South Pacific Meat Corporation (Aust) P L

[1995] QSC 206

IN THE SUPREME COURT

OF QUEENSLAND

O.S. No. 160 of 1995
Brisbane

Before Mr Justice Ambrose

[South Pacific Meat Corporation (Aust) P L]

IN THE MATTER of The Rules of the Supreme Court 1990 (as amended)                 

- and -

IN THE MATTER of  an Application by SOUTH PACIFIC MEAT CORPORATION (AUSTRALIA) PTY LTD formerly BEEFLANDS ENTERPRISES PTY LTD ACN 063 864 844 ("Applicant")

REASONS FOR JUDGMENT - B.W. AMBROSE J.

Judgment delivered : 22/08/1995

CATCHWORDS:     CONTRACT - construction - share sale agreement - adjustment clause - meaning of phrase "claim made in respect of a creditor of the company" - observations on inappropriateness of procedure under O.64 r.1A for summary determination of construction of contract in vacuo.

Counsel:Mr D Cooper for the applicant

Mr D Jackson Q.C., with him Mr P Freeburn, for the respondent

Solicitors:Blake Dawson & Waldron for the applicant

Thompson King Connolly for the respondent

Hearing Date:   22 March 1995

IN THE SUPREME COURT

OF QUEENSLAND

O.S. No. 160 of 1995
Brisbane

Before Mr Justice Ambrose

[South Pacific Meat Corporation (Aust) P L]

IN THE MATTER of The Rules of the Supreme Court 1990 (as amended)                 

- and -

IN THE MATTER of  an Application by SOUTH PACIFIC MEAT CORPORATION (AUSTRALIA) PTY LTD formerly BEEFLANDS ENTERPRISES PTY LTD ACN 063 864 844 ("Applicant")

REASONS FOR JUDGMENT - B.W. AMBROSE J.

Judgment delivered :  22/08/1995
           This is an application under RSC 0.64 r.1A by the applicant claiming to be interested as vendor under a share sale agreement made in November 1994 seeking determination of a question of construction of clauses under that agreement and a declaration of its rights on a vast amount of affidavit material filed in support of the summons.
           The respondent is the other party to the agreement as purchaser and contends essentially that proceedings under O.64 r.1A are not appropriate in the light of the factual matters which are or are likely to be in issue, whatever may be the appropriate construction of the clauses of the agreement - which has been argued by both sides.  I observe at the outset that the value of the construction of the terms of an agreement in vacuo and without reference to their application to specific facts not in dispute can often be of only marginal value to the parties involved in the application.  The O.64 r.1A procedure is not designed or appropriate for the resolution in chambers on affidavit material of contested issues of fact - particularly when the facts thought relevant to be determined upon that application include, inter alia, photocopies of "accounts" extending over hundreds of pages with particulars of debts amounting to approximately $580,000 alleged to be owing to 66 alleged creditors within a specific period of time.   In this respect I refer to the observations of Andrews CJ in Katsikalis v. Deutsche Bank (Asia) A.G. (1988) 2 Qd R 641 at 657.
           The matter was argued at some length, however, and it will be helpful to set forth briefly the history of the dispute between the parties and the matters of construction debated.
           The applicant and the respondent were the former shareholders of Beeflands Australia Pty Ltd (in provisional liquidation).  At that time the applicant was called Beeflands Enterprises Pty Ltd and the respondent Beef Investment Group Pty Ltd.
           Disputes arose between the respective shareholders and their shareholders/directors and in the course of the liquidation it was agreed that the respondent should buy from the applicant its shares in Beeflands Australia Pty Ltd (in provisional liquidation) ("the company").
           The share sale agreement, the subject of this application, was made on 25 November 1994 to achieve this result.
           The shares sold under the agreement were shares in the company carrying on the business of conducting abattoirs at places in Queensland and selling domestically and exporting to various overseas destinations meat processed in them.  The assets of the company were significant as was its volume of production and its involvement in commercial transactions relating to that production and its sale.
           Because of the pending application to dissolve the company, the parties to the agreement were constrained to complete it promptly and some of the terms of the agreement were drawn to achieve this result.
           In essence and without resorting in any more detail to the terms of the agreement than is necessary to indicate its outline, the applicant agreed to sell to the respondent four million fully paid $1 shares for the sum of $1.7 m.  Under cl.5.5 the purchase price was to be adjusted, having regard to the existence, status and value of creditors as at midnight on 24 November 1994 on the basis of "the accounts" (as defined) of the company.
           To safeguard the rights of the parties under another adjustment provision of the agreement with respect to the meeting of company obligations to creditors as at 24 November 1994, it was provided in cl.6.9(a) that the applicant would retain in the trust account of the solicitors for the provisional liquidators not less than $.25 m. of the purchase price for a period of 3 months following completion.  Provision was made as to the disposition of that sum between the parties to the agreement.
           It is with respect to the rights of the parties to moneys retained under cl.6.9(a) that disputes have arisen.
           Stated shortly, the applicant contends that for a variety of reasons it is entitled to the whole of the $250,000 held by the solicitors for the provisional liquidator under cl.6.9(a) of the agreement.  On 3 March 1995 the solicitors for the applicant demanded the sum of $248,812.50.  This seems on the material to be not necessarily the whole of the moneys to which the applicant claims to be entitled either under the agreement for sale or by reason of rights referred to in it.
           The respondent contends that the applicant is indebted to it under the terms of the agreement and/or in respect of rights referred to in it and that, indeed, in making payment to at least one alleged creditor of the company in respect of which the applicant claims to be reimbursed out of the moneys held under cl.6.9, that payment was made contrary to the terms of the agreement.  There seems to be an unresolved dispute as to whether it was or was not made by the applicant in accord with the requirements of various parts of cl.6 of the agreement.
           There is, however, a fundamental disagreement between the applicant and respondent as to the effect of cl.6.
           It is convenient at this stage to turn to the specific clauses of the contract which have been argued on this application.
           There is no dispute that the contract was completed on 25 November 1994.  Completion involved, inter alia, a transfer of the applicant's shares to the respondent and the payment by the respondent to the applicant of the sum of $1.7 m, $.25 m of which was held (and is still held) by the solicitors for the provisional liquidator to secure whatever rights the parties might have under cl.6.9(a) of the contract.
           The issues are as to which of the applicant and the respondent is entitled to the moneys held by the solicitor for the provisional liquidators under that clause and as to the extent of that entitlement.
           Under cl.6.9(b) of the agreement, those moneys are presently invested and the applicant is entitled to the interest earned on them.
           Clause 5.5 of the agreement provides:

"The Purchase Price shall be adjusted proportionally by the amount by which the Net Deficiency as at midnight on the 24th day of November 1994 exceeds the sum of $1,000,000.  The Vendor and the Purchaser acknowledge that the Provisional Liquidators shall use their best endeavours to calculate the Net Deficiency of the Company as at midnight on the 24th day of November 1994 with a view to forwarding a copy of that calculation to the Vendor and the Purchaser by 10:00 am or so soon thereafter as is practicably possible on the Completion Date."

The completion date was in fact 25 November 1994 - the date the agreement was signed. 
           Clause 5.6 provides:

"In calculating the Net Deficiency the Vendor and Purchaser agree that:

(a)liabilities shall mean:

(i)all amounts presently due to all creditors of the Company;

(ii)all amounts payable to all creditors of the Company where goods and/or services have been delivered to the Company on or before midnight on the 24th day of November 1994, but have not yet been invoiced to the Company;

(iii)lease and rental liabilities due and payable on or before midnight on the 24th day of November 1994;

(iv)all amounts payable in respect of the Provisional Liquidator's fees, expenses and debts as at midnight on the 23rd day of November 1994, together with such amount as might be agreed by the Company, Vendor and Purchaser to be paid to the Provisional Liquidators for the completion of the administration; and

(v)accrued entitlements including but without limiting that expression tax payable, leave entitlements payable, fees payable to, AQIS and professional fees payable;

(b)The term liabilities excludes:

(i)any amount owing by way of debt by the Company to the Vendor, Beeflands Pty Ltd, Rex Norman Fraser, Patricia Mary Fraser or Peter Antony Jans;

(ii)Lease and rental liabilities falling due after midnight on the 24th day of November 1994; and

(iii)all liabilities falling due after midnight on the 24th day of November 1994 in respect of goods and/or services delivered to the company after the [sic] midnight on the 24th day of November 1994;

(c)The term assets means and includes:

(i)all accounts receivable and the trade debtors of the Company;

(ii)all stock in trade or in transit as costed by the plant accountant;

(iii)cash at bank;

(iv)prepayment; and

(v)any amount held in a suspense account of the Company;

(d)The term assets excludes any debts owed to the company by the vendor Beeflands Pty Ltd, Rex Norman Fraser, Patricia May Fraser or Peter Antony Jans."

Under the definition clause, cl.1.1,  "Net Deficiency" means "the amount (if any) by which the liabilities of the Company exceed the assets of the Company as detailed in the accounts".
           Under the same section "accounts" means "the documents entitled Net Deficiency Summary prepared by the Provisional Liquidators, the Creditors' Ledger, the Debtors Ledger and the calculations prepared by the Company's staff in respect of the accounts in the said Summary".
           Under cl.6.1, the purchaser (respondent):

"warrants and represents to the Vendor as an inducement to the Vendor to enter into this Agreement to sell the Shares and it is a condition of this Agreement that it will procure the Company to pay all amounts agreed and shown in the Accounts as owing by the Company (and including accrued liabilities)."

Under cl.6.2 of the agreement the applicant (vendor):

"warrants and represents to the Purchaser as an inducement to the Purchaser to enter into this Agreement and to purchase the Shares and it is a condition of this Agreement that the Vendor will pay all amounts owing to any creditor of the Company as at midnight on the 24th day of November 1994 which amount is not disclosed in the Accounts subject to the Vendor's right to dispute the claim by virtue of the provisions of Clause 6.5 hereof."

To make sense of this clause the operative part must be read "the vendor will pay all amounts [alleged to be] owing to any creditor of the company" otherwise the proviso can be given no effect.
           Clause 6.5 of the agreement (which must be read as a proviso to cl.6.2) provides:

"The Vendor (applicant) is not obliged to make any payment in respect of the indemnity contained in clause 6.2 while it is, on behalf of the Purchaser or the Company (as the case may be) disputing or intending to dispute the relevant claim and, if the Vendor has made a payment pursuant to the indemnity contained in clause 6.2 and the matter in respect of which that payment is made is resolved in favour of the Purchaser or the Company (as the case may be) the Purchaser must, immediately after the Company receives repayment of the money from the relevant creditor cause it to repay an equivalent amount to the Vendor together with any interest thereon as may be recovered."

"The claim" in this clause obviously refers to the amount alleged to be owing.

Clause 6.3 of the agreement provides:

"If a claim is made against the Company after midnight on the 24th day of November 1994 in respect of a creditor of the Company as at midnight on the 24th day of November 1994 which is not disclosed in the Accounts, the Purchaser shall procure the Company to:

(a)give an immediate notice of the claim to the Vendor; and

(b)seek indemnity from any insurer under a policy or policies providing indemnity or insurance in respect of such a claim."

With cl.6.3 must be read cl.6.4, which provides:

"The Vendor is not obliged to make any payment in respect of a claim under the indemnity contained in clause 6.3 unless the Purchaser has given to the Vendor a notice of claim in accordance with that clause."

It is upon cl.6.3 that the applicant relies to support its entitlement to moneys held under cl.6.9(a).

The agreement does not define the terms "creditor" or "claim".
           I would construe the term "creditor" to mean a person to whom the company owed a liquidated debt absolutely or contingently.  Prima facie, it would not refer to a person with a right to pursue a claim for unliquidated damages.
           I would construe the term "claim" to mean a communicated formulated demand.  Prima facie, it would not connote the existence of circumstances upon which a demand might at some time in the future be formulated and conveyed to or made of the company.
           In the absence of anything to indicate clearly to the contrary, I would conclude that "a claim made in respect of a creditor of the company" is something different from "a claim made by a creditor of the company".  What sort of claims then might be made "in respect of a creditor" which are not made "by a creditor"?  The first claim that comes to mind is one by somebody who at law has the right to have resort directly to the company as a debtor of that creditor to the extent of its indebtedness.   Such proceedings might be categorised as "garnishee proceedings".  It is conceivable, indeed likely, that having regard to the domestic and international business activities of the company there are persons and instrumentalities which would have entitlements against creditors of the company which might be enforced against their debtors (including the company).  Prima facie, in my view, that is the sort of situation which the language of cl.6.3 of the agreement contemplates.
           Although the indications are that the agreement was prepared in some haste, I would find it surprising, making all due allowance for that, if the wording of cl.6.3 was intended to cover the very straightforward situation where a creditor simply made a claim for a liquidated sum against the company after the specified time which was nowhere "disclosed" in any of the company accounts.  Clause 6.3 talks about a claim "which is not disclosed in the accounts".  One has to wonder how conceivably a creditor's claim not made before 24 November 1994 could ever be "disclosed in the accounts" of the company.  Clause 5.6(a)(ii) certainly treats as a company liability an amount payable for goods or services delivered on or before 24 November 1994 "but not yet invoiced to the company".  It might be suggested that one can read cl.6.3 as referring to a claim "first made against the company" by invoice as contemplated by cl.5.6(a)(ii). It is hard to understand why the language found in cl.6.3 would be used if that clause were only intended to refer to the situation so clearly and simply described in cl.5.6(a)(ii).  I have some difficulty in categorising "a claim made against the company ... in respect of a creditor of the company".  If it were intended to signify simply "a claim by a creditor against the company", the expression is strangely circuitous.  Apart from a claim by way of garnishee, it would more grammatically refer to a demand that the company meet an obligation as guarantor of or surety for one or more of its creditors.   It would be of assistance in construing cl.6.3 to look not merely at the nature of the legal relationship between the company and its creditors as at 24 November 1994, but also at the nature of earlier relationships which may have existed.
           The reference in cl.6.3(b) to the respondent/purchaser procuring the company to seek indemnity from any insurer under insurance policies providing "indemnity or insurance in respect of such a claim" seems on its face to contemplate claims other than simple claims or demands by creditors for payment of liquidated sums falling due in the ordinary course of business.
           One might think that some claims "in respect of a creditor of the company" to which cl.6(3)(b) might refer would be those with which perhaps pecuniary loss insurance of some kind was involved.  The terminology seems inappropriate to refer to a claim by a creditor in respect of which the company has a right of indemnity from an insurer.
           As between vendor and purchaser, under cl.6.1 the respondent/purchaser warrants that it will have the company pay amounts shown in the accounts to be owing by the company.
           Under cl.6.2 the applicant/vendor warrants that it will pay all amounts owing to any creditor of the company as at 24 November 1994 "which amount is not disclosed in the accounts".  On its face then cl.6.2 deals with amounts not shown in the accounts of the company which of course by definition includes, but is not limited to the documents entitled "Net Deficiency Summary" prepared by the liquidator and indeed the calculations prepared by the company staff with respect to accounts contained in that summary.
           I am quite unpersuaded that the clear obligation imposed on the applicant by cl.6.2 to pay all amounts not disclosed in the accounts as qualified by cl.6.5 is in any way further qualified or lessened by cl.6.3.
           It is quite clear that under cll.6.1 and 6.2 the respondent is liable to pay all amounts owing to creditors shown in the company accounts at the specified time and the applicant is liable to pay all amounts owing to creditors at the specified time not shown in the company accounts.  Whether or not moneys were owing at the specified time depends upon what was done or agreed between the company and its creditors and not what was or was not recorded in the company accounts.  There is nothing, in my view, which clearly limits the applicant's obligations under cl.6.2 to pay only those amounts owing and not shown in company accounts of which it is given "immediate notice" if and when and as soon as the respondent becomes aware of them within a period of 3 months from date of completion.
           To the extent that the applicant and respondent are in genuine dispute over the meaning of terms or clauses in the agreement, extrinsic evidence of circumstances and events leading up to the hasty preparation of the agreement is admissible to aid in its proper construction: Codelfa Construction Pty Ltd v. State Rail Authority of New South Wales (1982-82) 149 CLR 337 at pp. 347-353 per Mason J.
           Argument was advanced as to the time when the respondent/purchaser first learnt of certain amounts unpaid to existing creditors at midnight on 24 November 1994 where a claim or demand first made by a creditor after that time was not disclosed in the accounts. 

           It was contended on behalf of the applicant that cl.6.3 required that the respondent/purchaser have the company give "an immediate notice of the claim in respect of" that creditor to the vendor and as well seek any relevant indemnity referred to in cl.6.3(b).  That clause requires the giving of notice of a claim "immediately" upon its receipt;  no doubt what is an "immediate" notice is a matter that must be determined in all the circumstances of the case.  Similar considerations to those involved in determining whether steps have been taken "forthwith" will be appropriate in determining whether a notice of claim has been given "immediately".  The determination as to whether any notice was given immediately is one of fact and not one of law.
           One of the matters argued upon the application was whether an intimation by a person with whom the company had dealings (Mr Lee Sye) that he contemplated seeking compensation for effort he expended as a consequence of those dealings would be a "claim made against the company in respect of a creditor of the company" within the meaning of cl.6.3.  Prima facie, in my view, Mr Lee Sye would not be categorised as a creditor under the agreement.  The burden of any potential liability of the company to Mr Lee Sye depends upon the construction of parts of the agreement other than cl.6.3 against the background of the company business practice and circumstances generally.
           Upon the hearing, particular complaint was made of the fact that it was on the day before the expiration of the three month period during which $.25 m of the purchase price had been held by the solicitors for the provisional liquidator pursuant to cl.6.9(a), that the respondent/purchaser gave notice of claims allegedly under cl.6.3 without any sufficient supporting material to identify or support those claims.  For the reasons I have expressed I am unpersuaded that cl.6.3 refers to demands made of the company by creditors for payment of debts owed to them of the sort in issue here.  Prima facie, in my view, it does not do so because a claim made "in respect of a creditor" by an unspecified person does not in the ordinary use of language connote a claim made "by a creditor".  Perhaps it may have the meaning for which the applicant contends in the circumstances in which the agreement was made but upon the evidence before me I am not prepared to so construe that clause.
           In any event the balance of convenience favours the single determination of all matters in dispute between the applicant and respondent and the company which emerge in the voluminous correspondence between their legal representatives and which include disputes arising from their commercial dealings before and at the time when the share sale agreement was prepared, executed and completed.
           I decline to grant any of the relief sought by the applicant.  I am prepared to make orders upon application of either party designed to facilitate as speedy a resolution of the items in dispute between the parties and the company as may be achieved by action or otherwise.