Sheengroup Towing Pty Ltd - v - Morphett Bco Pty Ltd
[2015] VCC 644
•22 May 2015
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-14-00539
| SHEENGROUP TOWING PTY LTD (ACN 156 402 747) | Plaintiff |
| V | |
| MORPHETT BCO PTY LTD (ACN 006 391 135) (AND OTHERS ACCORDING TO THE ATTACHED SCHEDULE) | Defendants |
| AND BETWEEN: | |
| MORPHETT BCO PTY LTD (ACN 006 391 135) (AND OTHERS ACCORDING TO THE ATTACHED SCHEDULE) | Plaintiffs by Counterclaim |
| V | |
| SHEENGROUP TOWING PTY LTD (ACN 156 402 747) (AND OTHERS ACCORDING TO THE ATTACHED SCHEDULE) | Defendant by Counterclaim |
---
| JUDGE: | HER HONOUR JUDGE KENNEDY | |
| WHERE HELD: | Melbourne | |
| DATE OF HEARING: | 27, 28, 29, 30 April 2015 | |
| DATE OF JUDGMENT: | 22 May 2015 | |
| CASE MAY BE CITED AS: | Sheengroup Towing Pty Ltd - v - Morphett BCO Pty Ltd | |
| MEDIUM NEUTRAL CITATION: | [2015] VCC 644 | |
REASONS FOR JUDGMENT
---
Catchwords: Contract – sale of accident towing licences–approval for transfer refused by Authority- whether plaintiff entitled to return of deposit under clause 6.1 of contract- whether done all it could “reasonably do” to obtain consent for the transfer of the licences given it coupled its application with applications to alter the depot- whether otherwise done all it could reasonably do to obtain consent- claim dismissed
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R. Cameron | Barrett Walker |
| For the Defendants | Mr J. Arthur | Taylor Splatt & Partners |
HER HONOUR:
1. On 24 July 2013 Sheengroup Towing Pty Ltd (Sheengroup) signed an agreement to buy 8 Accident Towing Licences from the defendants for the sum of $2,560,000.00 ($320,000 for each licence) which was due for completion on 30 August 2013.
2. The agreement provided that within 7 days of the agreement, Sheengroup was to execute any documentation reasonably required to be lodged with VicRoads to effect the transfer of the licences.
3. Sheengroup subsequently made applications to transfer the licences within the requisite 7 days, but coupled it with applications to vary a condition of each licence namely, the depot address specified for each licence (at 149 Tyabb Road Mornington).
4. On 17 September 2013 VicRoads notified it that it had rejected the applications for a transfer of the licences stating that, given the applications to alter the depot were refused, the applications to transfer the licences “cannot be approved.”
5. On 17 October 2013 Sheengroup then gave written notice of termination. It says it is entitled to a return of the deposit of $256,000 under clause 6.1 of the agreement which provides that where the purchaser has done “all that the purchase [sic] could reasonably do” to obtain consent by 30 days following Completion then the agreement may be terminated and the deposit refunded to the purchaser.[1]
[1] Statement of Claim dated 4 February 2014, paragraph 16.
6. The defendants however say that Sheengroup was not entitled to terminate the agreement and recover the deposit under clause 6.1 given, inter alia, it coupled its applications with the applications to alter the depot and thereby prevented VicRoads from consenting to the transfer of the licences.[2]
[2] Amended Defence and Counterclaim dated 24 April 2014, paragraph 15(b)(i); although this paragraph also contained reference to a failure to use best endeavours under clause 15.1, the defendants did not rely on this in Closing Submissions.
7. The defendants further rely on a notice of default served on 14 October 2013 in respect of Sheengroup’s failure to pay the balance of the purchase price. They say that this default was not remedied with the result that they were entitled to, and did, terminate the agreement with the result that the deposit is forfeited (under clause 11.5).[3]
[3] Amended Defence and Counterclaim, paragraph 28.
8. Although the defendants filed a Counterclaim seeking loss and damage following the termination they ultimately abandoned any damages beyond the forfeiture of the deposit (which is currently held by the defendants’ lawyers).[4]
[4] “Defendant’s Outline of Opening Submissions of 20 April 2015” (which was actually the defendant’s closing written submission), paragraph 38.
9. The issue for determination was therefore whether Sheengroup was entitled to a return of the deposit. This in turn depended on whether Sheengroup had done all that it “could reasonably do to obtain the consent of VicRoads to transfer the Accident Tow Licences” pursuant to clause 6.1.
Witnesses
10. Sheengroup called Mr Blair Denys and Mr Matthew Piotrowski. Mr Piotrowski was a director of Sheengroup. He was also primarily responsible for seeking the consent of VicRoads for the transfer of the licences. Mr Denys was a director of Sheen Panel Service (Vic) Pty Ltd (the main shareholder of the plaintiff) but was “not 100% sure” if he was a director of Sheengroup Towing Pty Ltd.
11. Mr Piotrowski was somewhat argumentative and over confident at times. As will be seen below, I also consider that he understated the difficulties associated with the application to alter the depots. However, I had no reason to reject much of his evidence as will appear from the summary below.
12. Mr Denys, like many of the witnesses in the case, had difficulty with his memory. This was also true of the witnesses from VicRoads: Ms Paola Gonzales (clearway towing administrator) and Mr Russell Greenland (a metropolitan manager). However both these latter witnesses were honest witnesses whose evidence I have generally accepted.
13. Mr Anthony Morphett was called on behalf of the defendants and also had memory issues. He was otherwise generally an honest straightforward witness who gave measured and careful responses. I have generally accepted his evidence.
14. The defendants also provided an expert report from Mr Lynden Kenyon, a solicitor practising in making applications for transfers of tow truck licences and changing depot facilities. His evidence will be referred to below.
15. Given the gaps in memory, however, I have primarily had regard to objective evidence wherever possible.
Background
Parties
16. Sheengroup is one of the largest tow truck operators in Victoria and also operated an extensive panel-beating business from 23 locations around Victoria. However, it only operated its tow trucks out of 2 locations: Frankston and Bayswater.
17. Mr Morphett was the director of the two defendant corporations. Mr Morphett also had owned and operated a business known as BDS Panels at 149 Tyabb Road Mornington (depot 736) which he had sold to Carl Van Sanden with a first offer of refusal on the licences. He (or a related entity) also owned the 149 Tyabb Road premises. However, although a licence holder, Mr Morphett had nothing to do with the day to day running of the tow trucks at Tyabb Road which were controlled by another entity (BTS) which had an arrangement with Mr Van Sanden.
18. The defendant entities were the owners of the 8 tow truck licences immediately prior to 24 July 2013. It was a condition on each that the truck be “managed, controlled and operated from the authorised depot situated at 149 Tyabb Road Mornington.”
Lead up to agreement
19. At some stage prior to February 2013 (there was some dispute on the evidence at to timing) Sheengroup had discussions with Mr Van Sanden to purchase his business. In the course of these negotiations Mr Denys came into contact with Mr Morphett. Mr Denys was interested in purchasing the “whole thing” (property and licences owned by Mr Morphett, and the panel beating business) but the deal did not go ahead.
20. Mr Denys says, however, that he asked Mr Morphett to contact him if Mr Van Sanden did not take up the right of first refusal on the licences.
21. Mr Denys further conceded that they did not look around the Mornington precinct for another depot further, prior to signing the contract, but rather “did most of the work afterwards”.
22. In the result, Mr Van Sanden did not take up the option and Mr Morphett put the licences up to tender. Mr Denys said he was advised of this by Mr Morphett in early 2013.
23. By email of 15 February 2013 Mr Morphett wrote to Mr Denys advising him that the licences would be officially on the market at the end of April 2013 and providing his solicitor, Nick Roberts’ details (of NJR Corporate lawyers).
24. On 2 April 2013 Mr Denys then wrote to Nick Roberts offering $2.4 million for the 8 licences “subject to VicRoads approval of transfer.” His oral evidence was that he worked this out at $300,000 per licence.
25. Mr Denys subsequently increased the price offered to $320,000 each. The matter was then handed to the lawyers with drafts exchanged.
26. There is some dispute as to whether there was really any discussion about changing the depot at this time, even presuming it should be considered (which is discussed below).
27. Mr Denys claimed that in the course of his discussions with Mr Morphett he told him that Sheengroup had depots at Bayswater and Frankston (AW Panels). He also claimed he told him prior to signing that they were moving the licences out of Mornington to Frankston and Bayswater consistent with a plan to “expand the grid”. He also claimed that Mr Morphett “knew” they did not have a depot in Mornington and Mr Morphett also “knew all about” the fact that Sheengroup was going to couple its applications for transfer with applications to alter the specified depot.
28. Mr Piotrowski gave some generalised evidence that “based on our discussions” it was “clear” we were moving the licences to Bayswater and Frankston and that would entail a change of depot application.
29. Mr Morphett did not recall having any detailed discussion about the Sheengroup business and did not know how many depots they actually had. All he knew was that their holdings were “substantial”. He accepted that he knew Sheengroup did not have a Mornington depot and also knew they had a Frankston depot and also knew about their Bayswater depot. However, he said that there were no specific discussions with Mr Denys about what his plans were about the licences other than he was trying to negotiate with other panel shops to buy their businesses. Further that there was no specific mention that Sheengroup was going to make applications itself to alter the depot.
30. I have generally accepted the evidence of Mr Morphett to the extent it diverges with the Sheengroup witnesses. The evidence of Mr Piotrowski and Mr Denys was vague as to what was actually said to Mr Morphett (and when) and I am unable to be satisfied that he was actually told that Sheengroup was to make the applications to alter all the depots to Frankston and Bayswater.
31. I do however accept, that Mr Morphett was aware, at least, of the prospect of an application being made to alter a depot given he knew Sheengroup did not have a depot in Mornington (including at Tyabb Road). Further, in an email of 22 July 2013 from Nick Roberts to Leigh Nikolakis (of Barrett Walker, solicitors for the purchaser) Mr Roberts stated that his client had taken the then draft of the contract away and was to return to see him the next day. In the meantime, he (Mr Morphett) had raised three issues including that:
“ He takes the view that if the settlement is delayed because of an application to change a depot then that should not be a ground for the delay of settlement.”
32. There was no response to this statement by Sheengroup’s lawyers or otherwise. Rather, shortly thereafter on 24 July 2013 the agreement was executed.
Agreement
33. The agreement is described as a “Sale Agreement of Tow Licences.”
34. Clause 2.1 provides that the Vendors agree to sell and the Purchaser agrees to purchase the Accident Tow Licences for [the] sum of $2,560,000 exclusive of GST.
35. “Accident Tow Licences” is a defined term (clause 1) and means towing licences numbered TOW 056, TOW 075, TOW 565, TOW 695, TOW 607, TOW 606, TOW 086, TOW 608.
36. “Business” is also a defined term and means the business of licensed tow operates (sic) for the towing of damaged and disabled motor vehicles. However the term does not appear again.
37. Clause 3 provides that the Purchaser was to pay the deposit on signing and clause 4.1 provides that the Purchaser is to pay the balance at the “Completion date.” This was defined (in clause 1) as 30 August 2013.
38. However, the obligation to pay the balance on the Completion date needs to be read subject to clauses 5.1 and 6.1 as follows:
5. Transfer
5.1 Within 7 days of the date Agreement the Purchaser shall promptly and without delay, execute any documentation reasonably required to be lodged with the VicRoads to effect the Transfer of the Accident Tow Licences and shall pay all requisite lodgement fees with the VicRoads relevant to the Application for Transfer and the Vendors shall, execute and lodge with the VicRoads, any necessary documentation required to facilitate the transfer of the Accident Tow Licences to the Purchaser.
6. Consent
6.1 In the event that Vicroads has not consented to the transfer and the Purchaser has done all that the purchase (sic) could reasonably do to obtain the consent of VicRoads to transfer the Accident Tow Licences by 30 days following Completion date then this Agreement may terminated by either party giving written notice to the other party and upon this Agreement being terminated the whole of the deposit shall be refunded to the Purchaser.
39. The agreement also contained a “Best endeavours clause” 15 as follows:
15.1 The Vendors and Purchaser will use the best endeavours to sign all documents and do all things reasonably required to carry out and complete and settle the transaction contemplated and regulated by this Agreement.
40. Clause 11 contains the default provisions.
41. Clause 11.2 provides for the service of a notice which specifies the default and allowed not less than 5 business days for the default to be remedied. The party giving notice may also state that, unless the notice was complied with, then the agreement was terminated (clause 11.4). If the vendors terminated then the deposit was forfeited (clause 11.5).
42. Finally, the agreement also contained an “entire agreement” clause as follows:
12. Entire Agreement
12.1 This Agreement constitutes the entire agreement between the Vendors and Purchaser with respect to the subject matter hereof and supersedes and extinguishes all prior agreements and understandings between the Vendors and Purchaser with respect to the matters covered.
43. Upon signing the agreement Sheengroup paid a deposit of $256,000 to the defendants’ solicitor.
25 July execution of applications
44. The applications for transfer of tow truck licences to VicRoads were signed on 25 July at Mr Morphett’s son’s depot in Dromana by both Mr Morphett and Mr Piotrowski. Mr Piotrowski claimed he saw Mr Morphett read them.
45. Mr Morphett claims he was uneasy in the first place about signing the documents without them going through his solicitor. Further, that he made sure that they were applications for transfers (as advised by his lawyer) and noticed the tow truck numbers but did not otherwise study the documentation.
46. In any event, each has the relevant tow truck licence number(s) at the top and details of the transferor and transferee (in bold).
47. Each, however, also contains reference to the existing depot (736 being Tyabb road) as well as reference to a “proposed depot address” with a relevant number: 606 or 607. They also contain some handwriting –“Bayswater” or “Frankston” as the case may be - though both parties accepted that this was written by Ms Gonzales of VicRoads later.
48. The evidence of Mr Morphett was that he did not recall seeing these references on the document and took no notice of these numbers given he was just looking at whether they were applications for transfers with the right tow truck numbers.
49. To the extent it is necessary to resolve I accept the evidence of Mr Morphett on this matter given his focus was the transfer of the licences (consistent with the title of the forms). The numbers were also not highlighted in any way.
50. The second page of the form did contain a reference to
“Change of Depot Address” and stated:
If the transfer of tow truck licence/s also includes a change of depot address an “Application for Variation of Conditions of Tow Truck Licence/s” completed by the current licence holder/s will be required to accompany this application.”
51. However, no such application was attached/provided on 25 July to Mr Morphett.
52. Despite this, Mr Piotrowski claimed that he explained his “plan” to Mr Morphett. This “plan” is best expressed in Mr Piotrowski’s own words as follows:
“Yes. So prior to Mr Morphett’s licences or our endeavours to purchase them, we had a depot in Frankston, ran five licences on a small grid. I’ll call it a small grid because it is the smallest one I’ve nearly ever seen. Now, in our proposition to VicRoads and our plan in terms of purchasing these licences, it was to transfer four of Mr Morphett’s licences to that depot and four to Bayswater. Now, some would say that was leaving Mornington without a single licence. Our plan – our plan to VicRoads was to open up the border between – the grid line between Frankston and Mornington and Sheen Towing on our small little grid that we had in Frankston, as well as the Mornington grid that Mr Morphett’s licences were running prior. So we would have had our five existing plus the four from Mr Morphett depoted in Frankston on Old Dandenong Road and all our trucks operating out of there
What, are you suggesting that you were putting to them to change the actual grid?.............Yes. Which is not out of this universe.” (emphasis added)
53. Mr Piotrowski also alleged that Mr Morphett said that it “might be smarter” to, if this gets knocked back, to move all eight licences to Frankston and then run that depot and eight licences plus our five at Frankston across the whole Mornington area.
54. This was denied by Mr Morphett. However he accepted that Mr Piotrowski informed him that he was having a meeting with VicRoads that day in relation to the possibility of running all the licences out of Frankston (what Mr Morphett described as a “mega-type” depot). Mr Morphett said he responded that they had no hope of getting the licences out of Mornington especially all of them.
55. The evidence of Mr Morphett on this topic was credible and consistent with his general position that any application to alter the depot was a matter for Sheengroup extraneous to the transfer of the licences.
Meeting VicRoads
25 July
56. Mr Piotrowski attended VicRoads personally to lodge the Applications to transfer on 25 July. The meeting had been organised beforehand although, according to Ms Gonzales of VicRoads, no discussion had taken place about the content of the applications including the “plan”.
57. A meeting then took place at which Carmine Cambareri, Paola Gonzalez, and Nick Asensio of VicRoads were present. Mr Piotrowski and Michael Kirkup attended from Sheengroup.
58. Mr Piotrowski claimed that they discussed “what our plan was” which included the plan to alter the “grid”. Ms Gonzales’s recollection was a little hazy on this but I have accepted Mr Piotrowski’s evidence in this regard.
59. Mr Piotrowski’s evidence that the meeting was “all positive” (save for an issue with Bayswater) however was less convincing and should be contrasted with the evidence of Ms Gonzales. Thus she said that there was no indication given one way or the other that day but that it was going to be a process that “would take a while.” She also said that “move of boundaries, it’s a really tricky thing and my director was very much against it.”
60. The evidence of Ms Gonzales was more probable on this aspect (particularly in the light of subsequent events) and I accept it.
Applications to change depots
61. The applications to change the depots were not lodged at the meeting with VicRoads but appear to have been lodged on 31 July.
62. The applications to change the specified depot was in two parts constituted by, firstly, a group of 4 applications to alter the specified depot to Bayswater and, secondly, by a group of 4 applications to alter the specified depot to Frankston.
63. Mr Piotrowski said he thereafter made himself “available” to VicRoads given the imminent settlement date and made some phone calls asking for updates. Ms Gonzales accepted that he rang seeking updates over 5 times.
14 August
64. By email dated 14 August from Mr Piotrowski to Ms Gonzales he refers to a chat “this morning” regarding VicRoad’s concerns with “the viability” of the change of depot applications. It also refers to him understanding “your concerns with the location of Depot 607 “in relation to the proposed grid changes.”
65. The oral evidence of Mr Piotrwoski was that VicRoads just wanted a bit more information.
66. This should be compared with the evidence of Ms Gonzales that she was very clear with Matt saying that this was a “very long shot”; and there was a “very big inclination to refuse” due to the fact that the Mornington community was going to be left without licences. She suggested they stay with the depot or organise another depot in Mornington.
67. I accept this evidence of Ms Gonzales which was consistent with the email. However, notwithstanding this indication, which she said she reiterated, Sheengroup did not seek to put in any further documents or revise the application.
(Friday) 23 August
68. Mr Piotrowski claims that he had a conversation with Nick Asensio on 23 August in which he said VicRoads was worried about response time from depot 607 to the other end of the Mornington grid. He claimed this was the “first time” a problem was raised though this was contrary to the evidence of Ms Gonzales (as reflected in the emails of 14 August) and I do not accept it.
69. Carmine Cambareri then made a call on 28 August (Wednesday) and said the application was looking at being refused with a letter being sent out whereupon Mr Piotrowski requested a meeting.
70. Meanwhile it appears from email correspondence of 30 August (between Legal Services and Ms Gonzales) that VicRoads retained a barrister to ensure that the refusal be “appeal proof” and to assist with the development of a template for future use.
Emails of 6 September
71. By email of 6 September (at 3.41 pm) Mr Greenland of VicRoads requested information on the effect on the public at the current depot (Mornington); in particular “if those 8 licences are removed from the area.” He also offered to meet to discuss the option of establishing a depot in Mornington.
72. Mr Piotrowski then responded (at 3.52pm) stating “we are at least 6-12 months from having a premises in Mornington. So just to clarify, we cannot move these eight (8) out of the Mornington area?”
73. Mr Greenland then emailed that he would like to see a response first but his indication was that “it would have a significant impact on towing services in that area.”
74. The response then given by Sheengroup was that the combination of the proposed 4 with their existing 5 licences (at the Frankston depot) would mean that the 9 total would be capable of servicing the Peninsula area.
Rejection by VicRoads
75. By letter of 17 September, Mr Bell, Director Regulatory Services at VicRoads wrote to Sheengroup refusing both the applications to alter the depot and also refusing the transfer applications saying:
“VicRoads has also made a decision to refuse the application to transfer the various tow truck licenses. As discussed with you, the application to transfer the relevant licences was refused primarily on the basis that the proposed depot address for each licence reflected an anticipated favourable outcome in relation to each of the applications to alter the depot specified in the relevant licences.
As both of the applications to alter the specified depot were refused, the applications to transfer the licences cannot be approved in their current form. VicRoads encourages you to submit a further application to transfer the relevant licences. Any further application to transfer the licences will be assessed in accordance with the relevant legislative requirements. However, VicRoads indicates that it is, at this time, disposed to approve an application to transfer the licences provided that such application lists the existing specified depot as the proposed depot address.”
76. The letter annexes two decisions under regulation 13B of the Regulations (in relation to the change of depot applications). The primary basis for each decision was that the proposal would have an “unacceptable impact on service levels” in the area serviced by depot 736 (Mornington).
77. As is apparent from the terms of the decision, the reason VicRoads refused to consent to the applications to transfer the licences was because they were coupled with the applications to alter the depot. Ms Gonzalez also confirmed that she would have recommended approval if there was no depot change.
78. Mr Piotrowski said he tried to organise a meeting but Mr Greenland declined and made it clear to him that no licence would be moved nor would borders or grids be changed. Mr Greenland did not recall his actual words but confirmed that there had been a bit of a change in approach around September of 2013 wherein VicRoads was trying to ensure there were enough licences in areas where there would be a reasonable response time.
79. Mr Morphett was then advised of the adverse decision.
80. However Sheengroup did not seek to vary the application or lodge a fresh one.
81. Mr Morphett did have a conversation with Mr Denys in about September 2013 however, wherein he offered him the use of a vacant factory 3 to 4 doors down from BDS Panels (at 161 Tyabb Road) so he had a depot to run the trucks from rent free (save for outgoings). However this offer was rejected.
Termination
82. The transaction did not settle by 30 August, nor did it settle by 30 days after the Completion date pursuant to the extra time allowed under clause 6.1 for the obtaining of consent.
83. By correspondence of 14 October Mr Roberts of NJR Corporate Lawyers served a notice of default on Sheengroup. The particulars of default were that “you have failed to pay the balance of the purchase price by the 30th September 2013 and have failed to do all that you could have reasonable (sic) done to obtain the consent of VicRoads to the transfer.” The notice further required that the default be remedied by payment of the settlement monies plus costs and interest and that if the default was not remedied within 6 business days then the contract was terminated under clause 11.4.
84. The settlement did not occur. Instead, by correspondence of 17 October Barrett Walker, solicitors for Sheengroup, rejected the default notice as invalid and stated that the Sheengroup was instead entitled to terminate and to demand the deposit pursuant to clause 6.1. The letter was also said to serve as notice of termination.
85. This proceeding was then issued on 5 February 2014.
86. Subsequently, of the 8 licences, 5 have been sold while 3 are being managed by another entity. In the result, approval was also granted for 4 of the licences to move out of the Mornington area.
Legislative Scheme
87. In Victoria the licensing and operation of tow trucks that provide accident towing services is governed by the Accident Towing Services Act2007 (Vic) (“the Act”) and the Accident Towing Services Regulations2008.
88. Section 1(a)(i) of the Act provides that the purpose of the Act is to promote the safe, efficient and timely provision of accident towing services by, inter alia, licensing the operation of tow trucks that provide accident towing services.
89. Section 10 provides that VicRoads may license a person to operate a (regular) tow truck for the purposes of providing accident towing services from the depot specified in the licence. Pursuant to section 6(1) a person must not operate a regular tow truck for the purposes of providing an accident towing service unless, inter alia, the person holds a regular tow truck licence. Pursuant to s 6(2) a person must provide the service from the depot specified in the licence (with penalties for contravention).
90. Division 5 of Part 2 contains general provisions in relation to tow truck licences which form part of the property of the holder of the licence (s 28).
91. Pursuant to s 30 the holder of a licence may apply to VicRoads for approval to transfer the licence to another person. Pursuant to s 29 VicRoads may approve the transfer. However, it must not approve such transfer unless VicRoads is satisfied that the person to whom the licence is to be transferred satisfies various criteria, including that the proposed transferee holds a towing operator accreditation (s 29(2)).
92. Section 31 then contains detailed provisions as to the recording and taking effect of a transfer. Thus VicRoads must record the transfer of the licence in a register kept under s 31(4).
93. Section 25 makes separate provision for the imposition of conditions on licences. Pursuant to s 25(2) VicRoads may at any time on its own initiative or on written application vary or revoke a condition imposed on the licence or impose a new condition on the licence.
94. In terms of the alteration of a specified depot, Regulation13B also makes specific provision for the holder of a licence to apply in writing for the depot specified in the licence to be altered.
95. There are detailed requirements prescribed under regulation 13B(3) about the application which must be accompanied by a separate fee (13B(3)((b)(i)) including:
· the address of the current depot;
· the address of the proposed depot;
· the existing tow truck services available at or near the proposed depot;
· how the present tow truck services (if any) at or near the proposed
depot are inadequate to meet all reasonable public demand;
· the advantages of the change of depot to the public at or near the
proposed depot;
· the impact that the services from the proposed depot would have on
any existing accident towing services businesses near the proposed
depot;
· the effect on the public at or near the current depot, if the proposed
depot change is approved.
Whether Sheengroup had done all it “could reasonably do” to obtain consent
96. The defendants submitted that Sheengroup had not done all it could reasonably do to obtain consent, given it had coupled its applications to transfer the licences with applications to alter the depot which latter applications were the reason VicRoads refused to give consent. It also submitted that these depot applications were “doomed to fail.”
97. Sheengroup however submitted that, in construing clause 6.1, it was important to consider what clause 5.1 required, which was the execution of documentation reasonably required to be lodged to “effect the Transfer.” Sheengroup submitted that the commercial purpose of the agreement was to effect a transfer of the licences “so that the plaintiff could operate the tow trucks concerned from a location other than the existing depot.”[5] Seen in this light, the “documentation” reasonably required to be lodged to effect the transfer under clause 5.1 included the applications to alter the depots.[6] Given Sheengroup did all it reasonably could to transfer the licences and to alter the depots, clause 6.1 was accordingly engaged.
[5] Outline of Submission of the plaintiff, paragraph 38.
[6] Outline of Submission of the plaintiff, paragraph 53.
98. It was necessary to construe the contract to resolve these differences. In particular, it was necessary to consider whether the documentation to be lodged to “effect the Transfer” included the applications to alter the depots for the purposes of clauses 5.1 and 6.1.
99. Secondly, even if these clauses required consideration of both the applications to transfer and to alter the depot, it would be necessary to consider whether Sheengroup did all it “could reasonably do” to obtain consent to such transfer (and alteration) under clause 6.1
Construction of the agreement
Principles
100. In Electricity Generation Corporation v Woodside[7] the High Court observed:
"[The parties] recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties ... intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".
[7] (2014) 251 CLR 640, [35].
101. Further, in the recent Court of Appeal decision of ICM Investments Pty Ltd v San Miguel Corporation and Berri Ltd[8] the Court stated:
The transaction documents, like any other commercial contracts, fall to be construed according to what a reasonable person in the position of the parties would have understood their terms to mean, having regard to the surrounding circumstances known to the parties and the purpose and object of the relevant transaction. Additionally, in construing each transaction document, the Court should have regard to all of the words used in the document so as to render them all harmonious with one another, and to ensure the congruent operation of the various components of the document as a whole.
[8] [2014] VSCA 246, [24].
102. Pursuant to these formulations above, it also does not appear to be essential to identify ambiguity in the language of the contract before the court may have regard to the surrounding circumstances and objects of the transaction.[9]
Application
[9] Cf Western Export Services Inc &Ors v Jireh International Pty Ltd (2011) 282 ALR 604.
103. In considering the language used by the parties, it evinces no intention that the documentation to be lodged was to include any applications to alter the depot.
104. Firstly, the subject matter of the contract was clearly the “Accident Tow Licences” which were defined and subject to the condition that they were to be operated from the Mornington depot.
105. Secondly, the agreement contains no reference at all to applications to alter a depot and/or to alter conditions of the licences. More particularly, the documentation to be lodged pursuant to clause 5.1 was documentation “to effect the Transfer of the Accident Tow Licences” (as defined). This is further exemplified by clause 6.1 which directs attention to obtaining “consent” of VicRoads “to transfer” the licences with no reference at all to VicRoads varying conditions and/or altering the depot.
106. Next, there is no suggestion in the language that the object of the transaction was to transfer the Licences to enable Sheengroup to operate a business (as suggested by Sheengroup). As indicated already, the subject matter of the agreement was the licences themselves. It has nothing to do with enabling Sheengroup to conduct a business. Further, while the concept of a “Business” is a defined term it does not appear anywhere else in the text. I do not consider that the mere definition of the term “Business” indicated that the parties contemplated that clauses 5.1 and 6.1 were concerned with applications to alter a depot (to Sheengroup’s business premises or otherwise) when no reference appears therein.
107. Finally, as indicated already, the contract contains an “Entire Agreement” clause in clause 12 such that the agreement was to constitute “the entire agreement” with respect to “the subject matter.” Given the subject matter was the licences themselves, there is no justification for adding further terms so as to alter conditions attached to that “subject matter.”
108. I therefore consider that an examination of the language of the agreement does not support Sheengroup’s construction. More particularly, that a reasonable businessperson would have understood clause 6.1 to be only concerned with the obtaining of consent to the transfer of the licences (and not some unspecified applications to vary the conditions of those licences).
109. I also do not consider that a consideration of the surrounding circumstances assists Sheengroup as it alleged.
110. Firstly, even taking a broader view, I am unable to be satisfied that the parties contracted to achieve a result for Sheengroup whereby they could operate the licences at their depots in Bayswater and Frankston.
111. Thus, although there was certainly the prospect of an application to alter a depot (given Sheengroup was not in Mornington), the evidence of Mr Morphett was that he did not actually know how many depots Sheengroup had; only that they were “substantial.” Further that he did not actually know what the plans for the licences were other than that they were trying to negotiate with other panel shops to buy their businesses.
112. Given this background the objective purpose of the transaction was no more than to achieve the transfer of the licences; the actual operation of those licences being a matter for Sheengroup to manage.
113. The email of 22 July 2013 is also relevant if surrounding circumstances are to be taken into account.
114. This must be disregarded insofar as it reflects the subjective intentions and expectations of Mr Morphett.[10]
[10] Retirement Services Australia Pty Ltd v 3143 Victoria Street Doncaster Pty Ltd (2012) 37 VR 486 at [94].
115. However, the silence in response to the email might be construed as concurrence such that the parties (through their lawyers) have explicitly agreed to refuse to include a provision wherein any change in depot application was to defer settlement.[11]
[11] Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at page 352.
116. Even if the email is not construed in this way, it, at least, suggests that both parties were aware that there was a distinction between a transfer of a licence and an application to change a depot. Mr Denys in fact conceded that they were separate applications. The subsequent exclusion of any reference to an application to change a depot in the contract is therefore important. It fortifies a conclusion that the documentation to be lodged under clause 5.1 to effect the “Transfer” ( the subject of clause 6.1) was not intended to include any change of depot application.
117. Finally, it would be inappropriate to disregard the legislative scheme above if surrounding circumstances are to be considered. This is particularly so given the “Act” is actually a defined term in the agreement and that lawyers were involved on both sides of this transaction. [12]
[12] And see generally Amcor Ltd v Construction, Forestry, Mining and Energy Union (2005) 222 CLR 241 at [64-66]; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 at [32]; Maggbury Pty Ltd v Halfele Australia Pty Ltd (2001) 210 CLR 181 at [11].
118. However, as highlighted above, an application to transfer a licence is a completely separate application to an application to vary conditions (by applying to alter the depot). Thus while one (an application to transfer) is focused on the qualities of the proposed transferee, the other (an application to vary conditions by altering a depot) focuses on much broader policy criteria, including the effect on the public near the current depot. The absence of any reference to an application to vary conditions of the “Licences” and/or alter a depot is highly significant when considered in such a context.
119. Overall, then, I am of the view that the issue of doing all that the purchaser “could reasonably do” is to be assessed in relation to obtaining consent to “transfer the Licences” which was solely concerned with an application for transfer under s 30 of the Act.
120. However, as outlined already, the purchaser has combined an application for transfer with applications to alter the depot in this case. Moreover, as the terms of the decision make clear, it was these latter applications which led to the rejection of the applications for transfer (and Sheengroup did not contend otherwise).
121. In coupling its applications for transfer with the applications to alter the depot Sheengroup thereby prevented VicRoads from consenting to the transfer of the licences. In such circumstances I am unable to be satisfied that the Purchaser has done “all that the purchaser could reasonably do” to obtain consent to the transfer of the licences.
122. The plaintiff has thereby not established an entitlement to the deposit pursuant to clause 6.1 such that its claim must fail.
Whether done all that could “reasonably do” in any event
123. In the light of the above finding it is unnecessary to consider the claim further.
124. However, if the above construction is somehow wrong, there may be an issue as to whether the purchaser has done all it “could reasonably do” to obtain consent, even if the contract somehow encompassed applications to alter the depot from the Tyabb premises. This is in circumstances where Sheengroup has chosen to lodge applications to alter all 8 depots out of Mornington (without revision or modification).
125. Given my finding above I will provide a summary of my reasons only for this issue.
126. Sheengroup’s position was that it did all it could reasonably do with respect to its applications to alter the depot, including meeting with VicRoads staff and keeping in regular contact.
127. It further relied on a number of “best endeavour” cases particularly Cypjayne Pty Ltd v Babcock & Brown International Pty Ltd[13] to suggest that a party is not expected to sacrifice its own interests but only to do what is commercially reasonable.
[13] [2011] NSWCA 173.
128. It was not in dispute that, after efforts to purchase the business in Mornington fell through, Sheengroup signed the contract notwithstanding it retained no depot in Mornington. Instead, it appears that it had a “plan” to alter the grid line as expressed by Mr Piotrowski, above.
129. Mr Denys claimed he had no reason to think the application would not go through.
130. However, Mr Lynden Kenyon stated that a contrast was to be made between an application for a change in depot within an existing grid and taking a depot outside an existing grid. The former was almost without exception approved if other basic criteria met. However, if the application seeks to take a depot from an existing grid and the Licensing Authority is not satisfied that there is sufficient services for the efficient and safe provision of towing services then the application would be “doomed to fail.”
131. Significantly, Ms Gonzales suggested that the defendants’ application was a “long shot” and that there was a “big inclination” to refuse it. She also said that “move of boundaries, it’s a really tricky thing and my director was very much against it.”
132. Even Mr Piotrowski described his “change of grid” plan only as “not out of this universe”.
133. Looked at objectively then,[14] the application appeared to be, at least, very unlikely to succeed.
[14] And see Joseph Street Pty Ltd and Others v Tan and Others (2012) 38 VR 241 at [40].
134. After being put on notice of the problems with the application (at the latest by 14 August), Sheengroup did not take a number of other options to ensure there was a depot in Mornington: including to lease other premises in Mornington; or by taking up Mr Morphett’s offer of rent free premises for a towing service at 161 Tyabb Road. This was despite the fact that the evidence of Ms Gonzales was that there would have been a recommendation to approve if the applications were made on the basis of a move to a depot within Mornington because they would stay in the area.
135. The application was also not revised or amended to less than 8, despite the evidence of Ms Gonzales that if 4 only were sought to be moved an approval would be very likely (but because they wanted to move all 8 they couldn’t work with that). This is also substantiated by the fact that 4 were in fact later approved for transfer.
136. Mr Denys claimed there were “conversations with local real estate agents” and inspections of 3-4 properties in Mornington, but the properties around were too expensive. Both he and Mr Piotrowski also claimed that Mr Morphett’s offer was not business sound, given the proximity and that they were the “opposition” (though it was apparently two or three factories down according to Mr Morphett). Mr Denys also dismissed the possibility of applying for less than 8 on the basis that it was also not “viable”.
137. However, I do not accept that there were no other options for Sheengroup. The oral evidence was generalised and vague and there was no objective evidence adduced to establish that any of these other options were not financially “viable.”
138. Mr Denys also conceded that most of the work in looking around Mornington was only done after the contract was actually signed. It is also significant that in his email of 6 September Mr Piotrowski does not claim that premises in Mornington were not viable; only that they were at least 6-12 months away from having premises in Mornington.
139. Thus, even if I was to accept that it was unviable for Sheengroup to set up premises in Mornington prior to settlement, Sheengroup thereby failed to put itself in a commercial position to make and/or pursue any applications other than applications which were highly unlikely to succeed. In so doing I do not consider that it did all it could “reasonably do” to obtain consent for the transfer even if the “transfer” somehow included an alteration of the depot.
140. I have considered the decision of Cypjayne Pty Ltd v Babcock & Brown International Pty Ltd[15] but do not consider that it assists Sheengroup. Firstly, the relevant clause was directly concerned with “reasonable commercial endeavours.” Secondly, the decision turned on its own facts wherein the court determined that the contracting party had taken reasonable steps to cause an agreement to be entered into.
[15] [2011] NSWCA 173.
141. This may be compared with the present case where I am not satisfied that the purchaser has done all it could reasonably do to obtain consent.
142. Thus I do not consider that Sheengroup did all that it could reasonably do to obtain the consent to a transfer of the licences where it coupled its applications to transfer with applications to alter all 8 depots out of Mornington which applications were only a “long shot”.
143. If I was wrong on the construction point I would therefore dismiss the plaintiff’s claim on this alternative basis.
Other matters
144. The plaintiff has not established an entitlement to the deposit based on clause 6.1 as alleged with the result that its claim must be dismissed.[16]
[16] Statement of Claim dated 4 February 2014, paragraph 16.
145. Given the defendants did not seek any damages pursuant to their counterclaim no further consideration is necessary.
146. However, for the sake of completeness, the defendants further alleged that the deposit was forfeited to them by reason of clause 11.5 - relying on the service of the default notice.
147. In its Reply and Defence to Counterclaim, Sheengroup denied this on the basis that it had not made a default (paragraphs 10-12). However, in oral submissions Counsel appeared to make complaint that the default notice not only cited the failure to pay the balance but also stated that Sheengroup had “failed to do all that you could have reasonable (sic) done to obtain the consent of VicRoads to the transfer” thereby relying on clause 6.1.
148. However, given the obligation to pay the balance at the Completion date (30 August 2013) under clause 4 was subject to clause 6.1 (such that the purchaser was to be given 30 days following completion to obtain consent) there appears to be no vice in the formulation utilised and none was really pressed.
149. It was not otherwise suggested that the default notice was complied with, nor was the defendants’ entitlement to the deposit otherwise challenged. It would follow that the deposit is forfeited to the Vendors pursuant to clause 11.5.
Conclusion
150. The plaintiff’s claim is dismissed.
151. I will hear from the parties as to the appropriate form of final orders.
SCHEDULE OF PARTIES:
| SHEENGROUP TOWING PTY LTD (ACN 156 402 747) | Plaintiff |
| v | |
| MORPHETT BCO PTY LTD (ACN 006 391 135) | First Defendant |
| A & J MORPHETT (NOMINEES) PTY LTD (ACN 071 770 477) | Second Defendant |
| ANTHONY DONALD MORPHETT | Third Defendant |
| AND BETWEEN | |
| MORPHETT BCO PTY LTD (ACN 006 391 135) | First Plaintiff by Counterclaim |
| A & J MORPHETT (NOMINEES) PTY LTD (ACN 071 770 477) | Second Plaintiff by Counterclaim |
| ANTHONY DONALD MORPHETT | Third Plaintiff by Counterclaim |
| V | |
| SHEENGROUP TOWING PTY LTD (ACN 156 402 747) | Defendant by Counterclaim |
0
9
0