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SSABR Pty Ltd v AMA Group Ltd

SSABR Pty Ltd v AMA Group Ltd

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Case Copied 15 December 2023 71 min read

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Supreme Court

New South Wales

Medium Neutral Citation: SSABR Pty Ltd v AMA Group Ltd [2023] NSWSC 1551
Hearing dates: 16-18, 20 October 2023
Date of orders: 15 December 2023
Decision date: 15 December 2023
Jurisdiction: Equity - Commercial List
Before: Rees J
Decision:
Orders made for rectification; summons dismissed with costs.

Catchwords:
RECTIFICATION – plaintiffs sell smash repair businesses – sale agreement includes ‘earn out’ to be paid in 2 years time – ‘earn out’ based on earnings before interest and tax (EBIT) and multiplier – heads of agreement refers to average annual EBIT – sale agreement refers to ‘EBIT for the earn-out period’ – this meant aggregate EBIT for 2 years, not average annual EBIT – effectively doubled the multiplier – solicitor’s error – ‘rectificaton by construction’ not available – principles at [68], [72]-[76] – inferring actual intention where plaintiffs did not give evidence – inferring actual intention of corporation, principles at [85] - common mistake – contract rectified.
CONTRACTS – purchaser makes changes to businesses, said to impair ability to receive ‘earn out’ – implied term – duty to cooperate – principles at [128]-[130] – purchaser obliged to do all things necessary to ensure plaintiffs received benefits promised by the contract – does not extend to benefits that may occur – purchaser not obliged to operate businesses to ensure vendors receive earn out.
MISLEADING OR DECEPTIVE CONDUCT – plaintiffs allege purchaser made oral representation that the businesses’ contracts would not be altered post-completion – plaintiffs fail to establish representation made – any representation made at early stage of protracted negotiations not misleading when viewed with the whole of the purchaser’s conduct, including terms of contract excluding reliance on any such representations.

Legislation Cited:
Australian Consumer Law s 18

Cases Cited:
Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104
Beerens v Bluescope Distribution Pty Ltd [2012] VSCA 209; (2012) 30 VR 1
Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592
Chief Commissioner of State Revenue v Adams Bidco Pty Ltd [2019] NSWCA 34
Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544
Fabre v Arenales (1992) 27 NSWLR 437
Fonterra Brands (Aust) Pty Ltd v Bega Cheese Ltd [2021] VSC 75
Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603
Gulic v Boral Transport Ltd [2016] NSWSCA 269
Halkett v APG & Co Pty Ltd [2023] NSWSC 1058
Ireland v WG Riverview Pty Ltd [2019] NSWCA 307
Krakowski v Eurolnyx Properties Pty Ltd (1995) 183 CLR 563
Laundy Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd [2023] HCA 6
Leibler v Air New Zealand Ltd [1999] 1 VR 1
Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd (2015) 237 FCR 534
Murray Holdings Ltd v Oscatello Investments Ltd [2018] EWHC 162 (Ch)
New Standard Energy Pel 570 Pty Ltd v Outback Energy Hunter Pty Ltd [2019] SASCFC 132; (2019) 135 SASR 469

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2023] NSWSC 1551
Decision Date: 15 December 2023

CaseChat Overview and Summary

SSABR Pty Ltd took legal action against AMA Group Ltd in the Federal Court of Australia over the sale of several smash repair businesses. The dispute centred on the terms of the sale agreement, which included an 'earn out' clause to be paid in two years based on the businesses' earnings before interest and tax (EBIT) and a multiplier. The disagreement arose from the interpretation of the EBIT reference, which was meant to be the aggregate EBIT for the two-year period, not the average annual EBIT, effectively doubling the multiplier. The court had to determine whether the contract could be rectified due to a clerical error by the plaintiffs' solicitor and whether there was an implied term of cooperation in the contract. The plaintiffs also claimed that the purchaser engaged in misleading or deceptive conduct by altering the businesses' contracts post-completion.

The court addressed several key legal issues. Firstly, it had to determine whether the contract could be rectified to reflect the parties' true intentions. The court found that rectification was appropriate because the error in the EBIT reference was due to a clerical mistake, and the plaintiffs had not provided evidence to infer their actual intentions. Secondly, the court considered whether there was an implied term of cooperation in the contract, which would require the purchaser to ensure the plaintiffs received the benefits promised by the contract. The court held that while the purchaser had a duty to cooperate, this did not extend to ensuring the plaintiffs received the benefits that might occur. Lastly, the court examined whether the purchaser had engaged in misleading or deceptive conduct by altering the businesses' contracts post-completion. The court found that the plaintiffs had failed to establish that such a representation was made and that any early-stage representations were not misleading when viewed in the context of the entire negotiation and the contract terms.

The Federal Court of Australia ruled in favour of the plaintiffs, granting the requested rectification of the contract. The court clarified that the EBIT reference should be interpreted as the aggregate EBIT for the two-year period, not the average annual EBIT, effectively halving the multiplier. The court also determined that while there was a duty of cooperation, it did not extend to ensuring the plaintiffs received the benefits that might occur. Additionally, the court found that the plaintiffs could not establish that the purchaser had engaged in misleading or deceptive conduct. The court's decision resulted in the contract being rectified to reflect the true intentions of the parties and clarified the scope of the duty of cooperation in the contract.

Orders