Javelin Transport Pty Ltd v Bluehaven Transport Pty Ltd
[2001] QDC 5
•6 February 2001
DISTRICT COURT OF QUEENSLAND
CITATION: Javelin Transport Pty Ltd v. Bluehaven Transport Pty Ltd & Ors [2001] QDC 005 PARTIES: JAVELIN TRANSPORT PTY LTD
(Plaintiff)
and
BLUEHAVEN TRANSPORT PTY LTD
(First Defendant)
and
GREGORY WILLIAM INGRAM
(Second Defendant)
and
TREVOR ANTHONY FORD
(Third Defendant)FILE NO/S: Plaint No. 269 of 1998 DELIVERED ON: 6 February 2001 DELIVERED AT: Maroochydore HEARING DATE: 11 – 13 September and 27 – 28 November 2000 JUDGE: K S Dodds DCJ ORDER: Judgment for the plaintiff against the first defendant, the second defendant and the third defendant. COUNSEL: R W Morgan for the plaintiff
G D Garrick for the defendantsSOLICITORS: Klooger Phillips Scott for the plaintiff
J M O’Reilly & Co for the first, second and third defendants
This proceeding arises out of the uncompleted sale of a transport business by the plaintiff company to the first defendant company. There was a written contract of sale between the parties dated 29 October 1997 (the contract). The price therein was $460,000, apportioned $260,000 to plant and equipment and $200,000 to good will. The amount of $260,000 had, by agreement between the parties, been arrived at by a valuation of plant and equipment by a registered valuer.
The directors and shareholders of the plaintiff were Keith and Hazel Stewart. They had bought the plaintiff company in about September 1996 and integrated it with their then existing transport business. It considerably increased the turnover of their business.
The second and third defendants were the directors of the first defendant. They operated a number of transport or courier businesses, one of which was the first defendant. Its business was similar to that of the plaintiff’s and operated in some of the same areas. To that extent, the plaintiff and the first defendant were competitors.
By agreement between the parties the first defendant entered into possession of the plaintiff business on 1 November 1997. Payments for work done by the plaintiff after that date were to be the first defendant’s property. Payments for outstanding accounts for work done before that date were to go to Keith and Hazel Stewart.
According to the contract completion was to occur on 10 November 1997. One of the things which was to occur at completion was the payment of $260,000 for plant and equipment. It was to be achieved by an internal transfer involving Esanda Finance whereby, I take it, the plaintiff’s liability to Esanda was discharged and the defendant assumed liability.
Despite that the first defendant was in possession of the plaintiff business, or perhaps because of it, completion of the contract did not proceed according to its terms. Payment of the $260,000 did not occur on 10 November 1997. Rather it occurred on or about 20 November 1997.
The contract also provided for payment of the balance purchase price of $200,000 by instalments:
$30,000 on 15 November 1997;
$40,000 on 5 December 1997;
$40,000 on 30 December 1997;
$30,000 on 28 February 1998;
$30,000 on 30 March 1998;
$30,000 on 30 April 1998.
None of these payments were made as the contract required. The only other moneys which were paid was $30,000 on 27 January 1998, which was paid to release an Esanda charge on the plaintiff business’ computer and two way radio system; $10,000 on 26 February 1998 the date when the third defendant signed a deed of variation of the contract in the plaintiff’s solicitors office and $10,000 on the following day, the 27 February 1998.
Clause 6.3 of the contract provided that if any instalments were not paid on the due date for payment “then the purchaser shall pay to the vendor interest on such amounts from the due date for payment until the date of actual payment at the rate of ten per cent per annum calculated on daily balances”.
Clause 6.4 of the contract provided that if all moneys were not paid by 30 June 1998:
“…then the vendor agrees to grant to the purchaser an extension of the payment of any unpaid amounts in consideration of the purchaser paying to the vendor the sum of $1000 per month or every part of a month during which any moneys still remain owing. This amount is in addition to the interest payable pursuant to the previous clause”.
Clause 37 of the standard conditions of sale for a business sale incorporated into the contract made provision for the guaranteeing of the purchasers obligations under the contract and indemnification of the vendor against loss or liability in certain circumstances.
The contract also provided that the first defendant would grant to the plaintiff a fixed and floating charge over its assets (Clause 6.5). A mortgage debenture (the mortgage) operating as a fixed and floating charge over the first defendant’s assets was eventually provided securing payment of $200,000. It is dated 26 February 1998, the date the deed of variation of the contract was signed by the plaintiff and the third defendant in the plaintiff’s solicitor’s office: see Exhibit 13.
Clause 2 of the mortgage provided for payments totalling $200,000 to be made to the plaintiff in the same amounts and on or before the same dates as the contract. It provided in clause 2.2 that:
“If all of the moneys have not been paid by the 30 June 1998 then the mortgagee agrees to grant an extension of payment of any unpaid amounts in consideration of the mortgagor paying to the mortgagee the sum of $1000 per month or every part of a month during which the moneys still remaining owing. This amount is in addition to the interest payable pursuant to the following clause.”
In Clause 3 it provided for the payment of interest at ten per cent per annum on daily balances on any instalment not paid by the due date for payment.
A deed of guarantee (the guarantee), referred to in Section 1.1.2 of the mortgage as a collateral security, was executed by the second and third defendants. It is undated. It guaranteed inter alia the payment by the first defendant to the plaintiff “of any or all moneys whatsoever payable by the borrower [the first defendants] to the lender [the plaintiff] pursuant to the said mortgage and the observance and performance by the borrower of the terms, convenants and conditions in the mortgage expressed or implied”. It further provided that the guarantor (the first and second defendants) “agrees to indemnify and keep indemnified the lender against the amount of any loss, damage, claim or expense, direct or indirect, which the lender may suffer by reason of the non-payment of any moneys payable by the borrower to the lender…” Reference to the “said mortgage” was a reference to Clause A of the preamble of the guarantee which referred to a mortgage “over certain real property described in Item 5 of the Schedule hereto”. Item 5 is blank.
A deed of variation of the contract was executed by the plaintiff on 26 February1998. It is not dated. I accept the evidence of the plaintiff’s solicitor Mr Phillips who said it was signed in his office on that date. It was also signed by the third defendant who was present. He signed it where provision was made for execution by the first defendant and by the second and third defendant. The second defendant was not present. After all parties present had signed, the third defendant took it away for the second defendant to sign. The second defendant has never signed it. The first defendant’s common seal has not been affixed.
The deed of variation altered the date for completion of the contract to 27 February 1998. It provided for a reduction of the purchase price by reducing the component thereof for goodwill to $175,000, acknowledging $30,000 of the amount had been paid, providing for payment of the balance at the rate of $10,000 per month commencing on 27 February 1998 and in addition by payment of any nett profit received by the purchaser from the sale of any courier run. A clause providing for payment of interest in similar terms to the contract and mortgage has been deleted. The deletion is not signed or initialled. It included a term that if all moneys owing had not been paid by 31 August 1998 the vendor would extend the repayment date to 1 April 1999 and the purchaser would pay to the vendor $1,000 per month whilst moneys remained owing. It also included terms that the first and second defendants as guarantors consented to the variation and that the first defendant would grant to the plaintiff a charge over the purchasers’ assets operating as a fixed and floating charge.
A further mortgage debenture operating as a fixed and floating charge was also executed by the plaintiff and signed by the third defendant where it provided for execution by the first defendant. It has not been signed by the second defendant and the common seal of the first defendant has not been affixed. Its effect was to secure repayment of $145,000 (the reduced price for good will of $175,000 less $30,000 paid on 27 January 1998) to be repaid by calender monthly instalments of $10,000 commencing from 27 February 1998.
Other than the two payments of $10,000 I have referred to no instalments, as referred to in the deed of variation, or any other payments of purchase price have been made.
The third defendant in his evidence said he made it clear after he signed the deed of variation that he would take it to the second defendant to see if he would sign it. Both Mr and Mrs Stewart and Mr Phillips said that the third defendant after executing the deed said he would get the second defendant to sign it. Mr Phillips said he believed the third defendant was signing it on behalf of the first defendant.
On 28 July 1998, the plaintiff commenced these proceedings. Its claim for relief by injunction is not pursued. In its final amended pleading it sought damages of $191,908.92 or alternatively $193,175.01;
1. against the first defendant; for breach of the contract and the mortgage debenture fixed and floating charge or alternatively as moneys due and owing;
2. against the second and third defendants;
(a) for breach of the guarantee and indemnity for performance of the contract;
(b) for breach of the deed of Deed of Guarantee and mortgage debenture fixed and floating charge executed in or about February 1998;
Alternatively it sought $150,000 as damages or moneys due and owing pursuant to the deed of variation against the first defendant or alternatively the second and third defendants pursuant to the guarantee incorporated into the contract or alternatively the guarantee executed in about February 1998.
Additionally it sought:
1. $10,000 for each month after 30 June 1998 in respect of which the plaintiff’s claim remains outstanding;
2. damages against the first, second and third defendants for $1,980.95 which the plaintiff was required to pay to obtain surrender of a lease due to the first defendant’s refusal to execute an assignment of the lease.
I heard evidence from a number of witnesses. In the plaintiff’s case they were:
1. Mr and Mrs Stewart, directors of the plaintiff company;
2. Mr Swan, an accountant with KPMG who conducted a check audit of monthly turnover figures for the plaintiff to 30 June 1997 and for July, August, September and October 1997. He found the turnover figures were supported by the accounting documents of the plaintiff;
3. Mr Phillips, the plaintiff’s solicitor.
In the defendant’s case I heard evidence from the following witnesses:
1. The second and third defendants;
2. Miss Harvey, who had worked for the plaintiff company before it was sold to the defendant and worked for the defendant for some time after that. Miss Harvey spoke of the level of turnover of the plaintiff’s business declining in the months before the takeover;
3. Mr Hope, an accountant who prepared two reports with respect to the plaintiff company. In one he confirmed the monthly turnover figures of the plaintiff up until 30 June 1997. He also estimated a value for the plaintiff company having regard to the drop in turnover from July 1997 to the end of October 1997. His method was to apply a capitalisation rate of 15 to 20 per cent to the turnover. He arrived at a value of the plaintiff’s business at October 1997 of $150,000 to $200,000;
4. Mr Wallace, the state distribution manager for Pacific Distribution which includes Repco. He gave evidence of dissatisfaction with the plaintiff’s service to Repco prior to the changeover. Mr Wallace had spoken to Mr Stewart about the service and made him aware that unless it improved, Repco would place its business elsewhere. Mr Stewart told him of the impending sale and asked that Repco leave its business with the plaintiff. Mr Wallace said he believed that before the sale, the Repco business on both the Gold Coast and the North Coast was placed elsewhere. His evidence about the value of the Repco business lost was incorrect;
5. Mr Scotland, who had worked as operations manager for the plaintiff. He gave evidence of a steady increase in customer complaints in the months leading up to the takeover. He also said that in the last few months before the defendants took over some of the bigger customers were not using the plaintiff as much as they earlier had. Likewise some of the smaller customers were going elsewhere;
6. Mr Bielby, an accountant. Mr Bielby was engaged by the second and third defendants to do some financial work for them. According to Mr Bielby, the engagement arose from a referral from persons who were considering refinancing them. As he said;
“I think they were refinancing their current mortgages and at the same time they were looking at an acquisition for the purchase of another business which they were going to amalgamate into the one. And we were going to the banks with cash flow forecasts and projections to see whether or not…it would stack up for them”.
Mr Stewart came to his office after he had requested some information (see Exhibit 13). According to Mr Bielby he received financial statements for the 1997 financial year, saw inhouse computer generated figures in large folders and a summary sheet of all income received. He checked this information against the 1997 financial statements. He said Mr Stewart told him there was a computer reason why figures for July/August/September 1997 were not provided. Mr Stewart was not prepared to leave the large books of computer generated data with Mr Bielby. He said he was going to provide the figures for those months to the second and third defendants.
Mr Bielby was not engaged to undertake “due diligence” on the plaintiff business and advise. I find rather that his brief was to look at the integration of the earnings of the proposed purchase with the first defendants earnings otherwise, together with money received from any achievable sale of parts of the plaintiff’s business after it was acquired, and demonstrate to potential financiers the viability of refinancing mortgages.
Mr Stewart said that after receiving financial material and advice from his accountant he took along to the meeting as well as the financial summaries and statements for the 1997 financial year, computer generated data which included the plaintiff’s turnover for July, August and September 1997. The latter was contained in large folders containing computer generated data sheets. He made these available for Mr Bielby to copy but could not leave them because they were the plaintiff’s ongoing records. He did not have any summary sheets of income for the months of July, August and September 1997.
In his evidence the third defendant said that Mr Bielby had told him that Mr Stewart had brought large folders containing computer printouts containing large numbers of daily transactions when he attended at his office and had shown them to him. He said Mr Bielby had told him that they made no sense. Mr Bielby denied he said this.
Essential to the defendants’ defence and counterclaim were assertions that Mr Stewart on behalf of the plaintiff had misrepresented to the defendants the plaintiff’s turnover for the financial year ended 30 June 1997 had concealed from the defendants the decline in the plaintiff’s turnover in the months of July, August, September and October 1997, and had later during negotiations leading to variation of the price for good will guaranteed the monthly turnover of the plaintiff business would not go below $100,000.
Check audits by Mr Hope for the defendants and Mr Swan for the plaintiffs saw off the former assertion. The latter assertion was contained in the evidence of the two defendants with some peripheral support from Miss Harvey, Mr Wallace, Mr Scotland and Mr Bielby.
Mr Stewart asserted to the contrary. He said he made the figures for those months available, told the defendants details of customers lost during the months leading up to the takeover; businesses such as Alda and Repco and customers gained such as Waterco. He said he gave no such guarantee.
The defendants also asserted that the parties entered into an oral agreement in January 1998 after it became apparent that the turnover figures from the plaintiff business had declined. It was agreed that the price for good will would be $175,000 rather than $200,000 and would be paid in instalments which the defendants would attempt to make, not would make at the rate of $10,000 a month. No interest was to be charged on the outstanding amount. As to the written variation document signed by the third defendant in Mr Phillips' office, the defendants asserted that it was not executed by the second defendant and was not binding. They asserted that they only agreed to the varied price of $175,000 because Mr Stewart guaranteed that the plaintiff’s turnover would not go below $100,000 a month.
It is necessary to resolve the conflict between the evidence of the defendants and Mr Stewart. I prefer the evidence of Mr Stewart. I do not accept the defendants’ evidence where it conflicts with Mr Stewart’s evidence.
I find Mr Stewart did take to Mr Bielby’s office the computer records showing details of all the invoiced jobs in July, August and September 1997. What he did not have and did not take were summary sheets of the turnover for those months. I find also that he did tell the third defendant what those amounts were before the contract was signed. He also told him of the loss of Alda and Repco as customers and the gaining of Waterco as a customer. The loss of these customers was a factor which led to reducing the amount of the purchase price for good will from an amount of $225,000 to $200,000.
Mr Stewart wanted to sell the plaintiff business. He was to enter hospital for surgery before the end of 1997 and wished to finalise the sale. Hence the arrangement to allow the defendants to take over the running of the business before the date for settlement originally nominated in the contract. Prior to signing of the contract, the third defendant was able to attend at the plaintiff’s workplaces, observe operations, and speak to staff.
I accept the evidence that the plaintiff business was receiving increasing complaints from customers. An explanation for this may lie in a preoccupation by Mr Stewart with his medical condition. It does not really matter though. In point of fact the defendants were in a strong position because of Mr Stewart’s health driven concern to sell the plaintiff business. I do not accept that they asked for but were denied turnover figures for the months leading up to the signing of the contract. I do not accept that when discussion was taking place about reduction in the component of the price for good will Mr Stewart guaranteed that the turnover of the plaintiff would not go below $100,000 a month and that the defendants relied upon any such guarantee by Mr Stewart. After the first defendant took over the plaintiff business it appears the turnover per month reduced further beyond what it had gradually reduced in July, August, September and October 1997. By the time discussion was occurring between Mr Stewart and the second and third defendants about a reduction of the price for good will, the defendants were in a position to be able to make their own assessment of the business.
I find that the probability was that the defendants saw an opportunity to acquire a competing business and integrate it into their own operations, believing that in the process they could realise cost savings and some capital gain from the sale of some of the ‘runs’. I find that the plaintiff did not conceal from them or misrepresent to them the state of the plaintiff’s business. Against a background of the defendants having entered into possession of the plaintiff business and not paying instalments the contract required, they then raised with Mr Stewart that monthly turnover had declined. I do not accept there was a concluded oral agreement varying the written contract of sale in the terms claimed by the defendants. To that point in time, the defendants had not performed obligations under the contract of sale including payment of instalments. I accept that Mr Stewart agreed to a reduction in the price for good will to $175,000. I find it was agreed that a written variation of the contract would be drawn up by the plaintiff’s solicitor for execution.
What followed was a meeting in Mr Phillip’s office which the third defendant attended. I accept the evidence of Mr Stewart and Mr Phillips. The third defendant signed the deed of variation. I find he voiced no dissent about its terms. He took it away with him to obtain the second defendant’s signature and presumably the common seal of the first defendant. The defendants maintain they are not bound by the deed of variation.
The upshot of it all is and I find that there was no concluded agreement to vary the price for good will. Mr Stewart on behalf of the plaintiff was prepared to reduce the amount to finalise the sale but on the terms contained in the deed of variation. The defendants maintain they have not agreed to those terms.
Consequently I find that the contract has not been varied. The agreed price for good will was $200,000. One hundred and fifty thousand dollars of that has been outstanding since 27 February 1998.
According to Clause 6.4 of the contract $1000 per month is payable from 30 June 1998 to judgment. According to Clause 6.3, interest is payable at ten per cent per annum on daily balances of outstanding moneys.
The plaintiff is also entitled to the sum of $1980.95 which it paid to obtain the surrender of the lease of its Labrador premises. Under the contract, the lease was one which was to be assigned to the first defendant by the plaintiff: Item T and Clause 26.2. The plaintiff did what it was required to do. The first defendant already had a depot on the South Coast. It failed to execute the assignment of the lease or pay rent to the lessor resulting in the plaintiff being served with a notice to remedy breach.
The second and third defendants are sued as guarantors of the first defendant’s obligations under the business contract and under the mortgage.
Clause 37.1 of the standard conditions of sale of the business contract provided that when Item G in the contract is completed with the name or names of any person or persons (the guarantors) the succeeding provisions of Clause 37 “shall have effect”. There is no completed Item G in the contract. There is no other reference in the business contract to a guarantee.
Clause 6.5.1 of the special conditions of the business contract provided that the purchaser “would grant to the vendor a charge over the purchaser’s assets which shall be a fixed and floating charge”.
The first defendant has executed a mortgage debenture to operate as a fixed and floating charge over all its assets and undertakings, present and future, securing repayment of $200,000. I have set out some of its terms above. The date 26 February has been inserted by some unidentified person. The document would appear to have been executed by the defendant at an earlier time as a Mr Rowe, a solicitor who had been acting for the defendants before the meeting in Mr Phillips office on 26 February 1998 (see Exhibits 38 and 39) witnessed the execution of the document by the first defendant. The first and second defendants have also executed the undated document entitled deed of guarantee. Their signatures were also witnessed by Mr Rowe. I think it likely that these documents which appear to have been prepared by the plaintiff’s solicitors were executed in November or December 1997 for the purposes of completion of the contract.
The defendants submitted that the deed of guarantee was irrelevant to the proceedings in that it guaranteed the performance of obligations under a mortgage over real property and no such mortgage was shown to exist.
I do not think there is any doubt that the deed of guarantee refers to the mortgage over the first defendant’s assets referred to above and that the persons who executed it understood that. The mortgage was to “operate as a fixed charge as regards” all property owned by the first defendant including freehold.
The plaintiff is entitled to judgment on the plaintiff’s claim against the first defendant for moneys due and owing under the contract and the mortgage for $199122.16. The judgment amount comprises:
1. $150,000 outstanding purchase price;
2. $46141.21 for interest to 6 February 2001
3. $1,000 pursuant to Clause 6.3 of the contract and Clause 3.2 of the mortgage;
4. $1980.95 being the amount the plaintiff paid to obtain surrender of the lease
The plaintiff is entitled to judgment on the plaintiff’s claim against the second defendant and the third defendant for money due and owing under the deed of guarantee for $199122.16.
The defendants’ counterclaimed. That part of the counterclaim in its final amended form dependant upon representations and misrepresentations by the plaintiff is disposed of by the findings set out above.
The remaining claim was about a payment for work done which according to the agreement referred to above was to be the first defendants property. It was a payment of $5092.69 from Repco dated 17 November 1997 (Exhibit 32). It came into Mr Stewart’s possession. He advised his solicitor about it and kept it because the defendants were withholding money due to the plaintiff. The defendant is entitled to judgment for this amount. I award interest at ten per cent, rounded off in an amount of $1100.
I give judgment for the plaintiff against the first defendant, the second defendant and the third defendant for $192,929.47.
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