Richmond v Moore Stephens Adelaide Pty Ltd

Link copied
Case Copied 78 min read

SUPREME COURT OF SOUTH AUSTRALIA

(Full Court)

RICHMOND v MOORE STEPHENS ADELAIDE PTY LTD

[2015] SASCFC 147

Judgment of The Full Court

(The Honourable Chief Justice Kourakis, The Honourable Justice Blue and The Honourable Justice Stanley)

29 September 2015

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH - REPUDIATION AND NON-PERFORMANCE - REPUDIATION - WHAT AMOUNTS TO REPUDIATION

EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - CONSIDERATIONS UPON WHICH COURT EXERCISES DISCRETION - IN GENERAL

TRADE AND COMMERCE - TRADE AND COMMERCE GENERALLY - RESTRAINT OF TRADE - RESTRAINT BY AGREEMENT - VALIDITY AND REASONABLENESS - IN GENERAL - VALIDITY

Appeal against judgment in the District Court granting final injunctive relief to enforce a restraint clause.

The appellant’s company entered into related agreements with the respondent for the sale of its accountancy practice and the provision of accounting services in the ongoing practice. Each agreement contained a restraint clause.

The sale price of the business was dependent on the level of achieved fees over the first three years.  If average annual achieved fees fell below $1.4 million, the sale price was to be $1.4 million less the deficit or twice the deficit depending on the year.  If average annual achieved fees exceeded $1.4 million, the purchase price was to be $1.4 million and the appellant’s company was entitled to a bonus equal to the excess.  The agreement prescribed a mechanism for the parties to nominate and negotiate to agree the level of achieved fees at the end of the second and third years.

After the end of the second year in October 2013, disputes arose concerning the quantum of achieved fees and whether they had been fixed under the fee fixing mechanism prescribed in the agreement.  The respondent contended that the achieved fees had been fixed by default and this justified its ceasing to pay interest on the balance of the purchase price.

The appellant contended that the respondent defaulted in the payment of interest resulting in an acceleration of payment of the balance of the purchase price, and the respondent’s breaches or repudiation justified termination of the agreements in which event the restraint clauses ceased to be operative. The appellant contended that in any event the restraint clauses were void for uncertainty or as being in restraint of trade.

The trial Judge upheld the respondent’s contentions and granted an injunction restraining the appellant from soliciting or performing work for various named clients or soliciting employees of the respondent. 

Held Blue J (Kourakis CJ and Stanley J agreeing):

1.      The trial Judge erred in finding that the parties agreed on 15 October 2013 to extend time for the respondent to give notice of achieved fees (at [120]).

2.      Nevertheless, time was not of the essence and the respondent’s notice of achieved fees given on 21 November 2013 was valid (at [131]-[139]).

3.    Observations on the approach to construction of commercial contracts (at [90]-[101]).

4.      The appellant’s company’s notice in response given on 25 November 2013…

CaseChat AU logo

Keep reading for free

Create a free CaseChat account to read Richmond v Moore Stephens Adelaide Pty Ltd and more:

  • Read every judgment in full
  • Ask AI and get answers linked to paragraphs
  • See how each paragraph was cited in later cases
  • Download judgments as PDF or Word
Continue with Google

One click creates your free account or signs you in.

By continuing you agree to the Terms and Privacy Policy.

Details
Case
[2015] SASCFC 147
Decision Date

CaseChat Overview and Summary

This case concerned an appeal from a decision of the District Court of South Australia. The parties were Richmond and Moore Stephens Adelaide Pty Ltd. The dispute arose from a Business Sale Agreement and a Service Agreement, where Richmond sold his accountancy business to Moore Stephens. The core of the disagreement involved the calculation of "Achieved Fees" and subsequent adjustments to the purchase price, leading to allegations of breach and repudiation of the agreements.

The court was required to determine several legal issues, including whether the parties had agreed to extend time for Moore Stephens to provide notice of Achieved Fees, the validity of the notice provided by Moore Stephens, and the validity of a subsequent notice of disagreement from Richmond's company, WKYA. Further issues included whether the quantum of Achieved Fees was fixed, whether Moore Stephens breached the agreement by ceasing to pay interest, and whether WKYA was entitled to accelerate payment of the balance of the purchase price. The court also had to consider whether the agreements were validly terminated by WKYA and Mr Richmond, and crucially, whether restraint clauses within the agreements survived such termination, particularly if termination was due to breach or repudiation by Moore Stephens. Finally, the court was asked to consider whether the restraint clauses were void for uncertainty or restraint of trade, and if the terms of any injunction sought were too wide.

The trial judge found that the parties had agreed to extend the time for Moore Stephens to provide notice of Achieved Fees, and that the notice given on 21 November 2013 was valid. The judge also determined that WKYA's response was not a valid notice of disagreement, leading to deemed agreement on Moore Stephens' calculation of Achieved Fees. Consequently, Moore Stephens was entitled to cease paying interest and set off amounts. The judge concluded that WKYA and Mr Richmond, not Moore Stephens, breached the Business Sale Agreement and repudiated their obligations, meaning the agreements were validly terminated by Moore Stephens for repudiation.

The trial judge held that the restraint clauses did not survive the termination of the agreements effected by WKYA and Mr Richmond for breach or repudiation. The judge further found that there were no discretionary reasons in equity not to enforce the restraint clauses, and that the restraint clauses were not void for uncertainty or as being in restraint of trade. The court ultimately granted an injunction restraining Mr Richmond from acting in breach of the restraint clauses until 4 February 2016.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

The appeal raises the following issues or steps in the reasoning process:1.Did the parties agree on 15 October 2013 to extend time for Moore Stephens to give notice of Achieved Fees?2.Did Moore Stephens give a valid notice of Achieved Fees on 21 November 2013?3.Did WKYA give a valid notice of disagreement in response on 25 November 2013?4.Was the quantum of Achieved Fees fixed under the fee fixing mechanism at any time up to 4 February 2014?5.Was Moore Stephens in breach of the Business Sale Agreement by ceasing to pay interest with effect from November 2013?6.Was WKYA entitled to give notice accelerating payment of the balance of the purchase price in the amount of the prima facie purchase price due to non-payment of interest?7.Did WKYA and Mr Richmond validly terminate the agreements on 4 February 2014?8.Did the restraint clauses survive termination of the agreements if effected by WKYA and Mr Richmond for breach or repudiation?9.Are there discretionary reasons in equity not to enforce the restraint clauses?10.Are the restraint clauses void for uncertainty?11.Are the restraint clauses void as being in restraint of trade?12.Are the terms of the injunction too wide?Background Mr Richmond is a chartered accountant. He owned a company originally called 2IC Management Pty Ltd but now called WKYA Consulting Pty Ltd (WKYA). Up to October 2011, the company carried on an accountancy business under the name “2IC Management” (the 2IC business). As at October 2011, the 2IC business had approximately 100 client groups. Moore Stephens carries on an accountancy business in South Australia under the name “Moore Stephens”. As at October 2011, Moore Stephens had approximately 500 client groups. The Business Sale Agreement The Business Sale Agreement provided for WKYA to sell to Moore Stephens its accountancy business. Mr Richmond was also a party. The purchase price (the Purchase Price) was $1.4 million adjusted upwards or downwards to apportion income and expenditure (the Unadjusted Purchase Price) and potentially adjusted downwards based on future revenue (the fees adjustment). Completion was to take place on 28 October 2011. The Purchase Price was payable by instalments:· $700,000 adjusted under clause 10 to apportion income and expenditure (the income apportionment) plus GST of $140,000 payable within approximately three months of completion; and· $700,000 adjusted under Annexures A and I by the fees adjustment (the Second Instalment amount) payable on 28 October 2015. The Purchase Price was to be adjusted first at the end of the second year (the first milestone) and secondly at the end of the third year (the second milestone).[2] The Second Instalment amount was then payable at the end of the fourth year. The Purchase Price could be adjusted below but not above $1.4 million. [2] Special Conditions (Annexure I) clause 2 and Annexure A clauses (d) and (e). The adjustment to the Unadjusted Purchase Price at the first milestone was to be equal to two times the shortfall (if any) of average annual Achieved Fees generated by the acquired business (Achieved Fees) in the first two years[3] below the target of $1.4 million.[4][3] The Business Sale Agreement as executed provided that the average would be used if fees in year 2 exceeded fees in year 1 and otherwise only fees in year 2 would be used. However, it is common ground that the Agreement was varied to provide that the average was to be used in all cases.[4] Special Condition 2 and Annexure A clauses (d) and (e).

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

On 11 March 2014, WKYA was placed in liquidation and no further steps were taken in the action against it.The trial and reasons for judgment In the action, Moore Stephens sought a final injunction restraining Mr Richmond from acting in breach of the restraint clauses in the Business Sale Agreement and Service Agreement until 4 February 2016 being two years after termination of the Service Agreement.[40][40] Moore Stephens also sought judgment for monies payable by Mr Richmond pursuant to the Business Sale Agreement but ultimately accepted that it was precluded from sustaining such a judgment because Mr Richmond had entered into a personal insolvency agreement under Part X of the Bankruptcy Act 1966 (Cth). Mr Richmond contended that the restraint clauses:1.did not survive termination of their respective agreements if as he contended they were terminated for breach or repudiation by Moore Stephens;2.should not be enforced in equity if as he contended Moore Stephens committed essential or serious breaches of or repudiated their obligations under them;3.were void for uncertainty; or 4.were void as being in restraint of trade. The trial proceeded in April and May 2014. Mr Fusco, his predecessor Mr Anderson and Mr Richmond gave evidence. On 27 June 2014, the Judge delivered reasons for judgment on issues 1 and 2 identified above and deferred consideration of issues 3 and 4 and relief pending further submissions.[41] The Judge held that WKYA and Mr Richmond, and not Moore Stephens, breached the Business Sale Agreement, leading to a conclusion that they repudiated their obligations under the Business Sale Agreement and the Service Agreement and the agreements were validly terminated by Moore Stephens for repudiation. [41] [2014] SADC 131. The Judge held that on 15 October 2013 the parties agreed to extend the time for Moore Stephens to give a clause (b) notice until the middle of November 2013 and the notice given on 21 November 2013 fell within the extended time.[42][42] [2014] SADC 131 at [39]. The Judge held that the spreadsheet attached to the notice given on 21 November 2013 comprised “all necessary evidence … and other documents required for the Seller to verify the Achieved Fees” within the meaning of clause (b) and the provision of invoices was not necessary in the circumstances for a valid clause (b) notice.[43][43] [2014] SADC 131 at [62]-[64]. The Judge held that WKYA’s 27 November 2013 response was not a valid clause (c) notice because it did not specify WKYA’s estimate of Achieved Fees.[44] There was therefore deemed agreement on Moore Stephens’ specification of Achieved Fees.[45] Moore Stephens was entitled to stop paying interest on the Second Instalment Amount and to set off the amount owing for a refund of the November 2013 interest against the December 2013 service fee.[46] WKYA and Mr Richmond were not entitled to terminate the agreements and repudiated their obligations under them on 4 February 2014.[47][44] [2014] SADC 131 at [64].[45] [2014] SADC 131 at [66].[46] [2014] SADC 131 at [67]-[68].[47] [2014] SADC 131 at [68].

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.