Tallenford Pty Ltd v Gilete G and B Civil Pty Ltd - [2012] WASC 156

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: TALLENFORD PTY LTD -v- GILETE G & B CIVIL PTY LTD [2012] WASC 156

CORAM: ALLANSON J

HEARD: 21 & 22 MARCH, 23-27, 30 & 31 MAY 2011

DELIVERED : 10 MAY 2012

FILE NO/S: CIV 2449 of 2005

BETWEEN: TALLENFORD PTY LTD
Plaintiff
AND
GILETE G & B CIVIL PTY LTD
First Defendant
KENNETH SYDNEY HETHERINGTON
Second Defendant
KENNETH JAMES SHARP
Third Defendant

Catchwords:

Contract - Construction of contracts - Implied terms - Turns on own facts

Misleading or deceptive conduct - Implied representations - Turns on own facts

Legislation:

Trade Practices Act 1974 (Cth), s 51A, s 87

Result:

Judgment for the plaintiff in the amount of $597,273 plus interest at 8%
Counterclaim dismissed

Category: B

Representation:

Counsel:

Plaintiff:     Mr D J Pratt
First Defendant            :     No appearance
Second Defendant        :     Mr T B Lyons & Dr P R MacMillan
Third Defendant           :     No appearance

Solicitors:

Plaintiff:     Jackson McDonald
First Defendant            :     No appearance
Second Defendant        :     Gibson Lyons
Third Defendant           :     No appearance

Case(s) referred to in judgment(s):

Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] UKPC HCA 1; (1977) 180 CLR 266
Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592
Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304
Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337
DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423
Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95
James Hardie Industries NV v Australian Securities and Investments Commission [2010] NSWCA 332; (2010) 274 ALR 85
McCourt v Cranston [2012] WASCA 60
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 1
Prenn v Simmonds [1971] 1 WLR 1381
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
Watson v Foxman (1995) 49 NSWLR 315
Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 282 ALR 604

ALLANSON J: Until 2003, Tallenford Pty Ltd carried on business as a drainage contractor under the name G & B Drainage. In 2003, it sold its business to the first defendant. The sale price included $1.3 million for goodwill. The goodwill was not payable immediately, and Tallenford and the purchaser agreed terms for payment in instalments over the following 24 months. The second defendant, Mr Kenneth Hetherington, as a director of the purchaser, guaranteed the payment of goodwill. In 2005, the purchaser defaulted.
In these proceedings Tallenford sues Mr Hetherington as guarantor. The principal issues for decision, however, are those raised in the defence and counterclaim. Mr Hetherington claims that Tallenford was in breach of contract, and further that the guarantees were obtained by misleading or deceptive conduct. He counterclaims for declarations that the guarantees are void.
I have concluded, for the reasons which follow, that Tallenford was not in breach of contract; nor did it obtain the guarantees by misleading or deceptive conduct. The plaintiff is entitled to the balance of the goodwill, and Mr Hetherington is liable as guarantor to pay it.

Background ‑ the Original Contract

Mr George Chaffey was a director of Tallenford and the person who controlled the business. On 31 January 2003, Gilete G & B Civil Pty Ltd (Gilete), which was then known as Cales Corporation Pty Ltd, offered to purchase the business of G & B Drainage. Tallenford accepted the offer on or about 2 February 2003. The making of the contract on or about 2 February 2003 is admitted on the pleadings.
Following due diligence, settlement occurred on 2 April 2003.
The sale agreement was in writing, and comprised a Real Estate Institute of WA standard form agreement for purchase of a business as a going concern, with some modification of conditions, and a series of special conditions included as annexure A to the contract. Both parties refer to this agreement as the 'Original Contract', and it is convenient to follow that usage. The dispute largely turns on the terms found in annexure A.
Relevantly, annexure A provided for vendor finance for the payment of the goodwill component of the purchase price:
1(a)Goodwill of $1,300,000 will be paid over a period not exceeding twenty four months from the date of settlement. The Vendors security shall be over G & B Drainage after registered mortgage debenture or other securities required by the financiers to Cales Corporation Pty Ltd with respect to equipment leases and other capital requirements. Two months after settlement the amount of $200,000 will be paid to the Vendor. The remainder of the goodwill will be paid in monthly amounts calculated on the monthly performance of the business and paid two monthly in arrears. Refer to Appendix I for calculation example. Interest calculated at the rate of 8% on the outstanding amount shall be paid with every monthly payment.
Calculation for the monthly payments paid two months in arrears shall be:
The balance of the goodwill being $1,100,000 shall be paid monthly two months in arrears and calculated at the rate of 50% of the monthly net profit of the business. The net profit calculation shall use the monthly gross income from which normal and reasonable running expenses of the business shall be deducted resulting in a net profit calculation. Interest, income tax, depreciation and amortisation will not be used as a business expense to calculate the net profit.
The outstanding balance on the 24^th month after the date of settlement shall be paid to the Vendor along with the interest at which time the Vendor shall release its security over the business, plant and release the Purchasers Directors Guarantees.
Appendix I contained four example calculations for the repayment of goodwill. The first example, based on payments 'on [the] budget prepared' calculated full repayment in month seven of year three. The purchaser would need to pay an outstanding balance of approximately $250,000 at the end of the 24 month period for repayment of goodwill.
Security for the payment of goodwill included directors guarantees, which were to be the subject of a formal deed: cl 1(b). The directors of Gilete also gave guarantees in the Original Contract. In a clause headed 'Directors Guarantors', in consideration of the vendor accepting payment of goodwill over an extended period after settlement, the directors of the purchaser jointly and severally covenanted with the vendor to the performance of the contract and annexure A. Mr Hetherington gave a guarantee as director of Gilete.
Mr Chaffey agreed to a restraint of trade for a period of four years and to contract his management and contracting services to the business on a full time basis for a period of 12 months from settlement. Mr Chaffey and Gilete made a 'Management Agreement' dated 28 March 2003. Mr Chaffey was to be released from the restraint of trade should Gilete default on the payment of any instalment of the balance of goodwill.
Clause 3 of annexure A provided for due diligence by the purchaser's accountants, which was to be completed by 14 February 2003. Clause 3.1 included, as a condition precedent of the contract,
that if such due diligence inquiry results in the Purchaser, after discussions with its accountant and both acting in good faith believing that the business has not been fairly represented, or that [it] is not a commercially viable proposition to purchase for the price as herein specified, then the accountants will issue an appropriate certificate to the Purchaser which the Purchaser must show to the Vendor, the Purchaser will have the option of not proceeding with this contract, but the Purchaser must make its decision known to the Vendor no later than 14th February 2003.
Tallenford was required to provide the purchaser's accountants with all books and financial records as requested, and to give access to all computer records and to each of the premises from which the business was being conducted. The contract was also subject to finance approval. The time for approval was extended, by agreement, to 7 March 2003.
Annexure A contained two clauses numbered 7. The second cl 7 is that headed 'Directors Guarantors', which I have referred to above.
The first appearing cl 7 provided:
It is hereby acknowledged by the Purchaser and Vendor that the business G & B Drainage, the subject of this agreement to purchase, has a number of construction contracts in various stages of completion under the name of Tallenford Pty Ltd as Trustee for G & B Drainage. It is further agreed that at the date of settlement all rights to the balance of the uncompleted construction contracts shall be assigned or subcontracted to Cales Corporation Pty Ltd as the new owners of G & B Drainage and contract payments be financially adjusted and apportioned to the date of settlement where by Tallenford Pty Ltd will be paid for works performed up to the date of settlement and Cales Corporation Pty Ltd shall be paid for works performed after the date of settlement.
Two further sentences were inserted at the end of cl 7 in Mr Hetherington's handwriting and initialled by the parties:
A valuation certificate shall be prepared for each contract on foot. In the event of a disagreement, a Quantity Surveyor shall be appointed to determine the valuation.
On 2 April 2003, the parties made a further agreement, described as a deed of charge under which the whole of Gilete's legal and equitable interest in its property was charged with payment of the money due to Tallenford (Deed of Charge). Mr Hetherington and Mr Sharp executed this deed as guarantors of Gilete's liabilities.
On 11 February 2004, the parties executed a further agreement as a deed of variation (Deed of Variation). Again, Mr Hetherington and Mr Sharp were guarantors. The Deed of Variation recited:
A.By Contract dated 2 February 2003, Gilete agreed to purchase the business known as G&B Drainage from Tallenford.
B.Settlement under the Contract took place on 2 April 2003.
C.Under the Contract, Gilete agreed to pay Goodwill of one million three hundred thousand dollars ($1,300,000) to Tallenford in accordance with the terms of the Contract.
D.As at the date of this Deed, Gilete has paid goodwill of three hundred and seventy four thousand dollars ($374,000.00) leaving a balance outstanding of nine hundred and twenty six thousand dollars ($926,000.00).
E.Gilete and Tallenford have agreed to vary the manner of repayment of the balance of the Goodwill in accordance with this deed.
The operative part of the Deed of Variation contains four clauses, the first of which states:
The parties agree that the balance of Goodwill payable by Gilete to Tallenford (excluding interest) as at the date of this deed is nine hundred and twenty six thousand dollars ($926,000.00).
Clause 2 provided that the balance of goodwill is to be paid in 14 equal monthly instalments. That is, the formula linking the amount of an instalment to the net profit of the business was replaced with a set monthly amount. Clause 3 provided that if Gilete fails to pay any instalment on the due date, the whole of the balance and interest shall become immediately due and payable. Under cl 3(b), the guarantors jointly and severally guaranteed to the plaintiff the repayment of the balance of goodwill and all interest thereon.
Gilete defaulted in payment of the goodwill instalments. The plaintiff sent Gilete and each of the other two defendants a notice of default dated 23 September 2005. It commenced proceedings against Gilete, Mr Hetherington and Mr Sharp in December 2005.
Mr Hetherington is the only active defendant. Judgment in default was entered against Mr Sharp in January 2006, and he subsequently went into bankruptcy. Gilete was placed in administration in December 2005 and has been wound up. References to the defendant and the defence and counterclaim in the following reasons are references to Mr Hetherington and his pleaded case.

The plaintiff's claim

The plaintiff's case is that only part of the goodwill has been paid and a balance of $597,273 is due and payable. It claims that Mr Hetherington, as guarantor of Gilete's liabilities, is liable to pay the outstanding balance plus interest, either at the rate prescribed under the Original Contract (8%), or alternatively under s 32 of the Supreme Court Act 1935 (WA). Alternatively, it claims damages. The plaintiff relies on the guarantees given by Mr Hetherington in the Original Contract, the Deed of Charge, and the Deed of Variation.
The plaintiff further says that the defendant is estopped by the Deed of Variation from denying that the amount owing for goodwill is that set out in the Deed. The plaintiff accepts, however, that the estoppel argument would not preclude a remedy under s 87 of the Trade Practices Act 1974 (Cth) should the court find that Mr Hetherington's guarantee was obtained by misleading or deceptive conduct.

The defence

The defendant resists the plaintiff's claim. He pleads several defences, which are also the basis for the counterclaim:
1.the plaintiff repudiated the Original Contract;
2.the plaintiff breached that contract, so as to relieve Gilete from liability to pay the amount for goodwill;
3.the payment of goodwill was dependent upon the plaintiff meeting a condition which it failed to perform;
4.the defendants were induced to enter the Original Contract and the Deed of Charge by misleading or deceptive conduct of the plaintiff;
5.the defendants were induced to enter the Deed of Variation by the plaintiff's misleading or deceptive conduct.
The defendant abandoned the plea of repudiation at trial. He also agreed at trial that the amount of goodwill unpaid was $597,273, and the issue is whether he is liable to pay that amount under one or more of the guarantees.
The defendant's basic assertion is that the goodwill payments were conditional on the plaintiff providing valuation certificates. Further, the goodwill sum was to be varied if the valuation certificates did not support a payment of $1.3 million.

The contract defences

The defendant admits that the Original Contract was in writing and does not plead that there were any additional oral terms.
In par 6 the defence sets out eight matters which it pleads were terms of the Original Contract as express terms, alternatively as implied terms, alternatively as terms 'on a proper construction of the contract'. Some of the terms pleaded in par 6 are not controversial.
In par 6(a) the defendant contends that there were twelve 'uncompleted construction contracts' (referred to as 'the Contracts' ‑ I will follow that usage) which were to be assigned or subcontracted to Gilete on the purchase of the business, with Gilete to be paid for all work carried out on the Contracts after settlement. The plaintiff, in its reply and defence to counterclaim, admitted par 6(a). In evidence, however, the parties did not agree on the number of contracts on which work had commenced before settlement, or all of the contracts which should be included. The core group of the Contracts was not in dispute.
Paragraphs 6(b), (c) and (g) plead written terms of the Original Contract and are not in dispute.
The dispute is found in pars 6(d), (e), (f), and (h) of the defence, which allege the following were terms of the Original Contract:
(d)a valuation certificate was to be prepared for each of the Contracts and provided by the plaintiff to the first defendant ('Valuation certificates');
(e)payment of the balance of the goodwill was conditional upon the provision of the Valuation Certificates;
(f)if the Valuation Certificates prepared for each of the Contracts did not support the expected revenue figures provided to the first defendant by the plaintiff for work to be done on the Contracts after settlement, the goodwill figure payable to the plaintiff was to be varied accordingly;
…
(h)a Valuation Certificate was to provide a breakdown of costs incurred and a revenue claimed on each of the Contracts to the date of handover.
The Original Contract (in cl 7 of annexure A) stated that a valuation certificate was to be prepared for each of the Contracts. None of the other matters pleaded in pars 6(d), (e), (f) or (h) was expressly stated in the Original Contract.
The particulars of par 6 of the defence, following amendment at trial, claim as to the construction of the terms pleaded in pars 6(d), (e), (f), and (h):
[T]he second defendant relies on the fact that it was mutually known to the parties prior to the making of the Original Contract that:
(i)there were Contracts that were partially complete and would be partially complete at handover;
(ii)the plaintiff did not have available a breakdown of costs as to each partially completed contract;
(iii)a progress certificate does not include information as to costs incurred on the contract in question;
(iv)it was impossible without the costs as to each Contract partially complete at handover to determine whether at handover such Contract was profitable;
(v)the $1.3m goodwill payment was not to be paid in a lump sum.
The defendant alleges that he does not owe the plaintiff the balance of the goodwill, for which he would otherwise be liable as guarantor, because of the plaintiff's breach of the Original Contract.
First, he alleges that, despite requests made at weekly progress meetings during or about May 2003, November 2003 and December 2003, the plaintiff has failed to provide the valuation certificates and is in breach of the Original Contract: pars 9 and 11.
As an alternative, the defendant pleads that the plaintiff failed to comply with a condition of the contract: par 13. The condition is that pleaded in par 6(f) of the defence; that is, that the goodwill payable to the plaintiff would be varied if the valuation certificates prepared for each of the Contracts did not support the expected revenue figures provided to Gilete by the plaintiff for work to be done on the Contracts after settlement.
The defendant says that, as it is a contract under which he guaranteed the indebtedness of Gilete, the plaintiff's obligations should be strictly construed: see, for example, Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549.
In its reply and defence to counterclaim, the plaintiff pleads that on a true construction of the Original Contract, 'valuation certificate' means the document commonly known in the construction industry as a progress certificate. It agrees that it was to provide progress certificates, and to that extent admits par 6(d) of the defence.

The Trade Practices Act defence and counterclaim

Alternatively, the defendant pleads that the plaintiff made a series of representations during the period of about December 2002 to January 2003. He pleads that the defendants entered into the Original Contract and Deed of Charge in reliance on four representations. He also pleads two further representations were made during or about March 2003 to January 2004, and that he executed the Deed of Variation in February 2005 in reliance on those representations as well as on the four representations made earlier.
The defendant alleges that all of the representations were misleading or deceptive, or likely to mislead or to deceive. He pleads that he has suffered or will suffer loss and damage from the plaintiff's misleading or deceptive conduct and seeks declarations that the guarantees in each of the Original Contract, the Deed of Charge, and the Deed of Variation are void. The defendant relies on the remedies under s 87 of the Trade Practices Act.

The pleading of the representations has a number of strands, bringing together allegations of statements made orally by Mr Chaffey, information in the accounts of Tallenford examined in the due diligence process, and the terms of the Original Contract. The various strands of the plea need to be identified in order to follow the plea.
First, the defendant pleads in par 14 that Mr Chaffey provided certain information orally to Mr Hetherington and Mr Thompson during or about December 2002 to January 2003. The information was that:
(a)the Business was profitable;
(b)the plaintiff had partially completed the Contracts;
(c)the percentage of work completed on each of the Contracts was different;
…
(e)a goodwill figure of $1.3m for the Business was appropriate;
(f)the plaintiff was prepared to provide vendor finance as to payment of the sum of $1.3m for the goodwill of the Business such payment to be made over a 24 month period;
(g)the monthly payment was to be 2 months in arrears and was to be calculated at the rate of 50% of the monthly gross income from which reasonable running expenses for the business had been deducted;
(h)the plaintiff was to provide a Valuation Certificate as to each of the Contracts, providing a breakdown of costs incurred and revenue claimed on each of those Contracts to the date of handover;
(i)the Valuation Certificates would support the $1.3m goodwill payment [that is, the goodwill of $1.3m would be supported by certificates, as described in par 14(h), providing a breakdown of costs incurred and revenue claimed on each of those Contracts to the date of handover].
The defendant alleges that the matters in pars 14(e), (h) and (i) were false, but does not allege that the others were untrue.
Second, the defendant pleads that, in the financial accounts for the period 1999 to 2002 that the plaintiff made available in due diligence, the plaintiff informed Gilete and the defendant that it had achieved a gross profit margin over the period 1999 to 2002 of 28%: par 14(d).
Third, the defence refers back to the terms it alleges form part of the Original Contract, as pleaded in defence pars 6(f), (g) and (h), and which are set out above.
Much of this plea refers to matters that are not in dispute. The plaintiff admits each of the matters in pars 14(a), (b), (c), (e), (f), and (g), although it denies that it made the four representations pleaded in par 15. The plaintiff's admissions must be understood in the context of the plaintiff's contention that the reference in the Original Contract to valuation certificates should be understood as a reference to progress certificates.

(i) First representation

The defendant alleges that the plaintiff 'represented to alternatively gave the defendants the impression that [it] expected to achieve a gross profit margin of approximately 28% alternatively a good gross profit margin on the work to be completed pursuant to the Contracts'.
The defendant pleads the representation is to be 'implied' from the matters pleaded in par 14, and from the failure of the plaintiff to warn the defendants that the value of the work to be completed pursuant to the Contracts at the date of settlement included no profit margin alternatively, a small profit margin. The defendant does not say when the failure to warn occurred. The Original Contract was executed on 2 February 2003, and was unconditional by 7 March 2003 when finance was approved. The Deed of Charge was executed on 2 April 2003.

(ii) Second representation

The second representation is that the plaintiff would, after settlement of the Original Contract, provide the defendants with the valuation certificates which specified costs on partially completed contracts at handover. It is pleaded to be in writing and a term of the Original Contract.

(iii) Third and fourth representations

The third representation is that the valuation certificates would support a goodwill payment of $1.3 million. The fourth representation is that the goodwill of the business was worth $1.3 million. Both representations were oral. The defendant relies for each of them on the particulars to par 14 of the defence.
Alternatively, the defendant says the representations are to be implied from all of the matters pleaded in par 14, and from the terms of the Original Contract pleaded in pars 6(f), (g), and (h).

(iv) Fifth representation

The defendant alleges that, during or about the period March 2003 to January 2004, the plaintiff 'represented to alternatively gave the [defendant] the impression' that the valuation certificates would be provided to Gilete by the plaintiff. This representation is to be implied from the clause of the Original Contract that the plaintiff would provide Gilete with valuation certificates, and from the failure of the plaintiff at any material time to inform the defendant that it did not intend to provide them.

(v) Sixth representation

The sixth representation is that the valuation certificates would support a goodwill payment of $1.3 million. It is to be implied from the same matters supporting the third and fourth representations, and from the failure of the plaintiff to inform the defendants that this was not the case.

Future matters

The defence relies on s 51A 'insofar as the conduct of the plaintiff relates to future matters': pars 18 and 23. The plea misstates the terms of s 51A, which refers to a representation with respect to a future matter.

Relief

The defendant pleads that each of the defendants executed the Original Contract, the Deed of Charge, and the Deed of Variation in reliance on the representations or each of them. Had the true position in relation to the matters pleaded in par 14 been disclosed, they would not have signed the Original Contract, or the Deed of Charge, or the Deed of Variation. He pleads that each representation (save for the second representation) was false in that:
1.the plaintiff did not expect to achieve a gross profit margin of approximately 28% or a substantial gross profit margin on the work to be completed on the Contracts as of the date of settlement: particulars include that Gilete achieved a profit margin of only 3% on work carried out after settlement to complete the Contracts, and the profit margin in the Pelican Cove contract was in the value of two blocks of land 'secretly transferred' to Mr Chaffey;
2.the plaintiff did not provide valuation certificates to the defendants and never intended to do so;
3.Gilete achieved a profit margin or -4.49%, alternatively 1%, on work carried out after settlement to complete the Contracts, and valuation certificates 'would not have supported a goodwill payment of $1.3 million pursuant to the Original Contract';
4.the goodwill of the business was worth less than $1.3 million.
The inconsistency in the pleaded profit margin achieved on the Contracts (3% against ‑4.49%, alternatively 1%) is present in the pleading. The defendant seeks a declaration that the guarantee in each of the Original Contract, the Deed of Charge, and the Deed of Variation, is void.

Issues for determination

There was no dispute about the balance owing under the Original Contract and Deed of Charge, or under the Deed of Variation, if the defendant was not entitled to relief by reason of the plaintiff's breach of contract, or its misleading or deceptive conduct. Accordingly, the issues for determination are:
1.were the terms set out in pars 6(d), (e), (f), and (h) of the defence express terms of the Original Contract on the proper construction of that contract;
2.were the terms set out in pars 6(d), (e), (f), and (h) of the defence implied in the Original Contract;
3.in particular, under the Original Contract
(a) was the plaintiff required to provide valuation certificates for the Contracts, and if so
(i) what was a valuation certificate required to contain; and
(ii) when was the plaintiff required to provide them;
(b) was the amount of goodwill payable under the Original Contract conditional upon, and required to be supported by, the valuation certificates;
4.did the plaintiff breach either express or implied terms of the contract by failing to provide valuation certificates;
5.was the plaintiff's conduct misleading or deceptive, or likely to mislead or deceive, and in particular did the plaintiff or Mr Chaffey make the representations pleaded or any of them;
6.were the representations, or any of them, with regard to a future matter; and
7.would the defendant suffer loss or damage by the misleading or deceptive conduct of the plaintiff or Mr Chaffey if relief is not granted.

The evidence

The following represents my findings based upon the evidence. Where there was a substantial dispute, I have referred to the conflicting evidence and explained how I have resolved it and why. Because of the lapse of time from when the events took place, and the findings I have made about the reliability of the recollection of the witnesses, I have relied on written communications and contemporaneous documents where they exist and where I can be satisfied that they are an accurate record of what was said or done by the parties at that time.
It is appropriate to make some preliminary comments regarding the witnesses.
The plaintiff relied primarily on the evidence of Mr Chaffey. His evidence‑in‑chief was by witness statement dated 19 July 2010. He was cross‑examined exhaustively by counsel for Mr Hetherington. He had poor recollection of the events, and said as much.
The plaintiff also called Mr Kevin John Coote, the business broker who marketed G & B Drainage on behalf of the plaintiff.
Mr Hetherington gave evidence as the primary defence witness. He is a chartered civil engineer. His evidence‑in‑chief was constituted by two witness statements. The main statement is dated 17 March 2011. It was made after this matter was initially set down for trial in March 2011, but adjourned. He also made a short supplementary statement. Mr Hetherington was cross‑examined at length.
The defence called Mr Kenneth James Sharp. Mr Sharp made a witness statement, dated 17 March 2011. He gave oral evidence and was cross‑examined.
The last non‑expert witness called was Mr Mark Harry Thompson. Mr Thompson is an experienced chartered accountant. He made a witness statement dated 17 March 2011. Mr Thompson was initially brought in by Gilete to do due diligence for the purchase of G & B Drainage and later provided other services. Mr Thompson conducted due diligence in two stages and was the author of the due diligence report. Mr Thompson was not cross‑examined at any length.
The due diligence was also conducted by Mr Stuart Waddell. He was not called as a witness.

Expert witnesses

Finally, there were experts called by each party. The plaintiff called a forensic accountant, Mr Brenton Siviour. The defence called Mr James Thompson, business valuer ‑ I will refer to him as Mr James Thompson to distinguish him from the other witness.
Despite their different fields of expertise, the experts conferred. In conferral, they agreed that the value of goodwill of the business was $1.3 million. Mr James Thompson later explained that his agreement was on the basis 'that the business, including the contracts that were partially performed at settlement, would generate similar profits as generated by the plaintiff in previous financial years'. He added:
Under Special Clause 7 of the Agreement to purchase a Business, the requirement to pay $1.3 million in goodwill could be altered to take into account the value of the contracts that were passed onto the Defendant.
Mr James Thompson's conclusion about the legal effect of cl 7 does not coincide with mine.
I do not in this judgment discuss the expert evidence in any detail because I found it of little assistance to the factual issues that had to be resolved.

Findings

Initial due diligence, the offer and the contract

Mr Sharp was a director of the Crewe Sharp Group, which included Crewe Sharp Investments Pty Ltd. The Crewe Sharp Group had a business model of seeking profitable companies suitable for investment and 'facilitating' investments on behalf of individuals, including business migrants (ts 246).
Mr Chaffey was a director of Tallenford and the person who controlled the business. In 2002 he approached an agent about listing G & B Drainage for sale. Mr Coote was then employed as a sales representative by the Professionals, and he was appointed as agent for the sale in about July 2002. One of Mr Coote's colleagues, Mr Goodwin, prepared a business appraisal. The goodwill figure of $1.3 million was calculated in the appraisal, as on one year's adjusted net profit based on the three years' financial history.
In November 2002, Tallenford (through Mr Coote) began discussions with Mr Hetherington, who was then acting on behalf of the Crewe Sharp Group. Discussions and negotiations with the Crewe Sharp Group continued into early 2003.
On 18 November 2002, Mr Coote sent to Mr Hetherington a list of 12 works in progress, some of which were anticipated to be completed in 2002, and all but four of which by March 2003. Three of them are included in the Contracts that were handed over in the sale of the business.
Crewe Sharp Investments carried out due diligence in two stages.
In 2002, Mr Sharp asked Mr Hetherington to carry out a preliminary evaluation on G & B Drainage. In this first stage of due diligence, Mr Thompson and Mr Hetherington met Mr Chaffey and his accountant, and also met with Mr Coote. Mr Thompson could not recall discussing specific figures at either meeting. There was a second meeting between Mr Thompson and Mr Chaffey where Mr Thompson was provided with all of Tallenford's accounts, including copies of tax returns. Mr Thompson later reported that those accounts did not record the allocation of costs to particular jobs. I infer that was apparent from the accounts in December 2002.
This preliminary stage was completed in about mid‑December 2002. Its purpose was to help Crewe Sharp decide whether an offer would be made. A report was prepared, but the defendant was unable to produce a copy of it. There was, however, a Stage 1 Due Diligence Check List in evidence. It includes, as item 3, a review of forecast future performance, with sub‑items including work on hand and 'performance YTD 2003 against budget'. The check list records: none available. There is a handwritten annotation 'now prepared' but I cannot determine when this was made.
Initially Mr Chaffey wanted a lump sum payment. Gilete was not satisfied that the financial information available (which was to June 2002) was adequate to base a lump sum payment on, and looked for 'another model which would account for the variability in the business performance since 2002'.
On 19 December 2002, Crewe Sharp wrote to Tallenford confirming its interest in purchasing G & B Drainage. The goodwill component of the purchase price was quantified at $1.3 million. Crewe Sharp proposed an agreement in principle for the purchase of the business, structured on the basis of vendor finance (in relation to goodwill), bank debt and a significant equity injection. The payment of goodwill would be made over three years, on the basis of instalments of 50% of earnings before interest, tax, depreciation and amortisation.
On 6 January 2003, Mr Hetherington sent a fax to Tallenford about the agreement in principle to purchase the business. He now advised that goodwill could be payable over a shorter period, subject to business performance, with some payment at settlement.
On 24 January 2003, Mr Hetherington sent a draft offer.
On 31 January 2003, Cales Corporation (later renamed Gilete) made an offer to purchase the business of G & B Drainage. Tallenford accepted the offer on about 2 February 2003. This offer and acceptance constitute the Original Contract. Under it, Gilete was to pay a purchase price which had several components, principally goodwill of $1.3 million, stock in trade of $50,000, and plant and equipment of $2,116,870.
Mr Sharp said that in the period before the offer was made, he spoke to Mr Chaffey by telephone and Mr Chaffey said words to the effect that the business showed a 'gross margin' of 23% to 28%. Mr Sharp could specifically recall being provided with a base budget and most likely budget prepared by Mr Thompson from Tallenford's historical trading results and that the budgets showed gross profit at 27%. Mr Sharp could not recall, with precision, his conversations with Mr Chaffey, but said it is something he would have spoken to him about to get confirmation that Mr Chaffey was comfortable with the margin calculated by Mr Thompson.
Mr Sharp said that the offer to purchase the business 'requiring a valuation of work in progress from Chaffey as at 31 March 2003' was made after Mr Thompson completed his due diligence. I assume that Mr Sharp was referring to the first stage of due diligence.
I doubt the accuracy of Mr Sharp's recollection, or that he could have discussed the gross profit margin before the offer was made. The budgets were prepared by Mr Thompson in the second stage of due diligence in February 2003, after the execution of the Original Contract. It is more likely that any discussion about the profit margin was after the second stage of due diligence had been completed.
Mr Chaffey denied the discussion with Mr Sharp, and denied discussing a 28% gross profit margin with Mr Hetherington or Mr Thompson at the time of the sale. He said the figure of 28% gross profit margin was only raised late in 2003. I can, however, put little reliance on Mr Chaffey's recollection as to this or other conversations, as he admitted his memory was poor.
Mr Hetherington gave evidence of conversations with Mr Chaffey during this period. This evidence is critical to the defence under the Trade Practices Act.
In his witness statement, made 17 March 2011 and tendered at trial, Mr Hetherington said that before he and the others from Gilete signed the Original Contract 'and it became unconditional' he had several telephone discussions and meetings with Mr Chaffey. The statement is, on its face, uncertain about when these conversations occurred. Mr Hetherington also said that the conversations took place 'after the initial meetings and Thompson's due diligence' and concerned whether the whole of the $1.3 million goodwill should be paid at settlement. As vendor finance for goodwill was in the Original Contract, the conversations must have taken place before the contract was signed at the end of January 2003.
Mr Hetherington said that in the course of those conversations Mr Chaffey told him various things to do with the profitability of the business and his reluctance to sell it. He said further, that they discussed the goodwill payments. He was aware that Mr Chaffey wanted $1.3 million for goodwill and wanted the whole amount at settlement. Mr Hetherington said in his witness statement:
I said we wanted to add a clause in the contract for valuation of the contracts on foot to establish the profitability of those contracts, because that might affect the goodwill payment.
He was reluctant because his advice was that these should be payment on settlement. I said there would be no deal on that basis, and that we required valuation certificates to confirm the goodwill payment, that he was to remain in the business for 12 months, and a restraint of trade clause would be included.
He took some time to consider this. He finally told me that he had been advised against what I wanted, but he had no problem with this because he was confident the business would generate profits supporting the payment of $1.3m or better, and he was happy to work in the business for 12 months. He agreed to the restraint of trade condition.
He asked me what was meant by a valuation and I explained it was an analysis of cost and revenue of a contract at a particular point which, would tell you the profit left in the contract. This was important to me because of the potential for variation in the cost or revenue in any contract during the period leading up to settlement. Our funding and cash flow models were based on the contracts yielding the same margin as appeared from due diligence.

Mr Chaffey had no recollection of these matters being discussed. He remembered that there were telephone conversations with Mr Hetherington, but not whether the uncompleted contracts were discussed. He denied discussing the goodwill figure, or the provision of valuation certificates.
I am satisfied that Mr Chaffey and Mr Hetherington spoke about including a provision for valuation certificates in the contract. It is unlikely that the addition to cl 7 would have been inserted and signed by each party without something being said. But I am not satisfied with Mr Hetherington's evidence about what was said.
First, these claims are of great importance. They are central to Mr Hetherington's defence which has, since 2006, pleaded that he relied on representations made orally by Mr Chaffey 'during or about December 2002 to January 2003'. Mr Hetherington had made an earlier witness statement, dated 27 August 2010, in which he did not refer to these conversations. He could not say at trial whether or not he remembered the conversations when he made his statement in 2010. It is, of course, possible that it was an omission by oversight; or that it was only remembered or recounted at a later time, as the result of a particular question or trigger to the memory. But the question for the court is whether it has reached the required satisfaction on that evidence, and I treat this evidence of the conversations with caution.
Second, Mr Hetherington was giving evidence about things that were said in telephone conversations over eight years ago. In relation to other meetings and conversations around that period, he frankly agreed that he had no independent recollection of what was said.
Third, Mr Hetherington was diligent in taking notes, although the terms of his notes did not always correspond with his evidence about what was said. But there was no contemporaneous note produced regarding these conversations. These matters are of such importance that one would expect Mr Hetherington to have recorded them in some way.
Fourth, the conversations are inconsistent with the terms of the contract that was signed.
Fifth, the evidence is not consistent with the parties' subsequent conduct. I accept that Mr Hetherington requested Mr Chaffey to provide information to enable valuations to be prepared or to be completed. I am not satisfied that he called on Mr Chaffey to provide 'valuation certificates' before December 2003.
In his evidence, Mr Hetherington appeared to put a gloss on conversations and events which he did not accurately recall, but which he believed to have had a certain effect. There were other difficulties in his evidence.
Mr Hetherington said in his witness statement that in signing the contract he relied on 'Chaffey's acceptance of the clause in the contract to carry out valuations within 30 days to ensure our financial projections were correct'. I accept that some of this statement refers to matters which are in dispute as to the construction of the Original Contract. But the period of 30 days is mentioned nowhere.
Mr Hetherington maintained that cl 1 of the contract contains a mechanism for the payment of goodwill based on the valuation certificates. That is inconsistent with the text of the agreement: cl 1 is a quite straightforward vendor finance clause. It is also inconsistent with the conduct of Gilete and its officers after the contract. Even at the time when the parties executed the Deed of Variation, there was no link between the amount to be paid for goodwill and the performance of the business since Gilete took it over, or the performance of the Contracts. The parties agreed only to vary how the balance was to be paid.
Another example is in relation to one of the Contracts taken over by Gilete, and known as Pelican Point or Pelican Cove. The defence pleaded, as a particular of the claim that the first four representations were false:
[O]n completing the drainage and related works on the Pelican Cove contract … the first defendant made no profit by reason that the contract price did not include a profit margin, such margin being comprised in the value of two blocks of land in the subdivision secretly transferred by the owner to Chaffey. (emphasis added)
The arrangements for Pelican Cove were not secret. At the time of the initial due diligence, Mr Chaffey told Mr Thompson about his arrangement with the developer of Pelican Cove for payment by blocks of land. Gilete and Tallenford agreed that Mr Chaffey would keep the land, and Gilete would invoice Tallenford for work done in relation to the project. Mr Thompson told Mr Hetherington about that arrangement before the contract was signed.
Mr Hetherington accepted that Mr Thompson had told him about this arrangement, but still maintained it was secret, and linked it to the 'valuation certificate process'. He said (ts 285):
The discussion that Mr Thompson had with me was correct. It led us to a view that we needed to have some protection about the value of the business on takeover. Not understanding the value, not understanding the methodology or the reasoning behind the Pelican Point job, we weren't able to actually nail that down and so from a secretive point of view disclosure was never formally made about that. It was a discussion that Harry had had with George, and so it remains to the company a secret to this day because it hasn't been disclosed. It was something that could have easily been disclosed and settled in the valuation certificate process. Mr Chaffey continued to refuse to do that until some point near the end where in return for signing a deed of variation to the payment conditions he was in fact willing to concede that he would do that but subsequently he didn't do it, so that is my take on the secretive nature of that.
For all of these reasons, I do not accept Mr Hetherington's evidence, and in particular his evidence that representations were made in the course of telephone conversations before the contract was signed.

The second stage of due diligence and settlement

The second stage of due diligence was carried out by Mr Hetherington, Mr Thompson and Mr Waddell in more depth over three or four days in February 2003. In his witness statement, Mr Thompson described this stage as 'a more in depth analysis to enable the forming of an offer'.
Mr Thompson said that in carrying out due diligence, he was provided with additional information as he asked for it and 'was able to determine how much revenue had been invoiced by the business and for each job carried out'. He had available to him three or four years of accounts, the official financial statements to June 2002, and invoice registers for the period following June 2002.
Mr Thompson prepared a due diligence report. The defendant could not, however, produce a complete copy of it at trial. The copy produced is not only incomplete (for example, the initial due diligence report, an appendix to the final report, is missing), but in part inaccurate ‑ perhaps reflecting an earlier draft. For example, it refers to payment of goodwill by three instalments: $450,000 at settlement, and further instalments at the end of years 1 and 2 'based on business achieving $8 million in annual revenue at a net margin before financing costs of 5.3%'. The payment mechanism in the contract is quite different.
Mr Thompson was able to satisfy himself as to the overall or general financial position of the business. The plaintiff did not maintain a job costing system or records that showed the allocation of costs to particular jobs, and as a result it was not possible to determine how individual contracts had performed. Mr Thompson and Mr Waddell were aware of these limits in the plaintiff's record keeping.
Mr Thompson worked out a base budget and a most likely budget from the information provided to him. He said that at the end of the three or four days he worked on due diligence, he showed them to Mr Chaffey and explained how he had arrived at the figures and in particular at the gross profit margin figure of 27% reflected in the budgets. Mr Thompson's statement at this stage exhibited a high level of generality. He said that he recalled spending some time explaining to Mr Chaffey how he had arrived at the gross margin, and did not recall anything negative being put to him at the time about those budgets.
Forecast earnings were based on 'historical adjusted margins over the last 4 years', while recognising that there were revenue fluctuations and sales revenue had reduced in the preceding year. Mr Thompson reported that it was not reasonable to calculate and compare gross margins over the years due to misallocations between direct operating costs and overheads. He set out his comparisons on a net margin basis. Mr Thompson calculated goodwill by reference to average earnings and recorded that the goodwill purchase cost of $1.3 million represented 2.73 times average earnings after depreciation and 1.41 times average earnings before depreciation. He reported (and confirmed in evidence) that the multiples were reasonable.
Mr Thompson reported that the business had strong cash flow over the preceding four years. Again, it is not contended that this was not true.
There were at least 11 Contracts on foot or about to commence - there was some dispute at trial about the correct number. Twelve are pleaded, although it is not clear whether the defendant alleges that work had commenced on all of them. Mr Thompson said he was aware of 11. Mr Waddell reported on 14, only five of which had started. Mr Chaffey said there were nine on which work had commenced, a further three on which work had not commenced although the contract was signed before handover, and another three where the contract was signed after the handover.
Mr Thompson was aware of the jobs that were on foot and would continue after settlement and was aware that he could not determine the specific costs for each of those jobs because Mr Chaffey did not have that information to hand, and did not have a system which maintained it. In his witness statement, and in oral evidence, Mr Thompson said that he assumed that those contracts would generate gross profit 'in the same manner as the business had in the past'. He also said, 'I'm sure that [Mr Chaffey] told me that the contracts taken over were going to perform in the same way as all the other contracts had performed'. If Mr Chaffey said that, it appears to have been at some time after Mr Thompson had prepared, and had shown him, the draft budgets. That is, it was in the second stage of due diligence, after the Original Contract had been signed.
Paragraph 14 of the defence pleads that certain information was provided orally in conversations between Mr Thompson and Mr Chaffey before the contract was signed (during or about December 2002 to January 2003). That is, the defendant pleads reliance on conversations during the first due diligence stage. Mr Thompson's evidence, including Mr Chaffey's response to budgets he had prepared was about the second stage. The plaintiff did not cross‑examine as to those conversations, other than to confirm, in very general terms, that Mr Thompson could not remember the detail of what was said.
Mr Thompson said that as a result of his due diligence report and discussions he had with Mr Hetherington and Mr Sharp after he had completed his report, conditions were placed in the contract for sale to require Mr Chaffey to provide valuation certificates. This part of Mr Thompson's evidence is confusing. The defendant's case was that the Original Contract, including annexure A, cl 7 in its final form, was signed on 2 February 2003, before the second stage due diligence process, and the production of the due diligence report to which Mr Thompson refers.
It was Mr Waddell who looked at the existing contracts. The checklist for the second stage of the due diligence provided for Mr Waddell to obtain a list of current contracts and clients and determine the 'status as to % complete and likely financial outcome' (my emphasis).
Mr Waddell prepared a three page document, with some annexures, dated 11 February 2003. It is part of the due diligence report produced by Mr Thompson. Mr Waddell included a list of 14 contracts 'won and due for completion after 31 March' with a total value of about $2.7 million: two were 50% complete, one 30% complete, two 'ongoing', and the rest not yet started. The list does not readily correspond with the list of Contracts pleaded by the defendant, perhaps in part due to how jobs are named. Mr Waddell also referred to an annexure showing projected monthly income from known and high probability contracts. In the copy of the due diligence report attached to Mr Thompson's witness statement there is a table which appears to be this annexure. Another copy of the report, in the trial bundle, did not include this table. Neither party led evidence about whether the table was included in the final report, or whether the projections in this table were accurate. The defendant did not call Mr Waddell as a witness at trial.
I cannot determine with any certainty what Mr Thompson and Mr Waddell reported to Gilete about any particular Contracts in the due diligence report.
Following due diligence, settlement occurred on 2 April 2003.

Events after settlement

Mr Hetherington was not originally intended to have an active role in the business of G & B Drainage. But at the time of the purchase, the investor who was intended to run the business was not immediately available. Mr Hetherington and Mr Sharp agreed that Mr Hetherington would provide interim management assistance to complete the sale transaction and the transition of employees and clients.
Mr Hetherington said that, at a meeting on about 21 May 2003, he first asked Mr Chaffey to produce valuation certificates for the Contracts. To support his account, he relied on notes taken that meeting, which include an item :
Review valuations
‑ need April Certificate returned from Engr to complete review.
The note does not support Mr Hetherington's evidence. It appears to refer to a progress certificate.
Mr Hetherington said that Mr Thompson, who was also assisting at that time, 'repeatedly called for these valuations to be presented'. Mr Thompson, in his witness statement, said that at a number of meetings in December 2003, the valuation certificates were asked for. He did not support Mr Hetherington's evidence that they were requested earlier.
By July to August 2003, the business was not getting the cash flow that the new owners expected. It is not suggested, however, that the figures for cash flow in previous years were false. Nor was there a drop in the anticipated turnover.
Mr Thompson tried to examine what was happening. He could recall Mr Chaffey on occasions paying money to Gilete for work that Gilete did on some of the Contracts, when Tallenford had already been paid for that work. He was surprised by these payments, but could not identify which contracts they related to.
In November 2003, Mr Thompson carried out an analysis of the Contracts and concluded that, as a group, they were underperforming when compared with new contracts obtained by Gilete. He also concluded that the Contracts were not making the margins reflected in the financial documents for the business overall which had been given to Mr Thompson in the course of due diligence. He concluded that the margin on new jobs undertaken by Gilete was on average 23.3%, but the average margin on the Contracts was either ‑4.49% or 1%, depending on how labour and equipment hire were treated.
There is an element of artificiality in this 'snapshot' analysis. First, there is some the uncertainty about which of the Contracts was started before the sale of the G & B Drainage business. Second, I cannot tell on the evidence whether the analysis is over the life of the Contracts, or only from the purchase of the business. Third, the Contracts were treated as a group of eight, described by Mr Thompson as the eight remaining contracts. One of them (Timperly) is recorded as having no income and no costs. Of the remaining seven, three are recorded as incurring losses, the other four as achieving profit. The group as a whole performs badly because of substantial losses in two contracts (Hillcrest Stage 2 and Smith Street, Denmark). The evidence does not establish why those losses were incurred.
Mr Thompson sent Mr Chaffey a fax on 9 December 2003 reflecting his concern about the amount of work in progress and its effect on the formula for calculating monthly goodwill payment:
When this formula was first set up it was believed that work in progress and under claims would be minor part of the equation and would reverse quickly and be turned into cash. From the first six months of trading this has not been the case and we find that we are carrying large lumps of WIP and under claims at the end of each month which are not being turned into cash quickly. In fact some WIP and under claims on Hillcrest Stage 2 and Pelican Point were not real.
Mr Thompson suggested in the fax that work in progress and under claims should be excluded from the calculation for the determination of goodwill payments, so as to better measure the free cash available to the business on which the goodwill payments were to be based. He suggested that, on this basis, there had been an overpayment of goodwill instalments to date.
On 9 December 2003, Mr Thompson sent another fax, this one reflecting concern about the cost of work done on the Pelican Point project. Mr Thompson suggested that, because of the arrangement under which Tallenford was receiving blocks of land in payment, Gilete should get all of the revenue for the project, including revenue for work done before the transfer of the G & B Drainage business to Gilete. Otherwise Tallenford would be double dipping. He also questioned whether there was extra revenue in the project that had not flowed through to Gilete.
On Saturday, 13 December 2003, Mr Hetherington sent Mr Chaffey a letter by email, referring to a meeting between Mr Sharp and Mr Chaffey the previous day, and to his meeting with Mr Thompson and Mr Chaffey earlier that day. The letter referred to the need to resolve 'issues of job profitability and the resultant payment of your goodwill amounts' and set out nine matters which Mr Hetherington said had been agreed that day. The copy of the letter in evidence has handwritten notes on it, made by Mr Hetherington. Those notes show that the nine matters were not all agreed.
Relevantly, the letter records:
1.That a summary of gross margins for each project being conducted by Gilete had been tabled by Mr Thompson. That summary indicated that the Contracts taken over yielded a gross margin of only 1% while new contracts yielded 23.3%, and there was no satisfactory explanation for the differential. Mr Chaffey did not accept this was the case.
2.In future, work in progress which impacted on cash flow would not be included in the calculation of goodwill.
3.Mr Chaffey was to provide a work in progress assessment as at 1 December 2003, with supporting notes, by 17 December.
4.Item 6 of the letter is in these terms:
[Mr Chaffey] will provide information on the costs incurred by each of the Tallenford projects before takeover by Gilete on 1 April 2003 so that a valuation may be prepared for each job, as required by the contract of sale. This information is also required by Wednesday 17 December.
Even at this stage, and in a letter of this character, Mr Hetherington did not assert that Mr Chaffey was required by the Original Contract to provide valuation certificates, but that he was required to provide information so that a valuation could be prepared. Mr Hetherington made a handwritten note: 'GC disagrees with request.'
5.The parties agreed to a further meeting on 20 December 2003, the purpose of which was to settle the valuation of the projects taken over and to agree upon a goodwill payment schedule. Mr Hetherington's note is to the effect that Mr Chaffey said there was not enough time.

On 13 December 2003, Mr Chaffey replied to Mr Hetherington by email to the effect that he would respond to some of the requests, but did not have enough time to have all of the information that was being requested. On 15 December 2003, Mr Chaffey sent a fax to Mr Hetherington regarding the meeting to be held on 20 December. He questioned whether Mr Thompson had the information right in his table about the profitability of the Contracts. Further, he responded regarding item 6 in Mr Hetherington's letter in these terms:
I have looked at contract of sale and disagree with your request. Again I refer to progress certificates that have [been] looked at by both John Bolton and Harry. I don't believe on the system worked on I can accurately find cost for larger jobs.
On the proposal that the meeting to be held on 20 December 2003 would settle valuation of the projects taken over, Mr Chaffey responded that he did not believe that was possible in such a short timeframe and considering his other commitments.
Mr Hetherington responded by email on 15 December 2003, and expressed some urgency in getting matters resolved. He stated:
I am concerned with your disagreement to provide the valuations as required by the contract of sale. The progress certificates that both Harry and John Bolton have reviewed do not reveal the true status of the financial position of these jobs at the time of takeover. The true financial position of each job was not further investigated during the due diligence because it was a moving target, three months away to settlement. Thus the solution was [to] include the Tallenford contract valuations clause to be part of the sale mechanism.
From our point of view, we have accepted, and paid for, in good faith the Tallenford assessment of materials on site at the time of takeover, and so you have been able to provide information on these costs. It does not therefore seem reasonable that you withhold information on the remainder of the costs needed to complete the valuation.
Mr Chaffey and Mr Hetherington spoke by telephone on the morning of 15 December 2003. Mr Hetherington kept a brief note of that conversation. Some of that note is difficult to follow. It is apparent, however, that Mr Chaffey said that he would not be able to provide the information or valuations by that weekend. Further, the note records 'don't agree with valuation'. Also, on 15 December, Mr Chaffey sent a fax to Mr Thompson raising some queries about job costing, and stating that he did not believe the issue could be resolved before Christmas.
There is no mention in any of this material to the matters which the defendant says had been represented by Mr Chaffey. Further, on the face of the exchanges, Mr Chaffey was attempting to co‑operate with Mr Hetherington and Mr Thompson, but did not accept that he was obliged to provide valuations and did not wholly accept the complaints they were making.
On 20 December the further meeting took place. One of the matters set out in the draft action list prepared by Mr Hetherington is:
Tallenford contracts will be reviewed by an external [quantity surveyor] ‑ [Mr Hetherington] to arrange, approx cost $10‑15K.
Mr Hetherington says that for that process to be completed, Mr Chaffey had to provide 'cost data and other information'.
In February 2004, the parties executed the variation to the Original Contract, altering the schedule of payments of goodwill so that the balance was to be paid in equal amounts rather than as a percentage of earnings. Mr Hetherington again executed the agreement as a guarantor, even though the valuation of the projects was still not resolved. The Deed of Variation signed in February 2004 does not contain any reference to outstanding obligations to be complied with by Mr Chaffey.

Construction of the contract

The first issue is whether, as a matter of construction of the contract, there were express terms to the effect of those pleaded in par 6 of the defence. It is a necessary part of that question to determine what the parties agreed regarding valuation certificates, what they were, and who was to prepare them.
The proper approach to construction was recently considered by the Court of Appeal in McCourt v Cranston [2012] WASCA 60, where Murphy JA summarised the principles in this way:
The construction of a written contract involves ascertaining what a reasonable person would have understood the parties to the instrument to mean. The High Court emphasised the objective nature of the analysis in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, by referring to Pacific Carriers Limited v BNP Paribas [2004] HCA 35 ; (2004) 218 CLR 451 in these terms at [40]:
'This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean.'
In Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109, Gibbs J said:
'It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, "even though the construction adopted is not the most obvious, or the most grammatically accurate", to use the words from earlier authority cited in Locke v Dunlop, which, although spoken in relation to a will, are applicable to the construction of written instruments generally; see also Bottomley's Case' [69] -[70].
Pullin JA discussed the effect of the reasons given by three members of the High Court in refusing a special leave application in Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 282 ALR 604 [5], in particular referring to the approach of a trial judge to receiving evidence 'where a party reasonably contends that the contract is ambiguous or susceptible of more than one meaning' [23] ‑ [26].
Where a contract is susceptible of more than one meaning and evidence of surrounding circumstances is properly admissible as to its construction, the meaning of the terms of the contractual document is determined by what a reasonable person would have understood them to mean, and requires consideration of the text, and also the surrounding circumstances known to the parties, and the purpose or object of the transaction: Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95, 105; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 [40].

What are valuation certificates and who was to prepare or provide them

The term 'valuation certificate' is not defined in the Original Contract or any other contract documents. The sole reference to valuation certificates is in the two sentences added to cl 7 of annexure A to the Original Contract, which simply provides that a certificate 'shall be prepared for each contract on foot'. It does not say who is to prepare them, or when they are to be prepared, or the date at which each contract is to be valued.
The defendant contends, as a matter of construction, that the plaintiff was to prepare and provide the valuation certificates.
The plaintiff pleads in its reply and defence to counterclaim that the reference to valuation certificates should be construed as meaning the progress certificates that would be provided in relation to each of the Contracts when claims were made for payment. Progress certificates certified by a supervising engineer or architect are well known in the construction industry. A progress certificate, or a series of them, may show whether work was performed before or after settlement, or at least enable that to be worked out, and the amount paid and remaining to be paid under the contract. Progress certificates would meet some of the apparent purpose of cl 7.
But there are reasons to not accept the plaintiff's construction. First, both parties are experienced in the construction industry. If 'progress certificate' is what they intended, they did not use that term. Second, progress certificates would be prepared as a matter of course under the contract between G & B Drainage and its client. There is no apparent reason for including a requirement to prepare them in the Original Contract. Third, if valuation is certified by an independent third party, as in a progress certificate, there is no reason for the appointment of a quantity surveyor in the event of disagreement.
A common meaning for 'valuation certificate' is a document that contains an estimate of the value of land or some other property that has been prepared and certified by a qualified valuer. Literally, it refers to an assessment or calculation of value that has been in some way verified. But that does not appear to be what is intended in the context of this contract. Again, the provision for determination by a quantity surveyor in the event of disagreement is inconsistent with such a construction.
Neither party suggested that 'valuation certificate' has an accepted meaning in the construction industry. It is not immediately clear what the parties intended in this contract, and the term valuation certificate is arguably capable of more than one meaning. Evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning: Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337, 352. And evidence of surrounding circumstances in the form of mutually known facts is admissible as to the meaning of a descriptive term in a contract: DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423, approving Prenn v Simmonds [1971] 1 WLR 1381, 1384.
The existence of the Contracts which would be completed after the settlement of the sale of the business was an important part of the Original Contract. Clause 7 acknowledges the Contracts, and records the parties' agreement that rights under them will be assigned or subcontracted to Gilete. The parties agreed that payments under the Contracts would be adjusted and apportioned to the date of settlement. The apparent intent of the preparation of valuation certificates, in the context of cl 7, is to facilitate the fair assignment of rights under the Contracts. The specification of a quantity surveyor to determine the valuation in the event of disagreement, demonstrates that the parties were concerned with the cost of materials and labour. These factors support a construction that valuation certificates were intended to provide a valuation of the Contracts, by reference to matters including the costs of materials and labour, to enable the fair adjustment of payments contemplated in cl 7 of annexure A.
Central to the current dispute is the defendant's claim that Tallenford was to provide the valuation certifications. The contract does not specify who is to prepare them, or that anyone is to provide them. By selling the business Tallenford had passed over to Gilete the books and records of the business. In my opinion, in that context, the intent of cl 7 is that the parties (if they could agree) were to jointly prepare the certificates; alternatively (and, with Mr Chaffey continuing to work for the business, it is effectively the same thing) they were to be prepared by the business of G & B Drainage. There is nothing in the Original Contract that supports the defendant's position that the plaintiff was to prepare them or to provide them.
As a general proposition, each party would be required to do all such things as were necessary to enable the purpose of cl 7 to be effected: Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, 607. It is not necessary, on the case the defendant pleaded and presented in evidence, to determine whether Tallenford met its obligation to co-operate or do what was necessary to enable valuations to be prepared.

The valuation certificates and payment of goodwill

The defendant pleads that, as a term of the Original Contract, properly construed, the valuation certificates were to support the expected revenue figures for work to be done on the Contracts after settlement, and in that way support the $1.3 million goodwill payment. The defendant does not link the valuation of the Contracts with the amount of the instalments to be paid during the first two years of the Original Contract, but to the total goodwill amount. I can find no support for this construction in the text of the agreement.
The Original Contract does not expressly link the valuation certificates, or the value of the Contracts, with goodwill. It contains no formula for valuing goodwill, as the amount was agreed, and no provision for the agreed amount to be varied. Before the parties amended their obligations under the Original Contract by the Deed of Variation in 2004, cl 1 set out the formula under which each instalment of goodwill was calculated. The formula was based on monthly net profit. The information which the defendant says it wanted in the valuation certificates might be relevant to the calculation of particular monthly instalments, because the apportionment of contract payments would affect Gilete's net earnings. But that does not affect the total goodwill figure in the manner contended by the defendant. Any balance of goodwill still owing at the end of 24 months was to be paid in a lump sum.
The provision for valuation certificates was added to cl 7. The financial adjustments to be made pursuant to cl 7 may be facilitated by a breakdown of costs incurred and revenue claimed on the Contracts up to settlement, and so valuation certificates may have a role in the process required by this clause. But this has nothing to do with the vendor finance provided for goodwill. Nor does the Original Contract link valuation certificates and expected revenue figures.
The construction put forward by the defendant is not tenable.

Implied terms

In amendments, made without objection at the close of the defendant's case, the defendant also pleads that the terms set out in pars 6(d), (e), (f), and (h) are to be implied on the basis that they are 'reasonable, obvious and necessary to give business efficacy to the original agreement'. It is convenient to again set out the relevant parts of par 6:
(d)a valuation certificate was to be prepared for each of the Contracts and provided by the plaintiff to the first defendant ('Valuation certificates');
(e)payment of the balance of the goodwill was conditional upon the provision of the Valuation Certificates;
(f)if the Valuation Certificates prepared for each of the Contracts did not support the expected revenue figures provided to the first defendant by the plaintiff for work to be done on the Contracts after settlement, the goodwill figure payable to the plaintiff was to be varied accordingly;
…
(h)a Valuation Certificate was to provide a breakdown of costs incurred and revenue claimed on each of the Contracts to the date of handover.
A term meeting certain criteria may be implied in fact: BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] UKPC HCA 1; (1977) 180 CLR 266, 283 - 284; Codelfa Construction (345 ‑ 346). An implied term in this sense is not one that the parties have agreed upon, but one which the court presumes they would have agreed upon had they turned their minds to it: Codelfa Construction (346).
The terms set out in pars 6(d) to (h) of the defence need to be read together, that is, the defendant's case is that the plaintiff was to provide the certificates, what the certificates were to provide, and how they related to the calculation and payment of goodwill.
If these terms were to be implied into the contract they would alter its operation substantially. They would make the contract more commercially beneficial to the defendants. They are not, however, necessary for its effective operation and there is no reason to presume that the plaintiff would have accepted that the payment of the whole of the agreed goodwill was conditional in the way contended.
The terms are not obvious and capable of clear expression. In particular, it is not apparent how the total goodwill figure was to be varied, depending on whether the valuation certificates 'supported' expected revenue figures. In particular, it is not clear how the actual and expected revenue on a small number of continuing contracts was to affect the goodwill amount.
Finally, the contract provided a mechanism for the purchaser to satisfy itself that the purchase was commercially viable at the price specified, fixed $1.3 million as the price for goodwill, and set out the regime for payment over 24 months. The parties had agreed a price for the sale of the business. The proposed terms are not consistent with that agreement.
In any event, as a matter of construction, the underlying premise that the plaintiff was to provide the valuation certificates is wrong.
The defence further pleads that it was an implied term of the Original Contract that the valuation certificates were to be provided within a reasonable time of settlement. That term was to be implied as a matter of law. I do not accept the defendant's contention that the obligation to provide a certificate lay with the plaintiff. For practical purposes, it is unnecessary to say anything further about this plea.

Conclusion on the contract defences

It follows from the findings on the construction of the Original Contract that the contract defences are not made out.

The counterclaim for misleading or deceptive conduct

The law

Under s 87 of the Trade Practices Act (now s 87 of the Competition and Consumer Act 2010 (Cth)), if the court finds that Tallenford engaged in conduct in trade or commerce that was misleading or deceptive or likely to mislead or deceive, and the defendant has suffered, or is likely to suffer, loss or damage by that conduct, the court may make orders against Tallenford to prevent or reduce the loss or damage. The orders which the court may make include an order declaring the whole or part of a contract void, an order varying a contract or arrangement, and an order refusing to enforce any or all of the provisions of a contract.
There is no doubt that Tallenford's conduct was in trade or commerce.
The defendant has pleaded six representations, alternatively, that the plaintiff 'gave the defendants the impression' regarding those matters. He pleads that he and Gilete entered into each of the Original Contract, the Deed of Charge, and the Deed of Variation in reliance on those representations.

To the extent the defendant relies on representations made or impressions given in conversations between the parties, the plaintiff relies on the comments of McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315, 318 ‑ 319. Where the conduct in question in a claim of misleading or deceptive conduct is the speaking of words, it is necessary to prove the words spoken with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. His Honour added two notes of caution. First:
In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition.
Second, human memory is fallible and common experience suggests that fallibility increases with the passage of time. This may be particularly so 'where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said' (319).
Watson v Foxman may be accepted as a counsel of caution. But the proceedings are civil proceedings, to be decided according to the civil standard of proof. It is not necessary for the plaintiff to prove the precise words spoken on each occasion. The court needs to be satisfied that it is more probable than not that words were spoken that would reasonably have conveyed the representation alleged, and that, overall, the conduct of the plaintiff was misleading. I can reach that satisfaction if I am satisfied that the substance or effect of what was spoken conveyed the misleading representations that have been pleaded: James Hardie Industries NV v Australian Securities and Investments Commission [2010] NSWCA 332; (2010) 274 ALR 85 [269]. I must have regard to all of the evidence to the extent it throws light on what was said and what would have been conveyed in those conversations.
Further, in determining whether Mr Chaffey's conduct would reasonably give rise to the pleaded representation, I should also have regard to the circumstances in which the words were said and the whole of the course of conduct of the parties. It is important not to be deflected from the true inquiry. Whether conduct is misleading or deceptive or is likely to mislead or deceive is a question of fact that requires examination of the alleged conduct in the light of the whole of the relevant surrounding facts and circumstances. The question of fact should not be decided by examining any particular statement or document or conduct in isolation: Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 [25] ‑ [26], [102]; Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592 [39], [74], [109]; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191, 199. I approach the evidence on this basis.
The defendant's allegations in this case must be considered in the factual context that the plaintiff arranged for its business to be marketed through a business broker. The goodwill figure of $1.3 million was calculated in an appraisal by the brokers.
The parties dealt with each other at arm's length. Gilete carried out a preliminary evaluation for the purpose of deciding whether to make an offer, in which it was provided with all of the plaintiff's accounts, including copies of tax returns.
After that preliminary due diligence the parties negotiated an agreement, including the sum of $1.3 million for goodwill, and the terms for its payment in instalments over two years after settlement.
The parties provided for further due diligence in which Gilete could, acting in good faith, choose not to proceed. Again, the plaintiff made its books and computer records available. There is no allegation, and no evidence, that any of the financial material made available to Gilete in due diligence was false or inaccurate, or that any material document was withheld. The defendants were aware of the limits of the plaintiff's record keeping and, in particular, that it did not maintain a system which recorded job costings. They were aware that there were contracts which had been won, but were either not begun or not completed.
These circumstances are all relevant to whether I conclude the plaintiff's conduct was misleading.
Relief under s 87 is available where a person suffers or is likely to suffer loss or damage 'by' contravening conduct of another person. Because of the findings I have made as to the pleaded representations, it will not be necessary to discuss causation.

Findings as to the representations

(i) Second and fifth representations

It is convenient to deal immediately with the second and fifth representations. The second representation is that the plaintiff would, after settlement of the Original Contract, provide the defendants with the valuation certificates which specified costs on partially completed contracts at handover. It is pleaded to be in writing and a term of the Original Contract.
The fifth representation is said to be implied from the clause of the Original Contract that the plaintiff would provide Gilete with valuation certificates, and from the failure of the plaintiff at any material time to inform the defendant that it did not intend providing them.
The Original Contract does not contain the term on which the defendant relies. The terms in which the parties expressed their intention in the Original Contract are inconsistent with the plaintiff making such a representation. It is unnecessary to say more.

(ii) First representation

The defendant alleges that the plaintiff 'represented to alternatively gave the defendants the impression that' it expected to achieve a gross profit margin of approximately 28% alternatively a good gross profit margin on the work to be completed pursuant to the Contracts. The defendant pleads the representation is to be 'implied' from the matters pleaded in par 14, that is: from information provided orally by Mr Chaffey to Mr Hetherington and Mr Thompson, in about December 2002 to January 2003; from information in the plaintiff's financial accounts that it had achieved a gross profit margin over the period 1999 to 2002 of 28%; and from the failure of the plaintiff to warn the defendants that the value of the work to be completed pursuant to the Contracts at the date of settlement included no profit margin alternatively a small profit margin.
The first question is whether the defendant has established the matters from which he says the representation was implied.
Dealing first with the information provided orally, for the reasons given above I am not satisfied that Mr Hetherington's evidence about his telephone conversations with Mr Chaffey is reliable. Mr Thompson gives no evidence about anything said by Mr Chaffey about these matters in the relevant period.
The plaintiff does not, however, dispute that it represented certain things: that the business was profitable; that it had partially completed the Contracts; that the percentage of work completed on each Contract was different; that a goodwill figure of $1.3 million was appropriate; that it was prepared to provide vendor finance over 24 months; and how those payments were to be calculated. Apart from the statement that the business was profitable, each of those matters is expressed in some way in the Original Contract.
The other information which the defendant says was provided orally to Mr Hetherington and Mr Thompson, is that the plaintiff was to provide a valuation certificate as to each of the Contracts and the valuation certificates would support the $1.3 million goodwill payment. I am not satisfied that was said, or that the plaintiff represented that it would provide valuation certificates of the kind the defendant asserts.
The other source of the alleged representation is the plaintiff's accounts. I am not sure that there is clear evidence about what gross profit margin is shown in the plaintiff's accounts. Mr Sharp, a qualified accountant, said that he calculated the margin, conservatively, at 20% to 22% for the years 2001 and 2002 if wages, superannuation, fuel, oil and hire of plant were deducted from sales, and 44% to 50% if those costs were not deducted. In his due diligence report, Mr Thompson warned that it was not reasonable to calculate and compare gross margins 'due to mis-allocations of costs between direct operating costs and overheads'. He did his comparisons, and his calculation of goodwill, on a net margin basis. Mr James Thompson calculated a gross profit margin of 44.1% over the four years from 1999 to 2002, apparently not allowing for the mis‑allocation of costs. I am not satisfied that the defendant has proved that the plaintiff informed him that it had achieved a gross profit margin over 1999 to 2002 of 28%.
Further, I am not satisfied that the financial records for the business for the period 1999 to 2002 reasonably give rise to a representation that a particular group of contracts would perform in a particular way after handover.
Accordingly, the defendant has not established all of the matters from which he says the representation is to be implied. While some of those matters are not in dispute, I can see no basis for implying the representation alleged from the facts which are admitted. The defendant's case relies on the valuation certificates linking the performance of the Contracts after settlement and the payment of goodwill. He has not established that link. It is difficult to say more.
If the other matters convey no implication that the Contracts would perform in a particular way, the failure to warn does not provide the missing link.
In these circumstances I am not satisfied that the conduct of the plaintiff was misleading or deceptive.

(iii) Third representation

The third alleged representation is that the valuation certificates would support a goodwill payment of $1.3 million. The representation was oral, alternatively to be implied. The defendant relies on the particulars to par 14 of the defence. For the reasons I have given in relation to the first representation, I am not satisfied that the defendant has proved each of those matters. In particular, he has not established that any representation was made linking the valuation certificates to the payment of goodwill.
Alternatively, the defendant says the representation is to be implied from all of the matters pleaded in par 14, and from the terms of the Original Contract pleaded in pars 6(f), 6(g), and 6(h). The plaintiff admits that the term set out in par 6(g) was a term of the contract. I have found that the contract did not include the terms pleaded in pars 6(f) and (h). From those findings, it follows that the defendant has not proved the third representation was made.

(iv) Fourth representation

The fourth representation is that the goodwill of the business was worth $1.3 million. The plaintiff agrees that Mr Chaffey said that $1.3 million for goodwill was appropriate. The question is whether that conduct was misleading or deceptive, or was likely to mislead or deceive, at the time the representation was acted on. It is a question of fact.
The plaintiff put the business of G & B Drainage on the market through a broker. The broker calculated the goodwill figure by reference to the performance of the business over the preceding three years. Gilete did preliminary due diligence, the report of which is not available. In the second stage of due diligence, Mr Thompson calculated goodwill based on average earnings over the preceding four years, and reported that 'the goodwill purchase cost of $1.3 million represents 2.73 times average earnings after depreciation and 1.41 times average earnings before depreciation'. He said 'the goodwill purchase at those multiples was reasonable'. Both experts agreed that goodwill in the amount of $1.3 million was fair and reasonable based on the plaintiff's historical performance.
The defendant's expert, Mr James Thompson was also asked by the defendant to express an opinion on whether the goodwill paid was appropriate based on the performance of the business once Gilete took it over. Even if I accept that the value of goodwill at the end of that period had dropped, the question put to Mr James Thompson, and his answer, do not assist on the question whether the conduct of the plaintiff in representing that $1.3 million was appropriate was misleading or deceptive at the time of the sale.
The defendant has not proved that the plaintiff said or did anything to represent that the goodwill figure was anything other than a snapshot of the value of the business, at the end of 2002, based on its historical performance. It follows that it was not misleading or deceptive for the plaintiff to say that $1.3 million was an appropriate figure for goodwill at the time the business was sold.

(v) Sixth representation

The sixth representation is that the valuation certificates would support a goodwill payment of $1.3 million. It is to be implied from the same matters supporting the third and fourth representations, and from the failure of the plaintiff to inform the defendants that this was not the case. From my findings regarding the valuation certificates, the claim based on the sixth representation must also fail.
The counterclaim for relief under the Trade Practices Act should be dismissed.

Conclusion

The plaintiff is entitled to judgment for the balance of the goodwill owing under the Original Contract and the Deed of Variation. The amount was agreed at $597,273. The plaintiff is entitled to interest on that sum at 8%, being the rate prescribed in the Original Contract.
The counterclaim is dismissed.