Radford Electrical Services (Australia) Pty Ltd & Anor v. SPSEL Investments Pty Ltd & Ors
[2008] QSC 145
•23 May 2008
SUPREME COURT OF QUEENSLAND
CITATION:
Radford Electrical Services (Australia) Pty Ltd & Anor v SPSEL Investments Pty Ltd & Ors [2008] QSC 145
PARTIES:
RADFORD ELECTRICAL SERVICES (AUSTRALIA) PTY LTD (ACN 122 528 520)
(first plaintiff)
and
PAUL RADFORD
(second plaintiff)v
SPSEL INVESTMENTS PTY LTD (ACN 099 011 542)
(first defendant)
and
GOLD COAST INVESTMENTS PTY LTD
(ACN 099 013 064)
(second defendant)
and
SONIA CHRISANTHOU
(third defendant)
and
DOUGLAS REID
(fourth defendant)FILE NO:
8120 of 2007
DIVISION:
Trial Division
PROCEEDING:
Civil
ORIGINATING COURT:
Supreme Court of Queensland
DELIVERED ON:
23 May 2008
DELIVERED AT:
Brisbane
HEARING DATE:
15 May 2008
JUDGE:
Chesterman J
ORDER:
1. Judgment for the defendants on the plaintiff’s claim.
2. Judgment for the defendants on the counterclaim against the plaintiff in the sum of $15,258.32.
CATCHWORDS:
CONTRACT – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – OTHER MATTERS – where the plaintiff agreed to buy the businesses of the first and second defendants – where a rescission agreement was entered into by the parties – whether two of the provisions of the agreement were properly constructed
Legislation
Trade Practices Act (Cth) 1977, s 52 and 82
Cases
Toll FGT Pty Limited v Alpharm Pty Limited 2004 219 CLR 165
COUNSEL:
Mr D J Campbell SC for the plaintiffs
Mr P J Davis SC, with him Mr Bland for the defendantsSOLICITORS:
Broadley Rees Hogan for the plaintiffs
McKoy Lawyers for the defendants
At material times until 30 January 2007 the first defendant carried on business as an electrical contractor, and the second defendant carried on the business of hiring equipment to the first defendant for use in its business. The first defendant was a wholly owned subsidiary of the second defendant which in turn was wholly owned by the third defendant. The fourth defendant was the general manager of both business. By agreements made on 8 November 2006, the plaintiff agreed to buy the respective businesses of the first and second defendants (‘the contracts’).
The contracts were completed and the first plaintiff became the owner of the businesses on and from 31 January 2007. On 21 March 2007 the first plaintiff commenced proceedings in the Supreme Court of Queensland seeking rescission of the contracts and/or damages. The claims were based upon alleged contraventions of s 52 and 82 of the Trade Practices Act (Cth) 1977.
The allegations were that the defendants in their conduct of the businesses:
‘… had created a relationship with a number of contract administrators who would give the (defendants) copies of, or information about, competitors, tenders or quotations in order to enable the (defendants) to place or submit a competitive tender or quotation.’
And
‘The contract administrator would then be given money or goods (without the knowledge of his or her principal or employer) by the (defendants) for permitting to know the content of other tenders or quotations.’
And
‘On occasions the contract administrator would permit false invoices to be submitted which inflated the value of variations to be paid and the additional money received from those invoices would be split between the contractor and the (defendants).’
The action did not proceed very far. A mediation was arranged for 4 April 2007. On that day the parties agreed to rescind the contracts and provided the means by which restitution should be effected.
The agreement made on 4 April 2007 was reduced to writing and was entitled ‘Rescission Agreement’ (‘the Agreement’). In effect the Agreement provided for the repayment of the purchase price to the plaintiffs by instalments and for a division of the receipts and liabilities of the businesses with respect to the period for which the plaintiff owned them. The basic structure of the Agreement was that the plaintiff should retain the income it had received from the businesses between
31 January and 4 April 2007, but receive no recompense for the liabilities of the businesses which it had actually paid in that period. The defendants agreed to be responsible for the liabilities of the businesses which had been incurred but not paid before 4 April 2007, but were to receive the sums invoiced by the plaintiffs prior to 4 April 2007 for work done and goods supplied during their ownership of the businesses.
The Agreement has been largely performed and carried into effect but the parties disagree about the proper construction of two of its provisions. The matters in dispute between the parties were originally more numerous but by the time the matter came on for hearing only two questions of construction remained for resolution.
The agreement was divided into sections, A and B, the former dealing with the plaintiff’s obligations and the latter with the defendants’. Relevantly part A provided:
‘Upon payment of the first instalment, (the first plaintiff) will:
11.Deliver an acknowledgement to the (defendants) that the (defendant) is entitled to all payments due to the business in respect of invoices raised by (the first plaintiff) since settlement.
12.Further to 11, deliver an acknowledgement to the (defendants) that (they) are entitled to the payment for all unbilled work in progress … as at the date of this agreement.
13.Otherwise sign such documents and do such things as is reasonably necessary to vest the business in the (defendants).
14.The (first plaintiff):
(i)warrants to the (defendants) that the accounts annexed hereto are a true and correct list of invoices and work in progress properly raised and performed by the business in the course of trading from 31 January 2007 to (4 April 2007);
(ii)acknowledges that the sellers are entitled to all debts and work in progress owing to or performed by the (first plaintiff).’
The term ‘settlement’ is not defined but appears to refer to the completion of the contracts on 31 January 2007.
The first dispute concerns the proper construction of Clause 14(i). The nature of the dispute will become apparent from the recital of some additional facts.
Paragraph 16 of the Amended Defence and Counterclaim pleads that in breach of clauses A11, A12 and A14 ‘the customer balance invoice accounts raised by the first plaintiff and due to be received by the business were $37,760.29 less than the figures annexed to the agreement.’ Particulars identified four invoices. With respect to three of them the complaint was that the invoices claimed amounts from the debtors to whom the invoices were addressed for work that had not been done. The amounts were respectively $14,265.99, $3,903.63 and $19,092.47. With respect to the fourth invoice it was said that an amount of $508.20 claimed was not payable because it was ‘part of the retention for that job.’
The fourth defendant continued his employment as general manager of the businesses after the first plaintiff bought them. He, of course, was thoroughly knowledgeable about the businesses, their manner of operation, and the work undertaken which was the subject of invoices.
On 28 March 2007, the second plaintiff emailed the fourth defendant to request him to ‘make himself available from about 10.00am Friday’ 30 March to ‘put all the claims (i.e. invoices) together and get them out’ on the Friday, the last working date of the month. Mr Reid did not reply nor did he attend the plaintiffs’ office to assist in the preparation of the invoices. By another email from Mr Radford to Mr Reid sent on 30 March 2007 Mr Reid was informed that the plaintiffs ‘need input from yourself’ for a number of projects the owners of which were to be invoiced. Again Mr Reid did not reply nor assist in the preparation of the invoices.
Attached to the Agreement was a document headed ‘Customer Balances Invoice Accounts Statements up to and including 27/03/2007.’ The annexure lists a number of invoices with an aggregate value of some $680,473.40. It shows that of this sum $234,103.37 had been paid. A separate annexure to the Agreement identified ‘work in progress’ by reference to a job number, the name of the client for whom work was being done, the location of the project and a general description of the nature of the work being undertaken.
The defendants contend that on the proper construction of clause A14 the plaintiffs warranted to the defendants that the first annexure was a true and correct list of invoices properly raised in the course of the plaintiff’s trading and that the term ‘properly raised’ meant the invoices recorded work actually done and the amount payable in respect of that work.
The defendants argued that the purpose of clause 14 was to warrant that the invoices had a particular value. They stress the terms of clause A14(ii), the acknowledgement that the defendants were entitled to all debts owing to the plaintiff for the work it had done. Their counsel pointed out that the clause contains no words of limitations such that the warranty was made ‘to the best of the plaintiff’s knowledge’ or ‘in good faith’. The submission is that the plaintiffs warranted that the invoices recorded moneys actually payable for which a claim in debt could be brought.
The plaintiffs submit that the words ‘properly raised’ mean that the invoices were an accurate reflection of the documentary records of the company relating to the work the subject of the invoices. It is accepted by the defendants the invoices were such a reflection and were properly drawn from the available records of the businesses.
It is apparent that the proper construction of the clause turns upon the meaning of the words ‘properly raised’. The defendants’ submission, as I have mentioned, is that the words mean that the invoices accurately recorded the quantum of the debts due to the contractor for work done, and that any error in the invoices, for example claiming for work not done, or claiming excessive amounts for work done, would mean that the invoices had not been ‘properly raised’.
Clause a14(i) is not felicitously expressed. The verbs ‘raised’ and ‘performed’ are joined by the conjunction ‘and’ but each obviously has its own subject. The warranty is as to invoices being properly raised, and work in progress being performed. The clause should read:
‘Warrants to the sellers that the accounts annexed hereto are a true and correct list of invoices properly raised and work in progress performed by the business in the course of trading from 31 January 2007 to(4 April 2007).’
This points out another deficiency in the drafting. The accounts annexed are not a ‘true ... list ... of work in progress’. That work is the subject of a separate document not referred to in cl 14.
There are two reasons for why I prefer the plaintiff’s construction that the warranty was one of process rather than content. By this I mean that the warranty is, in my opinion, to be construed as a promise that the invoices had been properly prepared, or raised, from the records of the businesses. They are not a warranty that any particular sum was payable by the invoices.
The first reason is given by the extrinsic circumstance that Mr Reid possessed singular and comprehensive knowledge of the work undertaken by the contractor which did not appear in the documentary records and, to the knowledge of both parties, Mr Reid had declined to take part in the compilation of the invoices.
‘The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.’ Toll FGT Pty Limited v Alpharm Pty Limited 2004 219 CLR 165 at 179.
In circumstances where the parties knew that the plaintiffs did not have complete knowledge of the work the subject of the invoices but could rely only upon the documentary records the plaintiff’s construction is to be preferred.
The second reason is that the clause does not on its face warrant that any particular amount was due and payable. The annexed accounts certainly contain a money sum set against each identified invoice, but the work in progress did not. It consisted only of the details I mentioned earlier. With respect to that part of the clause the warranty could only be as to the accuracy of records of the projects on which the businesses were currently performing work. It is, I think, unlikely that the content of the warranties would differ, when contained in the one phrase.
It is clear that the warranty did not extend to a promise that the amounts set out in each invoice would be paid. Such a warranty would make the plaintiffs answerable for the solvency of the debtors of the business.
The defendants’ submissions come close to such a construction. They contend that the warranty means that the invoiced monies were payable. But there may be many reasons why the monies would not be payable though the invoices properly reflected work actually done. The work may have been done defectively, or in doing it other works or property may have been damaged, giving rise to offsetting claims, or counter-claims by the debtors. The warranty in cl 14 certainly does not extend to a promise that none of the debtors who were invoiced had or might advance a set-off or counter-claim in reduction of the invoiced amounts.
To accommodate this point the defendants’ construction has to be qualified by words which do not appear in cl 14(1). The warranty that the invoiced amounts were payable has to allow for just exceptions which are not spelt out in cl 14. Accordingly I think the proper construction is the one I have indicated: that the warranty was as to what was recorded in the books of the business.
The second dispute concerns the sum of $37,760.29 counterclaimed by the defendant. It is the only amount now in dispute. Another claim for $15,258.32 is conceded by the plaintiffs. I will therefore give judgment for the defendants on the counterclaim against the plaintiff in the sum of $15,258.32.
The clause in the Agreement which gives rise to the dispute is B6. It provided:
‘Deliver an acknowledgement and indemnity in favour of the (first plaintiff) to be responsible for and pay all liabilities and debts of the business now outstanding in the sum limited to $154,000.00, plus any invoices received by the business on 4 April 2007, incurred by the (first plaintiff) in the conduct of the business since settlement.’
The clause is a little cryptic but it is clear that it contains a promise by the defendants to give the acknowledgement and indemnity it describes.
The terms ‘liabilities and debts of the business’ is defined by the Agreement to mean liabilities and debts as at the date of rescission.
The plaintiffs claim a declaration that the reference to ‘all liabilities and debts of the business … limited to $154,000.00’ does not include:
(a) PAYG amounts payable for employees of the business;
(b) superannuation payable for employees;
(c) liabilities arising for income protection payments made on behalf of employees;
(d) liabilities to make payments to the Contracting Industry Redundancy Trust on behalf of the employees.
The evidence put before me did not establish that there were any liabilities in any of the four categories, incurred by the first plaintiff during its ownership of the businesses and arising from the conduct of the businesses. There is only a document annexed to the Agreement headed “Summary” which under a subheading, ‘Other Costs to Date’, shows on its face that the sum of $154,346.05 was due and payable to suppliers who had delivered monthly invoices to the plaintiffs. Under the same heading were these entries:
‘PAYG to date $39,362.00
Superannuation to date $13,829.93
CIRT to date $ 980.00
Income protection to date $ 945.00’
But there was no evidence that these sums were actual liabilities incurred by the plaintiffs.
The plaintiffs’ case is that the monetary limit of the indemnity found in cl B6 does not extend to these four kinds of liability so that, pursuant to the indemnity, the defendants should reimburse the plaintiffs for those amounts in addition to the sum of $154,000.
There is no basis for the declaration sought by the plaintiffs. During the time the first plaintiff conducted the businesses it either incurred, or did not incur, liabilities with respect to PAYG, CIRT, employee superannuation and premiums for income protection insurance. If it did not incur any such liabilities there is no utility in making the declaration. If it did incur any of the liabilities then it must pay them subject to its right to be reimbursed pursuant to the defendants’ obligations to make restitution.
The plaintiffs cannot (and do not seek to) claim indemnity pursuant to the obligation to make restitution arising under the general law consequent upon the rescission of the contracts. This is for the reason that by the Agreement they expressly agreed that its provisions were the means by which restitution should be effected. They agreed that restitution would be effected by performing the Agreement.
The only right to indemnity pointed to is clause B6, but that in terms limits the defendants’ liability to the sum of $154,000 which, it was common ground, has been paid. That figure would seem to have its provenance in the similar amount identified in the ‘Summary’ for ‘monthly suppliers (invoiced but not due)’. Be that as it may the clause contains a clear monetary limit on the indemnity which has been satisfied.
The point is that clause B6 contains an indemnity to pay all liabilities and debts, of whatever kind, including those in respect of which the declaration is sought but with the express proviso as to the monetary limit. That marks the beginning and the end of the defendants’ obligations to indemnify.
Accordingly I give judgment for the defendants on the plaintiff’s claim.
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