Prefel S.A v Merchant Corporation Pty Ltd

Prefel S.A. (the plaintiff) brought proceedings against Merchant Corporation Pty Ltd (the defendant) in the Supreme Court of Victoria. The dispute concerned the interpretation of a clause within a contract for the sale of shares, specifically relating to the defendant's obligation to procure the consent of a third party, the Bank of New Zealand, to the transfer of those shares. The plaintiff alleged that the defendant had breached this contractual obligation.

The central legal issue before the Court was whether the defendant had taken all reasonable steps to procure the Bank of New Zealand's consent to the share transfer, as required by the contract. This involved an examination of the defendant's conduct and the extent of its efforts in seeking the necessary approval from the bank.

The Court considered the meaning of "reasonable steps" in the context of contractual obligations. It applied the principle that a party is not required to take every conceivable step, but rather those steps that a reasonable and prudent person would take in the circumstances to achieve the contractual objective. The Court analysed the evidence of the defendant's communications and actions directed towards the Bank of New Zealand, assessing whether these demonstrated a genuine and diligent effort to obtain consent. The Court found that the defendant had indeed taken all reasonable steps required by the contract.

Consequently, the Court held that the defendant had not breached its contractual obligations and dismissed the plaintiff's claim.