G and M McBride Pty Ltd v Economic Development Group Pty Ltd (formerly Yarra Valley Land Developments Pty Ltd)
[2011] VSC 233
•1 June 2011
| IN THE SUPREME COURT OF VICTORIA |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
LIST A
No. 05981 of 2010
| G & M McBRIDE PTY LTD | Plaintiff |
| v | |
| ECONOMIC DEVELOPMENT GROUP PTY LTD (FORMERLY YARRA VALLEY LAND DEVELOPMENTS PTY LTD) | Defendant |
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JUDGE: | Pagone J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 11 May 2011 | |
DATE OF JUDGMENT: | 1 June 2011 | |
CASE MAY BE CITED AS: | G & M McBride Pty Ltd v Economic Development Group Pty Ltd (formerly Yarra Valley Land Developments Pty Ltd) | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 233 | |
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CONTRACT – Terms – Interpretation of a valuation clause – Whether valuer can determine the current market price by assessing the impact of an impending supermarket – Regard to surrounding circumstances.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C Shaw | Dalton Sundberg Corr Lawyers |
| For the Defendant | Mr M Gronow | Neil McPhee & Associates |
HIS HONOUR:
In this case the plaintiff (“McBride”) seeks declarations about the interpretation of a clause in a contract for the sale of a business. On 27 July 2005 McBride contracted with Economic Development Group Pty Ltd (“EDG”), then known as Yarra Valley Land Developments Pty Ltd, for the sale of a supermarket which McBride had been conducting in Yarra Glen. The contract provided for the payment of the purchase price but the parties dispute how the terms are to be interpreted and applied. The proceeding also raises an ancillary issue concerning directions to be made after construction of the clause about which the parties are in dispute.
McBride conducted for many years a supermarket business known as “Yarra Glen IGA” in Bell Street Yarra Glen. EDG came to propose a property development near McBride’s business and wanted to include a supermarket in the new development. EDG sought to acquire McBride’s supermarket business so that it might be, in effect, transferred into the new development and EDG agreed to purchase the McBride supermarket for a price to be determined in accordance with clause 5 of the special conditions to the contract. Clause 5 provides:
5.1The Price to be paid by the Purchaser shall be the current market price of the Business, less the written down value of the Plant and Equipment of the Business, which will be retained by the Vendor and not sold with the Business. The current market price will be based upon a period of 12 months’ audited trading figures terminating six (6) months prior to the day “the Supermarket” is due to open (“the Figures”). “The Figures” will include a detailed list of each item of plant and equipment of the Business and its written down value. The auditor who is to audit the trading figures shall be an auditor nominated by the Vendor and notified to the Purchaser in writing but if the Purchaser does not accept such nomination within 7 days of being advised of same then the auditor shall be appointed by the President for the time being of the Australian Society of Certified Practicing Accountants. Upon the Vendor providing “the Figures” to the Purchaser, the Vendor will provide a written notice stating the amount it believes is the current market price. If the Purchaser does not object in writing to the proposed current market price within 30 days then it becomes the Price to be paid by the Vendor for the Business.
5.2If the parties do not agree on what the current market price is to be then the parties must appoint a Business Valuer to determine the current market price. In the event that the parties have not appointed a Business Valuer within 14 days of the date of the Purchaser’s objection to the proposed current market price advised by the Vendor, one or other of the parties or the parties jointly shall apply to the Senior Office Bearer of the Australian Property Institute – Victorian Division to nominate such Business Valuer.
5.3In determining the current market price the Business Valuer must:
(a)consider any written submissions made by the parties within 21 days of their being informed of the Business Valuer’s appointment; and
(b)determine the current market price as an expert.
5.4The Business Valuer must make the determination of the current market price and inform the parties in writing of the amount of the determination and the reasons for it as soon as possible after the end of the 21 days allowed for submission by the parties.
5.5The Business Valuer’s determination binds both parties.
5.6Both the Vendor and the Purchaser must bear equally the Business Valuer’s fee for making the determination.
At some point clause 5.2 was varied by the parties by substituting “President of the Real Estate Institute of Victoria” for “Senior Office Bearer of the Australian Property Institute – Victorian Division”.
In broad terms the mechanism adopted by clause 5 provided for the determination of the price of the business to be (a) either by agreement under clause 5.1 or (b) by determination by a business valuer under clauses 5.2 to 5.6. It is common ground that the parties were not able to reach agreement under clause 5.1. The supermarket (as defined and referred to in clause 5.1) opened on 17 December 2008 with the consequence that the amount to be paid under clause 5.1 was to be calculated upon the basis of the 12 months audited trading figures terminating 6 months prior to that day. On 15 October 2008 McBride’s auditor had produced audited trading figures for the business for the 12 months ending 30 June 2008. The written notice provided by McBride on 10 November 2008 pursuant to clause 5.1 and based upon the auditor’s trading figures for the 12 months ending 30 June 2008 claimed the current market price of the business to be $1,425,000. EDG objected to McBride’s assessment of the current market price on 3 December 2008.
EDG’s objection to McBride’s assessment of the current market price on 3 December 2008 was followed by the opening of EDG’s new supermarket on 17 December 2008. On the same day McBride transferred to EDG the stock, goodwill and other assets constituting the business as agreed by the contract. Around 22 January 2009 the President of the Law Institute of Victoria appointed Mr Gavin Lethlean as the business valuer to determine the current market price in accordance with clause 5.2 of the contract. On 10 July 2009 McBride and EDG agreed that the audited trading figures as at 30 June 2008 were the audited figures for the purposes of the contract. In around 28 August 2009 Mr Lethlean refused to act further for the parties in determining the current market price to be paid under the contract. On 8 September 2009 the President of the Real Estate Institute of Victoria refused to assist any further in the appointment of a business valuer.
On 26 March 2010 Sutherland Farrelly Pty Ltd (originally a named defendant in the proceeding) offered to accept the joint nomination of McBride and EDG to act as the business valuer for a fee of $9,900 payable upon confirmation of formal appointment by the parties. A month later McBride and EDG appointed Sutherland Farrelly Pty Ltd as the business valuer. In about 18 May 2010 Sutherland Farrelly Pty Ltd requested payment of its fee of $9,900 and invited the parties’ written submissions. The following month both parties provided submissions to Sutherland Farrelly Pty Ltd from which it emerged that the parties differed about the proper construction of the contract. On 14 July 2010 Sutherland Farrelly Pty Ltd informed McBride and EDG that it could not resolve the issue of the interpretation of the contract and that it needed to be resolved before Sutherland Farrelly Pty Ltd could carry out the task of determination of the current market price. The parties also disagreed about the proper construction of clause 5.6 of the contract which imposed upon each of them an obligation to pay the business valuer’s fees. The difference between the parties in respect of that dispute is, as far as I can see, entirely semantic and of no practical effect. The dispute concerning the construction of the contract is more substantial although, as was candidly conceded by counsel, potentially of no practical consequence. In the meantime McBride, and the individuals behind the company, have received no payment at all for the business they transferred in good faith pursuant to the contract in December 2008.
The dispute between the parties concerns the basis upon which the business valuer is to determine the current market price when doing so pursuant to clauses 5.2 to 5.6 of the special conditions of the contract. In broad terms the difference between the parties is that McBride contended that the valuation to be undertaken under clause 5.2 is governed by clause 5.1 whilst EDG contended that the method in clause 5.2 and following is alternative to clause 5.1 and unconstrained by its terms. The contention for EDG is that two alternative methods are provided in the agreement by which the current market price of the business may be determined and that the two alternative methods are in clause 5.1, on the one hand, and in clauses 5.2 to 5.6, on the other hand. What is fundamental to the difference between the competing contentions is that EDG contended that the business valuer undertaking the valuation under clauses 5.2 to 5.6 is not constrained in the process of valuation by anything which may be in clause 5.1, and that in determining the current market price under clauses 5.2 to 5.6 the business valuer may take into account any matter that the valuer reasonably considers relevant to the determination of the current market price (of the McBride supermarket) including, critically, the impending opening of a supermarket (by EDG) on the nearby property in Yarra Glen. McBride contended that this is inconsistent with the terms of clause 5.1 and inconsistent with the nature of the bargain made between the parties.
Clauses 5.2 to 5.6 cannot be seen as providing a truly alternative method for determining the current market price of the business from the method provided in clause 5.1. Clauses 5.2 to 5.6 do not contain an identification of the current market price. The form of the contractual arrangements for the payment of the price begins with a consideration of the general conditions of the contract. Clause 3.1 of the general conditions provides that the purchaser “must pay the price” on the settlement date. The price is identified in the particulars of sale as being that “to be determined in accordance with Special Condition 5”. It is the first sentence in clause 5.1 which identifies and describes the price to be paid by the purchaser for the purposes of the particulars of sale. Clauses 5.2 to 5.6 do not purport to identify or to describe an alternative price to be paid. It is that which falls within the first sentence of clause 5.1 which is the price to be paid by the purchaser. The price to be paid is identified and described in that sentence as “the current market price of the Business” less the written down value of the plant and equipment of the business (which the contract provides are to be retained by the vendor and not sold with the business). The subsequent sentences in clause 5.1 state what that current market price is to be based upon and how it is to be established. Clauses 5.2 to 5.6 do not purport to establish an alternative current market price but only to provide a mechanism by which that which had previously been prescribed in clause 5.1 is to be determined if the purchaser objected to the amount arrived at by the process in clause 5.1. Clauses 5.2 to 5.6 do not purport to give to the purchaser an option of selecting between two different current market prices. There is only one current market price contemplated by the agreement and that current market price was identified and described in clause 5.1 as to be based upon a period of 12 months audited trading figures terminating 6 months prior to the day the supermarket is due to open. If there is any truly alternative aspect contemplated in clause 5 it is only about the method by which the one contemplated current market price is to be determined. One basis assumes that it will be the amount nominated by the vendor upon the audited figures produced by an auditor whilst the alternative enables a business valuer to determine whether the amount put forward by the purchaser upon those figures should be accepted. The alternatives contemplated by clause 5 are about whether the current market price based upon the trading figures of the McBride supermarket upon the audited figures is to be fixed by (a) agreement or (b) determination by a business valuer.
The principles relevant to the proper construction of contracts are well established and frequently cited. The purpose of construing a contract is to determine the objective intention of the parties by reference to their written agreements and, where relevant, objective facts and circumstances that bear upon the meaning of the words used in their contract.[1] In that task the contract must be considered as a whole.[2] The commercial objective of this contract was the entire transfer from McBride to EDG of the entirety of a supermarket business. What was to be conveyed was, in effect, an entire undertaking which conveyed from one party to another the whole and entire economic value which a supermarket business had to McBride as at the date of contract. To that end the parties provided in clause 5.1 that the current market price was to be based upon a period of 12 months audited trading figures terminating 6 months prior to the day that the new supermarket was to open. Implicit in that selection of basis for calculation of the market price was the exclusion of any impact upon the economic value of McBride’s undertaking of a competing supermarket whether impending or otherwise.
[1]Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, 461-2 (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 347-8, 352-3 (Mason J); Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, [35], [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); Allstate Exploration NL v QBE Insurance (Australia) Ltd [2008] VSCA 148, [7] (Pagone J).
[2]Metropolitan Gas Co v Federated Gas Employees Industrial Union (1925) 35 CLR 449, 455 (Isaacs and Rich JJ); Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).
In my view it is inconsistent with the bargain struck between the parties for the purchaser to propound a view that its obligation to pay the market price for what it acquired should be based on anything other than on the 12 months audited trading figures of the McBride supermarket. That the current market price should be “based” upon the period of 12 months trading does not exclude the possibility that a business valuer may legitimately take into account factors which bear upon the accuracy of those figures in determining the current market price. Thus, for example, the figures may disclose some abnormal amount (whether increasing or decreasing the economic value of the business sold) which the business valuer may consider needs to be adjusted to ensure that the price paid is not distorted by that figure. However, the business valuer may not take into account factors that are fundamentally inconsistent with the current market price being based upon a 12 month period of trading such as would occur if the business valuer were to take into account the possibility of the 12 month audited trading figures being affected by what was then non existent competition from a then non existent competing supermarket yet to be built.
Other terms in the contract support this construction as the objective basis upon which the parties struck their bargain. The contract was subject to and conditional upon EDG obtaining a permit to rezone a nearby property to permit the construction and development of a new supermarket in accordance with plans within 2 years of the date that the parties had agreed upon. From this it may be seen that EDG wanted the economic enterprise which McBride had but only if EDG had approval for the development in which EDG proposed to locate a new supermarket. Clause 1(b) made the contract conditional also upon the written consent of the landlord to the assignment of the lease so that the premises could be used for a retail purpose other than a supermarket. This clause made clear that EDG wished to ensure that it was able to extinguish entirely any goodwill attaching to the location by reason of its use as a supermarket. Special condition 2 provided that EDG would pay McBride $20,000 upon the signing of the contract which was non-refundable unless McBride signed a lease for the new supermarket in accordance with special condition 8. The parties contemplated both in the agreement and in fact that McBride might be granted a lease to EDG’s new supermarket. In that event the deposit paid by EDG would be repaid by McBride to EDG. These provisions reflect the fact that McBride would effectively not have disposed of the goodwill of the old supermarket if it were to become the lessee of a lease of the new supermarket. Special condition 3 provided that upon the payment of the deposit McBride agreed to support the new development and the construction and operation of the new supermarket. The parties further agreed to consult with one another prior to the making of a publication or the release of any public comment, statements and announcements regarding the new supermarket and the broader development. By these provisions McBride was obliged to encourage the development of the goodwill expected to arise in, and be conferred upon, the new supermarket. It is not consistent with these provisions that the purchase price to be paid to McBride was somehow to be diminished by the fact and circumstance which it was in part being required to create, encourage and develop.
Clause 4 provided that settlement was to take place on the day that the new supermarket was due to be opened. This clause shows the close, direct and complete continuity intended to be effected between the acquisition of the supermarket from McBride and the new supermarket to be established and developed by EDG. At no stage was it ever contemplated that the McBride supermarket would have any competition from the new supermarket. Special condition 7 provided an acknowledgement and confirmation by EDG that once it had paid the price it would immediately close the business and undertake for the next 3 years not to conduct a supermarket from the premises that McBride had conducted the supermarket business sold to EDG. This provision may seem curious at one level since EDG could be seen to have no economic interest in itself not conducting a competing business from the premises acquired through the contract with McBride. However, once it is remembered that the parties contemplated the possibility of McBride becoming the lessee of the new supermarket, it is clear that clause 7 was designed to ensure that any goodwill acquired by McBride in the new business would be preserved from diminution by the old premises being let for a period of 3 years for the conduct of a competing supermarket. Clause 7 effectively entirely preserved the goodwill expected to have been transferred from McBride (at the old premises) to the new supermarket (at the new premises) upon construction and commencement of economic activity as a supermarket from the new premises.
Special condition 8 provided that the parties acknowledged that they were continuing to investigate the feasibility of McBride becoming a tenant of the new supermarket. The clause provided that in the event that agreement was reached and that McBride signed the lease with EDG, then the deposit paid by EDG to McBride would be refunded to EDG. The contract does not say in terms that the contract would thereafter be at an end but that must plainly be the intention since there was no point otherwise in making any deposit refundable to EDG upon McBride being given a lease of the new premises to conduct a new supermarket in the new premises.
The surrounding circumstances and the objective evidence also support the construction advanced by McBride. I have already referred to the fact of transfer of the entirety of the McBride business to the new supermarket upon its opening and also of the contractual obligations on the part of McBride to support the new development. Other facts may be added to those. The McBride supermarket was at the time the only supermarket in Yarra Glen and it was intended that after the new EDG development there would still be only one supermarket in Yarra Glen and, at least, that any competition would not come from McBride. EDG had always proposed a new development at Yarra Glen which would include a supermarket which was expected to be the only supermarket in the vicinity. It was contemplated from the beginning of the contract that it would take at least two years for the new supermarket to be in operation. EDG needed to get planning permission for the development and there was some public opposition to the proposed development in the Yarra Glen area. EDG wanted to obtain, and did obtain, McBride’s support for its development including the establishment of a new supermarket intended to be the replacement (in substitution) for McBride’s supermarket. McBride wanted to obtain a lease of the new supermarket and sought that in the knowledge that there would be only one supermarket in Yarra Glen. Indeed, a further additional factor for rejecting the construction urged by EDG is that the application of the construction requires consideration of a fact that was never contemplated by the parties. The hypothetical competing supermarket which EDG contended that the business valuer should take into account was never contemplated by the parties to be in competition with McBride. In other words, the parties always contemplated that hypothetical supermarket was only ever going to be the only supermarket in the vicinity. EDG was a special purchaser for whom the McBride supermarket had a special value: EDG wanted the goodwill of the McBride supermarket and not its goodwill as if the two were in competition.
EDG’s principal argument depended upon the words in special condition 5 rather than reliance upon extraneous facts and circumstances. Indeed, its principal submission was that on “a plain reading of the Contract, special condition 5.1 does not govern or determine the effect of special conditions 5.2 - 5.4”. I do not think that submission can be accepted on its terms for the reasons which I have set out above including that, at very least, the first sentence in clause 5.1 is the only textual identification of the current market price as “the Price to be paid” under the contract. EDG did, however, rely upon a change in the drafting of the contract which it said showed a common intention of the parties to reject the construction urged by McBride.
The contract had largely been negotiated on behalf of McBride by its solicitor, Mr Ray Kaynes. Mr Kaynes dealt in the negotiation of the terms of the contract in part with Mr Chris O’Connor on behalf of EDG and in part with its solicitors at Holding Redlich. It was Mr Kaynes who had drafted both the contract and the heads of agreement which had preceded the contract. On 6 July 2005 Mr Kaynes received from Mr O’Connor a version of the contract which Mr Kaynes had prepared with amendments to clauses 5.1 to 5.6. In the previous draft Mr Kaynes had inserted as the first sentence in clause 5.1 the words:
The Price to be paid by the Purchaser shall be the current market price for an IGA supermarket operating in Yarra Glen as if it were the only supermarket in Yarra Glen and “the Supermarket” had not been developed and was due to open based upon 12 months audited trading figures terminating six (6) months prior to the day “the Supermarket” is due to open (“the Figures”). (Words underlined were subsequently deleted from Mr Kaynes’ draft).
The draft was amended on behalf of EDG and returned by Mr O’Connor to Mr Kaynes as follows:
The price to be paid by the purchaser shall be the current market price of the Business, less the written down value of the Plant and Equipment of the Business, which will be retained by the Vendor and not sold with the Business. The current market price will be based upon a period of 12 months’ audited trading figures terminating six (6) months prior to the day “the Supermarket” is due to open (“the Figures”). (Underlined words added by EDG after deletion of the words underlined in the previous draft).
The reasons for the variation to the draft contract were explained in a short covering email from Mr O’Connor to Mr Kaynes as being “mainly using the wording that was contained in the HOA and some ‘beefing up’ of some clauses”. Other amendments were made to the draft and no specific mention was made of the amendments in clause 5.1. There was certainly no express rejection of the view that the valuation was to be undertaken as McBride contended.
The suggested amendments did in some respects pick up the wording in the earlier heads of agreement. Both parties relied upon the heads of agreement in support of their respective cases. The heads of agreement was also drawn up by Mr Kaynes and the relevant clause, numbered 5.2 is found in clause 5 which, provided as follows:
5.Y V Developments [being the defined expression for the defendant EDG] intend to enter into contracts to purchase the business from McBride on the conditions that
5.1McBride will continue to run and operate the business until the supermarket is ready to open
5.2Settlement of the purchase of the business will take place on the day the supermarket is due to open. The price to be paid for the purchase of the business will be the current market price based upon the previous 12 months trading figures terminating 3 months prior to the day the supermarket is due to open (“the figures”). In the event that the parties cannot reach agreement on the current market price within 30 days of McBride providing the figures to Y V Developments the parties agree to appoint a business valuer to fix the current market price. In the event that the parties have not appointed a business valuer within 14 days of one of the parties electing to do so the parties agree to the Senior Office Bearer of the Australian Property Institute – Victorian Division appointing such business valuer whose determination shall be final and binding upon the parties. At all times in fixing the price the business valuer shall be acting as an expert.
5.3In addition to the current market price Y V Developments will pay up to $100,000.00 for stock. The price of the stock is based upon the wholesale value (ex GST) and a verified stock take.
5.4Y V Developments purchase of the business will be conditional upon McBride obtaining the landlord’s prior consent to the assignment of the lease to Y V Developments or its nominees and a variation of the lease so that the premises may be used for any retail purpose other than a supermarket
5.5McBride will retain ownership of the assets of the business. The Balance Sheet value of the assets will be deducted from the settlement amount.
5.6The current market price will be GST exclusive and Y V Developments will also pay GST should it be legally required to do so.
5.7On the signing of this agreement Y V Developments will pay the sum of $20000.00 to McBride. If the Gateway Development proceeds and Y V Developments purchases the business the said sum of $20,000.00 will be taken to be the deposit paid by Y V Developments. If the Gateway Development does not proceed then McBride shall retain the sum of $20,000.00 towards his costs and inconvenience in entering into this agreement.
Although both sides sought to gain comfort from the terms of the heads of agreement, it seems to me that they strongly favour the construction advanced by McBride and do not favour the construction advanced by EDG. Clause 5.2 does not support two alternative methods for determining the contract price as advanced by EDG on the basis of the contract as ultimately signed. Clause 5.2 in the heads of agreement is, in my view, clearly a term identifying one price to be paid based upon trading figures for a specified period during a specified time. The role of a business valuer was limited to the resolution of any disagreement of that one price based upon that one method of calculation. There is no suggestion anywhere that the final contract sought to depart from what had been agreed in the heads of agreement and the email from Mr O’Connor to Mr Kaynes purported to affirm the bargain as contained in the heads of agreement in respect of the price to be paid.
The amendment to the draft subsequently adopted in the final contract as executed was not a refusal by the parties to include in a contract a provision which would give effect to the presumed intention now advanced by EDG. In Codelfa Construction Pty Ltd v State Rail Authority (NSW)[3] Mason J said:
There may perhaps be one situation in which evidence of the actual intention of the parties should be allowed to prevail over their presumed intention. If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal. After all, the court is interpreting the contract which the parties have made and in that exercise the court takes into account what reasonable men in that situation would have intended to convey by the words chosen. But is it right to carry that exercise to the point of placing on the words of the contract a meaning which the parties have united in rejecting? It is possible that evidence of mutual intention, if amounting to concurrence, is receivable so as to negative an inference sought to be drawn from surrounding circumstances.[4]
In this passage his Honour explained that evidence of surrounding circumstances may be admissible to assist in the interpretation of a contract in the particular case where, notwithstanding a lack of ambiguity in a contract, the surrounding circumstances show that the parties had refused to include a provision where what was not included would give effect to the presumed intention that the contract would otherwise convey. The deletion from the draft of the words “for an IGA supermarket operating in Yarra Glen as if it were the only supermarket in Yarra Glen and “the Supermarket” had not been developed and was due to open” cannot, on the facts before me, be regarded as a refusal by the parties to include that which in my view the contract does include. Its exclusion was explained in the covering letter (if it be relevant) and what was intended to be included as the basis of calculation was what had been agreed in the heads of agreement. The heads of agreement had only one sentence describing the price to be paid for the purchase of the business and it made clear that that one price was to be “the current market price based upon the previous 12 months trading figures terminating 3 months prior to the day the supermarket [was] due to open (“the figures”)”. The balance of clause 5.2 did not on any view seek to provide for any alternative method of calculation of anything other than the one current market price based upon the one foundation. The role of the business valuer, as I have indicated, was to provide a neutral third party mechanism for determining the quantum of the current market price as described, namely, based upon trading figures for a period of time.
[3](1982) 149 CLR 337.
[4]Ibid 352-3 (Mason J).
A letter from EDG to Mr Kaynes dated 23 March 2005 also shows that the parties, as part of their factual matrix in which the contract was made, did not intend the purchase price to be calculated by reference to the impact of a new supermarket being established near that sold by McBride. In the letter, EDG dealt with the question of agreeing to the value of the business and made a number of suggestions. In particular EDG noted that the business was to be valued on how it was “actually performing” and that if the business was valued “in the last period of its life this would unfairly penalise [McBride], due to the business being placed in “caretaker” mode”. What was suggested by EDG was a “formula for valuing the business” on a combination of turnover and profit. No other or more general view for valuing the business was put forward and the view now advanced by McBride was substantially that suggested by EDG.
Accordingly, it seems to me that the task to be undertaken by a business valuer under clause 5.2 is to determine the current market price as described in clause 5.1. That, in my view, requires the current market price to be based upon the audited trading figures for a period of 12 months terminating 6 months prior to 17 December 2008 being the day upon which the new supermarket was due to be opened and which was opened in fact. Upon the proper construction of the clause the business valuer is not to have regard to the existence or effect of the new supermarket which was then proposed to be constructed in Yarra Glen by EDG.
I have previously mentioned the ancillary dispute between the parties about the basis upon which they are to pay for the joint valuer. McBride contended that upon the true construction of clause 5.6 of the contract McBride and EDG were required to pay half each of the business valuer’s fee upon demand. EDG denied that allegation but said that clause 5.6 required McBride and EDG to bear equally the business valuer’s fees for making the determination of the current market price of the business. The difference between the two is entirely semantic and no point of substance has at any stage been advanced for the difference. Clause 5.6 is clear in providing that both McBride and EDG “must bear equally the Business Valuer’s fee for making the determination”. In my opinion it matters not at all whether that obligation be described as it has been described by McBride or as described by EDG. Either way each must pay half of the fee for making the determination.
Accordingly, I propose to make the following orders:
(a) A declaration that special condition 5 of the contract of sale of business dated 27 July 2005 between the plaintiff and the defendant (“the contract”) requires the current market price of the Yarra Glen IGA business sold pursuant to the contract to be determined:
(i) based upon the audited trading figures of the business for the 12 months ended 30 June 2008;
(ii) not having regard to the existence or effect, or the then impeding existence or effect, of the new supermarket at the defendant’s proposed Yarra Glen Gateway Village Shopping and Lake Development (“the new supermarket”).
(b) The parties are to agree within 7 days of the date of this order to agree on the identity of and to appoint a business valuer to value the business for the purposes of special condition 5 of the contract.
(c) If the parties are unable to agree on the identity of a business valuer in accordance with paragraph (b) of this order, then within 21 days of this order they are jointly to apply to the President of the Real Estate Institute of Victoria to nominate such business valuer to value the business for the purposes of special condition 5 of the contract.
(d) The business valuer appointed pursuant to either paragraph (b) or (c) of this order is to value the business for the purposes of special condition 5 of the contract in accordance with the declaration made in (a) of this order.
(e) The plaintiff and the defendant are each to pay half the fee of the business valuer appointed pursuant to paragraph (b) or (c) of this order within 7 days of that business valuer providing them with an invoice for such fee.
(f) The plaintiff and the defendant each comply with all reasonable requests of the business valuer appointed pursuant to paragraph (b) or (c) of this order that this business valuer requires in order to enable him to perform the task of valuing the business in accordance with (d) of this order.
(g) The defendant is to pay the plaintiff’s costs of this proceeding including all reserved costs.
(h) The plaintiff has liberty to apply for such further or other orders on five days notice served upon the defendant’s solicitors for any ancillary order to give effect to these orders.
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