MLW Technology v May
[2003] VSC 254
•4 July 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
No. 2085 of 2002
F5488
| MLW TECHNOLOGY PTY LTD (ACN 006 863 412) | Plaintiff |
| v | |
| ROGER THOMAS MAY and ORS | Defendants |
And Between
| ROGER THOMAS MAY and ORS | Plaintiffs by Counterclaim |
| v | |
| MLW TECHNOLOGY PTY LTD (ACN 006 863 412) And MARTIN YONG HENG YII | Defendants by Counterclaim |
---
JUDGE: | Byrne J | |
WHERE HELD: | Melbourne | |
DATES OF HEARING: | 30 June 2003 | |
DATE OF JUDGMENT: | 4 July 2003 | |
CASE MAY BE CITED AS: | MLW Technology Pty Ltd v May (No. 3) | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 254 | |
---
Damages – breach of warranty as to future value of shares issued for consideration – shares worth less than warranted value – shares retained by promisee – no loss suffered – nominal damages.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff and Defendants by Counterclaim | Mr M.A. Robins | Nathan Kuperholz |
| For the Defendants and the Plaintiffs by Counterclaim | Mr D.H. Denton SC and Ms S.B. McNicol | Douros Lawyers |
HIS HONOUR:
On 13 June 2003, I published my reasons for judgment[1] in this matter, rejecting the claim of the plaintiff, MLW Technology Pty Ltd (“MLW”), for specific performance of the buy-back agreement contained in cl. 3.4 of the licence agreement dated 6 September 2001. I rejected, too, various contentions put on behalf of the firstnamed defendant, Roger Thomas May, that the licence agreement was void or unenforceable or that it had been terminated for MLW’s repudiation or that it should be declared to be so. I concluded that Mr May had in cl. 3.3 of the licence agreement warranted that a parcel of 750,000 shares in a Florida based company, Advanced Communications Technologies Inc (ADVC), would on 5 September 2002 have an aggregate value of not less than $A2.3M. I concluded that the ADVC shares on that date were worth very much less than this warranted amount.
[1][2003] VSC 199
In this event, the licence agreement provided as follows:
3.4If the aggregate value of the ADVC Shares is less than $2,300,000 on the first anniversary of the Commencement Date, MLW may:
3.4.1sell all (and not less than all) of the ADVC Shares after the first anniversary of the Commencement Date in such daily volumes as do not adversely affect the market price of the shares of Advanced Communications Technologies Inc and after all of the ADVC Shares have been sold give to the Guarantors 30 days' written notice requiring the Guarantors to pay to MLW the difference between the aggregate price (in Australian dollars) received by MLW for the ADVC Shares and $2,300,000; or
3.4.2within 30 days after the first anniversary of the Commencement Date give to the Guarantors 30 days' written notice requiring either one or both of the Guarantors to purchase from MLW the ADVC Shares for an aggregate purchase price of $2,300,000; or
3.5If MLW gives to the Guarantors a notice pursuant to clauses 3.4.1 or 3.4.2, then either the Guarantors, ACT or May shall, within the time specified in the notice, pay to MLW the amount claimed by MLW against proof of the price received by MLW on the sale of the ADVC Shares or the transfer of the ADVC Shares (as the case may be).
3.6If the Guarantors do not perform their obligations pursuant to clauses 3.4 or 3.5 then IMT shall pay to MLW the amount that the Guarantors were obliged to pay to MLW pursuant to clause 3.4.1 or 3.4.2 (as the case may be), in cash, in 12 equal monthly instalments of $191,666.66 each.”
The primary claim of MLW was for specific performance of the buy-back agreement contained in cll. 3.4.2 and 3.5. The claim failed because the notice given under cl. 3.4.2 did not meet the requirements of that provision. I concluded, however, that its alternative claim for damages for breach of the warranty was made out. Questions as to quantum were not part of the trial. The parties have now returned to present argument as to damages.
It was common ground that, as at the warranted anniversary date, the ADVC shares were worth only $28,882.50. Accordingly, counsel for MLW sought judgment on the basis that the damages should be the difference between this amount and the warranted amount, namely, $2,271,117.50.
There was some debate before me as to the legal characterisation of the damages to be assessed. On behalf of Mr May attention was focussed on the claim in the statement of claim for “damages in lieu of specific performance”. Whatever might have been intended in the pleading, it was apparent at trial and expressly acknowledged in argument on this occasion, that MLW sought common law damages for breach of a contractual warranty. It did not seek equitable damages or Lord Campbell’s Act damages.
My initial impression was that the measure of damages proposed on behalf of MLW was correct and, accordingly, I invited counsel for Mr May first to present argument against this proposition. Having heard their argument, and having reflected on the matter, I consider that much of what they had to say is correct.
The transaction recorded in the licence agreement was the grant by MLW to Info-Motion Technologies Pty Ltd (“IMT”) of certain licences with respect to the manufacture and sale of a computerised mobile display terminal and certain software interface. IMT was on the date of the licence agreement a company in which Mr May had indirect control, if not an interest. The agreement provides in cl. 2.2.3 that no consideration is given by IMT for the licence with respect to the software other than an agreement to pay to MLW its current wholesale price. This summary of the provisions, albeit brief and inadequate, is sufficient for my present purposes. Then, it is provided in cl. 3.1:
“3.1In consideration for MLW granting the licences referred to in clauses 2.1.1 and 2.2.1 to IMT, IMT and the Guarantors shall procure that on the Commencement Date the ADVC Shares are issued to MLW or its nominee.”
The guarantors are Mr May and a company associated with him, Advanced Communications Technologies (Aust) Pty Ltd. Clause 3.2 acknowledges that there is a legal restriction imposed by US law against disposing of the ADVC shares within 12 months after the date of issue. The warranty, the subject of the present breach, is contained in cl. 3.3:
“3.3The Guarantors jointly and severally guarantee to MLW that on the first anniversary of the Commencement Date the ADVC Shares will have an aggregate value of not less than $2,300,000.”
I have set this out because it shows that a further fundamental submission put on behalf of Mr May cannot be accepted. This is that the shares were issued to MLW for no consideration, so that, however small their value might be on the anniversary date, it is greater than the price paid, so that no loss is suffered. The true position is that consideration was given for the issue of these shares. The consideration is the covenants given by MLW in the licence agreement. It is not possible for me to value them in dollar terms, but it cannot be disputed that they were seen as valuable for IMT and, it would seem, for Mr May.
For the same reason, I reject the submission put on behalf of Mr May that the warranty as to the future value of the shares cannot be seen as analogous to such a warranty made in connection with a sale of goods. What Mr May is in effect saying in cl. 3 is that he will procure for MLW a parcel of shares which are not marketable for 12 months but which will thereafter be extremely valuable. Inasmuch as this warranted prediction does not come to pass, he, and his co-guarantor are liable to make good the promise.
It is at this point that MLW’s case encounters a difficulty. Clause 3 goes on to provide alternative ways for MLW to obtain the benefit of the promise, neither of which it has implemented. It still has the ADVC shares. It seeks in addition to have the warranted value of those shares. Counsel for Mr May is correct in submitting that MLW cannot have this double benefit. As a matter of principle, it seems to me that MLW had on the anniversary day a choice to hold the shares in the hope that the market might rise or to sell the shares, on the market or to the guarantors, and thereby recover the warranted value pursuant to cl. 3.5 or 3.6.
The present issue does not turn on questions as to causation or remoteness, but rather upon a more fundamental analysis of the transaction and the nature of the loss, if any, suffered by MLW. Nor is it a case where it was put that the value of the shares at the time of their issue was affected by the promise, so that MLW’s loss is represented by the difference between the price paid for the shares with the promise and their value without it. The contract gave to MLW the expectation that the shares it received in exchange for its covenants would have a specific future value in 12 months. At that time it might sell the shares and take the profit or retain them in the hope of greater benefit. If the shares did not fulfil the promise MLW might at common law recover any shortfall in the event of sale, for it is against the risk of this loss that the promise provides protection. If, in such a case, MLW chose not to sell, it suffers no loss since it still has the shares. If, two years after the date of their issue, MLW sold the ADVC shares for a sum less than the warranted value then this loss does not flow from the breach of the contractual promise. This is because there is no promise as to the value of the shares on a date other than the anniversary date. This result obtains whatever might have been their value on the anniversary date.
I mention in conclusion that counsel for MLW sought to advance an alternative argument based upon the termination of the licence agreement for the repudiation of IMT. This is an argument wholly at variance with the way MLW’s case has been presented to date. At trial it was Mr May who contended for termination, a contention which MLW successfully opposed. This alternative argument is not available on the pleadings in any event.
It follows from this that no loss and damage have been shown. There should therefore be judgment for nominal damages only.
---
0