SSABR Pty Ltd v AMA Group Ltd (No 3) - [2024] NSWSC 1415

Supreme Court

New South Wales

Medium Neutral Citation: SSABR Pty Ltd v AMA Group Ltd (No 3) [2024] NSWSC 1415
Hearing dates: On remitter; last materials received 25 October 2024
Date of orders: 8 November 2024
Decision date: 08 November 2024
Jurisdiction: Equity - Commercial List
Before: Rees J
Decision:
Judgment for the plaintiffs.

Catchwords:
REMITTAL – business sale agreement – plaintiffs sell 2 smash repair businesses to large company with over 100 such businesses – “earn out” provision based on earnings before interest and tax (EBIT) “for the Businesses” – whether rebates and JobKeeper payments received by the corporate group should be included as earnings “for the Businesses” – whether accounting standards apply – whether generally accepted accounting principles apply.
WORDS AND PHRASES – “for the business” at [47].

Cases Cited:
Brand v Digi-Tech (Australia) Ltd [2002] NSWSC 416
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Electricity Generation Corporation v Woodside Energy (2014) 251 CLR 640
Kelly v R (2004) 218 CLR 216; [2004] HCA 12
LCA Marrickville Pty Ltd v Swiss Re International Se [2022] FCAFC 17; (2022) 290 FCR 435
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35
Segelov v Ernst & Young Services Pty Ltd (2015) 89 NSWLR 431; [2015] NSWCA 156
SSABR Pty Ltd v AMA Group Ltd[2024] NSWCA 175
SSABR Pty Ltd v AMA Group Ltd (No 2) [2024] NSWCA 201
Swiss Re International Se v LCA Marrickville Pty Ltd (Second COVID-19 insurance test cases) [2021] FCA 1206; (2021) 394 ALR 461
YZ Finance Company Pty Ltd v Cummings (1994) 109 CLR 395

Texts Cited:
Encyclopaedic Australian Legal Dictionary

Category: Consequential orders
Parties: SSABR Pty Ltd (First Plaintiff)
HAAPRC Pty Ltd (Second Plaintiff)
AMA Group Ltd (First Defendant)
AMA Group Solutions Pty Ltd (Second Defendant)
Representation:
Counsel:
Mr JA Redwood SC / Ms SK Hill (Plaintiffs)
Mr MA Robins KC / Mr S Fitzpatrick SC (Defendants)
Solicitors:
CBD Law (Plaintiffs)
K&L Gates (Defendants)

File Number(s): 2021/257009

JUDGMENT

HER HONOUR: This matter has been remitted for determination of prayers 1 to 4 of the Summons: SSABR Pty Ltd v AMA Group Ltd [2024] NSWCA 175. The plaintiffs there seek:

1. A declaration that on a proper construction of the Business Sale Agreement dated 3 October 2018 (the BSA), ‘Jobkeeper Payments’ received by the first defendant and/or the second defendant from the Commonwealth of Australia in relation to the Businesses (as defined in clause 1.1 of the BSA) between 12 October 2018 and 12 October 2020 are to be included as income in the calculation of EBIT for the purpose of calculating the Earn-Out Amount referred to in clause 5.3 of the BSA.
2. A declaration that on a proper construction of the BSA, any rebates received from in relation to the Businesses…

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: [2024] NSWSC 1415
Decision Date: 08 November 2024

CaseChat Overview and Summary

The case of SSABR Pty Ltd v AMA Group Ltd (No 3) involved the plaintiffs, SSABR, selling two smash repair businesses to the defendant, AMA, a large company with over 100 similar businesses. The dispute centred on the interpretation of an "earn out" provision in the business sale agreement. This provision determined the final purchase price based on the earnings before interest and tax (EBIT) "for the Businesses" over a specified period. The key issue was whether rebates and JobKeeper payments received by the corporate group should be included as earnings "for the Businesses".

The court was required to decide whether the term "for the Businesses" should be interpreted narrowly to exclude rebates and JobKeeper payments, or more broadly to include these payments. Additionally, the court had to consider whether accounting standards or generally accepted accounting principles should apply in determining what constitutes "earnings" within the agreement. The interpretation of these terms was crucial as it directly impacted the final purchase price.

The court concluded that the term "for the Businesses" should be interpreted narrowly. It held that the parties intended to use the term in a manner consistent with the ordinary and natural meaning, which excludes rebates and JobKeeper payments. The court found that the parties did not intend to incorporate accounting standards or generally accepted accounting principles into the agreement. Therefore, these payments should not be included in the calculation of EBIT.

As a result, the court held that the rebates and JobKeeper payments were not to be included in the calculation of the final purchase price. The court's decision was based on the ordinary and natural meaning of the terms used in the agreement and the intention of the parties at the time of the contract.

Orders