Morwood & Anor v Chemdata Pty Ltd

The applicants, Morwood and another, sought special leave to appeal from a decision of the Full Federal Court concerning the interpretation of a contract for the sale of a business. The dispute centred on whether the respondent, Chemdata Pty Ltd, was entitled to recover certain amounts from the applicants under the sale agreement.

The primary legal issue before the Full Federal Court was the proper construction of clause 10.2 of the Sale and Purchase Agreement. This clause dealt with the adjustment of the purchase price based on the net tangible assets of the business as at the completion date. Specifically, the court had to determine whether certain liabilities, which were contingent at the time of completion but later crystallised, should be included in the calculation of net tangible assets.

The Full Federal Court reasoned that the plain language of clause 10.2, when read in conjunction with other relevant provisions of the agreement, indicated that only liabilities that were actual and quantifiable at the completion date were to be taken into account. Contingent liabilities, by their nature, were not ascertainable at that time and therefore did not fall within the scope of the adjustment mechanism. The court applied principles of contractual interpretation, emphasising the importance of the ordinary meaning of words in the context of the entire agreement.

The Full Federal Court dismissed the appeal, finding that Chemdata Pty Ltd was not entitled to adjust the purchase price in the manner it sought. Special leave to appeal was subsequently refused by the High Court.