

73 During final submissions, and after some vacillation (T p 366, 392) the plaintiffs submitted (T p 438, 439) that the losses were claimable under both the agreement and the employment contract. However, it is reasonable to understand from the supplementary submissions of 28 July 2010 (pars 32-40) that these claims are made only under the employment contracts. However, for the avoidance of doubt, I deal with these items on the basis that they are claimed to be losses resulting from the breach of either contracts.

74 In support, the plaintiffs relied on the principle in Hadley v Baxendale (1854) 2 CLR 517; (1854) 9 Exch 341 that consequential loss for breach of contract is claimable if it may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. In Baltic Shipping Co v Dillon [1993] HCA 4; (1993) 176 CLR 344 Deane, Dawson JJ said (p 380):

“… The general principle underlying the ascertainment of damages for breach of contract is that a successful plaintiff is entitled to the monetary sum which provides reasonable compensation for the breach ‘without imposing a liability upon the other party exceeding that which he could fairly be regarded as having contemplated and been willing to accept’.”

75 The onus is on the plaintiffs to prove their loss. Although quantum was not contested, the sellers denied liability.

76 The plaintiffs relied upon Bill’s evidence in cross-examination as follows (T p 297, l 49- p 298, l 1 – 1 14):

“Q. During the course of your discussions in New Zealand on the occasion of Tracey's father's 60s birthday you were aware, were you not, that their plans were to sell their property in New Zealand and come to Australia?
A. Yes.

Q. You knew that they had an interest in horses?
A. Yes.

Q. You knew that they intended to move to New South Wales?
A. Yes.

Q. And you knew that they intended to transport themselves and their horses to New South Wales so that they could run the business; you knew that, didn't you?
A. Yes.“

77 In my opinion the evidence does not establish that any of the items claimed was such as to attract the application of the rule in Hadley. The agreement was silent about this issue. The fact that Bill knew that the plaintiffs intended to sell their property and come to Australia with their horses does not support a finding that at the time the agreement was made it was reasonable to foresee that their costs and expenses in doing so would be losses which the sellers should bear as a result of a breach. In reaching this conclusion I have also taken into account Tracey’s evidence (T p 34, 35) and Chris’ evidence (T p 180) that they were obliged to sell their New Zealand property and other interests to raise sufficient capital to fund the purchase of the shares. In my opinion the items claimed should be seen as expenses voluntarily incurred in order to put the plaintiffs in a position to enter the agreement, or to have the opportunity to do so, and voluntarily incurred to return to New Zealand.

78 The plaintiffs had come to Australia on 22 August 2006 to take up their employment with the company. There was no evidence that any of the parties, at any time before or after the agreement was made, turned his or her mind to the prospect of these claims if the sellers repudiated. In the circumstances I find that the evidence relied upon does not establish the implication that the sellers agreed to compensate the plaintiffs for any of the items claimed in the event of their breach. Accordingly, the plaintiffs’ claim for consequential loss under the agreement is rejected.

79 The plaintiffs are entitled to a verdict against the sellers for the amount of $400,000 plus interest.

80 Having found for the plaintiffs under their principal claim based on repudiation of the agreement it is unnecessary to determine their alternative claim under s 42 of the Act for the same damages. This is because, in my opinion, the determination of the complex questions of fact and law which it raised would not affect the outcome of these proceedings, but would delay judgment.

The claims under the employment contracts

81 On 22 August 2006 a separate contract of employment was made between each plaintiff and the company. The terms of the contract are the same, and are set out above (par 9).

82 They were terminated without notice by Mr Green’s letter of 23 April 2007. Accordingly, the plaintiffs each claim compensation for wrongful dismissal.

83 The contracts were not for a fixed term, and contained no notice provision.

84 The evidence was, and I find, that Chris was employed to replace the company’s former general manager, Mr Browne, on 9 August 2006 and worked full time as such until he and Tracey were dismissed on 23 April 2007. It was also established that from the time of signing her contract, Tracey worked full time in a managerial role until she was dismissed. For the period 9 August 2006 to 24 April 2007 Chris was paid $55,557. For the period 29 August 2006 to 24 April 2007 Tracey was paid $52,673.

85 The plaintiffs each claim damages in lieu of notice. Each claimed six months salary ($37,500) in lieu of notice alternatively, at least the balance of annual salary for the year ending 22 August 2007 which, for Tracey, was the amount of $22,327, and for Chris, was the amount of $19,443. As earlier indicated, they also claim, as relocation expenses, the items for which the consequential loss claim under the agreement was made.

86 The company accepted that it was appropriate that the rate of remuneration was $75,000 per annum.

87 The thrust of the company’s submissions was to meet a claim for wrongful dismissal in circumstances where it was found that the agreement had been repudiated by the plaintiffs. In this context the company in its written submissions contended that the employment contracts contained the following implied term:

“The parties acknowledge that the Agreement dated 20 September 2006 (the “Agreement”) provides for your appointment as a director and that your employment as a “managing director” shall terminate in the event of your breach of the Agreement resulting in its termination.”

88 Thus it was put that the employment contracts were terminable without notice upon breach of the share sale agreement by the plaintiffs. Having regard to the finding that the agreement was wrongfully terminated by the sellers, it is unnecessary to further consider the submission as the suggested implied term would have no operation. Nevertheless, I express my opinion that the submission must be rejected. The employment contracts and the agreement evidence separate and distinct arrangements between different parties. The employment contracts were effective in business terms without the implication of the term suggested. It follows, in my opinion, that the company failed to establish satisfaction of the conditions for implication stated, for example, in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 282-283; Byrne & Frew v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410 at 422.

89 As a general principle, where no length of notice of termination is specified it may be implied. In this case a term should be implied that reasonable notice to terminate must be given. The company did not contest this proposition.

90 Mr Green’s letter of 23 April 2007 and the denial of further involvement in the company’s operations without notice constituted wrongful dismissal of the plaintiffs from their employment with the company. The failure to give reasonable notice entitles them to damages.

91 It was common ground that the assessment of any award should be with regard to their remuneration for the period of reasonable notice. The assessment as to what is reasonable notice is determined in light of all the circumstances applying as at the date notice is given, not at the date of the commencement of the contract (Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567, at 580). The factors to be taken into account depend upon the circumstances of the particular case as conveniently explained in Carolyn Sappideen, Paul O’Grady & Geoff Warburton, Macken’s Law of Employment, 6^th ed (2009), Thomson Reuters (Professional) Australia Ltd at 269-272. In my opinion in this case the relevant factors include the importance of the plaintiffs’ positions and the nature of their employment, their qualifications and experience, and the period for which it was likely, apart from dismissal, that they would have continued in the employment. Their duties required them to undertake the overall management of the company in all aspects of its business which involved the production, marketing and sale of horse floats and trailers. Their duties included supervision of staff and accounting matters. They were persons of commercial experience and familiarity with the horse industry in which the company principally operated. Their contracts were for an indefinite period, and I am satisfied that when they were made, the parties expected their employment would continue for a long time.

92 In my opinion a reasonable period for notice in each case was six months. Accordingly, I assess damages under this head in each case in the amount of $37,500, with interest.

93 With regard to the claim for so-called relocation expenses, it is significant that there is no provision in the contracts for compensation for expenses incurred for either coming to Australia or returning to New Zealand. In order to make good the claim for these expenses it would be necessary for the plaintiffs to prove that under the terms of the contracts, express or implied, the company was obliged to pay them. I see no reason why a term obliging the company to reimburse the plaintiffs for these items should be implied.

94 No authority was relied upon by the plaintiffs to support the proposition that expenses of this kind were recoverable where the contract was silent on the question. Reference was made to the success of the employee in Irons v Merchant Capital Ltd (1994) 116 FLR 204. However it does not assist, as it was found (p 207) that the employer accepted liability to reimburse the employee for relocation costs.

95 I am not satisfied that the plaintiffs are entitled to damages for these relocation expenses, and reject the claim in each case. In the result, there will be an award of damages to each plaintiff against the company for $37,500, and interest.

Conclusion

96 Accordingly, I propose the following:

() Verdict for the first plaintiff against the first defendant for the sum of $37,500 with interest.

(2) Verdict for the second plaintiff against the first defendant for the sum of $37,500 with interest.

(3) Verdict for the plaintiffs against the second and third defendants for the sum of $400,000, with interest.

(4) Order that the first cross-claim be dismissed.

(5) Order that the second cross-claim be dismissed with costs.

97 The questions of the amounts of interest, and costs (except costs of the second cross-claim), remain outstanding. If agreed, the plaintiffs are directed to bring in short minutes of orders which dispose of the proceedings. Failing agreement, arrangements should be made with my associate by 4pm 23 November 2010 to list the matter for argument.

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