David Morgan Investments Pty Ltd v Maggie Beer Holdings Ltd; Maggie Beer Holdings Ltd v David Morgan Investments Pty Ltd

In this matter, David Morgan Investments Pty Ltd, the purchaser, and Maggie Beer Holdings Ltd, the vendor, were involved in a dispute concerning the purchase of an online hamper and gift business. The case was heard in the Supreme Court of Victoria. The primary issue before the court was the proper construction of a Share Purchase Deed, specifically the calculation of the earn-out amount based on the vendor's future earnings. The dispute centred on whether the expert engaged to determine the earn-out amount should consider changes in the manner in which the purchaser conducted the business after the purchase.

The court was required to determine whether the expert's calculation of the earn-out amount should be based solely on the pre-existing business model or whether it should also account for any alterations made by the purchaser post-acquisition. The vendor argued that the expert must consider the changes made by the purchaser, while the purchaser contended that the expert's role was limited to assessing the business based on its pre-acquisition performance. The court found that the Share Purchase Deed did not explicitly address this issue, leaving the question of what principles the expert must apply in calculating the earn-out amount open to interpretation.

In delivering the judgment, the court considered the language of the Share Purchase Deed, the surrounding circumstances, and the intentions of the parties. The court concluded that the expert's role was to assess the business based on its performance under the existing business model, without taking into account any changes made by the purchaser post-acquisition. The court held that the expert's calculation should be based on the pre-existing business model, as this was the benchmark against which the earn-out amount was to be determined. The court found in favour of the purchaser, ruling that the expert must not consider changes in the manner in which the purchaser conducted the business following the purchase.

The final orders of the court were that the expert's calculation of the earn-out amount should be based solely on the pre-existing business model, and the purchaser was entitled to a refund of the overpaid earn-out amount. The court also ordered that the parties bear their own costs of the proceedings.