Drennan v Lowery and Lowery
[2009] VCC 494
•15 April 2009
| IN THE COUNTY COURT OF VICTORIA | (Un) Revised |
(Not) Restricted
AT MELBOURNE
CIVIL DIVISION
Case No. CI-08-00359
| DAVID DRENNAN | Plaintiff |
| V | |
| RICHARD LOWERY | First Defendant |
| - and - | |
| REBECCA LOWERY | Second Defendant |
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| JUDGE: | HER HONOUR JUDGE COHEN |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 13, 16 & 17 February 2009 |
| DATE OF JUDGMENT: | 15 April 2009 |
| CASE MAY BE CITED AS: | Drennan v Lowery & Lowery |
| MEDIUM NEUTRAL CITATION: | [2009] VCC 0494 |
REASONS FOR JUDGMENT
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Catchwords: Contract Law – sale of share in private company -whether binding agreement
– whether either or both defendants liable – remedy for breach.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S Rubenstein | MacPherson & Kelley |
| For the Defendants | Mr M Galvin | Voitin Walker Davis |
| HER HONOUR: |
David Drennan and Richard Lowery had been friends for close to 40 years. Then they went into business together. They started a business of manufacturing shower bases under the name “Trimseal”, which from 2003 they ran through a company called X-Cell Tech Pty Ltd (“the company”) in which each held one share and was a director. By 2006 they were looking to end this business association. In late July 2007 negotiations with a prospective purchaser of the Trimseal business were discontinued because Mr Lowery’s daughter wanted to buy Mr Drennan’s share in the company. Mr Drennan now sues Mr Lowery and his daughter, Rebecca Lowery, over their failure to proceed with that purchase despite what he claims was an agreement by them to do so.
Mr Drennan’s case is that on 31 July 2007 an agreement was reached between him and both defendants for his share in the company, including the Trimseal business, to be bought by Ms Lowery. He claims that he was to be paid $100,000 by 31 August 2007 (half of the price reached with the outside purchaser as the value of the Trimseal business’s goodwill and equipment) and also sums equal to half of the cash balance in the company’s bank account, half of its debtors, and half of the value of its stock or inventory, all as at 31 August, 2007. He was paid $10,000 by Mr Lowery on 31 July 2007. No further amounts were paid.
Mr Drennan claims damages for breach of the agreement totalling $212,195.50, being the unpaid balance of the amounts he alleges were agreed to be paid for his share in the company, less the final distribution available to shareholders of the company on its winding up. That amount is agreed by the parties to be $15,000.
The defendants do not dispute that they discussed with Mr Drennan the prospect of Ms Lowery purchasing his share in the company, but they deny that negotiations reached the stage of a binding agreement. If there was an agreement, then there is dispute as to whether both or only one of them (and which one) was party to it. They further argue that if there was a breach of agreement, it was not accepted as a repudiation until the first day of the hearing, by which time the contract had been frustrated due to the appointment of a liquidator and the operation of s 468A Corporations Act 2001 which would have rendered void a transfer of a share in the company.
The key issue to be decided is whether or not there was a binding agreement, and that centres on the events and discussions from Thursday 26 July to Tuesday 31 July 2007, but some preceding events are relevant to these, as are some subsequent events.
Background and preceding events
6 The company had operated from factory premises already owned by Mr Lowery. It employed two men to perform the manufacturing work, while each of Mr Drennan and Mr Lowery attended for part of the day but also pursued separate business interests. During 2006 Ms Rebecca Lowery worked as the office manager of the company, while also looking to run a business of her own.
7 It had been Mr Drennan’s and Mr Lowery’s intention to build and then sell the Trimseal business, but by 2006 their business relationship had become uncomfortable enough for there to be discussions about one buying the other out, but no agreement was reached. There were also discussions with some other parties about a sale of the business[1], but none came to fruition. During the second half of 2006 Mr Lowery regarded the business as available for sale, although it was not being actively advertised as such. In January 2007 a return customer for a shower-base, Mr John Ubaldi, emerged as a prospective buyer for the Trimseal business – but not the company structure. He and his cousin, Mr Fabrizio Ubaldi, were experienced investors and traders in businesses. Both Mr Drennan and Mr Lowery were interested in such a sale, and negotiations commenced, conducted initially through Mr Lowery, then Mr Lowery and Ms Lowery, with the knowledge of Mr Drennan and occasionally his participation by conversation or letter. These negotiations became protracted, with the Ubaldis requiring extensive further information and scrutiny of business records, and Mr Lowery became frustrated with them. By mid July he had told Mr Drennan that he thought that the negotiations with the Ubaldis were not going anywhere, but after that agreement was reached as to a price of $200,000 for goodwill and machinery, and the acquisition of existing stock up to $30,000, but there were remaining issues raised by the Ubaldis.
8 A meeting was to be held at the factory on Thursday 26 July, and that morning an emailed letter from the Ulbaldis was received by the company as to outstanding matters[2]. It was first opened by Ms Lowery, and she gave a printed copy to each of Mr Drennan and Mr Lowery although Mr Drennan claims not to have read it until later in the day.
9 It is common ground that before the meeting began, Ms Lowery approached Mr Drennan and asked him whether, if the sale to the Ubaldis did not proceed, he would be prepared to sell his share to her, and that he agreed.
[1] T 172, lines27-29
[2] Exhibit 5
10 The meeting was attended by both Messrs Ubaldi, Mr Drennan and Mr Lowery. Ms Lowery was present in the office and within hearing of discussions. The Ubaldis raised, as had their preceding letter, a perceived discrepancy in sales figures in the order of $50,000. Mr Drennan agreed to try to resolve it. He worked on the figures that day but although he recognized the discrepancy, he could not resolve it. Mr Lowery did not believe that there was anything wrong with the company’s sales figures.
11 After the meeting there was discussion between Mr Drennan and Mr Lowery and Ms Lowery, the content of which is in dispute. I am satisfied that with all three present there was further discussion of Ms Lowery being interested to buy Mr Drennan’s share. Ms Lowery claims that she said at that stage that she was interested but would want to seek legal advice from a friend before she took it any further.
12 Next day, Mr Lowery telephoned both Messrs Ubaldi, but could not reach them and left a message. Mr Lowery says that Mr Drennan suggested he ring and tell the Ubaldis that negotiations with them were over, but Mr Drennan denies this and claims that on the morning of Friday 27 July he told Mr Lowery he felt that the Ubaldis should be given “first right of refusal”, but if they did not wish to proceed he would agree to sell to Ms Lowery. I believe Mr Drennan’s version in preference to Mr Lowery’s as I am satisfied that Mr Lowery was the person who first decided to tell the Ubaldis that negotiations with them were finished. I am satisfied that on that Friday there was discussion between Mr Drennan and Mr Lowery to the effect that Mr Lowery and Ms Lowery had discussed buying his share and were prepared to buy him out if he was prepared to sell to them. Mr Drennan made a diary note at the end of that day stating “Richard and Rebecca offer to buy me out”[3].
[3] Exhibit 6 – T 50...
13 Late Friday afternoon Mr John Ubaldi returned Mr Lowery’s call and was told by Mr Lowery that their negotiations were over, as Mr Drennan would be selling his share in the company to Ms Lowery. He may have used the expression “we” will be buying Mr Drennan’s share. Although Mr Ubaldi says he was told that a deposit had been paid, Mr Lowery denies mentioning money to Mr Ubaldi[4]. Mr Ubaldi was not happy, and next morning rang Mr Drennan. Versions of that conversation differ, in particular as to whether Mr Drennan told Mr Ubaldi that there was already an agreement with the Lowerys and that a deposit had been paid – as Mr Ubaldi says he was told and Mr Drennan denies. These differences may go to the credibility of Mr Ubaldi or Mr Drennan, but otherwise are not relevant as neither the plaintiff nor the defendants contend that a concluded agreement was reached by then.
[4] T 183
14 I am satisfied that Mr Ubaldi said and meant that he still wanted to buy the Trimseal business. A letter from him (dated 26 July but clearly written after the Saturday conversation and emailed 30 July)[5], set out what had occurred from his perspective, and that despite being “surprised, confused and disappointed”, if the business should still be available they would still proceed with “the process of acquisition” as planned but “possibly with a week of delay”[6].
[5] Exhibit 7 & 8 – T 155, lines 10-14
[6] Exhibit 8
15 There were discussions between the parties on the Monday, but there is dispute between them as to what was said. I am satisfied that it became clear to Mr Drennan that Mr Lowery was not prepared to continue to try to sell the Trimseal business to the Ubaldis, and that Mr Drennan accepted that without Mr Lowery’s agreement that sale could not proceed as they were equal shareholders. I am satisfied that there was further discussion with at least Mr Lowery and Mr Drennan present, of selling his share to Ms Lowery, for the equivalent amount to what the Ubaldi sale would have meant. I find that there was discussion to the effect that Mr Drennan would get the same financial result whether he sold his share to Ms Lowery or the company sold the business to the Ubaldis[7], as he would receive about the same either way, but he did want the whole issue settled soon.
[7] T 58
16 On Tuesday morning 31 July the parties were all present at the factory, and I am satisfied that a discussion about the sale of Mr Drennan’s share took place with them all present in the office. Mr Lowery had come with his personal cheque already written for $10,000 payable to Mr Drennan. There is heated disagreement about what was said.
17 Mr Drennan says that it was at that meeting with both defendants present that the agreement was “formalized” with the terms that they had been discussing on the Friday and Monday becoming fixed[8]. He says that he said to both Mr and Ms Lowery that he was happy to go ahead and details the terms that were generally known having been hashed over with the Ubaldis and needed to be agreed on formally between the three of them[9]. He says that he wrote out the terms on a piece of plain paper obtained from the printer in the office where they were. At first he called it “foolscap” and later “A4” – a discrepancy which I find wholly understandable in someone of his generation, and unimportant, despite extensive cross-examination designed to convince me that it rendered Mr Drennan an unreliable witness. He says that he handed it to the defendants on the understanding that they would arrange for Ms Lowery’s solicitors to draw up what documentation was needed to transfer his share to Ms Lowery. The Lowerys deny that there was ever such a piece of paper, or any terms agreed.
[8] T 122-123
[9] T 62-63
18 Mr Drennan says that the terms agreed and written on that paper were that Rebecca Lowery was going to buy his share in the company for the equivalent of the deal that had been reached with the Ubaldis, namely $100,000, being a half of the value of the business’s goodwill and equipment as agreed upon with the Ubaldis, to be paid by 31 August 2007, the value of the other assets of the company would be split 50/50, that is the value of stock or inventory and of cash at bank, as at settlement and the debtors at settlement, settlement being in 30 days time (31 August 2007)[10]. He says that this was all agreed upon with the three of them present, and that Mr Lowery handed him Mr Lowery’s personal cheque for $10,000 (despite Ms Lowery telling her father not to do so). Mr Lowery told him that the cheque was a sign of good faith and Mr Drennan had said to call a deposit. He says that after Mr Lowery left, Ms Lowery asked whether she could pay the amounts other than the $100,000 in three monthly instalments, so it could come out of cash flow, and that he agreed[11].
[10] T 63,68
[11] T 71
19 Mr Lowery and Ms Lowery both deny that there was ever a piece of paper with terms of the agreement. They agree that on that Tuesday morning Mr Lowery handed over the cheque, after Ms Lowery asked him not to do so, but they say that it was at Mr Drennan’s request – “is that cheque burning a whole in your pocket?”- and that Mr Lowery said to his daughter it was OK. They say that this payment occurred without discussion of terms of purchase of the share. Mr Lowery says he paid the money because it was what he could afford at the time and Mr Drennan had been his friend for many years. Mr and Ms Lowery say that from the previous Thursday Ms Lowery had kept saying that she would not negotiate until she had spoken with lawyers.
Subsequent events
20 The parties apparently continued to run the business over the next few weeks, with no further discussion of the sale of the plaintiff’s share except that Mr Drennan says that he asked Ms Lowery – about once a week - when the documents would be ready, and that she told him there was a delay seeing the solicitor. She says that on about 6 August she took a call from a customer of Trimseal complaining about a product – stripgrate -that Trimseal and the company did not market, but had been developed separately by Mr Drennan, and that she was concerned about this. She does not say that this was her reason not to proceed with a purchase of his share. She does not say why she had no further discussions with Mr Drennan about purchasing his share. She maintained her legal professional privilege in relation to what she may have discussed with her lawyers about the negotiations or other aspects of her intended purchase of Mr Drennan’s share. There is no evidence that she told Mr Drennan prior to 31 August that she would not be proceeding with the purchase of his share.
21 On or shortly after 29 August 2007 Mr Drennan received a letter from solicitors White Cleland[12], stating that they acted for Mr Lowery, alleging misconduct by Mr Drennan in his role as a director of the company, and asking him to deal only with them and to not contact their client directly.
[12] Exhibit 10
22 There is minimal evidence of what happened between the parties during the months following 31 August 2007. At some stage later that year or early in 2008, Mr Lowery applied to have a liquidator appointed to wind up the company. Mr Drennan decided to not oppose that application, and a liquidator was appointed on 28 March 2008. The Financial Report for the period ending 27 March 2008[13] shows that the company was solvent.
[13] Exhibit 13
23 By an agreement dated 17 April 2008 the liquidator sold the whole of the company’s business, its plant, equipment and stock, to a company called The Universal Shower Base Pty Ltd, of which Rebecca and Daniel Lowery are directors. The total price paid was $13,461[14].
[14] Exhibit 15
24 It is agreed that a sum of $15,000 remains owing to Mr Drennan from the liquidator, for his half share in the company’s net assets.
Was there a binding agreement reached on 31 July 2007?
25 There being conflicting versions of what was said and what occurred over the period 26 to 31 July 2007, I must consider the credibility and reliability of each of the parties as witnesses, together with the other evidence, in order to decide whether I can be satisfied on the balance of probabilities that a binding agreement was reached.
26 As a witness, Mr Drennan was vague on a number of matters, and he changed some of his answers when shown documents or other aspects of the evidence were put to him. My impression was that he is not a person who gives much attention to detail. I take that into account especially as the key issue in this case is whether there was an agreement reached between him and one or both of the defendants, and that required sufficient certainty of terms. Nevertheless, my overall impression was that he was doing his best to tell the truth as best he recalled it, and I found his version of events substantially credible and convincing. Overall I found his version of key events more convincing, and more inherently likely, than that of the defendants.
27 My impression of the first defendant, Mr Richard Lowery, is that he is unhappy about what has occurred, and that he has been caught in the centre of this dispute by trying to support his daughter, both financially and in her actions. He was also vague on a number of details.
28 The second defendant, Ms Rebecca Lowery, gave the impression of being confident in herself and well-rehearsed in her evidence. I found her the least credible of all of the witnesses. Being the last witness to give evidence, and having been in court throughout[15] taking notes, my impression was that her evidence was deliberately tailored to suit her case as she saw it by the end of all other witnesses’ evidence. For example, she was quick to assert from the witness box a claim to legal professional privilege, there having earlier been an issue raised by me as to Mr Drennan’s privilege.
[15] As a party this was her right.
29 Some of her disavowals of knowledge were patently wrong, and I took them to be either outright lies or deliberate evasion. For example, she had been actively involved in negotiations on behalf of X-Cell Tech with the Ubaldis for some months, had access to correspondence they sent to the company and indeed was the person who opened the emails each day, and had ample opportunity to discuss matters with her father with whom she lives. She tried to say in her evidence that she was not aware whether negotiations with the Ubaldis were still on foot on Thursday afternoon, 26 July, because as she was she was not a director of X-Cell Tech it was not her place to get involved[16]. She was asked:[17] “you would be interested would you not in the outcome of the negotiations with the Ubaldis?” to which she answered “it affected me neither which way”. This was disingenuous and patently untrue. She herself says that it was that very morning that she asked David Drennan whether he would be prepared to sell her his share if negotiations with the Ubaldis did not proceed.
[16] T 201, lines6-9
[17] T201 line 25
30 The other witness to give evidence was Mr John Ubaldi, called by the plaintiff. His version of what he was told by Mr Lowery when he returned Mr Lowery’s call late on Friday 28 July, and what was said in his call to Mr Drennan on the Saturday morning, vary from what each of Mr Lowery and Mr Drennan say they said in those respective conversations, in particular he says he was told that there was an agreement in place for Ms Lowery to purchase Mr Drennan’s share and that a deposit had been paid. However, overall I accept as reliable the main gist of Mr Ubaldi’s evidence, and in particular that he and his cousin were indeed wanting to buy the Trimseal business and would have proceeded, even if the discrepancy in sales figures raised at the Thursday meeting, had not been able to be resolved, and there was little more to be done by way of “due diligence” because there had already been extensive disclosure of the business records over preceding months. His contemporaneous correspondence[18] satisfies me that he was indeed annoyed that his purchase of this business did not proceed, and even after that weekend he was prepared to proceed on the terms that had been agreed if the business were still for sale to him.
[18] Exhibits 7 & 8
31 Correspondence as well as the oral evidence all confirms that negotiations with the Ubaldis were protracted, with questioning of many aspects of the business figures and debate over values and the ultimate sale price for the business. Whether this was genuine “due diligence” or a tactic by the Ubaldis to lower the price, I am satisfied that the Ubaldis were genuinely interested in purchasing the business and would have paid the price they had reached of $200,000 for the goodwill and equipment of Trimseal. I am satisfied that they were only days away from concluding their agreement – having set 1 August 2007, and even on 30 July after being told that the business was no longer on the market, they foreshadowed only a one week extension if the parties reconsidered selling to them[19].
[19] Exhibit 8
32 I accept that Mr Lowery had become very frustrated with the progress of these negotiations, and was in his words “fed up” with the Ubaldis. However, I am also satisfied that he wanted to sell the business or to withdraw from much personal involvement with it and with Mr Drennan, and that had his daughter not expressed the wish to buy Mr Drennan’s share he would have persevered for longer to try to reach a completed agreement with the Ubaldis. I am satisfied that on the Friday or the Monday he said words to Mr Drennan to the effect of - what does it matter to you as you’ll get the same whether we sell to the Ubaldis or you sell to Rebecca?
33 I am satisfied that between Mr Lowery and Mr Drennan there was a meeting of minds – “consensus ad idem”- as to both the purchase of the goodwill and plant, for a half of the same amount that had been agreed with the Ubaldis, and as to half of other assets of the company, although for the latter without a date fixed for payment. I do not consider that the absence of detail as to date for payment of the balance of value in the share undermines there having been agreement reached on sufficient terms to give certainly. The need to give business efficacy to the contract enables a term to be implied that the balance of the value of the share would be paid within a reasonable time.
34 As to Ms Lowery, I am satisfied that by the end of Tuesday 31 July she knew that Mr Drennan believed that he had an agreement for her to purchase his share in X-Cell Tech and that its completion awaited only documentation to record the share transfer, and end of month figures to calculate the balance of amounts to be paid. I am satisfied that she knew that her father believed that they had agreed to purchase Mr Drennan’s share. I am satisfied that she had persuaded her father to end the negotiations and thereby refuse the prospective sale to the Ubaldis – as her counsel said “to scuttle” those negotiations. She would have been extremely naïve to expect Mr Drennan to wait indefinitely for further negotiation with her if an agreement had not already been reached. It is not my impression that she was so naïve. Ms Lowery is aged 32 and conducts herself, possibly under the protection of her father’s established businesses and property, not merely as an employed administrator or secretary, but as a person looking to run her own businesses. As was reflected by Mr Ubaldi’s letter[20] as well as being mentioned in Mr Drennan’s evidence, she had been telling them of setting up a pallet business. Indeed, after the breakdown in relations between the parties here she was the purchaser, through a new company, of the whole of the Trimseal business and its stock for a very small fraction of the price the Ubaldis were offering only 8 months earlier, or even of the stock or cash in bank in July or August 2007.
[20] Exhibit 7
35 I am satisfied that Ms Lowery is neither naïve, nor vulnerable to being overwhelmed by her father or Mr Drennan despite knowing him all of her life. I am satisfied that her father cut short her attempt at procrastination when he handed over a cheque he had written before attending the factory that day, and which she knew he had written. I do not believe that she was not present or aware what was being discussed on Tuesday 31 July. She certainly tried to prevent that payment, but I am satisfied that she knew when it was handed over to Mr Drennan that both he and her father believed that they had an agreement of which she was part as the purchaser of Mr Drennan’s share.
36 I am reinforced in my rejection of her denial of there having been an agreement reached with Mr Drennan for her to buy his share in the company by the evidence of her actions afterwards. If she had genuinely thought that she was not bound by an agreement, then I would expect her to have engaged in further discussions with Mr Drennan soon after that day to further their negotiations. After all, she was well aware that the negotiations with the Ubaldis had been nearing completion, with much activity over the last week in July and a proposed conclusion of them on 1 August, and a letter from Mr Ubaldi received 30 July expressing ongoing interest if the sale to her did not proceed.
37 On Ms Lowery’s version of events, after the Ubaldis left the factory on the Thursday, she told Mr Drennan that she would still like to buy his share – as she had raised with him that morning – but did not want to enter into any more detail until she had consulted lawyers. She says that she repeated that position on the Friday, and again on the following Tuesday despite her father handing over the cheque. On her version of events, she did not in fact have any further discussions with Mr Drennan about her proposed purchase. She made an appointment to see solicitors, White Clelend, that there was some delay in getting an appointment, but there is nothing to indicate that they or she communicated further with Mr Drennan about her proposed purchase of his share. On the contrary, despite her consulting with those solicitors, they wrote a letter dated 29 August 2007 to Mr Drennan[21] stating that they were acting on behalf of Mr Lowery and alleging misdeeds by Mr Drennan as a director of X-Cell Tech Pty Ltd. Whether this was her idea I am not in a position to find, but the absence of any communication on her behalf was simply too convenient. I am satisfied on the balance of probabilities that she knew she had agreed to buy Mr Drennan’s share.
[21] Exhibit 10
Breach of agreement
38 On the evidence before me there was no legitimate basis for the balance of the agreed purchase price not to be paid to Mr Drennan. Ms Lowery in her evidence asserted a concern about the product “stripgrate”, developed and marketed separately by Mr Drennan, but her father – the co-director of the company - agreed that he had known of that already, and had not wanted it developed by the company XCell Tech at the time it was first being developed. The product “stripgrate” was not mentioned by anyone as having a role in the ascertainment of the value of the Trimseal business or the balance of the company’s assets.
39 It is clear that neither of the Lowerys paid any further amounts to Mr Drennan for the value of his share in the company. I am satisfied that the sum of $90,000 had been due on 30 August 2007, and the balance a reasonable time after the 31 August figures for cash at bank, inventory and debtors, could be ascertained.
Who was party to the agreement?
40 It is common ground that the discussions were to the effect that Ms Lowery was to buy Mr Drennan’s share. That does not preclude Mr Lowery from being party to the agreement and I am satisfied that he was.
41 Mr Lowery was co-owner of the company which owned and ran the Trimseal business, being the equal shareholder with Mr Drennan, and it was his actions and decision which brought to an end the negotiations to sell the business to the Ubaldis. I am satisfied that he justified to Mr Drennan his having told Mr Ubaldi that the negotiations were at an end with the Ubaldis by telling Mr Drennan that he would be as well off by selling his share to Ms Lowery. I am satisfied that the families knew each other well enough for it to be implicit that Ms Lowery would be assisted financially by her father in achieving the purchase of the share in the company.
42 I am satisfied that terms were reached between Mr Lowery and Mr Drennan, in conversations on the Monday, and confirmed on Tuesday 31st July, that Mr Drennan would be paid $100,000 in a months’ time. Mr Lowery had written a cheque for $10,000 overnight and brought it in his briefcase, and handed it to Mr Drennan on the Tuesday. He says it was a sign of “good faith” as they had been friends for so long, and as much as he could afford. Mr Drennan agrees that Mr Lowery called it “good faith” when he produced the cheque, and that he Mr Drennan said to call it “a deposit”. In my view it does not matter whether or not it was called a deposit because I am satisfied that it was written and handed over by Mr Lowery as part payment of the sum of $100,000 which had been agreed to be paid for Mr Drennan’s half share of the value of the business. I am satisfied that Mr Lowery was always going to contribute funds to the purchase of that share. I am satisfied that he regarded himself as party to the agreement, as he knew that it was his decision to discontinue the Ubaldi negotiations so that his daughter could take over the business.
43 It was submitted that there was no evidence that could support a finding that Ms Lowery was bound by any agreement with Mr Drennan, in particular because she says that she had said that she wanted to obtain legal advice before entering negotiations, and had tried to prevent her father handing over his cheque for $10,000 as early as the Tuesday. In addition, of course, she denies having been part of conversations as to any terms except a general comment that it seemed fair for Mr Drennan to receive the equivalent of what he would have received through the sale of Trimseal to the Ubaldis.
44 I do not accept her version of events that she said she would not enter an agreement without first getting legal advice. I am satisfied that what was said was to the effect related by Mr Drennan – that she had been the one to ask him to sell her his interest, that she was aware of the details being discussed between her father and Mr Drennan on the Friday and Monday, that she had agreed on the Tuesday to the terms, and that her mention of lawyers was to have the necessary documents prepared to put the agreement into effect.
45 As for her trying to stop her father from handing over the cheque that day, she failed to achieve that. I am satisfied that even if she had been trying to delay an agreement, she knew and accepted from that day that there was an agreement, because, as already explained, I do not accept that she was naïve, and there were no further negotiations by her towards an agreement. This confirms to me that she regarded there as having been an agreement already reached. Even if she wanted to delay it, she was over-ridden by her father on the Tuesday when the cheque was handed to Mr Drennan. Finally, I accept Mr Drennan’s evidence that following that – after Mr Lowery’s departure from the factory that day - Ms Lowery asked to pay the balance by instalments, and I take that to be an acknowledgement by her of being bound to the purchase.
46 I am satisfied that both defendants were party to the agreement for Ms Lowery to purchase Mr Drennan’s share in the company. Each is individually liable for its breach.
Was the contract frustrated?
47 Mr Galvin for the defendants argued that even were I to find that a binding agreement was reached with one or both of the defendants, the plaintiff is not entitled to damages because he did not accept the defendants breach as a repudiation of that agreement until at earliest the first day of trial when the claim for specific performance was abandoned. It was argued that because that was after the appointment of a liquidator to the company, the share transfer was not possible because s 468A of the Companies Act would have rendered it void, and the contract had therefore been frustrated.
48 Mr Rubenstein for the plaintiff responded that under s 468A a share transfer was not void if the liquidator gave written consent and the transfer was unconditional, and that the letter from the liquidator tendered as to the distribution to Mr Drennan as a shareholder indicated that there would be no reason for the liquidator to withhold consent to a transfer if asked.
49 I am of the view that the agreement was not frustrated by the appointment of the liquidator, for the reason advanced by the plaintiff. It may be arguable that the sale of the company’s business to the new company of which Ms Lowery was a shareholder was a frustrating event, however as the share could still have been transferred by Mr Drennan (with the liquidator’s consent), I am not convinced that it was. Even though the value of the share was greatly diminished by the liquidator’s sale of the company’s business, the agreement which I have found to have been reached could still have been completed.
50 In any event, in my view the argument that a subsequent event frustrated the ability to continue with the agreement is not the real issue here, because there had already been actionable breach by the defendants of the agreement before any such event.
51 Similarly, arguments about failure by the plaintiff to accept repudiation of the agreement before issue of the proceeding, or prior to commencement of the trial, is not an issue, because the only ongoing obligation of Mr Drennan was to transfer his share on completion of the agreement.
52 This proceeding was issued on 5 February 2008 – prior to the liquidator being appointed or the sale of the company assets to Ms Lowery’s new company. The proceeding alleged breach of the agreement to purchase Mr Drennan’s share in the company, and claimed as relief specific performance or alternatively damages.
53 As I have found the agreement and its terms to be, the failure by both defendants to pay the balance of $90,000 on 31 August 2007 was a breach of their obligations under the agreement. The further sums did not become due that day, and whether or not in one third instalments over the following two or three months is arguable, but I am satisfied that that lack of clarity did not negate an agreement being reached to pay, and a reasonable time frame can be implied. As no such amounts were actually paid, and all became due before the writ was issued or the liquidator appointed or the business was sold, arguments about acceptance of repudiation, or frustrating events, are not to the point. The plaintiff only would have needed to accept their repudiation if he had sought to deal with his share in some alternative way- that is in some way other than by trying to conclude its sale to Ms Lowery.
Damages
54 The question then is what damages flow from the defendants’ breach of agreement. The claim by Mr Drennan seeks to enforce the contractual promise. I am satisfied that that is appropriate. Further, I am satisfied that the evidence support the value of the share as agreed between the parties. I am satisfied that the price for the Trimseal business was a genuine market value reached with the Ubaldis through protracted informed negotiation. The figures for the cash at bank and stock are proved on the documents. The value of the share would have needed to take into account liabilities, but the financial report at the end of March shows significant net assets after liabilities are deducted - $293,237[22]. The company was operating out of premises owned by Mr Lowery and was not being charged rent, and liabilities to trade creditors, and to employees and for tax appear to be taken into account.
[22] Exhibit 13
55 I am therefore satisfied that the amounts claimed by the plaintiff have been proved as follows:
Balance (after $10,000 payment by Mr Lowery) of agreed price for half goodwill and equipment
$90,000
Half stock/inventory as at 31/8/07 (based on estimate of $36,000 as range
over the period had been $30,000 to 40,000 and stock in closing figures as at27/3/08 was $36,747)[23]
$18,000
Half cash at bank as at 31/8/07[24]
24,828
Half trade debtors[25]
$94,367.50
Total: $227,195.50
[23] Exhibit 13, T 91-92
[24] Exhibit 12; T 90
[25] Exhibit 11, T 89
Less $15,000 owing to plaintiff as shareholder on distribution from liquidation:
$212,195.5056 For these reasons there should be judgment for the plaintiff against both defendants for damages in the sum of $212,195.50.
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