Flynn v PPK Mining Equipment Pty Ltd (No 2)

In Flynn v PPK Mining Equipment Pty Ltd, the dispute arose from the sale of shares in a mining equipment company, PPK Mining Equipment Pty Ltd, pursuant to a Share Purchase Agreement. The plaintiff, Flynn, sought to enforce an earnout clause based on profit, while the defendant, PPK, argued for a variation of this clause to revenue. The matter was heard in the Supreme Court of New South Wales. The court was required to determine whether the parties had orally agreed to vary the earnout clause and, if so, whether such a variation was valid and enforceable. Additionally, the court had to decide on the jurisdiction to resolve the dispute, considering the parties' agreement to use expert determination.

The court examined whether there was a valid oral agreement to modify the earnout clause from profit to revenue. It found that the parties had indeed reached such an agreement and that the variation was effective from the date of the agreement. The court also addressed the applicability of the ‘no oral modification’ clause in the contract, concluding that the principles established in previous cases allowed for the enforcement of the variation. Furthermore, the court considered the defendant’s failure to perform a preliminary step required by the contract before resorting to expert determination, ruling that this breach discharged the expert determination clause, thereby granting the court jurisdiction to hear the dispute.

The court concluded that the plaintiff did not satisfy the earnout clause as varied, even if the variation had been valid. The court emphasised that the terms of the variation were clear, and Flynn had not met the conditions set by the modified clause. The court also provided detailed interpretations of phrases such as ‘generally accepted accounting principles’ and ‘business’ and ‘carry on business’, which were critical to understanding the scope of the contract and the parties’ obligations. The final orders reflected the court’s determination that the variation was valid, but the plaintiff had not fulfilled the revised earnout clause, thereby affirming the defendant’s position.