Gourmania Holdings Pty Ltd v Schlegel

[2021] WASCA 28

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT  :   THE COURT OF APPEAL (WA)

CITATION:   GOURMANIA HOLDINGS PTY LTD -v- SCHLEGEL [2021] WASCA 28

CORAM:   BUSS P

MITCHELL JA

HILL J

HEARD:   17 AUGUST 2020

DATE OF FINAL

SUBMISSIONS       :   20 NOVEMBER 2020

DELIVERED          :   18 FEBRUARY 2021

FILE NO/S:   CACV 100 of 2019

BETWEEN:   GOURMANIA HOLDINGS PTY LTD

Appellant

AND

BEAT SCHLEGEL

Respondent

ON APPEAL FROM:

Jurisdiction              :   SUPREME COURT OF WESTERN AUSTRALIA

Coram:   ALLANSON J

Citation: SCHLEGEL -v- GOURMANIA HOLDINGS PTY LTD [2019] WASC 277

File Number            :   CIV 2692 of 2016

Catchwords:

Contract - Proper construction - Share Sale Agreement - Whether primary judge erred in construction of agreement - Turns on own facts

Appeal - Whether appellant denied procedural fairness - Turns on own facts

Practice and procedure - Appeal - Application to amend grounds of appeal by adding further ground - Appeal heard - Whether court should permit amendment to existing grounds of appeal

Legislation:

Nil

Result:

Application in the appeal dated 29 September 2020 dismissed
Appeal dismissed
Cross-appeal dismissed

Category:    B

Representation:

Counsel:

Appellant	:	C P K Russell
Respondent	:	E Hensler

Solicitors:

Appellant	:	Zafra Legal
Respondent	:	O'Donnell Salzano Lawyers

Case(s) referred to in decision(s):

Adams v Lambert [2006] HCA 10; (2006) 228 CLR 409

Anderson v Mercy Hospital Mount Lawley [2020] WASCA 42

Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99

Banque Commerciale SA, en liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279

Bell v Lever Brothers Ltd [1932] AC 161

Black Box Control Pty Ltd v TerraVision Pty Ltd [2016] WASCA 219

Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1

CSR Ltd v Adecco (Australia) Pty Ltd [2017] NSWCA 121

Defendi v Szigligeti [2019] WASCA 115

Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 261 CLR 544

Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640

Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420

Fitzpatrick v Job trading as Jobs Engineering [2007] WASCA 63

George 218 Pty Ltd v Bank of Queensland Ltd [No 2] [2016] WASCA 182; (2016) 313 FLR 287

Halford v Price [1960] HCA 38; (1960) 105 CLR 23

Kelly v The Queen [2004] HCA 12; (2004) 218 CLR 216

Krysiak v Hodgson [2009] WASCA 114

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104

Pilbara Iron Ore Pty Ltd v Ammon [2020] WASCA 92

Pringle v Everingham (2006) 46 MVR 58

Re Media Entertainment and Arts Alliance; Ex Parte The Hoyts Corporation Pty Ltd [1993] HCA 40; (1993) 178 CLR 379

Re Minister for Immigration and Multicultural Affairs; Ex parte Applicant S 154/2002 [2003] HCA 60; (2003) 77 ALJR 1909

Schlegel v Gourmania Holdings Pty Ltd [2019] WASC 277

Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2019] NSWCA 11; (2019) 99 NSWLR 317

Simic v New South Wales Land and Housing Corp [2016] HCA 47; (2016) 260 CLR 85

Smith v McCusker QC [2010] WASCA 55

Stead v State Government Insurance Commission [1986] HCA 54; (1986) 161 CLR 141

Teoh v Minister for Immigration, Local Government and Ethnic Affairs (1994) 49 FCR 409

Tokio Marine & Nichido fire Insurance Co Ltd v Hans Bo Kristian Holdersson trading as Holgerssons Complete Home Service [2019] WASCA 114

University of Wollongong v Metwally [No 2] [1985] HCA 28; (1985) 59 ALJR 481

Water Board v Moustakas [1988] HCA 12; (1988) 180 CLR 491

Whisprun Pty Ltd v Dixon [2003] HCA 48; (2003) 77 ALJR 1598

Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530

TABLE OF CONTENTS

BUSS P:

The relevant provisions of the Share Sale Agreement

The Company's balance sheet as at the Completion Date

The trial judge's construction and application of cl 5.2 of the Share Sale Agreement

Gourmania Holdings' appeal:  grounds of appeal 1(a) and 1(b)

Gourmania Holdings' appeal:  application to amend the grounds of appeal

Mr Schlegel's cross-appeal:  grounds of cross‑appeal 1 and 2

The organisation of the balance of these reasons

Gourmania Holdings' appeal:  ground of appeal 1(a):  Gourmania Holdings' submissions

Gourmania Holdings' appeal:  ground of appeal 1(a):  Mr Schlegel's submissions

Gourmania Holdings' appeal:  ground of appeal 1(a):  the correct approach to construction

Gourmania Holdings' appeal:  ground of appeal 1(a):  its merits

Gourmania Holdings' appeal:  ground of appeal 1(b):  Gourmania Holdings' submissions

Gourmania Holdings' appeal:  ground of appeal 1(b): Mr Schlegel's submissions

Gourmania Holdings' appeal:  ground of appeal 1(b):  its merits

Gourmania Holdings' appeal:  the application in the appeal and the proposed additional ground of appeal:  Gourmania Holdings' submissions

Gourmania Holdings' appeal:  the application in the appeal and the proposed additional ground of appeal:  Mr Schlegel's submissions

Gourmania Holdings' appeal:  the application in the appeal and the proposed additional ground of appeal:  its merits

Mr Schlegel's cross-appeal:  grounds of cross-appeal 1 and 2

Conclusion

MITCHELL JA & HILL J:

Introduction

Factual background

Relevant terms of the Share Sale Agreement

Primary judge's findings

Gourmania Holdings' appeal and the parties' submissions

Gourmania Holdings' submissions

Mr Schlegel's submissions

Mr Schlegel's cross-appeal and the parties' submissions

Mr Schlegel's submissions

Gourmania Holdings' submissions

Resolution of Gourmania Holdings' appeal

Proper construction of the agreement - Legal Principles

Proper construction of cl 5.2(a) and cl 14 of the Share Sale Agreement

Was a provision for Tax disclosed to Gourmania Holdings prior to completion?

Proper construction of cl 5(2)(c) of the Share Sale Agreement

Resolution of Mr Schlegel's cross-appeal

Application for leave to amend grounds of appeal

Conclusion

BUSS P:

1. The appellant (Gourmania Holdings) appeals and the respondent (Mr Schlegel) cross-appeals against a judgment of Allanson J delivered after a trial in the General Division of the Supreme Court.

2. In the primary proceedings, Mr Schlegel, as plaintiff, claimed and Gourmania Holdings, as defendant, counterclaimed in connection with disputes arising from the sale by Mr Schlegel and the purchase by Gourmania Holdings of one ordinary share in Gourmet Chef Foods Pty Ltd (the Company).

3. At all material times, the Company has carried on business as a producer and distributor of premium food products.

4. At all material times, the share capital of the Company has comprised two ordinary shares.  Prior to December 2012, Mr Schlegel held one of the shares and an entity associated with Naresh Patel held the other.

5. In December 2012, Mr Schlegel and Gourmania Holdings signed a written agreement (the Share Sale Agreement) under which Mr Schlegel agreed to sell and Gourmania Holdings agreed to purchase Mr Schlegel's one ordinary share in the Company.

6. On 4 February 2013, the sale and purchase under the Share Sale Agreement was completed.

7. In the primary proceedings:

   (a)Mr Schlegel claimed against Gourmania Holdings payment of the balance of the purchase price for the one ordinary share; and

   (b)Gourmania Holdings counterclaimed against Mr Schlegel damages under several causes of action, including for misleading or deceptive conduct.

8. On 1, 2, 5 and 6 November 2018, Mr Schlegel's claim and Gourmania Holdings' counterclaim were tried before his Honour.

9. On 7 August 2019, the trial judge delivered judgment.  On 23 August 2019, his Honour ordered, relevantly, that:

   (a)there be judgment for Mr Schlegel on his claim in the sum of $690,402.14;

   (b)there be judgment for Gourmania Holdings on its counterclaim in the sum of $279,066.03;

   (c)the counterclaim be otherwise dismissed;

   (d)Gourmania Holdings pay to Mr Schlegel:

   (i)$411,336.11 (the Judgment Sum); and

   (ii)interest on the Judgment Sum pursuant to s 8 of the Civil Judgments Enforcement Act 2004 (WA) from 13 August 2019 until payment of the Judgment Sum.

   His Honour also made a number of orders with respect to the costs of the proceedings.

10. Gourmania Holdings appeals to this court on the ground that his Honour misconstrued cl 5.2 of the Share Sale Agreement in two relevant respects.

11. Mr Schlegel cross-appeals on the ground that his Honour made errors in the findings he made in relation to the assets and the liabilities of the Company as at the date on which the sale and purchase under the Share Sale Agreement was completed and, also, on the ground that his Honour failed to afford Mr Schlegel procedural fairness in arriving at those findings.

12. Like Mitchell JA and Hill J, I would dismiss the appeal and the cross‑appeal.  My reasons are as follows.

The relevant provisions of the Share Sale Agreement

1. The relevant provisions of the Share Sale Agreement are as follows.

2. Clause 3.1 makes provision for the sale and purchase of the share as follows:

   On Completion the Seller must sell and the Buyer must buy the Shares for the Purchase Price free from all Encumbrances and together with all rights attaching to or accruing to the Shares after the date of disagreement.

3. In the Share Sale Agreement, 'Seller' means Mr Schlegel and 'Buyer' means Gourmania Holdings.

4. Clause 1.1 includes these definitions:

   (a)'Completion' means the completion of the sale and purchase of the Shares in accordance with cl 7.

   (b)'Shares' means, relevantly, one fully paid ordinary share in the capital of the Company.

   (c)'Purchase Price' means the 'Completion Purchase Price' as adjusted in accordance with cl 5.

   (d)'Completion Purchase Price' has the meaning in cl 5.1.

5. By cl 5.1:

   The completion purchase price payable for the Shares is the amount equal to the aggregate of:

   (a)$2,900,000.00; plus

   (b)Cash Estimate.

   (Completion Purchase Price)

6. In cl 1.1 'Cash Estimate' is defined to mean $100,000.

7. Clause 5.2 provides:

   The Completion Purchase Price will be subject to the following adjustments:

   (a)If the Cash Actual Amount exceeds the Cash Estimate, the Completion Purchase Price will be increased by the amount by which the Cash Actual Amount exceeds the Cash Estimate;

   (b)If the Cash Actual Amount is less than the Cash Estimate, the Completion Purchase Price will be decreased by the amount by which the Cash Actual Amount is less than the Cash Estimate;

   (c)If the Completion NTA Amount exceeds the Benchmark Net Tangible Asset Position, the Completion Purchase Price will be increased by half the amount by which the Completion NTA Amount exceeds the Benchmark Net Tangible Asset Position; and

   (d)If the Completion NTA Amount is less than the Benchmark Net Tangible Asset Position, the Completion Purchase Price will be decreased by half the amount by which the Completion NTA Amount is less than the Benchmark Net Tangible Asset Position.

8. Clause 1.1 includes these definitions:

   (a)'Cash Actual Amount' means 'the actual amount of any Cash held by the Company as at the close of business on the Completion Date';

   (b)'Cash' means 'all cash and cash equivalents including cash in bank, cash at site (including petty cash), outstanding deposits, and unpresented cheques'.

   (c)'Completion Date' means the date on which Completion occurs.

   (d)'Completion NTA Amount' means 'the amount of the Net Tangible Assets of the Company as at the Completion Time as agreed between the parties or determined in accordance with clause 5.3'.

   (e)'Net Tangible Assets' means 'the value of the total assets of the Company minus any intangible assets less the liabilities of the Company'.

   (f)'Asset' means 'each asset owned or held by the Company or used in the Business, including any assets held under any financing or operating lease and includes the Recipes and the Trade Marks'.

   (g)'Business' means 'the business of the Company from time to time including without limitation the manufacture of value added foods to the domestic and international markets trading as "Gourmania" and all other related services and activities'.

   (h)'Completion Time' means the time immediately prior to Completion.

   (i)'Benchmark Net Tangible Asset Position' means $999,964.73.

9. Clause 5.5(a) provides, subject to exceptions that are not relevant in the present case, that any payment made by the Seller to the Buyer arising out of a breach of any of the warranties set out in schedule 7 or under cl 14 will be treated as a pro rata reduction in the purchase price of the share.

1. By cl 6.2, relevantly, the Seller must procure that until Completion, except with the prior written consent of the Buyer, the Company:

   (a)conducts the Business in the ordinary and usual course consistent with its usual business practices and does not make any significant change to the nature or scale of any activity comprised in the Business;

   …

   (e)pays all amounts owing to trade or other creditors of the Company in accordance with applicable payment terms.

2. Clause 6.3 provides that the Seller must procure that until Completion, except with the prior written consent of the Buyer, the Company does not:

   (a)incur any indebtedness to trade creditors other than as incurred in the ordinary course of business (par (i)); or

   (b)make any material Tax election or settle or compromise any material liability relating to Tax unless the Company has received an opinion from a Queen's Counsel or Senior Counsel that the settlement or compromise is in the best interests of the Company (par (q)).

3. By cl 6.7, the Seller must procure that on or before Completion all indebtedness owed from the Seller or any person connected with or associated with the Seller to the Company is discharged and extinguished in full.

4. By cl 6.8, the Seller must procure that on or before Completion all indebtedness owed from the Company to the Seller or any person connected with or associated with the Seller is discharged and extinguished in full.

5. Clause 7.1 specifies the location at which Completion must take place and the time and date on which Completion must occur.  In particular, as regards time, Completion must take place at 1.00 pm on 1 February 2013 or the date which is five Business Days after all of the conditions specified in cl 2.1 have been satisfied or waived in accordance with cl 2.4, whichever is the later.

6. Clause 7.3 states that at Completion each party must perform, or procure the performance of, various specified actions.  By cl 7.3(2)(i) and cl 7.3(2)(j), Mr Schlegel must deliver to Gourmania Holdings documentation evidencing, to the reasonable satisfaction of Gourmania Holdings, the repayment of:

   (a)all indebtedness owing from Mr Schlegel or any person connected with or associated with him to the Company procured in accordance with cl 6.7, and the repayment of all indebtedness owing from the Company to Mr Schlegel or any person connected with or associated with him procured in accordance with cl 6.8; and

   (b)all financial debts owing from the Company to third parties, not being debts owing to trade creditors in the ordinary course of business and which were not outside applicable trading terms.

7. Clause 11 is concerned with warranties.  Mr Schlegel's warranties are set out in schedule 7 to the Share Sale Agreement.

8. In par 5.1 of schedule 7 the Seller warrants that the 'Last Accounts', relevantly:

   (a)give a true and fair view of the financial position and the assets and liabilities of the Company as at the 'Last Balance Date';

   (b)have been prepared in compliance with the Corporations Act 2001 (Cth), the Accounting Standards (as defined in cl 1.1) and all other applicable laws and regulations; and

   (c)contain specific provisions adequate to cover, or full particulars in notes of, all liabilities of the Company as at the Last Balance Date including all liabilities in respect of Tax and all contingent liabilities.

9. In par 14.2 of schedule 7 the Seller warrants that all Tax that has become lawfully due and payable by the Company has been paid on or before the due date for that payment.

10. Clause 1.1 includes these definitions:

    (a)'Last Accounts' means, relevantly, 'the financial statements of the Company and its controlled entities for the financial year ended on the Last Balance Date'.

    (b)'Last Balance Date' means 30 June 2011.

    (c)'Tax' means, relevantly, 'any tax, levy, excise, duty, charge, surcharge, contribution, withholding tax, impost or withholding obligation of whatever nature'.

11. By cl 11.1, the Seller warrants to the Buyer that each warranty set out in schedule 7 is correct and not misleading or deceptive as at:

    (a)the date of signature of the Share Sale Agreement; and

    (b)the time immediately prior to Completion,

    unless the warranty is expressed to be given only at a particular time in which case it is given as at that time.

12. Clause 14 is concerned with Tax.

13. Clause 14.1(a) provides that the Seller must pay to the Buyer in accordance with cl 14:

    the amount of any Tax that the Company is liable to pay in respect of or by reference to any matter or event occurring or which is taken to have occurred on or before the Completion Date.

14. Clause 14.2(a) provides that the Seller is 'not liable in respect of any Tax Claim to the extent that … in the case of a Tax Claim in respect of a liability to pay Tax, a provision for that Tax has been disclosed to the Buyer prior to Completion'.

15. In cl 1.1 'Tax Claim' is defined to mean 'any claim against the Seller under cl 14.1'.

16. Clause 14.3 provides:

    The Seller must make any payment due under clause 14.1 no later than 10 Business Days after the Seller receives from the Buyer notice providing details of the amount due and the basis on which the Buyer claims payment under this clause except if payment is in respect of Tax actually payable in which case the Seller are not required to make payment until the day that is 5 Business Days before the last date on which payment of that Tax may lawfully be made without incurring penalties or interest for late payment.

The Company's balance sheet as at the Completion Date

1. At the trial, the parties agreed that a balance sheet (the Agreed Balance Sheet) as at the Completion Date (that is, as at 4 February 2013), that was tendered in evidence, contained the relevant items and amounts required to calculate any adjustments under cl 5.2 to the Completion Purchase Price payable by Gourmania Holdings to Mr Schlegel under cl 5.1.

The trial judge's construction and application of cl 5.2 of the Share Sale Agreement

1. The trial judge found, in effect, that:

   (a)The actual amount of cash held by the Company as at the close of business on the Completion Date was $496,632.67 [99].

   (b)The Company had a current liability to the Australian Taxation Office of $262,380, which was due to be paid shortly after Completion [100].

   (c)Between 18 February and 27 February 2013, the Company paid that amount of $262,380 to the Australian Taxation Office [100].

   (d)The Share Sale Agreement attributed a value of $2,900,000 to the Company's underlying business as a going concern [103].

2. His Honour held that the Cash Actual Amount, for the purposes of adjusting the Completion Purchase Price pursuant to cl 5.2(a), was $341,979.77. That amount was calculated by deducting the amount of $154,652.90 (being a current liability of the Company to Mr Schlegel which was recorded in the Agreed Balance Sheet as 'Loan Schlegel B') from the actual amount of cash held by the Company as at the close of business on the Completion Date (being the amount of $496,632.67) [112].

3. The trial judge rejected Gourmania Holdings' contention that the Company's current liability to the Australian Taxation Office of $262,380 should also be deducted in calculating the Cash Actual Amount.  His Honour's reasoning in arriving at that conclusion was as follows:

   (a)The adjustment to the Completion Purchase Price was made by reference to factors which would have an element of chance [103].

   (b)In particular, choosing the close of business on a particular day as the date for adjustment was going 'to leave some things to chance' [103].

   (c)The reference to the actual amount of cash held by the Company at the close of business on a specified day was 'inconsistent with the construction advanced by Gourmania Holdings that the parties intended to refer to cash that was to remain in the business' [104].

   (d)The construction advanced by Gourmania Holdings 'strained the meaning of the words of [the Share Sale Agreement] to an unacceptable degree' [111].

1. His Honour also found, in effect, that:

   (a)The current assets listed in the Agreed Balance Sheet as at the Completion Date included cash on hand, receivables, inventory, and 'Other Current Assets' (prepayments and bond on hired equipment). The current assets also included an accounting 'black hole' of $8,355.57. None of the current assets was an intangible asset [114].

   (b)All of the liabilities listed in the Agreed Balance Sheet were current liabilities. They comprised creditors and borrowing, wage expenses (superannuation, annual leave, long service leave, child support), credit cards, Loan Schlegel B and GST liabilities. A provision for income tax (in the amount of $252,839) and an amount of GST that had been paid on purchases (in the amount of $23,950.57) reduced the total current liabilities to $484,027.57 [115].

   (c)The Benchmark Net Tangible Asset Position, as defined in cl 1.1, was $999,964.73 [117].

2. The trial judge reasoned in relation to the Completion NTA Amount and the Benchmark Net Tangible Asset Position, for the purposes of adjusting the Completion Purchase Price pursuant to cl 5.2(c), as follows:

   Mr Schlegel pleaded and submitted that the adjustments to the Completion Purchase Price by reference to net tangible assets were as follows.

   Cash Actual Amount $341,979.77

   Receivables, inventory, other current assets, and property plant and equipment $1,320,081.64

   Less liabilities (adjusted to assume the repayment of the loan to Mr Schlegel) $329,374.67

   Completion NTA Amount $1,332,686.74

   The Benchmark Net Tangible Assets Position was $999,964.73.   On Mr Schlegel's case, the amount by which the Completion Net Tangible Assets Amount exceeded the Benchmark Net Tangible Assets Position was $332,722.01, resulting in an adjustment increasing the Completion Purchase Price by $166,361.00.

   Gourmania Holdings pleaded and submitted an alternative Net Tangible Assets calculation which it said should be preferred:

   Net Assets: $1,341,042.31

   Less Black Hole: $ 8,355.57

   Less Cash on Hand: $ 496,632.67 

   Less Income Tax Provision $ 283,022.00

   Add Loan Schlegel B $ 154,652.90

   Add ATO Liability $ 262,380.00

   Completion NTA Amount $ 970,064.97

   The treatment of the loan from Mr Schlegel, and the exclusion of the amount for the 'black hole' from assets, were not disputed.  My conclusion that the amount of $262,380 held for payment of tax should not be deducted from Cash on Hand results in there being a liability for that amount to be deducted when determining the Net Tangible Assets. 

   The balance sheet included a provision for income tax, which appeared in liabilities as ($252,839).  The areas of controversy were the deduction of Cash on Hand, which I have already considered, and whether the liabilities should be reduced by the provision for income tax.

   I do not accept Gourmania Holdings' argument for excluding the Cash on Hand held at the Completion Date from the Net Tangible Assets of Gourmet Chef Foods.  'Net Tangible Assets' was defined to mean the value of the total assets of Gourmet Chef Foods minus any intangible assets less the liabilities of Gourmet Chef Foods.  'Asset' was defined to mean each asset owned or held by Gourmet Chef Foods or used in its business, including any assets held under any financing or operating lease, and including recipes and trade-marks.  The text of the agreement is consistent with Mr Schlegel's case.

   It is true that if cash is included in tangible assets it can be counted twice under the two limbs of the adjustment formula in the Share Sale Agreement, with an adjustment of $1.50 for each dollar (assuming that the cash is more than the estimate of $100,000 and the net asset balance exceeds the benchmark).  But that consequence is not a sufficient reason to regard the adjustment provision as, in some way, commercial nonsense or as working a commercial inconvenience so that the court should depart from the text and give 'asset' a restricted meaning.  

   The balance sheet was not compiled at the end of the financial year and appeared to be a MYOB printout at the relevant date (in February).  The balance sheet records a provision for income tax, in liabilities, of ($252,839).  Provisions generally record a liability where there is uncertainty about when or in what amount the liability will be settled.  Counsel for Gourmania Holdings submitted that the recording of the provision in this way showed that the company had paid $252,839 to the Tax Office but was yet to receive an assessment for that amount.   On the evidence, I cannot say whether that is correct; or whether the amount recorded as a provision had been (notionally) set aside for income tax, not yet payable; or what the entry means.

   Gourmania Holdings also submitted that $283,000.22 for income tax, calculated at 30% (the company tax rate) of the current year earnings at Completion, should be deducted from the net assets at the Date of Completion.  I do not accept the amount for which Gourmania Holdings contends.  Simply assessing 30% of earnings to the Date of Completion assumes that earnings to date equalled taxable income to date, and also assumes, for example, that Gourmet Chef Foods had no carryover losses. 

   Neither party led any evidence to enable the court to make any finding about the correct reading of the provision for tax in the balance sheet.   

   The result is that I am unable to make any finding about how the provision for income tax affects the figure for Net Tangible Assets.  I am not prepared to speculate.  Unfortunately, the dispute procedure set out in the agreement, which could have resolved the question, was not used.

   On the way the parties proceeded, Mr Schlegel had the onus of proving the adjustment to be made.  I am not satisfied that he has proved that the provision should be taken into account in reducing the liabilities at the Completion Date [116] ‑ [127] (footnotes omitted).

3. His Honour concluded that, after making adjustments pursuant to cl 5.2(c), the Completion Purchase Price payable by Gourmania Holdings to Mr Schlegel under cl 5.1 was increased by $37,384.94 (being 50% of an amount of $74,769.89 in excess of the Benchmark Net Tangible Asset Position) [128]. His Honour arrived at that conclusion having regard, relevantly, to the following:

   (a)the Company had net assets of $1,341,042.31 as at the Completion Date;

   (b)a deduction of $8,355.57 should be made for the accounting 'black hole'; and

   (c)a further deduction of $252,839 should be made for the provision for income tax.

Gourmania Holdings' appeal:  grounds of appeal 1(a) and 1(b)

1. Gourmania Holdings alleges that the trial judge erred in law and fact in construing cl 5.2 of the Share Sale Agreement in that, on a proper construction of cl 5.2:

   (a)the Cash Actual Amount ought to have excluded monies 'not truly being retained in the business', namely $262,380 which was due to be paid in tax, such that the final Cash Actual Amount at close of business on the date of Completion (namely 4 February 2013) should have been found to be $78,398.83 (ground 1(a)); and

   (b)the Completion NTA Amount ought to have excluded the Cash Actual Amount, such that the final Completion NTA Amount at close of business on the date of Completion should have been found to be $970,064.97 (ground 1(b)).

Gourmania Holdings' appeal:  application to amend the grounds of appeal

1. On 17 August 2020, the appeal and the cross-appeal were heard and the court reserved judgment.

2. By an application in the appeal dated 29 September 2020, Gourmania Holdings applied for leave to amend its grounds of appeal to add an additional ground (the Proposed Additional Ground) as follows:

   The learned trial judge erred in fact by failing to find that [Mr Schlegel] had disclosed to [Gourmania Holdings] prior to completion of the Share Sale Agreement, that a provision for the payment to [the Australian Taxation Office] in the sum of $262,000 [sic:  $262,380] had been made in the accounts of [the Company].

3. The application was supported by an affidavit of Gourmania Holdings' solicitor, James Richard Marzec, sworn 29 September 2020.

4. On 28 October 2020, Gourmania Holdings filed written submissions in support of the application and the Proposed Additional Ground.

5. On 4 November 2020, Mr Schlegel filed written submissions in opposition to the application and the Proposed Additional Ground.

6. Neither Gourmania Holdings nor Mr Schlegel requested an oral hearing in relation to the application or the Proposed Additional Ground.

Mr Schlegel's cross-appeal:  grounds of cross‑appeal 1 and 2

1. Mr Schlegel's ground of cross-appeal 1 alleges that the trial judge erred in fact and in law in:

   (a)finding that, as the parties had failed to lead evidence about the correct reading of the provision for income tax in the amount of $252,839 in the Company's Agreed Balance Sheet, his Honour was unable to:

   (i)make any finding about how the provision for income tax affected the calculations of the Net Tangible Assets of the Company as at the Completion Date; and

   (ii)find that the provision for income tax should be taken into account by reducing the liabilities of the Company as at the Completion Date; and

   (b)not taking into account the provision for income tax in the amount of $252,839 to reduce the Company's liabilities as at the Completion Date.

2. Mr Schlegel's ground of cross-appeal 2 alleges that his Honour erred in law in failing to afford procedural fairness to Mr Schlegel in making the findings referred to in ground of cross-appeal 1 in circumstances where, except for an argument raised by Gourmania Holdings to the effect that the provision for income tax was an intangible asset, the correct reading of the provision for income tax in the Company's Agreed Balance Sheet was not in issue or argued in the proceedings.

The organisation of the balance of these reasons

1. It is convenient, first, to consider ground of appeal 1(a), then ground of appeal 1(b), then the application for leave to amend and the Proposed Additional Ground, and, finally, the cross-appeal.

Gourmania Holdings' appeal:  ground of appeal 1(a):  Gourmania Holdings' submissions

1. Counsel for Gourmania Holdings submitted in relation to ground of appeal 1(a) that the intention of the parties to the Share Sale Agreement was that the actual value of the Business was $2,900,000 and that the Completion Purchase Price would be adjusted based on 'how much cash was to remain in the Business'.

2. It was submitted that the 'reality' was that both parties knew that:

   (a)Completion would occur on or about 4 February 2013;

   (b)the Company was liable to Mr Schlegel for Loan Schlegel B in the amount of $154,652.90; and

   (c)the Company was liable to the Australian Taxation Office in the amount of $262,380, which was due and payable shortly after Completion.

3. After completion:

   (a)the amount outstanding to Mr Schlegel was paid in full between February and April 2013; and. 

   (b)the amount outstanding to the Australian Taxation Office was paid in full between 18 and 27 February 2013.

4. According to counsel, it followed that 'in truth, the only cash that remained in the Business was $79,599.77'.  That amount was $20,400.23 less than the Cash Estimate and should have resulted in a reduction of $20,400.23 in the purchase price.

5. It was submitted that the trial judge's failure to deduct the amount of $262,380 in calculating the Cash Actual Amount meant that Gourmania Holdings was 'paying an additional $262,380 for the benefit of retaining that sum for some 23 days in February 2013'.  If the $262,380 had been paid to the Australian Taxation Office on 3 February 2013, the purchase price would not have been increased by that amount.  A construction of cl 5.1, cl 5.2 and related provisions of the Share Sale Agreement that permits 'an increase [in the purchase price] in these circumstances gives rise to an uncommercial and absurd result'.

6. According to counsel, 'the object of cl 5.2(a) [was] to increase the purchase price where cash is actually going to be retained in the [B]usiness, not to enable a windfall to Mr Schlegel because of the timing of the payment to the [Australian Taxation Office]'.

7. It was submitted that in the definition of Cash Actual Amount in cl 1.1:

   (a)the word 'actual' in the phrase 'the actual amount of any Cash held by the Company' must be construed in the sense of 'real';

   (b)the definition refers to 'the real monies being retained' by the Company; and

   (c)the words 'actual amount' mean 'the actual amount of any Cash truly being retained in the Business and held by the Company' (appeal ts 6 ‑ 7).

Gourmania Holdings' appeal:  ground of appeal 1(a):  Mr Schlegel's submissions

1. Counsel for Mr Schlegel submitted in relation to ground of appeal 1(a) that the construction of cl 5.2(a) of the Share Sale Agreement advanced on behalf of Gourmania Holdings in effect modifies the text of cl 5.2(a) so that the meaning of Cash Actual Amount is changed from the 'actual amount of any Cash' as at the close of business on the Completion Date to 'cash that may remain in the Business' after the Completion Date and after deduction of amounts that are not due to be paid until after the Completion Date.

2. Counsel contended that Gourmania Holdings' case in relation to the proper construction of cl 5.2(a) involves treating the Cash Actual Amount as being not the 'actual amount of any Cash' held by the Company as at close of business on the Completion Date, but as the amount of 'Cash that might be held as at the close of business on the Completion Date' if the Company's liability to the Australian Taxation Office was paid before the due date.

Gourmania Holdings' appeal:  ground of appeal 1(a):  the correct approach to construction

1. The proper construction of a commercial contract is to be determined objectively having regard to its text, context and purpose or objects.  The provisions of the contract are to be understood objectively by reference to what a reasonable businessperson would have understood them to mean.  The hypothetical reasonable businessperson must be placed in the position of the parties.  The court considers from that perspective the circumstances surrounding the contract and the commercial purpose or objects sought to be achieved by it.  See Electricity Generation Corporation v Woodside Energy Ltd;[1] Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd.[2]

   [1] Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 [35].

   [2] Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 261 CLR 544 [16].

2. In Electricity Generation Corporation [35], French CJ, Hayne, Crennan and Kiefel JJ made these observations in relation to ascertaining what the hypothetical reasonable businessperson would have understood by the terms of a commercial contract:

   [I]t will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract.  Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'.  As Arden LJ observed in Re Golden Key Ltd [[2009] EWCA Civ 636 at [28]], unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties … intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'. (footnotes omitted)

   See also Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd;[3] Simic v New South Wales Land and Housing Corp.[4]

   [3] Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 [46] ‑ [47].

   [4] Simic v New South Wales Land and Housing Corp [2016] HCA 47; (2016) 260 CLR 85 [78].

3. A commercial contract must be construed as a whole.  The words of a clause in the contract are to be given the most appropriate meaning which they can legitimately bear.  A court must have regard to all of the provisions of the contract with a view to achieving harmony among them.  If more than one construction of a clause is open having regard to the text, context and purpose or objects of the contract as a whole, the court will prefer a construction that will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust.  See Australian Broadcasting Commission v Australasian Performing Right Association Ltd;[5] Zhu v Treasurer of the State of New South Wales;[6] Electricity Generation Corporation [35].

   [5] Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109.

   [6] Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530 [82].

4. In Fitzgerald v Masters,[7] Dixon CJ and Fullagar J said, '[w]ords may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency'.  See also Adams v Lambert;[8] Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq).[9] 

   [7] Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420, 426 ‑ 427.

   [8] Adams v Lambert [2006] HCA 10; (2006) 228 CLR 409 [21].

   [9] Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2019] NSWCA 11; (2019) 99 NSWLR 317 [6] ‑ [10].

5. Where a word or an expression is defined in a commercial contract the court will give effect to the definition.  The proper course is to read the text of the definition into the relevant clause and then to construe the relevant clause having regard to the contract as a whole.  Ordinarily, the purpose of a definition in a commercial contract is to attribute the meaning agreed upon by the parties to the relevant word or expression and to avoid unnecessary and lengthy repetition of the text of the definition in the contract.  See, generally, Halford v Price;[10] Kelly v The Queen.[11]

Gourmania Holdings' appeal:  ground of appeal 1(a):  its merits

[10] Halford v Price [1960] HCA 38; (1960) 105 CLR 23, 26 ‑ 29.

[11] Kelly v The Queen [2004] HCA 12; (2004) 218 CLR 216 [103].

1. At all material times, the Company was a small proprietary company with an issued share capital comprising two ordinary shares.  Prior to the signing of the Share Sale Agreement, each of Mr Schlegel and an entity associated with Mr Patel held one of those shares.  At all material times, the Company was a trading corporation which carried on business as a producer and distributor of premium food products.

2. By the Share Sale Agreement, Mr Schlegel agreed to sell and Gourmania Holdings agreed to purchase Mr Schlegel's one ordinary share in the Company.

3. By cl 5.1, the purchase price (the Completion Purchase Price)  payable by Gourmania Holdings for Mr Schlegel's one ordinary share was an amount equal to the aggregate of:

   (a)$2,900,000; plus

   (b)the Cash Estimate (being $100,000).

4. However, the Completion Purchase Price specified in cl 5.1 was subject to adjustment under cl 5.2.

5. By cl 5.2(a), if the Cash Actual Amount (that is, the actual amount of any cash, being all cash and cash equivalents including cash in bank, cash at site (including petty cash), outstanding deposits and unpresented cheques held by the Company as at the close of business on the date on which completion of the sale and purchase of the ordinary share in accordance with cl 7 occurred) exceeded the Cash Estimate (being $100,000), then the Completion Purchase Price of $3,000,000 payable under cl 5.1 would be increased by the amount by which the Cash Actual Amount exceeded $100,000.

6. By cl 5.2(b), if the Cash Actual Amount was less than the Cash Estimate, then the Completion Purchase Price of $3,000,000 payable under cl 5.1 would be decreased by the amount by which the Cash Actual Amount was less than the Cash Estimate.

1. The relevant contractual context for the purposes of cl 5.1, cl 5.2(a) and cl 5.2(b) includes:

   (a)the facts stated at [69] ‑ [70] above;

   (b)part of the purchase price payable under cl 5.1 was agreed upon by Mr Schlegel and Gourmania Holdings having regard to the actual amount of any Cash held by the Company as at the date on which the Share Sale Agreement was signed;

   (c)the Share Sale Agreement was signed in December 2012 and the due date for completion of the sale and purchase of the ordinary share in accordance with cl 7 would not occur until 1 February 2013 or the date which was five Business Days after all of the conditions specified in cl 2.1 had been satisfied or waived in accordance with cl 2.4, whichever was the later;

   (d)the Company would continue carrying on its business between the date on which the Share Sale Agreement was signed and the date on which completion occurred; and

   (e)the actual amount of any Cash held by the Company as at the date of signature of the Share Sale Agreement was highly likely to be different from the actual amount of any Cash held by the Company as at the date on which completion occurred.

2. It was necessary, having regard to the relevant contractual context, for the parties to make provision in cl 5.2(a) and cl 5.2(b) for the adjustment of the Completion Purchase Price specified in cl 5.1 with the object of ensuring that the value of the bargain, from the perspective of Mr Schlegel and from the perspective of Gourmania Holdings, reflected in the purchase price specified in cl 5.1 (namely $3,000,000) was not increased or decreased by any difference in the actual amount of any Cash held by the Company as at the date on which completion occurred compared to the date of signature of the Share Sale Agreement.

3. Clause 5.2(a) and cl 5.2(b) must be read with cl 5.1 and the definitions of 'Cash Estimate', 'Cash Actual Amount', 'Cash', 'Completion Date' and 'Completion' in cl 1.1.

4. In my opinion, when cl 5.2(a) and cl 5.2(b) are read with cl 5.1 and the relevant definitions, and in the context of the contract as a whole, it is plain that 'the actual amount of any Cash held by the Company as at the close of business on the Completion Date' (within the definition of 'Cash Actual Amount') refers to the total amount of any items within the definition of 'Cash' that are, in fact, held by the Company as at the specified time on the specified date.

5. The words 'actual amount' held by the Company refer to the amount 'in fact' held by the Company.  The definition of Cash Actual Amount, in context, is concerned with the amount 'in fact' held by the Company at the specified time on the specified date.  The definition, in context, is not concerned with any amount that will or may be held by the Company after that time or with any amount that will or may cease to be held by the Company after that time.

6. When cl 5.2(a) and cl 5.2(b) are read with cl 5.1 and the relevant definitions, and in the context of the contract as a whole, it is plain that 'the actual amount of any Cash held by the Company as at the close of business on the Completion Date' (within the definition of 'Cash Actual Amount') does not refer (as asserted by counsel for Gourmania Holdings) to the total 'real' amount of any items within the definition of 'Cash' that will 'truly' be retained in the Business and held by the Company after the specified time on the specified date.

7. The argument advanced by counsel for Gourmania Holdings in relation to cl 5.2(a) and cl 5.2(b) read with cl 5.1 and the relevant definitions, and in the context of the contract as a whole, is inconsistent with the ordinary and natural meaning of the contractual text.  Counsel's argument requires the making of an implication (or, at least, the application of a gloss) which is not open.  A reasonable businessperson, in the position of the parties, would not have understood the definition of Cash Actual Amount, in context, to bear the meaning sought to be ascribed on behalf of Gourmania Holdings.

8. The construction of cl 5.2(a) and cl 5.2(b) read with cl 5.1 and the relevant definitions, and in the context of the contract as a whole, which I prefer does not produce a result in relation to the Company's current liability to the Australian Taxation Office of $262,380 (which was due to be paid shortly after Completion) that is commercial nonsense or commercially inconvenient.

9. The Share Sale Agreement included a number of provisions with respect to taxation.

10. In particular:

    (a)In par 14.2  of schedule 7, Mr Schlegel warranted to Gourmania Holdings, as at the date of signature of the Share Sale Agreement and as at the time immediately prior to Completion, that 'all Tax that has become lawfully due and payable by the Company has been paid on or before the due date for that payment'.

    (b)By cl 14.1(a), Mr Schlegel must pay to Gourmania Holdings in accordance with cl 14 the amount of 'any Tax that the Company is liable to pay in respect of or by reference to any matter or event occurring or which is taken to have occurred on or before the Completion Date'.

    (c)However, by cl 14.2(a), Mr Schlegel is not liable to Gourmania Holdings in respect of any Tax Claim (that is, any claim by Gourmania Holdings against Mr Schlegel under cl 14.1) 'to the extent that … in the case of a Tax Claim in respect of a liability to pay Tax, a provision for that Tax has been disclosed to [Gourmania Holdings] prior to Completion'.

    (d)Clause 14.3 specifies the date by which Mr Schlegel must make any payment under cl 14.1 to Gourmania Holdings.

    (e)By cl 5.5(a), any payment made by Mr Schlegel to Gourmania Holdings under cl 14 must be treated as a pro rata reduction in the purchase price of the share.

11. In my opinion, the Company's current liability to the Australian Taxation Office of $262,380, which was due to be paid shortly after Completion, was an amount of Tax that the Company was liable to pay in respect of or by reference to matters or events occurring on or before the Completion Date, within cl 14.1(a).

12. Accordingly, Mr Schlegel was obliged to pay to Gourmania Holdings the amount of $262,380 in accordance with, relevantly, cl 14.3, unless, by virtue of cl 14.2(a), Mr Schlegel was not liable.

13. If cl 14.2(a) did not apply and Mr Schlegel paid to Gourmania Holdings the amount of $262,380 in accordance with, relevantly, cl 14.3, then, by cl 5.5(a), the payment had to be treated as a pro rata reduction in the purchase price of the share.

14. It is apparent from cl 14 read with cl 5.5(a), in the context of the contract as a whole, that the parties intended that the rights and obligations of Mr Schlegel and Gourmania Holdings in relation to any current liability of the Company to the Australian Taxation Office, which accrued prior to Completion and would be payable after Completion, would be determined and resolved in accordance with cl 14.

15. Other provisions of the Share Sale Agreement do not assist Gourmania Holdings' argument.  Notably:

    (a)cl 7.3(2)(i) and cl 7.3(2)(j), read with cl 6.7 and cl 6.8, require Mr Schlegel to deliver to Gourmania Holdings at Completion specified documentation in relation to the repayment of certain debts;

    (b)the warranty in par 14.2 of schedule 7 relates to the payment by the Company on or before the due date of all Tax that has become lawfully due and payable;

    (c)those provisions do not relate to the ascertainment or calculation of the Cash Actual Amount as at the close of business on the Completion Date or at any other time; and

    (d)those provisions do not, either alone or in combination with any other provisions of the contract, considered as a whole, require a departure from the natural and ordinary meaning of the text embodied in cl 5.2(a) and cl 5.2(b) read with cl 5.1 and the relevant definitions.

16. Ground of appeal 1(a) of Gourmania Holdings' appeal fails.

Gourmania Holdings' appeal:  ground of appeal 1(b):  Gourmania Holdings' submissions

1. Counsel for Gourmania Holdings submitted in relation to ground of appeal 1(b) that the trial judge's decision to characterise the Cash Actual Amount as a Net Tangible Asset and his Honour's decision to include the Cash Actual Amount in calculating the Completion NTA Amount had the effect of increasing the Completion NTA Amount by $496,632.67.

2. It was submitted that the inclusion of the Cash Actual Amount in the calculation of the Completion NTA Amount resulted in the Cash Actual Amount being 'double counted' for the purposes of adjusting the Completion Purchase Price.  That is, the Cash Actual Amount was included in the adjustment made pursuant to cl 5.2(a) and was also included in the adjustment made pursuant to cl 5.2(c).  Consequently, Mr Schlegel had received $1.50 as an increase in the Completion Purchase Price 'for every dollar left in the bank accounts of [the Company] over $100,000'.

3. According to counsel, 'the objective intention of the parties was to adjust the purchase price by a different rate for cash that was actually going to remain in the business as compared to assets that were going to remain in the business'.  That intention was said to be apparent from the different rates used for the adjustments under cl 5.2(a) and cl 5.2(b) compared to the adjustments under cl 5.2(c) and cl 5.2(d).

Gourmania Holdings' appeal:  ground of appeal 1(b): Mr Schlegel's submissions

1. Counsel for Mr Schlegel submitted in relation to ground of appeal 1(b), in effect, that the trial judge's construction of cl 5.2(c) and cl 5.2(d) of the Share Sale Agreement was correct, generally for the reasons his Honour gave.

Gourmania Holdings' appeal:  ground of appeal 1(b):  its merits

1. By cl 5.2(c), if the Completion NTA Amount (that is, the value of the total assets of the Company minus any intangible assets less the liabilities of the Company immediately prior to the completion of the sale and purchase of the share in accordance with cl 7, as agreed between the parties or determined in accordance with cl 5.3) exceeded the Benchmark Net Tangible Asset Position (that is, $999,964.73), then the Completion Purchase Price of $3,000,000 payable under cl 5.1 would be increased by 50% of the amount by which the Completion NTA Amount exceeded the Benchmark Net Tangible Asset Position.

2. By cl 5.2(d), if the Completion NTA Amount was less than the Benchmark Net Tangible Asset Position, then the Completion Purchase Price of $3,000,000 payable under cl 5.1 would be decreased by 50% of the amount by which the Completion NTA Amount was less than the Benchmark Net Tangible Asset Position.

3. In cl 1.1, 'Asset' is defined to mean, relevantly, 'each asset owned or held by the Company or used in the Business'.  The term 'Asset' appears, relevantly, in the definitions in cl 1.1 of the terms 'Completion NTA Amount' and 'Net Tangible Assets'.

4. In cl 5.2(c) and cl 5.2(d), the defined term 'Benchmark Net Tangible Asset Position' is defined to mean a fixed amount, namely $999,964.73.  The nature of the assets which comprised the 'Benchmark Net Tangible Asset Position' or how the fixed amount of $999,964.73 was calculated was not explained in the contract or at the trial.  In cl 5.2(c) and cl 5.2(d), the term 'Completion NTA Amount' is defined to mean, relevantly, the amount of the 'Net Tangible Assets' of the Company as at the time immediately prior to Completion.  The term 'Net Tangible Assets' is defined to mean the value of the total assets of the Company after two specified deductions have been made.  The first deduction is any intangible assets of the Company.  The second deduction is the liabilities of the Company.

5. The Agreed Balance Sheet as at the Completion Date (that is, as at 4 February 2013) includes cash on hand in the total amount of $496,632.67 as a current asset.  The cash on hand was therefore an asset owned or held by the Company or used in the Business within the definition in cl 1.1 of 'Asset'.

6. Cash is an asset of the Company.  It is not an intangible asset or a liability of the Company.  It follows that the total amount of the cash on hand was part of the value of the total assets of the Company and within the definition in cl 1.1 of 'Net Tangible Assets'.

7. In my opinion, when cl 5.2(c) and 5.2(d) are read with cl 5.1 and the relevant definitions, in the context of the contract as a whole, it is plain that the Cash Actual Amount was required to be included as part of the value of the total assets of the Company within the definition of 'Net Tangible Assets'.

8. When cl 5.2(c) and cl 5.2(d) are read with cl 5.1, cl 5.2(a), cl 5.2(b) and the relevant definitions, and in the context of the contract as a whole, it is plain that the Cash Actual Amount is required to be included in determining any adjustment under cl 5.2(a) or cl 5.2(b), and also in determining any adjustment under cl 5.2(c) or cl 5.2(d), to the Completion Purchase Price.

9. I am not satisfied that the construction of cl 5.2(c) and cl 5.2(d) which I prefer produces a result that is commercial nonsense or commercially inconvenient merely because, in the result, Mr Schlegel will receive $1.50 as an increase in the Completion Purchase Price for every dollar in the Company's bank accounts in excess of $1,000,000.  The clear and unambiguous language of the contractual provisions yields that result.  This court is not entitled, in the circumstances, to avoid that result by an artificial construction of the clear and unambiguous language the parties have chosen or by the making of an implication or the application of a gloss.

10. Ground of appeal 1(b) of Gourmania Holdings' appeal fails.

Gourmania Holdings' appeal:  the application in the appeal and the proposed additional ground of appeal:  Gourmania Holdings' submissions

1. As I have mentioned, the proposed ground alleges, in effect, that the trial judge erred in fact by failing to find that Mr Schlegel had disclosed to Gourmania Holdings, prior to Completion, that a provision for the payment of the sum of $262,380 to the Australian Taxation Office had been made in the accounts of the Company.

2. Counsel for Gourmania Holdings submitted that Gourmania Holdings' case at trial included the contention that the provision for the payment of that sum of $262,380 should not be included in the Cash Actual Amount because that provision for the taxation liability had been disclosed.

3. Counsel acknowledged that the trial judge did not make a finding of fact as to whether the provision for the income tax liability had been disclosed by Mr Schlegel to Gourmania Holdings prior to Completion.  Counsel submitted that, having regard to his Honour's view as to the proper construction of the relevant provisions of the Share Sale Agreement, it was unnecessary for his Honour to make a finding of fact concerning that issue.

4. However, counsel said that Mr Schlegel gave evidence at the trial that at a meeting on 23 January 2013 with a representative of Gourmania Holdings (namely, Sivan Jeyarajah), Mr Schlegel disclosed the existence of the Company's income tax liability to the Australian Taxation Office and asked whether that liability should be prepaid before Completion (ts 28, 58 ‑ 59).  Mr Schlegel also gave evidence that on 5 February 2013 (that is, the day after Completion) Mr Schlegel gave a balance sheet to Mr Jeyarajah and told him that the balance sheet showed the existence of the income tax liability to the Australian Taxation office and that the liability would not be prepaid three weeks in advance (par 7 of Mr Schlegel's witness statement dated 18 May 2018:  exhibit 3.2).

5. Counsel for Gourmania Holdings submitted that cl 5.2 should be construed so that any provision by the Company in respect of a liability to pay income tax should not be included in the Cash Actual Amount, for the purposes of any adjustment under cl 5.2(a) or 5.2(b), if the provision for income tax had been disclosed to Gourmania Holdings prior to Completion.

Gourmania Holdings' appeal:  the application in the appeal and the proposed additional ground of appeal:  Mr Schlegel's submissions

1. Counsel for Mr Schlegel submitted that this court should dismiss Gourmania Holdings' application in the appeal dated 29 September 2020 for leave to amend its grounds of appeal by adding the Proposed Additional Ground.

2. Counsel submitted that the issue of whether the provision for the payment of the sum of $262,380 to the Australian Taxation Office was disclosed to Gourmania Holdings prior to Completion was not raised in the primary proceedings and could not be raised for the first time on appeal.

3. Mr Schlegel relied upon an affidavit of his solicitor, Carole Agnes Timmins, sworn 4 November 2020 in support of the proposition that had the issue of whether cl 14.2(a) of the Share Sale Agreement been triggered or satisfied or had the issue of whether the provision for the payment of the sum of $262,380 to the Australian Taxation Office been disclosed to Gourmania Holdings prior to Completion been raised in the primary proceedings, Mr Schlegel and his solicitors would have prepared differently for trial.  In particular, Mr Schlegel and his solicitors would have addressed more specifically (in evidence and submissions) what was disclosed to Gourmania Holdings about the provision for the Australia Taxation Office liability, and when it was disclosed.

Gourmania Holdings' appeal:  the application in the appeal and the proposed additional ground of appeal:  its merits

1. In par 12 of his statement of claim, Mr Schlegel pleaded that at the close of business on the Completion Date, the Cash Actual Amount held by the Company was $341,979.77 and that amount exceeded $100,000 by $241,979.77.

2. In par 12 of its defence, Gourmania Holdings denied par 12 of the statement of claim.  Gourmania Holdings then alleged in par 12 of its defence that at the close of business on the Completion Date the Cash Actual Amount held by the Company was $78,398.83, being the amount of $496,632.67 in 'Cash on Hand' less two amounts.  The first amount was $154,652.90 being Loan Schlegel B.  The second amount was $262,380 'being an amount held on account of a present liability crystallised by [the Company] in favour of the Australian Taxation Office which was subsequently paid between 18 February and 27 February 2013'.  In particulars of par 12 of its defence, Gourmania Holdings stated, in essence, that it relied upon the Agreed Balance Sheet.

3. Mr Schlegel did not plead or refer to cl 14 of the Share Sale Agreement in his statement of claim.  Gourmania Holdings did not plead or refer to cl 14 in its defence.

4. In its counterclaim, Gourmania Holdings repeated pars 1 to 23 of its defence.

5. In par 25 of its counterclaim, Gourmania Holdings pleaded, in the alternative to par 12, that in breach of cl 6.8 of the Share Sale Agreement Mr Schlegel had failed to discharge and extinguish the Loan Schlegel B on or before Completion.

6. In pars 45 to 58 of its counterclaim, Gourmania Holdings claimed against Mr Schlegel for various alleged breaches by Mr Schlegel of his duties as a director of the Company.

7. In pars 60 to 82 of its counterclaim, Gourmania Holdings claimed against Mr Schlegel for alleged breaches of warranty.

8. In pars 83 to 90 of its counterclaim, Gourmania Holdings claimed against Mr Schlegel in connection with alleged breaches by Mr Schlegel of s 181, s 182 and s 183 of the Corporations Act 2001 (Cth) and alleged breaches of fiduciary duty in connection with a joint venture agreement relating to business opportunities in Thailand.

9. Gourmania Holdings did not plead or refer to cl 14 of the Share Sale Agreement in its counterclaim.

10. In his opening written submissions dated 23 October 2018, Mr Schlegel did not refer to cl 14 of the Share Sale Agreement.  The submissions did refer to the Company's liability of $262,380 to the Australian Taxation Office, but the reference was in the context of the Cash Actual Amount and adjustments under cl 5.2 to the Completion Purchase Price.  The submissions did not state whether the provision for the payment of the sum of $262,380 had been disclosed to Gourmania Holdings prior to Completion.

1. In par 22 of its opening written submissions dated 26 October 2018, Gourmania Holdings referred to cl 14.1(a) and other provisions of the Share Sale Agreement as containing 'indications … that debts to [the Australian Taxation Office] would not be retained in the business after Completion'.  That contention was made in support of Gourmania Holdings' case in relation to the Cash Actual Amount and any adjustments to be made under cl 5.2 to the Completion Purchase Price.  Similarly, in par 28 of the submissions, Gourmania Holdings referred to cl 14.1(a) and cl 14.2(a) and other provisions of the Share Sale Agreement as containing 'indications … that the "Loan Schlegel B" and "ATO Amount" should be included in the Cash Actual calculation and not the Net Tangible Assets Calculation' in the context of any adjustments to be made under cl 5.2 to the Completion Purchase Price.  In particular, it was contended in par 28.5 of the submissions:

   [T]here is also an indication in clauses 14.1(a) and 14.2(a) in the Share Sale Agreement and Seller's Warranty clause 14.2 that all tax that is payable by the Company being attributable to events occurring prior to Completion must be paid by the Seller.  This also assists Gourmania's interpretation of the Cash Actual Adjustment and the Net Tangible Assets calculation in that the [Australian Taxation Office] debt should be treated as part of the Cash Actual adjustment, because there is not an intention to carry that debt beyond Completion.  Further, it also militates in favour of a provision for income tax payable by the Company up to the date of Completion.

2. Mr Schlegel gave evidence at the trial as follows:

   (a)On 23 January 2013, at a meeting with Mr Jeyarajha, (a representative of Gourmania Holdings), Mr Schlegel said to Mr Jeyarajha 'are you in agreement to continue with business as usual or do you want us to make a prepayment for the [Australian Taxation Office]?' and Mr Jeyarajha replied 'I'm in full agreement.  There is no need to prepay them'.  Mr Schlegel then explained in his evidence that Mr Jeyarajha 'knew that the payment [to the Australian Taxation Office] was due at the end of February 2013'.  The subject arose at the meeting because Mr Schlegel and Mr Jeyarajha 'went through the whole balance sheet'.  Mr Schlegel said he 'gave them the present balance sheet at the time', namely 'the balance sheet that would have been printed out for that 23 January meeting' (ts 28).

   (b)Mr Schlegel maintained in cross-examination that at the meeting on 23 January 2013 he told Mr Jeyarajha about the liability to the Australian Taxation Office.  Mr Schlegel insisted that at the meeting he gave Mr Jeyarajha a balance sheet and the liability was 'written all over it'.  The liability to the Australian Taxation Office was discussed at the 23 January 2013 meeting (ts 58 ‑ 59).

   (c)Mr Schlegel said in par 7 of his responsive witness statement dated 18 May 2018 (which was tendered as part of his evidence-in-chief and became exhibit 3.2) that on 5 February 2013 (that is, the day after the Completion Date) Mr Schlegel gave Mr Jayarajha a copy of a balance sheet dated 5 February 2013 of the Company and told him that the balance sheet showed a liability to the Australian Taxation Office that would not be prepaid three weeks ahead of time.

3. Mr Jeyarajha gave evidence at the trial as follows:

   (a)Mr Jeyarajha said in par 10 of his witness statement dated 25 September 2018 (which was tendered as part of his evidence‑in‑chief and became exhibit 8.1) that between 4 and 8 February 2013 he met with Mr Schlegel in Mr Schlegel's office.  Mr Schlegel gave Mr Jeyarajha an introduction to the business.  During the introduction Mr Schlegel said to Mr Jeyarajha words to the effect of:

   (i)'there are two amounts that have been set aside as a practical way of doing business from a cash flow perspective, and these amounts are owed by [the Company]';

   (ii)one of those amounts was 'an amount owed to [Mr Schlegel] by [the Company] which is for a dividend declared but not paid to [Mr Schlegel]'; and

   (iii)the other amount was 'an ATO liability, which [the Company] owes to the Australian Taxation Office which is due for payment by the end of the month'.

   (b)Mr Jeyarajha said in par 63 of his witness statement dated 20 April 2018 (which was tendered as part of his evidence‑in‑chief and became exhibit 8.3) that between 4 and 8 February 2013 he attended the Company's premises for handover.  At some time during that period Mr Schlegel 'indicated that there were two allocations of funds being held in reserve by [the Company] post completion'.  Those amounts included 'an amount of $262,380, being an amount held for liabilities owed to the Australian Taxation office which were due for payment on 28 February 2013'.

   (c)Mr Jeyarajha said in cross-examination that on 5 February 2013 he attended a meeting at the Company's offices.  Mr Jeyarajha could not recall whether on that date Mr Schlegel gave him a balance sheet of the Company.  Mr Jeyarajha  said that on 5 February 2013 he did not have any discussions with Mr Schlegel about the Cash Actual Amount or the Net Tangible Assets of the Company (ts 172 ‑ 173).

4. Clause 14 of the Share Sale Agreement was referred to at the trial as follows:

   (a)In her opening submissions, counsel for Mr Schlegel referred to cl 14 in the context of explaining to the trial judge how the Share Sale Agreement dealt with tax (ts 17 ‑ 18).

   (b)In her opening submissions, counsel for Mr Schlegel said, in response to a question from his Honour in relation to cl 14.2, that pars 12 and 16 of Gourmania Holdings' defence were relied upon by Gourmania Holdings 'to say how the Cash Actual Amount should be calculated and how the Completion NTA Amount should be calculated' (ts 20).

   (c)In his closing submissions, counsel for Gourmania Holdings referred to cl 14 in the context of 'indications in [the Share Sale Agreement] about what should happen with the tax' (ts 226).  Counsel submitted that the effect of cl 14.2(a) was that Mr Schlegel was not liable in respect of a tax claim by Gourmania Holdings under cl 14.1(a) if a provision for the relevant liability of the Company to pay tax had been disclosed to Gourmania Holdings prior to Completion (ts 226).  Counsel asserted that the Agreed Balance Sheet showed the tax liability for $262,380.  Counsel then said '[s]o we're within cl 14.2(a) because there has been this provision, effectively, given notice of or declared, so [Gourmania Holdings] can't have a recourse to Mr Schlegel, but we know that that money is going out the door very shortly after Completion.  So if there hadn't been any provision given then … [Gourmania Holdings] would have had a claim against Mr Schlegel for the $262,380 because [that] wouldn’t be prevented … under [cl 14.2(a)]' (ts 226).  Next, counsel contended that 'the provision [was] disclosed' and 'the intention behind the Cash Actual Amount is that it only describes cash that is actually going to be in the Company' (ts 227).  Counsel said, in effect, that the Australian Taxation Office debt of $262,380 had to 'come out because [it was] not staying there' (ts 227).  It was 'not really cash that's being left in the business' (ts 227).  That demonstrated 'the commercial unreasonableness or unreality or unreal nature of the construction that [was] contended for by [Mr Schlegel], because is it really put that the parties intended for Gourmania Holdings to pay an extra [$262,380] for the benefit of having that money until the end of February [2013]?' (ts 227).  Counsel then said, in effect, that Mr Schlegel's construction was not correct.  There were indications in the Share Sale Agreement that 'separate out how cash is treated and how the Net Tangible Assets are treated … [and] there is … an indication … in 14.1 and 14.2 … that [Mr Schlegel] will be liable and responsible for moneys for tax incurred prior to Completion' (ts 227).  Counsel also contended that 'where there is a provision for tax, that [cannot] be considered to be in the cash'.  Counsel added that otherwise there would be 'a windfall, depending on when [it was] paid' (ts 233).

   (d)In her closing submissions, counsel for Mr Schlegel referred to cl 14 in the course of submitting that Gourmania Holdings' contention that 'the amount of a tax liability should be deducted from the Cash Actual Amount when calculating the adjustments to the Completion Purchase Price … would allow or could allow Gourmania Holdings to benefit twice in that if they are right and, under cl 5.2(a) and (b), the amount of any tax liability owing as at Completion should be deducted before [determining] the Cash Actual Amount - that could be deducted and at the same time [that could also be deducted] under cl 14.1(a)' (ts 248).  Counsel added that Mr Schlegel's case 'actually allows those things to be balanced against each other in that the amount of tax liability is not deducted from the Cash Actual Amount at Completion, but to the extent that a tax liability is referable to the period prior to Completion, cl 14.1(a) allows Gourmania Holdings to come against Mr Schlegel and say, 'pay it back to us' (ts 248).

5. The trial judge did not decide whether Gourmania Holdings had a claim against Mr Schlegel under cl 14.1(a) of the Share Sale Agreement in relation to the Company's liability of $262,380 to the Australian Taxation Office or whether Mr Schlegel had a defence under cl 14.2(a) to any such claim.  His Honour did not decide those issues because Gourmania Holdings' counterclaim did not include a claim against Mr Schlegel under cl 14.1(a).  Gourmania Holdings did not in the course of the trial make an informal claim against Mr Schlegel under cl 14.1(a).

6. His Honour did not make any findings of fact in relation to whether the provision in the Agreed Balance Sheet of $252,839 in respect of the Company's liability of $262,380 to the Australian Taxation Office had been disclosed to Gourmania Holdings prior to Completion, either for the purposes of the defence under cl 14.2(a) or at all.  His Honour did not make any findings in relation to those matters because those matters were not raised by the pleadings or otherwise in issue at the trial.

7. Clause 14.1 and cl 14.2 were the subject of submissions by the parties and were referred to by the trial judge in his reasons in the context of construing the Share Sale Agreement as a whole in the course of determining the matters in issue at the trial relating to the Cash Actual Amount and the Completion NTA Amount for the purposes of any adjustments under cl 5.2 to the Completion Purchase Price.

8. An appellant is bound by the conduct of his or her case at trial.  In University of Wollongong v Metwally [No 2],[12] Gibbs CJ, Mason, Wilson, Brennan, Deane and Dawson JJ said:

   It is elementary that a party is bound by the conduct of his case.  Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so (483).  (emphasis added)

   [12] University of Wollongong v Metwally [No 2] [1985] HCA 28; (1985) 59 ALJR 481.

9. The substance of that statement was reiterated in Coulton v Holcombe[13] by Gibbs CJ, Wilson, Brennan and Dawson JJ:

   To say that an appeal is by way of rehearing does not mean that the issues and the evidence to be considered are at large.  It is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial.  If it were not so the main arena for the settlement of disputes would move from the court of first instance to the appellate court, tending to reduce the proceedings in the former court to little more than a preliminary skirmish.  The powers of an appellate court with respect to amendment are ordinarily to be exercised within the general framework of the issues so determined and not otherwise.  In a case where, had the issue been raised in the court below, evidence could have been given which by any possibility could have prevented the point from succeeding, this Court has firmly maintained the principle that the point cannot be taken afterwards:  see Suttor v Gundowda Pty Ltd ((1950) 81 CLR 418, at 438); Bloemen v The Commonwealth ((1975) 49 ALJR 219) (7 ‑ 8). (emphasis added)

   [13] Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1.

10. The High Court returned to this issue in Water Board v Moustakas.[14]  Mason CJ, Wilson, Brennan and Dawson JJ emphasised that a point cannot be raised for the first time on appeal 'when it could possibly have been met' by calling evidence at the trial (497) (emphasis added).  Their Honours allowed only these limited exceptions:

    Where all the facts have been established beyond controversy or where the point is one of construction or of law, then a court of appeal may find it expedient and in the interests of justice to entertain the point, but otherwise the rule is strictly applied (see Suttor v Gundowda Pty Ltd (1950), 81 CLR 418, at p 438; University of Wollongong v Metwally[No 2] (1985), 59 ALJR 481, at p 483; 60 ALR 68, at p 71; Coulton v Holcombe (1986), 162 CLR 1, at pp 7 ‑ 8; O'Brien v Komesaroff (1982), 150 CLR 310, at p 319)) (497).

    [14] Water Board v Moustakas [1988] HCA 12; (1988) 180 CLR 491.

11. Their Honours then explained the correct approach to deciding whether or not a point sought to be advanced on appeal was raised at trial:

    In deciding whether or not a point was raised at trial no narrow or technical view should be taken.  Ordinarily the pleadings will be of assistance for it is one of their functions to define the issues so that each party knows the case which he is to meet.  In cases where the breach of a duty of care is alleged, the particulars should mark out the area of dispute.  The particulars may not be decisive if the evidence has been allowed to travel beyond them, although where this happens and fresh issues are raised, the particulars should be amended to reflect the actual conduct of the proceedings.  Nevertheless, failure to amend will not necessarily preclude a verdict upon the facts as they have emerged (see Dare v Pulham (1982) 148 CLR 658). In Leotta v Public Transport Commission (NSW) ((1976) 50 ALJR 666, at p 668; 9 ALR 437, at p 446), a case having been submitted to the jury which was factually different from that alleged in the pleadings and particulars, Stephen, Mason and Jacobs JJ observed that the pleadings should have been amended in order to make the facts alleged and the particulars of negligence precisely conform to the evidence. The failure to apply for the amendment in that case was held not to be fatal. But in Maloney v Commissioner for Railways (NSW) ((1978) 52 ALJR 292, at p 294; 18 ALR 147, at pp 151 ‑ 152), Jacobs J, with whom the other members of the Court agreed, pointed out that the conclusion in Leotta was reached only upon the presupposition that the new issue or new way of particularizing the existing issue had emerged at the trial and had been litigated.

    It is necessary to look to the actual conduct of the proceedings to see whether a point was or was not taken at trial, especially where a particular is equivocal (497).

12. In Whisprun Pty Ltd v Dixon,[15] Gleeson CJ, McHugh and Gummow JJ restated the applicable principles and elaborated upon their rationale:

    It would be inimical to the due administration of justice if, on appeal, a party could raise a point that was not taken at the trial unless it could not possibly have been met by further evidence at the trial (University of Wollongong v Metwally [No 2] (1985) 59 ALJR 481 at 483; Coulton v Holcombe (1986) 162 CLR 1 at 8 - 9; Liftronic Pty Ltd v Unver (2001) 75 ALJR 867 at 875 [44]; Water Board v Moustakas (1988) 180 CLR 491 at 496 - 497; cf R v Birks (1990) 19 NSWLR 677 at 683-685). Nothing is more likely to give rise to a sense of injustice in a litigant than to have a verdict taken away on a point that was not taken at the trial and could or might possibly have been met by rebutting evidence or cross-examination. Even when no question of further evidence is admissible, it may not be in the interests of justice to allow a new point to be raised on appeal, particularly if it will require a further trial of the action (Multicon Engineering Pty Ltd v Federal Airports Corporation (1997) 47 NSWLR 631 at 645 - 646). Not only is the successful party put to expense that may not be recoverable on a party and party taxation but a new trial inevitably inflicts on the parties worry, inconvenience and an interference with their personal and business affairs.

    As Water Board v Moustakas ((1988) 180 CLR 491 at 498) makes clear, a point may be a new point even though it is within the pleadings or particulars. The pleadings and particulars are frequently decisive in determining whether a party is seeking to raise a new point on appeal. But they are not conclusive. To determine whether a party is raising a new point on appeal, it is 'necessary to look to the actual conduct of the proceedings' (Water Board v Moustakas (1988) 180 CLR 491 at 497) [51] ‑ [52]. (emphasis added)

    [15] Whisprun Pty Ltd v Dixon [2003] HCA 48; (2003) 77 ALJR 1598.

13. The juridical basis of the principles I have been discussing appears to derive, in part, from public policy considerations directed to ensuring finality in litigation and, in part, from the doctrine of estoppel by election in the conduct of litigation.  However, to the extent that some aspects have their origin in estoppel by election, the relevant consideration is not that the other party is put in a worse position, but that he or she may have been put in a worse position.  See Banque Commerciale SA, en liquidation v Akhil Holdings Ltd.[16]

    [16] Banque Commerciale SA, en liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279, 284.

14. An appellate court has power to allow an amendment to a pleading if the case sought to be made on appeal by the party applying to amend is not materially different from the case that was litigated at the trial.  See Bell v Lever Brothers Ltd;[17] Teoh v Minister for Immigration, Local Government and Ethnic Affairs;[18] Pringle v Everingham;[19] Fitzpatrick v Job trading as Jobs Engineering.[20]

    [17] Bell v Lever Brothers Ltd [1932] AC 161, 216.

    [18] Teoh v Minister for Immigration, Local Government and Ethnic Affairs (1994) 49 FCR 409, 416.

    [19] Pringle v Everingham (2006) 46 MVR 58 [48] ‑ [49].

    [20] Fitzpatrick v Job trading as Jobs Engineering [2007] WASCA 63; (2007) Aust Torts Reports 81 ‑ 891 [194].

15. In the present case, I would dismiss Gourmania Holdings' application in the appeal dated 29 September 2020 for leave to amend its grounds of appeal by adding the Proposed Additional Ground.  My reasons are as follows.  First, the trial judge did not make an error of fact, as alleged in the Proposed Additional Ground, by failing to find that Mr Schlegel had disclosed to Gourmania Holdings, prior to Completion, that a provision had been made in the accounts of the Company for the payment of the Company's liability of $282,380 to the Australian Taxation Office.  His Honour did not make the alleged error because, as I have mentioned, Gourmania Holdings did not make a claim against Mr Schlegel under cl 14.1(a) and it was therefore unnecessary for his Honour to make a finding of fact as to whether there had been disclosure to Gourmania Holdings, prior to Completion, within cl 14.2(a).  In any event, this court is not able to make a finding on that issue having regard to the state of the evidence at the trial.  Secondly, even if his Honour had made the finding contended for in the Proposed Additional Ground, that finding would not have affected the proper construction of cl 5.1 or cl 5.2 or the issues at the trial in relation to any adjustments under cl 5.2 to the Completion Purchase Price.  The proper construction of a contract is to be determined by reference to the provisions of the contract when the contract was signed and not by reference to the manner in which a contractual provision is engaged by a subsequent event.  Thirdly, Gourmania Holdings may not in this appeal make a claim against Mr Schlegel under cl 14.1(a).  No such claim was pleaded in the primary proceedings.  Also, no such claim was litigated at the trial.  Gourmania Holdings has not applied for leave to amend its counterclaim to add a claim under cl 14.1(a).  If Gourmania Holdings had applied for leave to amend its counterclaim, I would have refused leave because the amendment would have added a new cause of action that was materially different from the case that each party litigated at the trial.

1. Mr Schlegel contended that the balance sheet was prima facie evidence of the information included in it, including the entry in respect of the Provision for Income Tax.[47]  Counsel for Mr Schlegel submitted that, having rejected Gourmania Holdings' submission that the Provision was an intangible asset, the primary judge should have held that the Provision for Income Tax reduced the liabilities of the company as at Completion.[48]

   [47] Mr Schlegel's submissions on the cross-appeal [16].

   [48] Mr Schlegel's submissions on the cross-appeal [17].

2. In respect of the second ground of appeal, Mr Schlegel submitted that the only argument between the parties at the trial was whether the Provision for Income Tax was an intangible asset.  He contended that he was not given notice that this entry was not going to be accepted as prima facie evidence of its contents and was, as a consequence, denied procedural fairness.[49]

Gourmania Holdings' submissions

[49] Mr Schlegel's submissions on the cross-appeal [19] - [20].

1. Gourmania Holdings submitted that, in the absence of either party adducing expert accounting evidence, the primary judge dealt with the entry on the balance sheet correctly.[50] 

   [50] Gourmania Holdings' submissions on the cross-appeal [10].

2. In respect of the second ground of appeal, Gourmania Holdings contended that this has no practical application as Mr Schlegel, on appeal, has had the opportunity to make submissions in respect of the primary judge's finding on this appeal.[51]

   [51] Gourmania Holdings' submissions on the cross-appeal [2].

Resolution of Gourmania Holdings' appeal

Proper construction of the agreement - Legal Principles

1. The principles of contractual construction were not in dispute at the trial or on appeal.  They were recently summarised by this court in Pilbara Iron Ore Pty Ltd v Ammon as follows:[52]

   The construction of a contract involves a determination of the meaning of the words of the contract by reference to its text, context and purpose.  Ascertaining the meaning of terms in an instrument requires a determination of what a reasonable person would have understood those terms to mean.  That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract, and the commercial purpose or objects to be secured by the contract.  The instrument must be read as a whole.

   The general principle applicable to the construction of commercial contracts is that they should be given a businesslike interpretation.  Absent a contrary intention, the court approaches such contracts on the basis that the parties intended to produce a result which makes commercial sense.  This requires that the construction placed on the term or terms in question is consistent with the commercial object of the agreement.  However, it must also be borne in mind that business commonsense may be a topic on which minds may differ. (citations omitted) 

   [52] Pilbara Iron Ore Pty Ltd v Ammon [2020] WASCA 92 [85] - [86].

2. Where an agreement uses definitions, the words of the definition should be read into the operative text (unless the context requires otherwise).[53]

   [53] George 218 Pty Ltd v Bank of Queensland Ltd [No 2] [2016] WASCA 182; (2016) 313 FLR 287 [82] and the cases there cited; Black Box Control Pty Ltd v TerraVision Pty Ltd [2016] WASCA 219 [42(11)].

3. If there is an apparent inconsistency between two clauses in the agreement, where possible, the conflict should be resolved on the basis that one provision qualifies the other and, as a result, both provisions are given meaning and effect.[54]

   [54] Re Media Entertainment and Arts Alliance; Ex Parte The Hoyts Corporation Pty Ltd [1993] HCA 40; (1993) 178 CLR 379, 386 ‑ 387.

4. A contract can only have one correct meaning.  The single legal meaning of the contract is determined by identifying the imputed intention of the parties by reference to the text of the contract construed in light of its context and purpose.[55]

   [55] CSR Ltd v Adecco (Australia) Pty Ltd [2017] NSWCA 121 [158].

5. In the process of construction of an agreement, a court may correct an obvious error.  In Tokio Marine & Nichido Fire Insurance Co Ltd v Hans Bo Kristian Holgersson trading as Holgerssons Complete Home Service,[56] this court referred to and approved the following explanation of Leeming JA (with whom Payne and White JJA agreed) in Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq):[57]

   At common law, if the error is clear, and it is also clear what a reasonable person would have understood the parties to have meant, then the mistake may be corrected as a matter of construction.  This is old law.  Lord St Leonards said in Wilson v Wilson (1854) 5 HL Cas 40 at 66 - 67; 10 ER 811 at 822:

   'Now it is a great mistake if it is supposed that even a Court of Law cannot correct a mistake, or error, on the face of an instrument:  there is no magic in words.  If you find a clear mistake, and it admits of no other construction, a Court of Law, as well as a Court of Equity, without impugning any doctrine about correcting those things which can only be shown by parol evidence to be mistakes - without, I say, going into those cases at all, both Courts of Law and of Equity may correct an obvious mistake on the face of an instrument without the slightest difficulty.'

   Examples may be found in linguistic errors, such as 'inconsistent' being read as 'consistent' in Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53, or conceptual errors, such as 'lessor' being read as 'lessee' in McHugh Holdings Pty Ltd v Newtown Colonial Hotel Pty Ltd (2008) 73 NSWLR 53; [2008] NSWSC 542. The language of a contract is not read like a computer program, such that any slip is fatal.

   Two conditions are necessary in order to correct the contractual language in this manner:  (a) that the literal meaning of the contractual words is an absurdity and (b) that it is self-evident what the objective intention is to be taken to have been: see Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 at [117] - [119], approving National Australia Bank Ltd v Clowes [2013] NSWCA 179; 8 BFRA 600, where it was stated at [34]:

   'Where both those elements are present ... ordinary processes of contractual construction displace an absurd literal meaning by a meaningful legal meaning.'

   Likewise, in the United Kingdom, the court must be satisfied both as to the mistake and the nature of the correction: Pink Floyd Music Ltd v EMI Records Ltd [2010] EWCA Civ 1429; [2011] 1 WLR 770 at [21] (Lord Neuberger); Arnold v Britton [2015] AC 1619; [2015] UKSC 36 at [78] (Lord Hodge).

   The court must be satisfied of those matters to a high level of conviction. To use the language of Dixon CJ and Fullagar J in Fitzgerald v Masters at 426 - 427, it must be 'clearly necessary in order to avoid absurdity or inconsistency'. As this Court said in Miwa Pty Ltd v Siantan Properties Pty Ltd [2011] NSWCA 297 at [18], the test of absurdity is not easily satisfied. Any question of absurdity or inconsistency must be identified according to established principles, by reference to the text of the agreement as understood in its factual and legal context: Wyllie v TarrisonPty Ltd [2007] NSWCA 184 at [46]; Newey v Westpac Banking Corporation[2014] NSWCA 319 at [85]. Courts which are asked to delete, insert or rewrite part of a contract because of what is said to be an obvious error should bear steadily in mind that imperfections and infelicities and ambiguities in contractual language commonly reflect the give and take of negotiations, or the parties' appreciation that some obscurities are incapable of resolution. As Lord Hoffmann explained, the court does 'not readily accept that people have made mistakes in formal documents': Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101; [2009] UKHL 38 at [23].

   [56] Tokio Marine & Nichido fire Insurance Co Ltd v Hans Bo Kristian Holdersson trading as Holgerssons Complete Home Service [2019] WASCA 114 [77].

   [57] Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2019] NSWCA 11; (2019) 99 NSWLR 317 [6] ‑ [10].

6. That is, the test for identifying an error in the language used by the parties is a stringent one of clear necessity so as to avoid absurdity.

Proper construction of cl 5.2(a) and cl 14 of the Share Sale Agreement

1. In considering the proper construction of cl 5.2(a) of the Share Sale Agreement, the starting point is to consider the text of the clause after the defined terms have been inserted.  On insertion of the relevant defined terms, cl 5.2(a) provides:

   If the actual amount of all cash and cash equivalents including cash in bank, cash at site (including petty cash), outstanding deposits, and unpresented cheques held by the Company as at the close of business on the Completion Date exceeds $100,000, the Completion Purchase Price will be increased by the amount by which the actual amount of all cash and cash equivalents including cash in bank, cash at site (including petty case), outstanding deposits, and unpresented cheques held by the Company as at the close of business on the Completion Date exceeds $100,000. 

2. The meaning of this clause within the operative provisions of the Share Sale Agreement must be understood from a consideration of the Share Sale Agreement as a whole.

3. The overall scheme and structure of Share Sale Agreement is to the following effect:

   (a)Mr Schlegel was to sell his share in Gourmet Chef Foods for approximately $3 million (cl 3.1 and cl 5.1);

   (b)the purchase price, namely the amount that Gourmania Holdings was liable to pay Mr Schlegel, was to be adjusted on Completion to take account of two specific matters: the cash at hand and the net tangible assets of the company (cl 5.2);

   (c)prior to Completion, Mr Schlegel was to conduct the business in the ordinary and usual course, including as to the payment of creditors (cl 6.2);

   (d)prior to Completion, Mr Schlegel was obliged to repay all debts owed by him to the company and to ensure that any amount he was owed by the company was paid (cl 6.7 and cl 6.8);

   (e)Mr Schlegel was liable to pay to Gourmania Holdings an amount equal to all taxation liabilities of the company in respect of events and circumstances prior to the Completion Date (cl 14.1) unless a provision for that tax had been disclosed to Gourmania Holdings prior to Completion (cl 14.2);

   (f)Gourmania Holdings was required to give notice to Mr Schlegal of any tax assessment likely to give rise to an obligation under cl 14.1 and Mr Schlegel could require Gourmania Holdings to respond in a manner as reasonably requested by him (cl 15).

4. The purpose clearly evidenced by cl 14 and cl 15 of the Share Sale Agreement is that Mr Schlegel is to bear the economic burden of the company's tax liabilities in respect of matters or events occurring or taken to have occurred on or before the Completion Date (pre‑Completion Date tax liabilities).  That purpose is apparent from the terms of cl 14.1(a) which imposes the payment obligations, as well as:

   (a)cl 14.3, which provides that payment under cl 14.1 'in respect of Tax actually payable' is not required until 'the day that is 5 Business Days before the last date on which payment of that Tax may lawfully be made without incurring penalties or interest for late payment';

   (b)cl 14.4, which provides for Mr Schlegel to pay Gourmania Holdings an amount in respect of interest, penalties or fines incurred by the company as a result of Mr Schlegel's failure to make payment;

   (c)cl 14.5, which in general terms provides for Gourmania Holdings to pay Mr Schlegel any refunds, less costs incurred in obtaining the refund and tax paid on interest on overpaid tax; and

   (d)cl 15, which provides for Mr Schlegel to impose reasonable requirements on the company's response to a tax assessment.

5. The agreement provides for two mechanisms by which Mr Schlegel may bear the economic burden of the pre‑Completion Date tax liabilities.   

6. First, Mr Schlegel may be required to pay to Gourmania Holdings the amount of pre‑Completion Date tax liabilities under cl 14.1(a) of the Share Sale Agreement.  In that case, the value of Gourmania Holding's share in the company may be reduced by the existence of the pre-Completion Date tax liabilities, which must be met out of the company's own resources.  However, Gourmania Holdings is paid an amount which reflects the value of the pre‑Completion Date tax liabilities.

7. Secondly, before Completion, Mr Schlegel may cause the company to make 'provision for' the amount of a claim made against him under cl 14.1 of the Share Sale Agreement and disclose that provision to Gourmania.  Under cl 14.2(a), Mr Schlegel is not liable in respect of the claim under cl 14.1 to that extent.  But in those circumstances, Mr Schlegel has already caused provision for the pre‑Completion Date tax liabilities to be made and disclosed to Gourmania Holdings prior to Completion.

8. In this regard, we do not consider that cl 14.2 required a formal accounting provision to be made in respect of any cash set aside for the payment of the taxation liabilities of Gourmet Chef Foods.  First, because cl 14.2 focuses on the disclosure of the taxation liability (which then removes Mr Schlegel's obligation to pay the taxation liability).  Second, because the word 'provision' is used in various contexts in the Share Sale Agreement both in a formal accounting sense (see, for example, cl 6.7(a) and cl 11.5 of sch 7) and in its ordinary usage, as defined in the Oxford English Dictionary, as 'the action of supplying' or 'providing or supplying of a commodity' (see, for example, cl 6.9 of sch 7).  Where 'provision' is used in a formal accounting sense in the Share Sale Agreement, there is a reference to accounts or accounting records of Gourmet Chef Foods.   The absence of a reference in cl 14.2 to accounts or accounting records of Gourmet Chef Foods supports a construction that the reference to 'provision' is to one of its other common meanings.  In our view, provision for Tax may be made, within the meaning of cl 14.2(a), by the company setting aside or retaining cash at the bank for the purpose of payment of the tax liability.

9. The commercial purpose evidenced by cl 14 would be defeated if the disclosed provision for the pre‑Completion Date tax liabilities formed part of the 'Cash Actual Amount' to be taken into account in making completion adjustments to the purchase price under cl 5.2 of the Share Sale Agreement.  In that event, while Gourmania Holdings would lose the right to payment of an amount reflecting the pre-Completion Date tax liabilities for which disclosed provision had been made, the purchase price of the shares would effectively be increased by the amount of the disclosed provision.  That effect would result from either:

   (a)increasing the extent to which the Cash Actual Amount exceeds $100,000, and so adding to the increase in the Completion Purchase Price under cl 5.2(a); or

   (b)reducing the extent to which the Cash Actual Amount is less than $100,000, and so reducing the amount by which Completion Purchase Price is decreased under cl 5.2(b).

10. In this context, a reasonable businessperson would not have understood the Share Sale Agreement, read as a whole, to require provision for Tax disclosed under cl 14.2(a) to be taken into account in adjusting the Completion Purchase Price under cl 5.2(a) and (b).  Where the disclosed provision for Tax involves setting aside cash for payment of Tax, a reasonable businessperson would have understood that such disclosed provision does not form part of the 'Cash Actual Amount'.  That is, read in the context of cl 14 and the Share Sale Agreement as a whole, disclosed provision for Tax in the form of cash set aside for payment of the tax liability does not form part of the 'actual amount of any Cash held by the Company' for the purposes of the definition of Cash Actual Amount.

11. This accords with the general principle that, where a contract contains both general provisions and specific provisions, the specific provisions are given greater weight than the general provisions.  On a proper construction of the Share Sale Agreement, the specific obligations in cl 6.7, cl 6.8, cl 14.1 and cl 14.2 qualify and carry through to the general provision in cl 5.2(a). 

12. This construction, based primarily on the structure and commercial purpose of the Share Sale Agreement, is consistent with the ordinary meaning of the language used in cl 5.2 and related definitions.  In this context, in providing for an adjustment of the purchase price, cl 5.2(a) and cl 5.2(b) refer to the 'actual' amount of cash 'held' by the Company.  The Oxford English Dictionary defines 'actual' as 'existing in fact, real' and 'held' as 'to have or keep within it'.  The Macquarie Dictionary defines 'actual' as 'existing in act or fact; real' or 'now existing' and 'held' as meaning 'to have or keep in the hand' or 'to reserve; retain; set aside.'  This language is consistent with money set aside or retained by the company to meet its tax liabilities not being actual cash held by the company.

13. For these reasons, in our view cl 5.2(a) does not require the Completion Purchase Price to be increased by the value of any money set aside or retained to pay a taxation liability of Gourmet Chef Foods, which was disclosed to Gourmania Holdings by Mr Schlegel prior to Completion.  That is, provision for Tax, which may include money set aside or retained to meet pre‑Completion Date tax liabilities, disclosed to Gourmania Holdings prior to Completion does not form part of the 'Cash Actual Amount'.  The trial judge erred in construing the Share Sale Agreement in a way that allowed a disclosed provision for tax to form part of the Cash Actual Amount.

Was a provision for Tax disclosed to Gourmania Holdings prior to completion?

1. No factual finding was made by the trial judge as to whether a provision for the taxation liability had been disclosed by Mr Schlegel to Gourmania Holdings prior to Completion, which occurred on 4 February 2013.[58]  On our construction of the Share Sale Agreement, this finding is critical to determining whether the amount of $262,380 owed to the ATO is to be included in the Cash Actual Amount.

   [58] Primary decision [37].

2. In submissions relating to the application by Gourmania Holdings to amend the grounds of appeal (discussed below), Mr Schlegel contended that the question of whether a provision for income tax was disclosed to him prior to Completion was not raised at first instance and could not be raised now.[59]  In opposing the amendment application, Mr Schlegel relies on the affidavit of Carol Agnes Timmins sworn 4 November 2020, which refers to factual inquiries which could have been undertaken if the issue had been raised.[60]  Although, as explained below, it has proved unnecessary to resolve the amendment application, whether the issue of disclosed provision for tax liabilities was raised in the primary court is relevant to the determination of ground 1(a). 

   [59] Respondent's submissions filed 4 November 2020 [4] - [7].

   [60] Affidavit of Carol Agnes Timmins sworn 4 November 2020 [9].

3. As this court recently reaffirmed in Anderson v Mercy Hospital Mount Lawley,[61] an appellant will generally not be allowed to raise a new point for the first time on appeal if it could possibly have been met by calling evidence at trial.  In considering whether a party is raising a new point on appeal, it is necessary for this court to look to the actual conduct of the proceedings and not confine itself to the pleadings.

   [61] Anderson v Mercy Hospital Mount Lawley [2020] WASCA 42[79] - [81].

4. However, contrary to Mr Schlegel's submissions, Gourmania Holdings did run a case at trial which contended that the amount of $262,380 should not be included in the Cash Actual Amount on the basis that it was disclosed as a provision for taxation liabilities.  The issue was identified in the opening oral submissions of counsel for Gourmania Holdings,[62] where counsel noted that there was no dispute on the evidence that money had been set aside for payment of the liability to the ATO.[63]  The primary judge confirmed Gourmania Holding's position that prior to Completion, Gourmania Holdings was aware of the tax debt and that provision had been made for it.[64]  In closing submissions, counsel for Gourmania Holdings contended that provision for tax liabilities of $262,380 had been made and disclosed to Gourmania Holdings so as to engage cl 14.2(a) of the Share Sale Agreement.[65]  Counsel contended that this provision for tax liabilities was not part of the Cash Actual Amount.[66]  At trial, counsel for Mr Schlegel did not take issue with this point being made on the basis that it stood outside the scope of the pleaded cases.

   [62] Trial ts 148.

   [63] Trial ts 148.

   [64] Trial ts 148.

   [65] Trial ts 226 - 227.

   [66] Trial ts 228 - 232, 234.

1. Mr Schlegel’s evidence at trial was that, at a meeting with Mr Jeyarajah, a representative of Gourmania Holdings, on 23 January 2013, he disclosed the ATO liability and asked whether this should be prepaid prior to Completion.[67]  On 5 February 2013, he gave a balance sheet to a representative of Gourmania Holdings and told him that the balance sheet showed an ATO liability which would not be prepaid three weeks ahead of time.[68]

   [67] Trial ts 28, 58 - 59.

   [68] Exhibit 3.2 (Witness statement of Mr Schlegel dated 18 May 2018) [7].

2. Mr Jeyarajah's evidence in chief was that in the week of 4 to 8 February 2013, he attended the business and Mr Schlegel told him that an amount of $262,380 was held by Gourmet Chef Foods for liabilities owed to the ATO which were due for payment on 28 February 2013.[69]

   [69] Exhibit 8.1 (Witness statement of Sivan Jeyarajah dated 31 October 2018) [63]; Exhibit 8.3 (Witness statement of Sivan Jeyarajah dated 31 October 2018) [10].

3. It appears to have been common ground at trial that the company had set aside or retained an amount of $262,380 as provision for the pre‑Completion Date tax liabilities.  The critical question is whether that provision was disclosed to Gourmania Holdings prior to Completion on 4 February 2013.

4. Clause 14.2 does not require the disclosure of a provision for Tax to be given in writing.  An oral communication as to the existence of the provision would suffice.  However, in our view, the evidence before the primary judge could not support a finding that, prior to Completion, Gourmania Holdings was advised, either orally or in writing, that the company had set aside or retained cash at bank to pay the pre‑Completion Date Tax Liabilities.  There was no evidence of any written communication to that effect being made prior to Completion.  While Mr Jeyarajah gave evidence of disclosure of that fact, the effect of his evidence was that the disclosure was made after Completion.  Mr Schlegel's evidence as to what was said when he provided the balance sheet on 5 February 2013 also relates to a point in time after Completion.

5. The highest the evidence in favour of the appellant reaches is the evidence of Mr Schlegel that, at a meeting on 23 January 2013, an exchange to the following effect took place:[70]

   I said [to Mr Jeyarajah], 'Are you in agreement to continue with business as usual or do you want us to make a prepayment for the ATO?'

   And what did he say?---He says, 'I'm in full agreement. There is no need to prepay them', because he knew that the payment was due at the end of February 2013.

   [70] ts 28 (Trial).

6. However, this disclosure relates to the date on which payment of taxation liabilities would be made, rather than whether the company had set aside or retained money to satisfy those liabilities or had otherwise made provision for those liabilities.

7. Therefore, no provision for the pre‑Completion Date tax liabilities was disclosed to Gourmania Holdings prior to Completion.  The evidence at trial did not leave it open to the primary judge to find otherwise.  As such, the evidence did not establish that the amount of the pre‑Completion Date tax liabilities was to be excluded from the Cash Actual Amount in making the adjustment provided for by cl 5.2 of the Share Sale Contract.  Rather, Gourmania Holdings had the right to claim payment under cl 14.1(a) of that contract.  No claim for payment under cl 14.1(a) was advanced at trial.

8. For the above reasons, Gourmania Holdings has not established that the trial judge erred by failing to exclude the $262,380 which was due to be paid in tax from the Cash Actual Amount.  Ground 1(a) is not established.

Proper construction of cl 5(2)(c) of the Share Sale Agreement

1. Turning then to ground 1(b) of Gourmania Holding's appeal, this concerns the proper construction of cl 5.2(c) of the Share Sale Agreement.  On inserting the relevant defined terms into the clause, this clause provides that:

   If the amount of the value of the total assets of the Company minus any intangible assets less the liabilities of the Company as at the Completion Time as agreed between the parties or determined in accordance with clause 5.3 exceeds $999,964.73, the Completion Purchase Price will be increased by half the amount by which the value of the total assets of the Company minus any intangible assets less the liabilities of the Company … exceeds $999,964.73.

2. On a plain reading of this clause, for the purpose of calculating the Completion NTA Amount, only two deductions are made from the total value of assets: intangible assets and liabilities.  Counsel for Gourmania Holdings did not contend that cash was an intangible asset or a liability.  Rather, he submitted that the outcome of this calculation led to an absurdity, namely that Gourmania Holdings was paying $1.50 for each $1.00 of cash.

3. For the following reasons, Gourmania Holdings has not met the stringent test for the correction of an error in the parties' language through construction of the clause as summarised at [191] above.

4. First, Gourmania Holdings did not identify any error in the language used by the parties.  Rather, counsel for Gourmania Holdings contended that the outcome led to the absurdity, not the language used in cl 5.2(c). 

5. Second, the text of cl 5.2(c) is clear.  The Oxford English Dictionary defines 'tangible asset' as a 'physical and material asset which can be precisely valued or measured'.  Gourmania Holdings did not dispute that 'cash' is a tangible asset.  On its plain meaning, 'cash' was included in the calculation of the net assets of the company.

6. Third, the context and purpose of this clause is to adjust the purchase price where the net tangible asset position at Completion is different to the amount at the date of entry into the Share Sale Agreement.  That is, the objective intention of the parties is that where the net tangible asset position has changed in this period, there should be an adjustment to the purchase price (either up or down) so that the parties receive the bargain they contracted for.  There was no evidence before the primary judge as to how the Benchmark Net Tangible Asset Position of $999,964.73 had been calculated.  Without evidence that this did not include cash, it is not self‑evident that the objective intention of the parties was to exclude cash from the calculation of the company's tangible assets.

7. Ground 1(b) has not been made out. 

Resolution of Mr Schlegel's cross-appeal

1. Mr Schlegel's cross-appeal also concerned the proper construction of cl 5.2(c) of the Share Sale Agreement. 

2. As summarised above, this clause provides that, for the purpose of calculating the Completion Net Tangible Assets Amount, there are three relevant elements: the total value of the assets, intangible assets and liabilities.

3. Mr Schlegel's cross-appeal essentially contends that the provision for income tax was a negative liability and that this should have been taken into account in the calculation of the Completion Net Tangible Assets Amount.

4. For the following reasons, we do not accept that contention. 

5. First, cl 5.2(c) is clear in its terms.  Unless the provision is an asset, an intangible asset or a liability, it is not taken into account in the calculation.  Counsel for Mr Schlegel accepted that the provision for income tax was not an asset, intangible asset or liability of the company.[71]

   [71] Appeal ts 56 - 57.

6. Second, the deduction from net assets is for 'liabilities' not 'net liabilities'.  The usual and ordinary meaning of 'liability', having regard to the definition in the Oxford English Dictionary, is an amount for which a company or person is liable.  A pre‑payment of a taxation liability is not an amount for which the company is liable or an amount it owes.

7. In respect of the second ground of appeal, a departure from the rules of natural justice by denying a party the opportunity to make submissions will not always result in an upholding of the appeal and the setting aside of the order under review.  After hearing the submissions the parties wish to make, the appeal court may be satisfied that those submissions would not produce any different outcome.[72]  In this case, no purpose would be served by allowing the appeal, setting aside the order and directing a rehearing.  A rehearing is not necessary if there is no possibility of a different outcome.[73]

   [72] Stead v State Government Insurance Commission [1986] HCA 54; (1986) 161 CLR 141, 145; Krysiak v Hodgson [2009] WASCA 114 [10]; Smith v McCusker QC [2010] WASCA 55 [59] - [60]; Defendi v Szigligeti [2019] WASCA 115 [59].

   [73] Re Minister for Immigration and Multicultural Affairs; Ex parte Applicant S 154/2002 [2003] HCA 60; (2003) 77 ALJR 1909 [28], [69]; Smith v McCusker QC [59].

8. In this case, given the conclusion we have reached on ground 1 of the cross‑appeal, a rehearing would not result in a different outcome.  For that reason, this ground of appeal should not be upheld.

9. Mr Schlegel's cross-appeal should therefore be dismissed.

Application for leave to amend grounds of appeal

1. On 29 September 2020, after the conclusion of the hearing of the appeal, Gourmania Holdings filed an application for leave to amend its grounds of appeal to add as a ground of appeal the following ground:[74]

   The learned trial judge erred in fact by failing to find that [Mr Schlegel] had disclosed to [Gourmania Holdings], prior to completion of the Share Sale Agreement, that a provision for the payment to the ATO in the sum of $262,000 had been made in the accounts of Gourmet Chef Foods.

   [74] Application in an appeal filed 29 September 2020.

2. The application was opposed by Mr Schlegel.

3. On 14 October 2020, the court ordered the parties to file and serve written submissions and any affidavits in respect of the application and ordered that, unless otherwise ordered, the application be dealt with on the papers.  Neither party objected to the application being dealt with on the papers.[75]

   [75] Appellant's submissions filed 28 October 2020 [1]; Respondent's submissions filed 4 November 2020 [2].

4. The basis for the application was that, during the hearing of the appeal, there were a number of exchanges between members of the court and counsel regarding the evidence before the trial judge on the question of whether a provision for $262,000 which was due to the ATO had been disclosed to Gourmania Holdings prior to Completion.  On 20 September 2020, following completion of the hearing of the appeal, the court received a joint communication from Gourmania Holdings and Mr Schlegel which attached the parts of the evidence and submissions before the primary judge concerning this issue.

5. Gourmania Holdings was concerned that if leave to amend its grounds of appeal was not granted, the court may not be able to make the orders sought by Gourmania Holdings as a consequence of a lack of factual finding by the primary judge on this disclosure.[76]

   [76] Affidavit of James Richard Marzee sworn 29 September 2020 [10].

6. Mr Schlegel opposed leave being granted to Gourmania Holdings to amend its grounds of appeal.  The primary basis for the objection was that the pleadings did not put this matter in issue.[77]  Mr Schlegel contends that, had this matter been put in issue at trial, he would have prepared differently for trial to address this issue more specifically, particularly in relation to what was disclosed to Gourmania Holdings about the liability and when it was disclosed.[78]

   [77] Affidavit of Carole Agnes Timmins sworn 4 November 2020 [5].

   [78] Affidavit of Carole Agnes Timmins sworn 4 November 2020 [9].

7. Ultimately, for the reasons set out above, we do not consider that it is necessary for the grounds of appeal to be amended in order for the court to deal with the issue. Ground 1(a) encompasses the issue sought to be raised by the proposed new ground, to the extent that it contends that the Cash Actual Amount ought to have excluded the $262,380 which was due to be paid in tax. In any event, for the reasons explained at [210] - [216] above, the proposed ground would not be established if the amendment were to be allowed. For this reason, we would refuse the application for leave to amend the grounds of appeal.

Conclusion

1. For these reasons, the appeal, the cross‑appeal and the application in an appeal should all be dismissed.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

ME

Associate to the Honourable Justice Hill

18 FEBRUARY 2021