Patton v Buchanan Borehole Collieries Pty Ltd

The High Court of Australia considered an appeal by the plaintiff, Mr. Patton, against the decision of the Full Federal Court in proceedings against the defendant, Buchanan Borehole Collieries Pty Ltd. The dispute concerned the plaintiff's entitlement to certain payments under a contract for the sale of shares.

The central legal issue before the High Court was the proper construction of clause 10(b) of the share sale agreement, which stipulated that the vendor (Mr. Patton) would be entitled to a further payment if the company's net profit after tax for the financial year ending 30 June 1985 exceeded $1,000,000. The High Court had to determine whether the profit figure to be considered was the profit as disclosed in the company's audited accounts or whether certain adjustments were permissible.

The High Court, by majority, held that the phrase "profit after tax" in clause 10(b) referred to the profit as disclosed in the company's audited accounts for the relevant financial year. The Court reasoned that the agreement did not specify any basis for adjustment or re-calculation of the profit figure, and therefore, the audited accounts were the definitive measure. The legal principle applied was that contractual terms should be given their ordinary and natural meaning, and absent clear indication to the contrary, audited accounts represent the agreed basis for financial determinations within a contract.

The appeal was dismissed.