Wet Fix Holdings Pty Ltd v Gillion Pty Ltd - [2021] FCA 67

FEDERAL COURT OF AUSTRALIA
Wet Fix Holdings Pty Ltd v Gillion Pty Ltd [2021] FCA 67

File number: NSD 721 of 2017

Judgment of: MARKOVIC J

Date of judgment: 5 February 2021

Catchwords: CONTRACTS – construction of agreements relating to the sale of a business – where one company was the operating entity and another company owned the assets of the business including the shares in the operating entity – claim for recovery of an alleged overpayment of the purchase price under a share sale agreement – where adjustments were made to the purchase price by reference to a balance sheet made available after settlement – whether applicant is precluded from raising objections to the purchase price and balance sheet – whether objections have been made out – claim dismissed – cross-claim for recovery of amount advanced under a vendor finance agreement – cross-claim allowed

Cases cited:
Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345

Jones v Dunkel (1959) 101 CLR 298

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104

Toohey v Gunther (1928) 41 CLR 181

Division: General Division

Registry: New South Wales

National Practice Area: Commercial and Corporations

Sub-area: Commercial Contracts, Banking, Finance and Insurance

Number of paragraphs: 327

Date of hearing: 7, 8, 9, 10 and 14 September 2020

Counsel for the Applicant: Mr E Hyde and Mr T Rogan

Solicitor for the Applicant: BT Lawyers

Counsel for the Respondent: Mr M Henry SC and Ms M Cowden

Solicitor for the Respondent: Brown Wright Stein Lawyers

ORDERS

NSD 721 of 2017

BETWEEN:
WET FIX HOLDINGS PTY LTD ACN 606 009 116

Applicant

AND:
GILLION PTY LTD ACN 102 972 001

Respondent

ORDER MADE BY:

MARKOVIC J

DATE OF ORDER:

5 FEBRUARY 2021

THE COURT ORDERS THAT:
1.By 12 February 2021 the respondent is to file and serve an affidavit setting out the amount due to it on its cross-claim.
2.Subject to Order 3 below, on or before 19 February 2021 the parties are to provide to the Associate to Markovic J draft orders to be made giving effect to these reasons.
3.If no agreement is reached on the form of draft orders to be made giving effect to these reasons, on or before 19 February 2021 the parties are each to notify the Associate to Markovic J of the orders for which they contend and to provide submissions, not exceeding two pages in length, explaining why those orders should be made.
4.If agreement cannot be reached pursuant to Order 2 above, the proceeding will be listed for case management hearing before Markovic J on 26 February 2021 at 9.30 am.
5.In the absence of agreement between the parties, on or before 26 February 2021 each party is to file and serve submissions, not exceeding three pages in length, on the question of costs of the proceeding. Unless either party requests an oral hearing, the question of costs will be determined on the papers.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

1         The evidence

[6]

1.1      The witnesses

[7]

1.2      The Wet Fix Business and its growth

[18]

1.3      Sale of the Wet Fix Business

[28]

1.4      Discussions with Mr Starling

[31]

1.5      Negotiations for the sale of the Wet Fix Business

[40]

1.6      May to June 2015

[53]

1.7      Exchange of agreements for the sale of the Wet Fix Business

[57]

1.8      Share Sale Agreement and Business Sale Agreement

[68]

1.8.1    Share Sale Agreement

[69]

1.8.2    Business Sale Agreement

[75]

1.9      Blow moulder and bottle filling plant

[80]

1.10     Stocktakes

[94]

1.10.1 29 June 2015

[94]

1.10.2 30 September 2015

[96]

1.11     Settlement

[117]

1.12     Events following settlement

[122]

1.12.1 January 2016

[122]

1.12.2 February 2016

[146]

1.12.3 October 2016

[149]

2         The pleaded case

[158]

3         The issues

[163]

4         Holdings’ claim

[164]

4.1      The limitation issue

[164]

4.2      Purchase price – items in dispute

[186]

4.2.1    Inventory

[187]

4.2.1.1       Parties’ submissions

[190]

4.2.1.2       Consideration

[198]

4.2.2    Capital expenditure

[218]

4.2.2.1       Parties’ submissions

[219]

4.2.2.2       Consideration

[225]

4.2.3    Creditors

[232]

4.2.3.1       Parties’ submissions

[233]

4.2.3.2       Consideration

[238]

4.2.4    Other creditors

[243]

4.2.4.1       Parties’ submissions

[244]

4.2.4.2       Consideration

[246]

4.2.5    Blow moulder and bottle filling plant – ANZ leases

[251]

4.2.5.1       Parties’ submissions

[253]

4.2.5.2       Consideration

[274]

4.2.6    Plant and equipment – post 31 March 2015 assets

[295]

4.2.6.1       Parties’ submissions

[297]

4.2.6.2       Consideration

[306]

5         Gillion’s cross-claim

[313]

5.1      Vendor Finance Agreement

[314]

5.1.1    Consideration

[315]

6         Conclusion

[325]

REASONS FOR JUDGMENT
MARKOVIC J:

This proceeding concerns the calculation of the purchase price of a business.
The business in question is a water supply business (which I will refer to in these reasons as the Wet Fix Business) established and operated by the respondent, Gillion Pty Ltd (Gillion), until its sale in 2015 to the applicant, Wet Fix Holdings Pty Ltd (Holdings). The background to the development of the Wet Fix Business and the events surrounding its sale are described below.
Upon its commencement there were two applicants to the proceeding: Holdings and Wet Fix Pty Ltd (Wet Fix). Since that time Wet Fix has been removed as an applicant and the claim previously made by it abandoned. Holdings, the remaining applicant, has, over time, amended its statement of claim, thus narrowing the dispute between the parties. Holdings no longer presses its claim for damages pursuant to the Australian Consumer Law, being Sch 2 to the Competition and Consumer Act 2010 (Cth), or for breach of the business sale agreement dated 11 June 2015 between it as purchaser and Gillion as vendor (Business Sale Agreement) or its claim in debt.
The remaining issues between Holdings and Gillion, as pleaded in the second further amended statement of claim filed by Holdings on 14 September 2020 (SFASOC), concern recovery of an alleged overpayment by Holdings under a share sale agreement dated 11 June 2015 between Gillion as vendor, Holdings as purchaser and Wet Fix for the acquisition of shares in Wet Fix (Share Sale Agreement) as part of the transaction to acquire the Wet Fix Business and, subject to the resolution of that issue, a claim for restitution for interest paid by Holdings for vendor finance advanced by Gillion to assist in the purchase of the Wet Fix Business.
On 10 October 2018 Gillion filed a cross-claim in which it seeks judgment against Holdings for the amount it contends it advanced to Holdings by way of vendor finance plus interest or, in the alternative, declarations as to the amount it alleges it advanced to Holdings by way of vendor finance and that the amount advanced remains unpaid.
1. The evidence
The parties relied on a significant amount of evidence, some of which, given the narrowing of Holdings’ claim and the issues in dispute assumed little, if any, significance in the determination of the remaining issues. That observation should not be taken as a criticism. The steps taken by the parties to narrow the areas of dispute between them were appropriate and of assistance to the Court. It is apparent that much of the evidence was prepared at a time when the dispute was broader in scope, hence covering matters no longer in contention. I point this out to explain why, in these reasons and, in particular, in setting out the facts, I have focused only on the evidence that assists in explaining the background and is relevant to the resolution of the remaining issues in dispute between the parties.
1.1 The witnesses
The following witnesses gave evidence for Holdings:
(1)Darren Starling who was involved in the negotiations for the purchase of the Wet Fix Business and ultimately acquired the Wet Fix Business through interests associated with him. Mr Starling has been a director of Elem Investments Pty Ltd (Elem Investments) since 21 October 2013, is a director of Wet Fix and, in the period between 1 October 2015 (when the sale of the Wet Fix Business settled) and 28 November 2017, was its sole director. He has been the sole director of Holdings and Wet Fix Equipment Pty Ltd (Wet Fix Equipment) since their respective registrations on 23 and 24 May 2015. Mr Starling was cross-examined;
(2)Valerie Richardson who from 29 June 2015 was the stock control and production manager for Wet Fix and was involved in stocktakes undertaken for the purposes of the sale of the Wet Fix Business. Ms Richardson was cross-examined; and
(3)Dylan Byrne, a certified practising accountant with BDO Australia (BDO), who was instructed to undertake certain analyses and calculations in relation to the purchase price of the Wet Fix Business for the purposes of the proceeding. Mr Byrne was cross-examined.
The following witnesses gave evidence for Gillion:
(1)Pamela Gill who has been a director of Gillion, the previous owner of the Wet Fix Business, since its registration in 2002. Mrs Gill was a director of Wet Fix from its registration on 23 June 2004 until 21 December 2015. She managed production and the overall operation of the Wet Fix Business, including the day to day operation of its factory situated at 25-29 Christensen Road, Stapylton (Christensen Road Factory). Mrs Gill was cross-examined;
(2)Maurice Gill, Mrs Gill’s husband, who has also been a director of Gillion since its registration and was a director of Wet Fix from its registration until 1 October 2015. Mr Gill was the general manager of the Christensen Road Factory and oversaw the day to day operation of equipment and machinery. Mr Gill was not cross-examined;
(3)Candice Power who is Mr and Mrs Gill’s daughter and who, without intending any disrespect, I will refer to as Candy in these reasons. Candy worked in the Wet Fix Business until early January 2016 managing accounts receivable and clients as well as assisting on the factory floor as required. She was not cross-examined; and
(4)Christopher Chapman, a chartered accountant, who has practised on his own account since about 2014. Prior to that time Mr Chapman was employed in various accounting practices. He first undertook accounting work for Gillion and Mr and Mrs Gill while he was employed by Liu Madden Partners from 1997 to 2005. In June 2013 Mr Chapman again became the accountant for Gillion and Mr and Mrs Gill and, save for the period from December 2015 to May 2016, has continued to act in that capacity. At the time of the acquisition of the Wet Fix Business, Mr Chapman was also the accountant for Wet Fix and Mr Starling. Mr Chapman was cross-examined.
Both Holdings and Gillion made submissions as to whether I would accept the evidence of some of the witnesses.
Holdings submits that I ought to find that Messrs Starling and Byrne, Ms Richardson and Mrs Gill were honest witnesses who did their best to recall the relevant events, which took place five years ago. That said, Holdings also submits that I ought to find that Mrs Gill’s evidence is of no assistance on the matters in issue and that I would put no weight on Mr Chapman’s evidence except where it is against interest or corroborated by objective evidence.
Insofar as Mrs Gill’s evidence is concerned, Holdings says there are two reasons why I should find her evidence to be of no assistance to the matters in issue: first, because Mrs Gill accepted that her understanding of the matters in issue was wholly based on what she was told by Mr Chapman; and secondly, because she gave evidence that she was unable to differentiate between Gillion and Wet Fix. Holdings submits that this means that Mrs Gill cannot assist the Court in its determination of the issues in this proceeding.
I do not accept that Mrs Gill’s evidence is of no assistance to a resolution of the matters in issue. Mrs Gill was key to the operation of the Wet Fix Business and involved in its sale. It does not follow that because, in some respects, Mrs Gill deferred to Mr Chapman’s more detailed knowledge of events, given his role as the accountant for Gillion at the time, her evidence is of no assistance to the Court. Similarly, I would not find that Mrs Gill’s evidence is of no assistance because she considered Wet Fix and Gillion to be “one and the same thing”. Mrs Gill may not have appreciated the legal distinction between Wet Fix and Gillion. That is hardly surprising given that, as described below, the Wet Fix Business was a tightly held family business. That that was so may mean that her evidence on some issues does not assist me but it does not mean that I would put aside her evidence and find it to be of no assistance on all issues.
Insofar as Mr Chapman’s evidence is concerned, Holdings relies on the following matters in support of its submission that no weight should be given to Mr Chapman’s evidence except where it is against interest or corroborated by objective evidence: first, Mr Chapman admitted under cross-examination that he prepared invoices to mislead the National Australia Bank (NAB); secondly, he denied that he had ever prepared financial records to mislead an insurance company, maintained that denial when shown contradictory evidence and proffered an implausible explanation; thirdly, he admitted that he had backdated his declaration in Wet Fix’s signed financial accounts; and lastly, he admitted that his calculations of purchase price adjustments, which underpin the amount said to be due by Holdings to Gillion under the Share Sale Agreement, were inaccurate.
I do not accept that I would put no weight on Mr Chapman’s evidence. Mr Chapman was a careful witness who did his best to assist the Court. He was conscious that he had, as will become apparent from the recitation of the facts below, placed himself in a difficult position given the many roles he assumed in the transaction for sale of the Wet Fix Business. Notwithstanding that, he answered the questions put to him fully and frankly, even when those answers were against his interests. For example, Mr Chapman did not cavil with the proposition that his calculation of the amount due under the Share Sale Agreement undertaken in January 2016 was wrong. He candidly accepted that he never informed the NAB that Gillion did not have clear title to equipment that it was purporting to sell and that he had “deliberately made the numbers look bad” to increase an insurance payout on equipment for use in the Wet Fix Business which had been damaged on delivery. Each of these were matters which portrayed Mr Chapman in a bad light either because he had potentially not properly carried out his professional role or, more critically, had misled a bank and an insurer. Notwithstanding the way in which these matters might reflect on Mr Chapman’s character, he answered the questions without argument, accepting propositions that were clearly against his interest and which reflected on his professional judgment. That did not make Mr Chapman an unreliable witness. On the contrary, in answering in that way Mr Chapman came across as a candid and helpful witness.
Gillion submits that of those witnesses called by each of the parties and who were cross-examined, all but Mr Starling should be taken by the Court as credible witnesses doing their best faithfully to give evidence. Gillion submits that Mr Starling created unbelievable counterfactuals to resist adverse conclusions about his evidence and motivations for causing Holdings to bring this proceeding.
It is the case that Mr Starling was defensive in response to questioning in cross-examination and refused to accept versions of events different to those recounted in his evidence-in-chief, even when those versions were clearly supported by compelling objective evidence. That said, I would not reject all of his evidence out of hand but do so in respect of certain events, as set out below. In particular, in a number of instances, Mr Starling’s evidence could not be accepted for reasons explained below, including because of other objective facts and contemporaneous documentary evidence.
I turn then to set out the relevant evidence.
1.2 The Wet Fix Business and its growth
Gillion is the trustee of the Summerfield Trust. It operates a business supplying bulk water to the bottled water industry in south east Queensland.
Wet Fix was incorporated on 23 June 2004 to operate the Wet Fix Business which was purchased by Gillion in July 2004. Upon Wet Fix’s incorporation, Mr and Mrs Gill were appointed as its directors and remained in those roles until 1 October 2015 and 21 December 2015 respectively.
At the time of its acquisition by Gillion, the Wet Fix Business was a water supply business which primarily supplied water coolers and water to customers for use in homes and offices. The ownership and operation of the Wet Fix Business was structured such that Gillion owned the assets of the business, including the shares in Wet Fix, while Wet Fix was the operating or trading entity.
When Gillion purchased the Wet Fix Business, it also purchased a factory at 28 Leda Drive, Burleigh Heads which it leased to Wet Fix and from where Wet Fix operated the Wet Fix Business. In about April 2005 Gillion purchased the Christensen Road Factory and subsequently Wet Fix leased those premises from Gillion and moved its operations there.
The Wet Fix Business was family run: as I have already observed, Mrs Gill managed production and the overall operation of the business, including the day to day running of the Christensen Road Factory; Kayne Gill, Mr and Mrs Gill’s son, who without intending any disrespect I will refer to as Kayne in these reasons, was involved in the technical side of production including sourcing plant and equipment, looking after major customers, negotiating contracts with multinational clients and suppliers, project managing the installation of new equipment, dealing with quality and production issues and providing emergency after hours support; Candy managed the accounts and clients including Woolworths Limited (Woolworths); and Mr Gill assisted Mrs Gill with the day to day running of the Christensen Road Factory.
Between 2004 and 2015 the Wet Fix Business grew. It began supplying bottled water to various supermarkets including Woolworths, which became its biggest client, manufacturing its own water bottles at the Christensen Road Factory, and increasing its production.
As far as Mrs Gill was concerned, Gillion and Wet Fix were one and the same for the purposes of the sale to Holdings, which is the subject of this proceeding, and, it seems, more generally. Equipment purchases and most other agreements were in the name of Wet Fix, which would make payments. Mrs Gill understood that all of the assets, apart from stock, were owned by the Summerfield Trust and Mr Chapman, as the accountant for Gillion and Wet Fix, would make “paper entries” at the end of the financial year, or whenever appropriate, to ensure that the assets and equipment were in the name of Gillion. So far as Mrs Gill was aware, none of the suppliers to Wet Fix knew of Gillion and they would invoice Wet Fix.
In 2014 Woolworths offered Wet Fix a contract to supply water to New South Wales on condition that Wet Fix agreed to expand its business and install a new blow-fill line, a line of machinery used to manufacture and fill plastic water bottles. Mr and Mrs Gill decided to take up this opportunity.

In late 2014 Kayne travelled to Germany to commence negotiations and preparations for the purchase of the new blow-fill line. Kayne project managed the purchase of the equipment until about 18 December 2015 when he ceased employment with Wet Fix.
In light of the new contract offered by Woolworths to Wet Fix, Gillion anticipated that Wet Fix would need more factory space. Accordingly, Wet Fix leased a factory at Business Street, Yatala (Business Street Factory) to accommodate the new equipment and the attendant increase in production.
1.3 Sale of the Wet Fix Business
In 2012 and 2013 Mr and Mrs Gill discussed the possibility of selling the Wet Fix Business. At the time, Mrs Gill considered that they could either continue to run the Wet Fix Business and invest in its growth or sell it given it was doing well. Mrs Gill engaged a business broker to value the Wet Fix Business and an information memorandum was prepared. Two attempts to sell in 2013 did not result in a sale.
In about late 2014, when Mr Chapman was at the Christensen Road Factory, he informed Mrs Gill that he had a client who might be interested in purchasing the Wet Fix Business. But, because of the new contract with Woolworths and the investment in new machinery, Mrs Gill declined to sell at that time.
Mrs Gill’s attitude to a sale of the Wet Fix Business changed in February 2015 when she was diagnosed with cancer. She told Mr Chapman that it was a good time to sell and that she would like to speak with the person who Mr Chapman had earlier indicated may be interested. Mr Chapman informed Mrs Gill that he would ask his client, who he identified as Mr Starling.
1.4 Discussions with Mr Starling
Mr Starling first learned of the Wet Fix Business in late 2014 from Mr Chapman. He recalls that at that time Mr Chapman told him he had a client that ran a water bottling business which might be for sale. Mr Starling expressed interest and requested details.
Mr Starling met with Mr Chapman in March 2015. Mr Starling recalls that at that time he and Mr Chapman had a conversation to the following effect:
Mr Chapman: I have a client and its business is for sale or the shares in it. You and Lisa might be interested. The business bottles spring water under license from various retailers. It also sells its own brands of bottled spring water, “Mountain Dew” and “Wet Fix Natural Spring Water”. It operates this business from premises in Stapylton in South East Queensland. It distributes this bottled water throughout the east coast of Queensland and northern NSW. It provides spring water bottling for customers, the largest of which is Woolworths. The managing director has cancer and she needs to get out.
Mr Starling: I might be interested. I don't know much about water bottling. Get me some accounts to look at.
In March 2015 Mr Chapman organised for Mr Starling to visit the Christensen Road Factory and to meet with Mr and Mrs Gill.
On 16 March 2015 Messrs Starling and Chapman met with Mr and Mrs Gill and Candy at their home in Miami Beach, Gold Coast. According to Mr Starling, at that time Mr Chapman showed him some draft handwritten documents which set out calculations for the price of the Wet Fix Business following which there was the a discussion to the following effect:
Mr Starling:     I wouldn’t normally buy the shares in the operating entity. I would buy the business in the name of a shelf company.
Mr Chapman:   Yes, but Pam says Woolworths would require the new company to retender, whereas if you buy Wet Fix’s shares that is not necessary.
The price for the shares can be set by a formula that takes into account the actual value of what Wet Fix owns less what its liabilities are as at the end of the financial year. The starting figure is $2M for the shares in Wet Fix.
Mr Starling recalls that there was a further discussion about the items that would be included as assets and liabilities in the formula proposed to be used to calculate the price of the shares in Wet Fix and the conversation then continued to the following effect:
Mr Chapman:   The price of the shares in Wet Fix will not be known until the accounts are done. Those figures will need to be input into the agreed formula to arrive at the sale price. At this stage all I can say is that there will be a range. That range can be the subject of vendor finance. In other words if the figures make the sale price the upper end of the range the vendor finance will be owing, but if the sale price is at the lowest end then the vendor finance can be set off against the amount of the vendor finance so no loan would be owing.
The basic structure is that Wet Fix buys its water from Gillion. It bottles it using equipment owned by Gillion from premises leased by Wet Fix. So that means in order to own it all you not only need to buy the shares in Wet Fix but also and buy the equipment from Gillion. You could have a first right of refusal over the land at Power Parade, Mount Tamborine. Pam wants the deal to include me. I would buy in for 10% and stay in as the accountant.
Mr Starling:     Power Parade would only interest me if it had approval. I would consider taking an option over it in case the approval comes.
Ultimately, no option was taken up on Power Parade.
Mr Starling recalls that on the following day he was shown around the Christensen Road Factory by Mrs Gill and Mr Chapman.
Although nothing turns on it, Mrs Gill’s recollection of the venue for her meetings with Messrs Starling and Chapman on 16 and 17 March 2015 differ. Mrs Gill recalls that on 16 March 2015 she and Mr Gill met with them at the Christensen Road Factory at which time Mr Starling signed a confidentiality agreement with Wet Fix. Mrs Gill then spoke to Mr Starling about the Wet Fix Business.
Mrs Gill recalls that during this visit she showed Mr Starling around the Christensen Road Factory and spoke with him about the expansion plans and the machinery to be installed as part of the new contract with Woolworths. Mrs Gill and Messrs Starling and Chapman had a conversation to the following effect:
Mr Starling:     What are your expectations of the price for the business?
Mrs Gill:We want $8 million for the plant and equipment. We will also need an adjustment for the stock at cost. We aren’t selling the business based on a price that takes into account the future growth given the new blow line that we are installing, and so this is a great deal. You will need to also agree to pay for any equipment that is delivered from now on, which will include the equipment for the new blow line, as well as the costs for setting up the new factory at Burnside Road. We will organise the finance for the new plant and equipment, but on settlement you need to pay it out in full. This includes everything necessary to run a complete line. We want settlement to occur as soon as possible, Chris has recommended that it happen in the new financial year and so we want it to settle on 1 July.
Mr Starling:     Okay.
Mr Chapman:   I am going to drive Darren up to Power Parade to see the springs. We will stay at the house the night and we will see you again tomorrow.
Mrs Gill also recalls that on 16 March 2015 she had a conversation with Mr Chapman to the following effect:
Mr Chapman: Because it is such a positive cash flow business, I want to buy in 5%. Darren has suggested that you buy in 5% in your personal name as well because of your relationship with Woolworths and to remain as a director of Wet Fix, and I will be the secretary. Darren wants to keep it as a family business, he wants to keep Kayne and Candy on. They have the relationship with Woolworths and also the knowledge.
Mrs Gill:I think that sounds great. But I would probably prefer Kayne or Candy to have the shareholding.
On 17 March 2015 Mrs Gill was too unwell to go to the Christensen Road Factory so she met with Messrs Starling and Chapman at her home on their way to the airport. Mr Gill and Candy were also present. During that meeting there was a conversation to the following effect:
Mr Starling:     I am interested in going ahead with buying the business.
Mr Chapman:   We will set up a new holding company for Darren’s company Elem Investments Pty Ltd to purchase the assets from Gillion and the shares from Wet Fix.
Mrs Gill:I will get my lawyer Paul Hopkins to prepare the sales contract. I will give Paul permission to talk with Chris about this.
Mr Chapman:   Darren, I can recommend a lawyer for you to talk to that I know.
Mr Starling:     Okay.
1.5             Negotiations for the sale of the Wet Fix Business
According to Mr Starling, on their return from Queensland Mr Chapman provided him with a three page list of equipment headed “Summerfield Trust Schedule of Assets” in relation to which Mr Chapman said:
This list is Gillion’s asset register. However it is incomplete because it was put together a while ago and there are millions of dollars’ worth of equipment that is not in there which needs to be added in. The values are original cost.
There was then a discussion about the motor vehicles in the list which Mr Starling thought were overvalued. Mr Chapman agreed the list needed updating including to add more recently acquired equipment.
On 18 March 2015 Mr Chapman sent an email to Paul Hopkins of RMB Lawyers, Gillion’s solicitors, which was copied to Mrs Gill. That email included (as written):
As we discussed last week, I am currently heading overseas for a 6 week holiday and over the last two days have been up in Queensland discussing sale opportunities with one of my clients and Pam. Pam would like to move this forward immediately on my return at the beginning of May. Therefore over the next few weeks would you please arrange for the preparation of a share sale agreement on the following terms:
Share purchase agreement
Shares in wet fix to be sold by Summerfield trust to a new entity “Wet Fix Holdings Pty Limited- yet to be incorporated” Plant and equipment owned by Summerfield Trust to be sold to a separate company “Wet Fix assets Pty Limited - yet to be incorporated” I will have to apportion the sale proceeds to achieve the best tax result. - are Two agreements required??
Pam/ Kayne/ entity to own 10% of wet fix holdings Chris Chapman entity to own 10% of wet fix holdings 80% owned by Elem Investments Pty Limited (Darren Starling's entity)
Wet Fix holdings will own 100% of wet fix Pty Limited and wet fix assets Pty Limited.
targeted completion date is 1 July 2015
Usual guarantees from vendor as to past activities
Consideration is to be determined based on below formula:
Base sale price 8 Million
Plus the following items at completion:
Trade Debtors
Sundry Debtors
Inventories
Cash at bank
Retained profits in company
Less the following items at completion:
Creditors
sundry creditors
Tax provision
Annual leave and Long Service provisions ANZ stock purchase facility Bank overdraft
Based on the 31 December 2014 numbers this equates to a total purchase consideration of $11.264 Million. My guess is that this will increase by the profit for the next 6 months trading (less any dividends paid prior to 30 June)
I would suggest that at settlement a payment of say 11.5M be made with 11M released to Pam and Maurie immeadatly and the balance be held in your trust account until the parties sign off on the 30 June 2015 financial statements and purchase calculations.
There also needs to be a special clause that states that the value of any plant or equipment purchased since 31 March 2015 (Is This date Ok Pam?) is added to the purchase consideration.
A similar clause is also needed that states that any costs associated with the new property at Jutland street are to be added to the purchase consideration.
At settlement Maurie will resign as director (Pam to initially continue as she will be retaining 10% interest)
Clause required to say that purchaser (Darren Starling) will replace Maurie as guarantor for all obligations (Jutland lease, Woolworths contract, Hire purchase agreements etc). If not possible to replace, Wet Fix will indemnify Maurie for any and all actions.
Mr Starling recalls that in March, April and May 2015 Mr Chapman provided him with partially completed accounts, forecasts and budgets, explaining on one occasion that they were not up to date because Mrs Gill was battling cancer, he had only been recently retained and he had been instructed to get the accounts up to date.
On or about 23 May 2015, after an initial introduction by Mr Chapman on 20 May 2015, Mr Starling retained Mark Smith of ANZ Lawyers to act for Holdings on the purchase of the Wet Fix Business from Gillion.
On 23 and 24 May 2015 respectively Holdings and Wet Fix Equipment were registered.
On 23 May 2015 Mr Chapman sent an email to Messrs Hopkins and Smith noting that the “purchasers and vendors” met on Friday and setting out matters that had been agreed between them at that meeting. It is not necessary to set out the substance of that email save to note that it attached a “revised annexure A” to the draft Share Sale Agreement and an “updated annexure B” to the draft Business Sale Agreement. As to the latter, Mr Chapman explained that it was “based on what Kayne [had] supplied to [him] to date” and that he had sent it to Kayne for confirmation of its accuracy.
Mr Starling recalls that in instructing Mr Smith in relation to the draft Business Sale Agreement he noticed that:
(1)it provided for the inclusion of an “inventory of fixtures, fittings and chattels plant & equipment” as schedule A which was referred to in item N(a) in the items schedule; and
(2)in the drafts that were the subject of discussion between Messrs Hopkins and Smith, there was no such schedule present.
According to Mr Starling, he asked Mr Chapman about the missing schedule and Mr Chapman informed him that he was still preparing it.
However, given the following matters, I do not accept that the “inventory of fixtures, fittings and chattels plant & equipment” referred to in item N(a) in the “Items Schedule” to the Business Sale Agreement was not available in the course of discussions of drafts of the Business Sale Agreement. It is clear on the evidence that the schedule was available not only in drafts provided to Mr Starling’s lawyer, Mr Smith, but to Mr Starling.
By email dated 18 May 2015 from Mr Chapman to Messrs Smith and Starling, Mr Chapman circulated, among other things, a copy of the draft Business Sale Agreement which included, as an “inventory of fixtures, fittings and chattels plant & equipment”, a document titled “Summerfield Trust Schedule of Assets” (BSA Asset Schedule). While Mr Starling could not recall if he opened this email on receipt, his evidence was that he did not read the attachments because, either on the same or following day, he met with Mr Chapman who had hard copies of the documents with him and he “went through it first hand”.
On 24 May 2015 Mr Smith sent an email to Messrs Starling and Chapman attaching his letter of the same date in which he set out his comments in relation to the draft agreements for purchase of the Wet Fix Business. In relation to the BSA Asset Schedule, Mr Smith included the comment:
I assume that you have completed a review of the asset list as part of your due diligence.
By email also dated 24 May 2015 addressed to Messrs Smith and Starling, Mr Chapman responded to Mr Smith’s letter. In relation to Mr Smith’s query about the BSA Asset Schedule, Mr Chapman’s response was:
Yes, we are happy with the list.
More generally Mr Chapman asked in his email:
Darren, is there anything I have said that you do not agree with??
By email dated 25 May 2015 to Mr Chapman, copied to Mr Smith, Mr Starling responded in the following terms (as written):
Thank you Chris and Mark,
I am comfortable with the changes and points raised with one note as per below:
Regarding clause 7 .8 in relationship to the use of the name Mountain Dew, would it be prudent to include a clause that limits the purchasers liability in this matter if it were to become an issue?
Despite Mr Starling expressing agreement with the comments made by Mr Chapman in his email dated 24 May 2015 (see [50] above), he maintained in cross-examination that he was not happy with the BSA Asset Schedule and that his email ought to be considered in conjunction with his conversations with Mr Chapman in which he was informed by Mr Chapman that the sale needed to be progressed due to Mrs Gill’s ill health, he was working on the BSA Asset Schedule with Mrs Gill and he would have it completed. Save for the evidence recorded at [42] above, Mr Starling did not give evidence of conversations to that effect.
1.6 May to June 2015
Over the course of May and June 2015 Mr Starling visited the Christensen Road Factory on a number of occasions. Mrs Gill recalls that on one occasion Mr Starling visited with his wife, Lisa Miller, and they discussed Mrs Gill’s future involvement in the Wet Fix Business. They had a conversation to the following effect:
Mr Starling: We are concerned about the Woolworths contract, you have the relationship with Woolworths and we don’t want to lose that, so it is important that you stay on as a shareholder and director, and Candy and Kayne stay involved in the business.
Mrs Gill:Okay. The business will be growing imminently because of the new blow fill line. There is an urgent need to employ an engineer with suitable experience to assist Kayne, as well as someone to take over my position as production manager and more qualified staff on a needs basis. Candy is just about full time managing the Woolworths account.
Mr Starling: I agree. It will be an advantage having me and Chris to assist Candy with the administrative duties, as I have an accountancy background. Lisa will also be able to use her advertising experience to improve the website and assist with promotions.
Following this conversation Mrs Gill agreed to be a shareholder in the Wet Fix Business rather than Kayne or Candy.
Mr Chapman was at the Christensen Road Factory during May 2015 and, on a number of occasions, brought Mr Starling with him. During one of these visits Mrs Gill had a conversation with Mr Chapman to the following effect:
Mr Chapman: Darren and I have discussed it. Darren thinks we should increase the 5% shareholding to 10%, and we think that each of us will then make a $400,000 shareholders loan to the business for this 10%. This $400,000 will be a deduction from the purchase price that Holdings will pay Gillion at settlement.
Mrs Gill:That sounds okay.
Mrs Gill was conscious that in light of the new Woolworths contract and the equipment that Gillion had ordered to meet the requirements of that contract, Wet Fix would need more space. Accordingly, she and Mr Starling commenced a search for additional factory premises and in May 2015 negotiated a lease for a property comprising three units at Burnside Road, Stapylton (Burnside Road Factory) which was close to the Christensen Road Factory.
In late May or early June 2015 Mrs Gill became aware that Mr Starling was having an issue with finance. As a result, the settlement date was pushed back from 30 June 2015 to 1 October 2015. This caused budgeting and cash flow issues, the latter of which was resolved by the provision of loans to Wet Fix prior to settlement from Elem Investments for $2.25 million and from Mr Chapman for $920,000. Mrs Gill explained that Wet Fix applied the money borrowed from Elem Investments and Mr Chapman as well as its own cash reserves to pay for the new plant and equipment and the inventory that was required for production.
1.7 Exchange of agreements for the sale of the Wet Fix Business
On the morning of 10 June 2015 Mr Chapman sent an email to Mr Smith, copied to Mr Starling, attaching, among other things, the Business Sale Agreement including its two schedules: the BSA Asset Schedule and schedule B (BSA Equipment Schedule). Mr Starling did not read the attachments to the email. Rather, later that day he reviewed hard copies of them with Mr Chapman. Mr Starling says that, at the time of doing so, neither the BSA Asset Schedule nor the BSA Equipment Schedule was annexed to the Business Sale Agreement because they were “works in progress”.

On 11 June 2015 the following agreements were entered into:
(1)Share Sale Agreement;
(2)Business Sale Agreement;
(3)loan agreement between Gillion as lender, Holdings as borrower, and Wet Fix and Mr Starling as guarantors (Vendor Finance Agreement);
(4)consultancy agreement between Wet Fix and Mr and Mrs Gill as consultants;
(5)three year lease of the Christensen Road Factory between Gillion as lessor and Wet Fix as lessee commencing 1 October 2015 and ending 30 September 2018; and
(6)shareholders’ agreement for Holdings between Elem Investments (as to 80%) and Mrs Gill and Mr Chapman (as to 10% each).
Mr Starling says that on 11 June 2015 when he and Mr Chapman met with Mr and Mrs Gill at their home to sign the various agreements, he observed upon inspecting the Business Sale Agreement that it still did not have the BSA Asset Schedule annexed to it. According to Mr Starling, before signing that agreement, he had a conversation to the following effect:
Mr Starling:  There is still no asset schedule here.
Mr Chapman:  I am still working on it. We can just put it in later.
Mrs Gill and Mr Starling:        Ok.
Similarly, Mr Starling says that, at the time of its execution, the Business Sale Agreement did not have the BSA Equipment Schedule annexed to it. Despite this evidence, Holdings’ position is that nothing turns on whether the BSA Equipment Schedule was annexed to the executed version of the Business Sale Agreement and that the Court ought to proceed on the basis that it was part of the executed Business Sale Agreement. In light of that concession, I will not consider the evidence on this issue further.
As for the BSA Asset Schedule, notwithstanding Mr Starling’s emphatic evidence that it was not annexed to the Business Sale Agreement at the time of its execution and exchange, that schedule is annexed to the copy of the Business Sale Agreement included by him in his evidence for the purpose of this proceeding. In cross-examination Mr Starling said that the version of the Business Sale Agreement included in his affidavit was provided by DibbsBarker, Holdings’ lawyers at the time, and is likely to have been sourced from Gillion’s records. He said that although he reviewed his affidavit before he swore it, he did not look clearly at the exhibits and maintained that the version of the Business Sale Agreement that he signed did not have the BSA Asset Schedule attached to it.
Mr Starling accepted that it was important to have the BSA Asset Schedule annexed to the Business Sale Agreement but maintained that it was not complete. He said that he signed the Business Sale Agreement without the BSA Asset Schedule annexed to it because he knew Mr Chapman, with whom he had a professional relationship spanning some nine years, was working on completing it and he relied on him to provide a proper asset register. In cross-examination the following exchange took place between senior counsel for Gillion and Mr Starling:
Mr Henry:Mr Starling, you appreciate, don’t you, that the business sale agreement had a purchase price of $6 million?
Mr Starling:      I do.
Mr Henry:That’s a very substantial amount of money; isn’t it?
Mr Starling:      It is.
Mr Henry:And it would be important to know if you are agreeing to commit a company for $6 million purchase, that you identify what assets are the subject of the purchase; do you agree?
Mr Starling:      I do agree.
Mr Henry:You don’t seriously suggest that you had no idea what assets were the subject of this $6 million purchase; do you?
Mr Starling:      I had a guide from Mr Chapman and an appreciation of Mr Chapman’s efforts to and rectify this. Mr Chapman was very convincing in the fact that the assets were worth more than the $6 million and they were discounted, and that was all – as – as the documentation and the accounting system wasn’t up to date, that was all I was able to go on.
Mr Henry:Mr Starling, the accounting was up to date; wasn’t it?
Mr Starling:      Not in the Wet – not in the Wet Fix’s MYOB System. Whether it was or not in Mr – Mr Chapman’s HandiLedger, I don’t know, but he did say that they were a work in progress.
Mr Henry:And you had to get finance from the National Australia Bank, didn’t you, to complete this transaction; correct?
Mr Starling:      The business – yes, that’s correct.
Mr Henry:Did you not provide the National Australia Bank with the [BSA Asset Schedule] attached?
Mr Starling:      Mr Chapman provided all the information to National Australia Bank for the loans. Mr Chapman organised the loans. Mr Chapman approached, I think, three, possibly four banks; I met with the Bank of Queensland, National Australia Bank and I spoke with ANZ, but I think Mr Chapman had approached somebody else, as well.
Mr Henry:Weren’t you the sole director of Wet Fix Holdings in 2015?
Mr Starling:      I was.
Mr Henry:And signing off on any loan facility would have been your responsibility at that time; correct?
Mr Starling:      Yes.
Mr Henry:Well, did you satisfy yourself that information provided to the NAB was accurate for the purposes of securing the finance?
Mr Starling:      The National Australia Bank did their own valuations and determined that they had sufficient coverage for their loans.
Mr Henry:Yes, but were you aware whether they were provided with the [BSA Asset Schedule] at pages 936 through to 938?
Mr Starling:      No I wasn’t; and no, I’m not aware of whether Mr Chapman forwarded those or not. Most – most of the information forwarded that I saw was cashflows, profit and loss, and cashflow projections.
Mr Henry:Did you weren’t concerned to know whether the information that was provided to the bank for the purpose of securing the finance was accurate?
Mr Starling:      I was concerned. I – I can do nothing but trust my accountant, who I had been dealing with for nearly a decade.
Mr Henry:Mr Starling, as the sole director of the company entering into $6 million contract, I suggest to you that you can do a lot more than rely on somebody else to work out whether the assets you’re acquiring are worth $6 million; do you agree with that?
Mr Starling:      The information supplied, as I stated was as it was, also, the National Australia Bank financing was predominantly for machines with actual invoices for valuation.
Although ultimately it does not go to a matter in issue, I do not accept Mr Starling’s evidence that the BSA Asset Schedule was not attached to the Business Sale Agreement at the time of its execution. This is so for the following reasons.
First, Mr Starling was aware of the BSA Asset Schedule since at least 18 May 2015, when he received a draft copy of the Business Sale Agreement by email and then reviewed a hard copy soon thereafter.
Secondly, on 10 June 2015, the day before exchange, Mr Starling received a further copy of the Business Sale Agreement by email which again attached the BSA Asset Schedule. While he did not bother to review the attachments to that email, he met with Mr Chapman later that day and reviewed hard copies of the various agreements that had earlier been provided by email. I do not accept that the hard copy of the Business Sale Agreement that was provided by Mr Chapman at the time was incomplete in that it did not include the BSA Asset Schedule.
Thirdly, the copy of Business Sale Agreement exhibited to Mr Starling’s affidavit which bears Mr Starling’s signature includes the BSA Asset Schedule. Even if that copy was sourced from Gillion’s records, it demonstrates that Mr Starling signed the Business Sale Agreement with the BSA Asset Schedule attached.
Fourthly, it is implausible that Mr Starling, at the time the sole director of Holdings, would enter into the Business Sale Agreement without knowing the identity of the assets being acquired as part of that business, that Holdings’ financier would provide finance without understanding the value of the underlying business and that Mr Starling would rely entirely on Mr Chapman to satisfy his financier’s requirements.
1.8 Share Sale Agreement and Business Sale Agreement
The Share Sale Agreement and the Business Sale Agreement are central to the resolution of a number of the issues raised by the parties. It is convenient to set out their terms insofar as they are relevant.
1.8.1Share Sale Agreement
The Share Sale Agreement includes the following terms:
(1)clause 1 sets out definitions and at (h) defines “Purchase Price” to mean “the sum calculated in accordance with annexure ‘A’ to” the Share Sale Agreement;
(2)clause 3, titled “Agreement to Sell”, provides:
Purchase Price
3.1[Gillion] agrees to sell and [Holdings] agrees to purchase [Gillion’s] twenty ordinary shares in [Wet Fix] for the Purchase Price.
Manner of Payment
3.2The Purchase Price shall be paid as is specified in clauses 4, 5 and annexure “A”.
(3)clause 4.1 provides that a deposit of $100,000 is to be paid on or before the date of entry into of the Share Sale Agreement. It is common ground between the parties that a deposit was not paid;
(4)clause 5 which concerns payment of the balance of the “Purchase Price” provides:
5.1On completion [Holdings] will pay to [Gillion] the balance of the Purchase Price by bank cheque to [Gillion’s] solicitor or as [Gillion’s] solicitor directs in writing.
5.2If [Holdings] does not pay any part of the Purchase Price by the due date for payment under this Agreement, [Holdings] will pay interest on the amount outstanding at the rate of twelve percent (12%) per annum.
(5)clause 6, titled “Entire Agreement”, provides:
The Agreement
6.1This Agreement constitutes the entire agreement between [Gillion] and [Holdings] relating to the sale of shares.
Collateral Agreement
6.2This Agreement is subject to and conditional upon the contemporaneous completion of the contract dated the same day as this Agreement for the sale of business entered into by [Gillion] as Trustee for Summerfield Trust as seller and [Holdings] as buyer (the “[Business Sale Agreement]”). Default under the [Business Sale Agreement] by the seller or buyer named in it will be deemed to be default under this Agreement by that party.
(6)clause 7 concerns vendor warranties and provides at cl 7.8 that Gillion warrants, among other things, that:
C.       Business
(a)[Wet Fix’s] assets used in the business, which are disclosed in its financial and taxation records and in Schedule l, including plant, equipment, equipment, motor vehicles, furniture, fittings, stock-in-trade (called “[Wet Fix’s] assets”):
(i)are owned absolutely by [Wet Fix] as legal and beneficial owner;
(ii)are not subject to my mortgage, charge or encumbrance;
(iii)are all in [Wet Fix’s] possession and situated on [Wet Fix’s] premises;
(iv)are not subject to any currently pending lease, credit sale, hire purchase, or other agreement under which any other person has title, or an interest or outstanding financial interest in any item;
except as specified in Schedule 1.
(b)[Wet Fix] has not entered into any commitment for capital expenditure to acquire, modernise, or repair any assets, except as specified in Schedule 1.
(7)clause 14.1 provides that completion was to occur no later than 3 pm on 1 October 2015, the date fixed for completion, but, in that respect, time was not of the essence;
(8)clause 14.3 provides that on completion Gillion would vest title to its shares in Wet Fix and control of Wet Fix’s business and affairs in Holdings and that the parties will comply with all matters required to occur on completion in accordance with the Share Sale Agreement;
(9)clause 14.9 concerns the Vendor Finance Agreement and provides that:
[Wet Fix], [Holdings] and the Guarantors named in the [Vendor Finance Agreement] attached to this Agreement have requested [Gillion] make available the loan facility of $1,750,000.00 referred to in that agreement on completion. [Gillion] has agreed subject to [Wet Fix], [Holdings] and the Guarantors executing the [Vendor Finance Agreement] and delivering it to [Gillion] on completion.
(10)clause 19 concerns service of notices including:
Modes of Service
19.1Any notice or demand under this Agreement may be made or given by a party or by that party’s solicitor to the other party or to that party’s solicitor, delivered personally, or posted by prepaid post addressed to the party’s or to the solicitor’s address shown in this Agreement.
Particulars for Service
…
Purchaser:                 Wet Fix Holdings Pty Limited
Address:                  Unit 3, 1A Lillis Street, Cammeray NSW 2062
Purchaser’s solicitor:    ANZ Lawyers
Address:                  164B Bourke Street, Darlinghurst NSW 2010
Schedule 1 to the Share Sale Agreement sets out the matters referred to and arising from the warranties in cl 7. Relevantly it includes:
…
In turn, the “Depreciation Schedule” referred to in item 3 of Schedule 1 in the preceding paragraph is titled “Wet Fix Pty Limited Schedule of Assets” and is in the following form:
As noted at [69(1)] above, the “Purchase Price” was to be calculated in accordance with Annexure A to the Share Sale Agreement which relevantly provides:
A.       The Purchase Price is calculated as follows:
1.        Two Million Dollars ($2,000,000.00);
plus
2.        trade debtors of [Wet Fix] as at 30 June 2015;
plus
3.        sundry debtors of [Wet Fix] as at 30 June 2015;
plus
4.        inventories of [Wet Fix] as at 30 June 2015;
plus
5.        cash at bank of [Wet Fix] as at 30 June 2015;
plus
6.any plant and equipment purchased by [Wet Fix] after 31 March 2015;
less
7.        creditors of [Wet Fix] as at 30 June 2015;
less
8.        to sundry creditors of [Wet Fix] as at 30 June 2015;
less
9.        tax provision of [Wet Fix] as at 30 June 2015;
less
10.annual leave and long service leave entitlements of the employees of [Wet Fix] as at 30 June 2015
less
11.      ANZ Stock Purchase Facility bank overdraft;
less
12.      ANZ Bank Overdraft.
For example, should [Wet Fix’s] balance sheet as at 30 June 2015 be the same as the attached balance sheet as at 31 March 2015, the Purchase Price would be Four Million Two Hundred and Sixty Seven Thousand Five Hundred and Twenty Three Dollars ($4,267,523.00).
Annexure A to the Share Sale Agreement also includes:
B.Payment by [Holdings] of the Share Purchase Price if the net assets of [Wet Fix] were the same as the attached balance sheet as at 31 March 2015 would be as follows:
1.One Hundred Thousand Dollars ($100,000.00) as deposit; and
2.Four Million One Hundred and Sixty Seven Thousand Five Hundred and Twenty Three Dollars ($4,167,523.00) on 1 October 2015;
C.A balance sheet as at 30 June 2015 is to be prepared by the company accountant Chris Chapman.
D.For 15 days after the balance sheet prepared as at 30 June 2015 is made available to [Holdings], [Holdings] can conduct due diligence on the balance sheet. After 15 days from the date of the balance sheet is made available, no adjustments can be made to the balance sheet or the Purchase Price.
It is common ground for the purposes of cll A, C and D of Annexure A that the balance sheet was to be prepared as at 30 September 2015, and not 30 June 2015 as set out therein.
1.8.2Business Sale Agreement
The Business Sale Agreement is a standard form Real Estate Institute of Queensland contract. It relevantly provides:
ON THE DATE SET OUT IN ‘A’ OF THE ITEMS SCHEDULE THE SELLER NAMED IN ‘C’ OF THE ITEMS SCHEDULE AGREES TO SELL AND THE BUYER NAMED IN ‘E’ OF THE ITEMS SCHEDULE AGREES TO BUY THE BUSINESS AS DESCRIBED IN ‘J’ OF THE ITEMS SCHEDULE AND IN ACCORDANCE WITH THE ITEMS SCHEDULE AND THE STANDARD CONDITIONS OF SALE. …
1.This Contract incorporates the Standard Conditions of Sale – Business Sale (Second Edition) adopted by the Real Estate Institute of Queensland Limited (REIQ).
2.Where there is any conflict between the Standard Conditions and this Contract, this Contract prevails.
The items schedule includes:
(1)items C and E which respectively name Gillion as the seller and Holdings as the buyer;
(2)item J which describes the business as “bottle manufacturer, bottled water and distribution”;
(3)item L which sets out the “Purchase Price” as follows:
(4)item N which is titled “Plant & Equipment” and provides:
(5)item P which provides for completion to take place on 1 October 2015 at the Gold Coast.
The special conditions to the Business Sale Agreement, which were expressed to “take precedence over any attached Standard Conditions”, include:
2.This Contract is subject to and conditional upon the contemporaneous completion of the following:
Contract dated the same date as this Contract for the sale of Shares in [Wet Fix] entered into by [Gillion] as Trustee for the Summerfield Trust as Seller and [Holdings] as Buyer ([Share Sale Agreement]).
Default under the [Share Sale Agreement] by [Gillion] or [Holdings] named in it will be deemed to be default under this Contract by [Gillion] or [Holdings] as the case may be.
…
4.In addition to the Purchase Price, at completion [Holdings] will pay by cash or bank cheque to [Gillion] the sum of the deposits paid by [Gillion] on plant and equipment listed in Schedule “B” and any other plant and equipment ordered but not delivered to [Gillion] prior to 31 March 2015 and any other plant and equipment ordered after 31 March 2015.
…
8. [Holdings] confirms:
(a)[Holdings] has inspected the financial accounts, books and records of the Business; and
(b)[Holdings] has carried out its own investigations and enquiries with respect to the Business;
and its inspection, investigations and enquiries have been satisfactory.
The Standard Conditions incorporated into the Business Sale Agreement include:
(1)at cl 1.1 the following definitions:
“Business” means the Business listed in Item J and includes the Business Assets;
“Business Assets” mean the assets described in clause 3.1 or in 3.2 (as the case requires);
…
“Excluded Assets” means:
(a)       any notified debt in accordance with clause 16.3;
(b)      any other receivable;
(c)       any cash of the business;
(d)      any employment contract of any person (including an employee);
(e)       any insurance policy or insurance claim:
(f)       any document or record which the Seller is obliged by law to retain.
…
“Plant and Equipment” means the plant and equipment referred to in Item N;
(2)clause 3.1 which relevantly describes “Business Assets” and provides:
The Business includes the goodwill, fixtures, fittings, furniture, chattels and the plant and equipment, industrial and intellectual property, work-in progress (if any), and stock-in-trade, permits, licenses, and other assets set out in any schedules attached to this Contract (but excluding any Excluded Assets) and which assets are in this Contract referred to as the “Business Assets”.
(3)clause 8.3 titled “Buyer’s Statements” which, among other things, provides:
The Buyer states and assures the Seller that:
(a)the Buyer has entered this Contract after satisfactory personal inspection and investigation of the premises, Business, stock-in-trade, licences and other Business Assets and the Buyer has perused such records of financial transactions relating to the Business as the Buyer has desired to inspect;
The Business Sale Agreement had annexed to it the BSA Asset Schedule and the BSA Equipment Schedule, the latter of which was in the following terms:
1.9 Blow moulder and bottle filling plant
In order to fund the purchase of the blow moulder and the bottle filling plant, both of which were part of the new blow-fill line, on 15 August 2014 Gillion took out an import finance facility with a limit of $2.5 million (Import Finance Facility) from the Australia and New Zealand Banking Group (ANZ).

Also on 15 August 2014 Gillion as holding company and Wet Fix as hirer entered into an intragroup hire agreement (Hire Agreement) by which Gillion agreed to hire to Wet Fix the “Goods described in Item 1 of Schedule 1” to that agreement and Wet Fix agreed to hire those goods and to pay rent as agreed from time to time. The “Goods” described in Schedule 1 to the Hire Agreement were “all current and future plant and equipment used in the manufacture and production and distribution of water bottles” and included but was not limited to “assets which store water (tanks) and wheeled assets (trucks and forklifts etc)”. Although Schedule 1 to the Hire Agreement referred to an attached annexure which was intended to be a “detailed schedule of plant and equipment”, no such annexure was attached. The Hire Agreement also provided:
(1)for an acknowledgement by Gillion for the ANZ’s benefit that title to Goods will at all times remain with it and that the Hire Agreement does not extinguish the ANZ’s security interest in the Goods or the “Proceeds of the Goods”; and
(2)that the hire period was until further notice.
On 18 September 2014 Nissei ASB Pte Ltd (ASB) issued an invoice to Wet Fix for JPY 24,017,520 as 20% down payment for sales contract no SCAU140630NOR3.
On 27 November 2014 ASB issued sales contract no SCAU140630NOR3 to Wet Fix for, among other things, a “Nissei ASB Blaxial Orientation Stretch Blow Molding Machine” being for the purchase of the blow moulder and associated parts. The sales contract nominated Wet Fix as buyer and ASB as seller and was signed on behalf of Wet Fix on 2 December 2014 by Kayne. It also recorded that payment of JPY 24,017,520 had been received.
On 21 October 2014 Krones AG issued a down payment invoice to Wet Fix for AUD 252,065.48 for the bottle filling plant. Mrs Gill accepted that Wet Fix would have made payment pursuant to this invoice but with funds transferred to it by Gillion.
In June 2015 the blow moulder was delivered to the Burnside Road Factory along with the new bottle filler and labeller. However, the blow moulder was dropped and damaged on delivery. Notwithstanding that, it was commissioned at the Burnside Road Factory and was in use from about September 2015.
In light of the incident that occurred on delivery of the blow moulder, the vendor would not provide a warranty for it. Accordingly, an insurance claim was made for its replacement. By the time of settlement of the sale of the Wet Fix Business, that claim had not been paid.
On 1 July 2015 ASB issued sales contract no SCAU150701NO to Wet Fix for a “Nissei ASB Blaxial Orientation Stretch Blow Molding Machine” and associated equipment, being a replacement for the damaged blow moulder. That contract again named Wet Fix as buyer and ASB as seller and, among other things, required 30% payment on confirmation of order and the balance of 70% payable prior to shipment. Mrs Gill understands that, ultimately, the 30% deposit was paid by the insurer, although it may have initially been paid by Gillion.
On 24 September 2015 Wayne Gardner, relationship manager, ANZ provided Mr Chapman, among others, with the payout figures for “various tradeloan facilities” as follows:
On 30 September 2015 Gillion issued a tax invoice to Holdings for certain equipment including the blow moulder and the bottle filling plant described therein as follows:

1 x ASB PF24-BB Injection Blow Moulding Machine
Serial number: 369CC0024 (subject to finance with ANZ Bank 1,500,000.00 N/T

1 x Barfill RFC Washing, Filing and Capping Machine
Serial number: F01939 (subject to finance with ANZ Bank) 880,000.00 N/T

1 x Krones Controll Bottle Labeller
Serial Number: K745VC9 (subject to finance with ANZ Bank) 210,000.00 N/T

Mr Chapman confirms that at settlement of the sale of the Wet Fix Business on or about 1 October 2015, which is described more fully below, monies provided by the NAB were applied at Holdings’ direction to pay out the Import Finance Facility and Wet Fix took over the insurance claim (see [86] above). In particular, $2,249,381.50 owed by Gillion pursuant to the Import Finance Facility was paid out by the NAB at the direction of Holdings.
Holdings on sold the blow moulder and bottle filling plant to Wet Fix Equipment and noted in its FY2016 financial accounts that the items on the invoice (including the blow moulder and bottle filling plant) were from Gillion.
By email dated 23 May 2017 Mr Gardner provided the following statement for the “importation facility” in the name of Gillion noting that the amounts included in it “were the various progress payments made for the various assets that were imported from Europe & Japan for the 2nd bottling line” and that the “differential in amounts” from invoices previously sent “is due to us having to convert them into AUD for funding”:
Mr Chapman’s view is that, despite the tax invoices from ASB and Krones AG referred to at [82]-[84] and [87] above being in the name of Wet Fix, because the purchase of the items was funded by the Import Finance Facility in the name of Gillion they could be claimed by Gillion under special condition 4 of the Business Sale Agreement. According to Mr Chapman, once the blow moulder and bottle filling plant had been delivered, the following transactions or events would have taken place:
(1)he would have prepared an invoice from Wet Fix to Gillion for the sale of the blow moulder and bottle filling plant to Gillion;
(2)Gillion would have organised a sale and leaseback arrangement with the ANZ for the blow moulder and bottle filling plant and the funds from this arrangement would have been used to pay out the Import Finance Facility; and
(3)Gillion would have rented the blow moulder and bottle filling plant to Wet Fix and it would have formed part of the plant and equipment that was rented by Wet Fix from Gillion.
However, these transactions did not take place because of the issues which occurred on delivery of the blow moulder and the subsequent insurance claim.
1.10 Stocktakes
1.10.129 June 2015
On 29 June 2015 Mrs Gill scheduled maintenance on the equipment at the Christensen Road Factory and production was shut down. Mrs Gill together with Messrs Chapman and Starling, Ms Richardson, who had commenced employment with Wet Fix on that day, and a forklift driver carried out the stocktake for the period ended 30 June 2015. In order to do so, they visited the Christensen Road Factory, the Burnside Road Factory and the Business Street Factory. Mrs Gill recalls that Messrs Chapman and Starling were not present for the whole of the period during which she carried out the stocktake and that she principally undertook that task with Ms Richardson and the forklift driver. The process involved the forklift driver moving pallets to enable them to count the pallets. Ms Richardson’s role was limited to writing down the stock numbers as they counted.
After completing the stocktake, Mrs Gill recalls that she said to Ms Richardson words to the following effect:
Give the numbers to Heather Hull in the office to enter into the excel sheet. Candy will research the invoice prices and help with the costings.
1.10.230 September 2015
As at 30 September 2015 Wet Fix was operating out of: the Christensen Road Factory; the Burnside Road Factory comprising three separate units, two of which had stock stored in them and the third of which was being set up for production; and the Business Street Fact
It was necessary to value the stock for the purpose of settlement of the sale of the Wet Fix Business. There is conflicting evidence about the way in which it was agreed that should occur.
On 30 September 2015 at around lunchtime Mrs Gill attended the Christensen Road Factory where she, Mr Starling and Ms Richardson attempted to carry out a stocktake, with Ms Richardson doing most of the work.
Mrs Gill explains that, at the time, the Christensen Road Factory was in full production in that:
(1)the main line was producing approximately 170 bottles per minute;
(2)the blow moulders were producing four pallets of empty bottles per hour; and
(3)the 15 litre line (which produced 15 litre bottles) was producing about four pallets per hour.
Mrs Gill’s usual practice was to visit the Christensen Road Factory, Burnside Road Factory and Business Street Factory whenever she went to work. She observed that, while attempting to undertake the stocktake at the Christensen Road Factory, the warehouse had semi-trailers picking up full loads which, in her experience, take approximately 22 pallets per truck, and semi-trailers delivering raw materials. She was also aware, because she had seen the sheets detailing the pick-ups, that full loads were scheduled to leave the Burnside Road Factory and the Business Street Factory for Woolworths, Aldi and other customers.
Mrs Gill considered that undertaking a physical stocktake without shutting down production and halting all deliveries would be a logistical nightmare and inaccurate. She recalls that on 30 September 2015 at approximately 3 to 4 pm she met with Messrs Starling and Chapman in the office at the Christensen Road Factory and had a conversation to the following effect:
Mr Chapman:   People are running around in circles and not getting anywhere. It is not accurate and time consuming.
Mrs Gill:I agree. Unless you shut down, and shutting down is not an option, you cannot do the stocktake. You would need to shut down for 24 hours to do the stocktake properly. There are 3 different sites, and all of them are operating 24 hours. Val keeps finding things she hasn’t counted, and on every recount she finds the number has either gone up or down depending on the truck movements.
Mr Chapman:   I think that we should do it a different way. I will look at the previous stocktake and the gross profit for the previous periods, and do an estimate.
Mrs Gill:That seems like the most sensible way forward.
Mr Starling:     I agree with Chris’ suggestion.
Mr Starling denies this conversation took place and says that there was no agreement for Mr Chapman to provide an estimate as a substitute for carrying out a full stocktake. According to Mr Starling, the stocktake continued for a further two days, which would have been of no utility if there had been an agreement to rely on an estimate of the stock.
As noted at [98] above, Ms Richardson participated in the stocktake on 30 September 2015 at the Christensen Road Factory. She gave the following evidence about the operations there at the time:
(1)a fully automated production line was in operation on a 24 hour per day, seven days per week basis. She explained that in a 24 hour period approximately 180,000 to 200,000 bottles were produced; and
(2)finished product and raw materials were stored there.
Ms Richardson did not participate in any stocktake on 30 September 2015 at the Burnside Road Factory or the Business Street Factory. She believes a stocktake at those premises was undertaken by the warehouse manager, Scott Taylor. However, Ms Richardson gave the following evidence about the facilities at and deliveries from the Burnside Road Factory and the Business Street Factory at the time:
(1)at the Burnside Road Factory one unit had capacity for storage of about 600 pallets and a second unit had capacity for storage of about 300 pallets. Each pallet comprised 1440 bottles;
(2)finished product was also stored at the Business Street Factory; and
(3)finished product was collected by trucks from about 6 am to 10 pm daily from each of the three sites with the oldest stock being sold and collected first. Woolworths collected about eight truckloads per day with each truck taking 24 pallets and there were approximately three truckloads per day for delivery to other customers who at the time included Aldi, Norco, K2 and Pacific Springs.
Ms Richardson’s evidence is that the stocktake of the Christensen Road Factory as at 30 September 2015 was prepared over a two to three day period.
On 6 October 2015 Ms Richardson sent an email to Messrs Chapman and Starling and Mrs Gill attaching a document she described as the “stock take counts” which was in the form of a spreadsheet (Richardson 2015 Spreadsheet). Ms Richardson also puts into evidence a spreadsheet which she believes is a correct record of the stocktake undertaken at this time (September 2015 Spreadsheet). The Richardson 2015 Spreadsheet and the September 2015 Spreadsheet differ. In its written submissions Holdings notes that September 2015 Spreadsheet was prepared by BDO.
In cross-examination Ms Richardson gave the following evidence about the September 2015 Spreadsheet:
(1)she did not create the spreadsheet;
(2)she had no input into the value of the stock recorded therein and was unable to say whether it accurately records the value of the stock; and
(3)she was unable to say whether it accurately records all of the stock on hand as at 30 September 2015. Ms Richardson did not count all of the stock but worked with at least two other people, Zoe Joyce and Adam Rinehart.
I have assumed that this evidence applies equally to the Richardson 2015 Spreadsheet.
Ms Richardson ultimately agreed that it was unlikely that a physical stocktake of all of the stock at the Christensen Road Factory, Burnside Road Factory and Business Street Factory could be undertaken accurately without shutting down all three sites.
Mr Chapman also gives evidence about the stocktake.
On 30 September 2015 Mr Chapman went to Brisbane to get the bank cheques for settlement. Before departing, he had a discussion with Mrs Gill and Mr Starling in which he reminded them that they needed to do the stocktake for settlement.
On his return at about 4 pm, Mr Chapman went to the Christensen Road Factory where he met Ms Richardson. He observed that the factory was still operating and that a stocktake had been partially completed. At the time Mr Chapman saw handwritten count sheets that had been prepared by Ms Richardson which included the brand of stock and number of pallets on hand. Mr Chapman was informed by Ms Richardson that she had not completed the stocktake.
Mr Chapman recalls that he then had a conversation with Mrs Gill and Mr Starling in which he said words to the following effect:
As we have not done a complete stocktake, the only thing we can do is to estimate the stocktake based on the revenue and gross profit achieved in the previous quarters.
According to Mr Chapman, in response Mrs Gill and Mr Starling nodded and Mr Starling said words to the following effect:
That’s acceptable because we cannot do anything else.
Mr Starling says that he was not a party to this conversation.
Mrs Gill said that, because of the agreement to disregard the 30 September 2015 stocktake, she did not consider the September 2015 Spreadsheet (or Ms Richardson’s evidence about it) to be important. Mrs Gill maintained that the stocktake was only undertaken on 30 September 2015, not over two to three days as Ms Richardson recalls, and insofar as it was undertaken, it was inaccurate because of the ongoing deliveries and production. Mrs Gill did not tell Ms Richardson on 30 September 2015 about the agreement not to proceed with the stocktake. She assumed that Ms Richardson would have realised that the exercise was useless.
For the reasons set out at [204]-[207] below, I accept Mrs Gill’s and Mr Chapman’s evidence that there was an agreement that the value of stock as at 30 September 2015 would be estimated by Mr Chapman adopting the method he identified (see [111] above). I do not accept Mr Starling’s evidence that the conversations deposed to by Mrs Gill and Mr Chapman did not occur or that he was not party to them.
On 6 October 2016 Janet Bray, an office manager at Wet Fix, provided Mr Byrne with “stock counts and cost of goods sold” for the 30 June 2015 and 30 September 2015 periods. As to the latter, Mr Byrne received the September 2015 Spreadsheet from Ms Bray.
Mr Byrne describes the content of, relevantly, the September 2015 Spreadsheet to include updated stock figures calculated by Wet Fix staff showing inventory at its cost value. In Mr Byrne’s opinion, this is the most common method for valuing stock and gross retail value is not an appropriate method for valuing stock.
Mr Byrne’s role is relation to the September 2015 Spreadsheet was limited. He did not check the cost of goods sold figures but ensured that the calculations of the total values were correct. That is, Mr Byrne simply undertook an arithmetic exercise relying on the information included in the September 2015 Spreadsheet.
1.11 Settlement
On 1 October 2015 settlement of the sale of the Wet Fix Business took place.
According to Mr Starling, between 1 and 16 October 2015 Holdings:
(1)paid to, or was credited by, Gillion the sum of $7,020,157.30 on account of the Share Sale Agreement; and
(2)paid Gillion $6 million on account of the Business Sale Agreement.
At and shortly after that time, Holdings made cash payments of $7,698,879.67 as follows:
(1)on or about 1 or 2 October 2015, a total amount of $4,498,879.67 was paid by the NAB on behalf of Holdings to Gillion and applied by Gillion in discharge of some of its facilities with the ANZ including the Import Finance Facility (see [80] above);
(2)on or about 6 October 2015, $400,000 was paid by Holdings via Wet Fix to Gillion; and
(3)on 13 and 14 October 2015, a total of $2.8 million was paid by Elem Investments to Gillion.
Holdings borrowed $5,687,179.59 of which the sum of $4,498,879.67 was paid in reduction of Gillion’s indebtedness to the ANZ (see [119(1)] above) and the balance, being $1,188,299.92, was applied by Holdings to pay out various liabilities of Wet Fix.
Non-cash adjustments totalling $1,532,985.25 were made, reducing the amount owing by Holdings under the Share Sale Agreement and the Business Sale Agreement as follows:
(1)the purchase price was reduced by $1,277.63 as an allowance made for personal petrol expenses charged to Wet Fix after 1 October 2015;
(2)the purchase price was reduced by $400,000, being a credit by Gillion on behalf of Mrs Gill to Holdings for Mrs Gill to acquire shares in Holdings;
(3)the purchase price was reduced by $400,000, being a credit by Gillion on behalf of Mrs Gill to Holdings in respect of a loan of that amount by Mrs Gill to Holdings; and
(4)the purchase price was reduced by $731,707.62, being repayment by Gillion to Wet Fix of the Gillion loan account.
1.12 Events following settlement
1.12.1January 2016
Between December 2015 and 3 January 2016 Mr Chapman undertook a calculation pursuant to Annexure A to the Share Sale Agreement (January 2016 Settlement Statement) which was as follows:
Mr Chapman initially explained that the January 2016 Settlement Statement was structured to set out the amounts owing under both the Share Sale Agreement and the Business Sale Agreement, showing the adjustments required under both agreements and the payments made. He said that he did not pay much attention to whether some adjustments (such as the addition of items purchased after 31 March 2015) were to be made under the Share Sale Agreement or the Business Sale Agreement because Holdings had to pay for the items under one or other of those agreements.
However, when cross-examined about the January 2016 Settlement Statement, Mr Chapman agreed that his evidence that he was attempting to work out the amount due under both the Share Sale Agreement and the Business Sale Agreement in the January 2016 Settlement Statement was not accurate, that his calculation of the amount due and payable under the Share Sale Agreement as set out in the January 2016 Settlement Statement is fundamentally wrong and materially overstated by some millions of dollars, and that the amount payable under the Business Sale Agreement was, as set out in the January 2016 Settlement Statement, $6 million, which was the amount in fact paid on settlement in October 2015.

In Toohey v Gunther (1928) 41 CLR 181 Isaacs J considered the construction of separate instruments executed by the same parties at about the same time, observing at 196 that:
… The true principle of construction in such cases is stated by Knight Bruce L.J., when delivering the judgment of the Privy Council in Shaw v Jeffery [(1860) 13 Moo. P.C.C. 432, at pp. 456-457.], as follows: “When the same parties execute contemporaneously several instruments relating to different parts of the same transaction, all must be considered together; all must be examined in order to understand each; apparent inconsistencies are to be reconciled; and where there are real inconsistencies, the governing intention of the parties is still to be collected from a consideration of the language of all the instruments, and effect given to it.” …
I accept that the Business Sale Agreement, Share Sale Agreement and Vendor Finance Agreement were integral parts of the same transaction and together intended to regulate the obligations and rights of the parties in the sale and purchase of the Wet Fix Business. Special condition 2 of the Business Sale Agreement (see [77] above) and cl 6.2 of the Share Sale Agreement (see [69(5)] above) support that view. Further, the Vendor Finance Agreement provides that the amount advanced could be applied in relation to both the Business Sale Agreement and the Share Sale Agreement.
I also accept Gillion’s submission that the terms of the Business Sale Agreement and the Share Sale Agreement are complementary and form part of a single transaction, namely the sale of the Wet Fix Business. To that end, what was intended was that all plant and equipment purchased by, on the one hand, Wet Fix (see cl A, item 6 of Annexure A to the Share Sale Agreement) and, on the other, Gillion (see special condition 4 of the Business Sale Agreement) be sold.
However, Holdings contends that the Business Sale Agreement settled on 1 October 2015 and that, unlike the Share Sale Agreement, no adjustment to the agreed purchase price, $6 million, is available. True it is that, putting to one side special condition 4, there is no clause which permits an adjustment to the purchase price to like effect to that found in the Share Sale Agreement. But the Business Sale Agreement and Share Sale Agreement are each different in nature. Two agreements were required because of the structure and ownership of the Wet Fix Business by Gillion and Wet Fix. The former provides for the sale of the assets owned by Gillion and the latter provides for sale of the shares in Wet Fix, the operating arm of the business.
Holdings relies on comments in a letter dated 24 May 2015 (see [49] above) which it describes as coming from “the lawyers for Mr Chapman and Wet Fix” in support of its contention that all parties understood that after completion there could be no adjustment of the purchase price under the Business Sale Agreement. However, that letter is in fact from ANZ Lawyers, who acted for Mr Starling, and is addressed to Messrs Starling and Chapman. Those lawyers comment on, among other things, the Business Sale Agreement, including special condition 4, and Mr Chapman, who was assisting Mr Starling, recorded his response only. The comments in that letter cannot be taken to reflect the intent or understanding of all of the parties to the transaction.
Given the nature of the transaction and the intent of the parties that the whole of the Wet Fix Business be sold, I accept Gillion’s submission that the purpose of cl A, item 6 of Annexure A to the Share Sale Agreement and special condition 4 of the Business Sale Agreement was to allow the parties to agree to a base amount for the Wet Fix Business but also to ensure that, in addition, payment was made for additional amounts incurred by Gillion and Wet Fix in purchasing equipment, including for the development of the second bottling line. This reflects the commercial context in which the agreements were struck. It could not have been the intention of the parties that, in the event that there was a disagreement about the inclusion of an item of equipment pursuant to cl A, item 6 of Annexure A to the Share Sale Agreement, Holdings would gain a windfall because the Business Sale Agreement had completed. Rather, given the complementary and composite nature of the agreements, those circumstances would necessitate a review of the amount payable under the Business Sale Agreement.
Accepting that is so, the next issue is whether special condition 4 permits Gillion to adjust the purchase price under the Business Sale Agreement to include the amount of $2,249,381.50 for the blow moulder and bottle filling plant.
Special condition 4 provides:
In addition to the Purchase Price, at completion [Holdings] will pay by cash or bank cheque to [Gillion] the sum of the deposits paid by [Gillion] on plant and equipment listed in Schedule “B” and any other plant and equipment ordered but not delivered to [Gillion] prior to 31 March 2015 and any other plant and equipment ordered after 31 March 2015.
Holdings submits that special condition 4 concerns only the payment of deposits. That is, it contends for a narrow reading of the clause by which the words the “sum of the deposits” qualifies each of the three categories of plant and equipment referred to thereafter: that referred to in the BSA Equipment Schedule; any other plant and equipment ordered but not delivered to Gillion prior to 31 March 2015; and any other plant and equipment ordered after 31 March 2015. Assuming that is so, the clause quite plainly refers to a requirement for Holdings to pay in addition to the purchase price, the sum of the deposits paid by Gillion on plant and equipment listed in the BSA Equipment Schedule. The blow moulder and bottle filling plant are listed in the BSA Equipment Schedule and, although “nil” is recorded in the column titled “deposits paid” against each of those items, the fact is that, for each item, a deposit was paid by Gillion. It follows that, despite the omission, on any view, special condition 4 requires Holdings to pay to Gillion, in addition to the purchase price, the amount of the deposits paid for those items.
Contrary to Holdings’ submission, special condition 4 is not unambiguous or susceptible of only one meaning. It may equally be read to mean that at completion, in addition to the purchase price, Holdings will pay the sum of each of the following categories of equipment: the deposits on plant and equipment set out in the BSA Equipment Schedule; any other plant and equipment ordered but not delivered to Gillion prior to 31 March 2015; and any other plant and equipment ordered after 31 March 2015. Having regard to the objective circumstances surrounding the entry by the parties into the Business Sale Agreement, that interpretation is preferred.
As I have already observed, the Business Sale Agreement was entered into to implement a wider transaction by which Holdings was to acquire the whole of the Wet Fix Business. Its purpose was to transfer to Holdings the assets owned by Gillion which were required to operate the Wet Fix Business. A purchase price of $6 million was struck but that price was subject to special condition 4, which contemplated that a further amount was payable for additional equipment which was to be acquired either for which, at the date of the agreement, deposits had been paid, or which otherwise was acquired by Gillion after exchange but prior to completion. In other words, special condition 4 ensured that Gillion was reimbursed for the cost of additional equipment purchased by it.
Reading special condition 4 in the way contended for by Holdings would mean that any additional amount payable to Gillion for such plant and equipment would be limited to deposits paid. This would mean, for example, that if Gillion ordered a piece of plant or equipment after 31 March 2015 and paid a 50% deposit then, even if Gillion paid the balance of the purchase price for that plant or equipment prior to settlement, Holdings’ liability to Gillion would only be for the 50% deposit paid. Similarly, if Gillion ordered an item of equipment after 31 March 2015, paid no deposit but paid the full purchase price on delivery, which occurred before settlement, on Holdings’ construction of special condition 4, it would have no liability for that piece of equipment. In both cases, Holdings would receive a windfall. That cannot have been the intent of the clause.
Adopting the preferred construction, insofar as the blow moulder and bottle filling plant are concerned:
(1)first, as set out at [290] above, the deposits for each of those items had been paid despite what was recorded in the BSA Equipment Schedule. Holdings was liable to pay Gillion an amount equal to those deposits at settlement; and
(2)secondly, even if Holdings was not liable for the deposits because of the recording of “nil” for the amounts of the deposits paid in the BSA Equipment Schedule, those items can be characterised as any other plant and equipment ordered but not delivered to Gillion prior to 31 March 2015. That being so, either the whole or the balance of the price for the blow moulder and bottle filling plant was to be paid by Holdings to Gillion.
4.2.6Plant and equipment – post 31 March 2015 assets
The final issue raised by Holdings in relation to the January 2016 Settlement Statement concerns a different aspect of plant and equipment, namely the amount of $913,427.50 which Gillion claimed for plant and equipment acquired by Wet Fix after 31 March 2015. Holdings alleges that Wet Fix did not acquire assets in that amount after 31 March 2015 such that it should not have been included in the January 2016 Settlement Statement: para 26(b) of the SFASOC.
Gillion does not admit the allegation made against it and, in addition, by way of positive defence, alleges that Wet Fix purchased assets in the amount of $1,017,567.69 after 31 March 2015 and that Gillion purchased those assets from Wet Fix. Gillion says that the cost of those assets should be added to the purchase price under the adjustment provisions in the Business Sale Agreement (special condition 4) or the Share Sale Agreement (cl A, item 6 of Annexure A).
4.2.6.1Parties’ submissions
Holdings submits that the amount of $1,017,567.69 is made of up of two amounts, each of which it addresses in turn.
The first amount is $729,124.72 which is drawn from invoices issued by Wet Fix to Gillion from 30 June 2015 to 30 September 2015. In relation to this amount, Holdings accepts that if Gillion is permitted to reopen the purchase price under the Business Sale Agreement, deposits only on items of plant and equipment for the Wet Fix Business which were paid for by Gillion through invoicing and credits against its loan account are payable under special condition 4.
Holdings relies on an annexure to its submissions in which it identifies those items which may be capable of falling within this category. It submits that whether the relevant payments constituted deposits on items of plant and equipment can only be established where the underlying invoices are in evidence. As was established through the cross-examination of Mr Chapman, he did not inspect underlying invoices in respect of all of the amounts he invoiced to Gillion and added to the purchase price under the Business Sale Agreement. Mr Chapman cannot identify those transactions for which he has scrutinised source documents and those he has summarised in reliance on Wet Fix’s MYOB ledgers. Holdings submits that those ledgers, except as corrected by BDO upon inspection of source documents or where relevant source documents are in evidence, cannot be taken reliably to record the transactions that they purport to record.
Holdings submits that the only transactions in relation to which Gillion should be permitted to claim any adjustment of the purchase price under the Business Sale Agreement are those where the Court has objective evidence establishing that the relevant purchase was of plant and equipment and confirming that the amount paid was a deposit. Those transactions which meet that criteria are identified in the annexure to its submissions.
The second amount is $288,443.20 for purchases made by Wet Fix which Mr Chapman says were incorrectly coded and thus not picked up and invoiced to Gillion earlier. Holdings submits that as these items have not been invoiced to Gillion, the claim that they have been “paid by” Gillion should fail.
Holdings contends that, in any event, the evidence does not establish that these transactions related to the purchase of plant and equipment for the Burnside Road Factory: there are notations of “Burnside” against some but not all of the items included in the amount; and even for those entries which do bear the notation of “Burnside”, this fact alone does not provide an adequate basis for a finding that the purchases were as Mr Chapman describes them. Holdings submits that the ledgers maintained by Wet Fix during Mr Chapman’s time as its accountant have been proved to be unreliable and the fact that a purchase somehow related to “Burnside” does not establish that it was a purchase of plant and equipment to which special condition 4 responds.
Holdings submits that, absent objective evidence that the amounts comprising $288,443.20 were paid towards plant and equipment, the claim for an increase of the price in that amount under special condition 4 of the Business Sale Agreement should fail. Holdings relies on the annexure to its submissions, noting that for the majority of transactions there are no underlying documents in evidence. As a consequence, it submits that the amount of $288,443.20 should be excluded from any special condition 4 adjustment; alternatively, only those amounts which were deposits for which an underlying invoice is in evidence and which were invoiced to Gillion should be payable as adjustments under special condition 4; or, further in the alternative, only those amounts for which an underlying invoice is in evidence should be payable as adjustments under special condition 4.
Gillion submits that, again, Holdings has not proved its allegation that Wet Fix did not acquire assets in the amount of $913,427.50. Rather, Holdings queries the extent to which Gillion subsequently acquired the assets from Wet Fix and appears to concede that the assets were acquired after 31 March 2015. Gillion submits that, it follows, Holdings’ claim must be dismissed, making its positive defence unnecessary.
In relation to its positive defence, Gillion accepts that Wet Fix would often enter into agreements for the purchase of plant and equipment because Gillion was a non-trading entity. Gillion refers to the evidence of Mrs Gill and Mr Chapman to the effect that, at the end of each quarter and at the end of each financial year, assets and equipment purchased in the name of Wet Fix were transferred to Gillion by way of general ledger entries, the payment for which was resolved by way of inter-company loan. Gillion notes that this is accepted by both parties.
4.2.6.2Consideration
Holdings’ claim as pleaded is that the January 2016 Settlement Statement contained errors and omissions in that, relevantly, $913,427.50 of fixed assets were included as assets when those assets were not acquired after 31 March 2015 (which was the relevant date for the purposes of cl A, item 6 of Annexure A to the Share Sale Agreement).
Holdings has not led any evidence in support of its contention that the relevant assets were acquired by Wet Fix before 31 March 2015 but relies on Mr Chapman’s evidence to make good its claim. Mr Chapman gives the following evidence:
(1)he explains that Document 9.1 provided with the January 2016 Settlement Statement in support of the inclusion of $913,427.50 for the item described as “Physical purchases” (see [122] above) is the accumulated amount of the purchases of equipment made after 31 March 2015 by Wet Fix, which were sold to Gillion and journalled against the Gillion loan account in Wet Fix for a total amount of $913,427.50. He says that the Gillion loan account ledger in Wet Fix was broken up into various sub-ledgers;
(2)during the time that the shares in Wet Fix were owned by Gillion, if equipment was purchased by Wet Fix during a financial year (which would sometimes happen, depending on whether Gillion or Wet Fix was invoiced by the supplier) then, at the end of the quarter or the financial year, that equipment would be sold by Wet Fix to Gillion and recorded by journal entries in the inter-company loan account. An invoice would be raised by Wet Fix to Gillion for the equipment, the amount payable would be journalled against the Gillion loan account and the assets would then be taken up in Gillion’s ledgers as its assets. Mr Chapman says that this is what happened in respect of the amounts listed in Document 9.1 provided with the January 2016 Settlement Statement; and
(3)Mr Chapman then refers to three invoices issued by Wet Fix to Gillion dated 30 June 2015 (in the case of two of the invoices) and 30 September 2015 (in the case of the third) by which certain equipment was sold by Wet Fix to Gillion. Mr Chapman included the amounts in these invoices, subject to some slight adjustments, in calculating the amount he then included in the January 2016 Settlement Statement.
This evidence does not establish that the equipment which made up the amount of $913,427.50 included in the January 2016 Settlement Statement was acquired by Wet Fix prior to 31 March 2015. Rather, it establishes the contrary. That is, that the assets were acquired after 31 March 2015. It follows that Holdings has not proved its pleaded case and its claim in relation to this aspect of the January 2016 Settlement Statement must fail.
Although it is not necessary to do so, for completeness I briefly address Gillion’s positive defence (see [296] above).
As set out above, the relevant equipment was purchased after 31 March 2015. It is also apparent, based on Mr Chapman’s evidence, that Wet Fix sold equipment to Gillion. However, I am not satisfied that this includes the equipment in the amount of $288,443.20. Mr Chapman’s evidence is that:
(1)the total of $288,443.20 is made up of equipment and set up costs for the Burnside Road Factory which were incorrectly coded to the wrong sub-account;
(2)Wet Fix purchased the equipment but it was then recorded in the Gillion loan account to reflect a sale by Wet Fix to Gillion of the relevant equipment;
(3)it was his usual process to prepare an invoice at the end of each quarter from Wet Fix to Gillion for the plant and equipment purchased using Wet Fix funds, which were then coded to the Gillion loan account and for which Gillion ultimately paid or had set-off debts. But, as these amounts were not entered into the correct sub-account, i.e. the plant and equipment sub-account, they were not entered on the September 2015 invoice from Wet Fix to Gillion; and
(4)through the loan journal, Gillion “paid” Wet Fix for these items and they should have been invoiced across by Wet Fix to Gillion and picked up in its assets. It was an administrative oversight that they were not.
In the absence of evidence establishing payment by Gillion for these items of equipment and/or invoices from Wet Fix to Gillion together with a record of the amounts in the Gillion loan account, I am not satisfied that Gillion can claim the amount of $288,443.20 pursuant to special condition 4 of the Business Sale Agreement. However, as those assets were purchased by Wet Fix after 31 March 2015 and remained in its name, they can be added to the purchase price pursuant to cl A, item 6 of Annexure A to the Share Sale Agreement.
Thus, Gillion has established its positive defence in relation to the equipment to the value of $1,017,567.69. It can recover the amount of $729,124.72 pursuant to the Business Sale Agreement (special condition 4) and the amount of $288,443.20 pursuant to the Share Sale Agreement (cl A, item 6 of Annexure A). As to the former, contrary to Holdings’ submissions, it can recover the full value of that equipment, and not just deposits paid for it, under special condition 4 of the Business Sale Agreement.
5. Gillion’s cross-claim

As set out at [185] above, the January 2016 Settlement Statement claimed that an amount of $89,726.49 was owing by Holdings to Gillion for the purchase of the Wet Fix Business. However, in its cross-claim, Gillion makes no claim for payment of that amount and limits its claim to recovery of the amount it contends remains owing under the Vendor Finance Agreement, being $948,190.34. This is the difference between the amount owed and the amount paid by Holdings pursuant to the Share Sale Agreement and the Business Sale Agreement. The parties agree that no cash was paid in this amount. Rather, the loan was notionally drawn down as partial consideration by Holdings for the purchase of the Wet Fix Business.
5.1 Vendor Finance Agreement
The Vendor Finance Agreement is between Gillion as lender, Holdings as borrower and Wet Fix and Mr Starling as guarantors. It relevantly provides:
(1)at cl 1 for Gillion to lend Holdings $1.75 million (referred to as the Principal Sum) on the terms and subject to the conditions set out in the Vendor Finance Agreement;
(2)at cl 2 that Holdings will repay the Principal Sum to Gillion 36 months from the date of the Vendor Finance Agreement or as agreed between the parties;
(3)under the heading “Interest” that:
3.1 Interest shall be payable on the Principal Sum or the balance of the Principal Sum then outstanding at the target “cash rate” which is the market interest rate on overnight funds set by the Reserve Bank of Australia plus four percent (4%).
3.2 [Holdings] must pay [Gillion] interest calculated from the date of this Agreement with the first interest payment due on the date which is one (1) calendar month after the date of this Agreement and thereafter on the same day of each succeeding month.
3.3 For the avoidance of doubt, the interest payable will compound monthly and each amount of unpaid interest will be treated as an accretion to the Principal Sum or balance of the Principal Sum then outstanding for the purposes of the calculation of further interest payable.
(4)at cl 5.1, which concerns costs, that:
[Holdings] covenants with [Gillion] to pay all costs, charges and expenses including all reasonable legal and other professional fees. and stamp duty paid or payable by [Gillion] for or in relation to the negotiation, preparation, execution and stamping of this Agreement, the exercise or attempted exercise of any of the rights, powers and privileges of [Gillion] hereunder, the waiver, variation, release or discharge of this Agreement, and [Holdings] will also pay all stamp duty chargeable by virtue of anything contained in this Agreement or by virtue of anything done pursuant to this Agreement.
(5)at cl 5.2 for an indemnity requiring Holdings and the guarantors, Wet Fix and Mr Starling, to indemnify Gillion against any liability or loss arising from, and any costs, charges and expenses incurred in connection with:
5.2.1the payment, omission to make payment or delay in making payment of amounts referred to in clause 5.1;
5.2.2the Principal Sum or any part of it being repaid, discharged or made payable for any reason other than in accordance with this Agreement or any other payment required to be made under this Agreement not being made on its due date; or
5.2.3[Gillion] acting in connection with this Agreement in good faith on any facsimile or telephone instructions purporting to originate from [Holdings];
including, without limitation, liability, loss, costs, charges or expenses on account of funds borrowed, contracted for or used to fund any amount payable under this Agreement and including in each case, without limitation, reasonable legal fees.
(6)at cl 5.3 that:
Each indemnity in this Agreement is a continuing obligation, separate and independent from the other obligations of [Holdings] and [Wet Fix and Mr Starling] and survives termination of this Agreement.
(7)under the heading “Termination Consequences” that:
7.1 On the expiry or other termination of this Agreement:
7.1.1The loan, together with all interest accrued on the loan and not then paid and all other amounts payable under this Agreement and unpaid shall, at the option of [Gillion], notwithstanding any delay or previous waiver of the right to exercise that option, shall immediately become due and payable without the necessity of any demand or notice to [Holdings] or [Wet Fix and Mr Starling].
7.2 [Gillion] may exercise its rights under Clause 7.1:
7.2.1notwithstanding acceptance of any part of any of the amounts payable under this Agreement after the occurrence of any event of default;
7.2.2notwithstanding the occurrence of any previous or other event of default; and
7.2.3without the necessity for any notice to, or of any consent or concurrence on the part of [Holdings].
5.1.1Consideration
There was no dispute that, if Holdings was unsuccessful in its claim, either because it was precluded from raising any objections to the January 2016 Settlement Statement or because its objections were not made out, it was liable to Gillion for the amount that it had advanced pursuant to the Vendor Finance Agreement as claimed in its cross-claim.
As Holdings has been unsuccessful in its claim, the amount advanced pursuant to the Vendor Finance Agreement remains outstanding.
On 3 September 2018 Gillion served a “notice of breach under the [Vendor Finance Agreement]” dated 29 August 2018 on Holdings, copied to Mr Starling and Wet Fix, alleging breach of cll 3.1 and 3.2 of the Vendor Finance Agreement and demanding that Holdings rectify the breaches by paying the amount due, which at the time was $23,068.11 for interest payable on the amount advanced, within 14 days. The breach notice also included:
Gillion notifies Holdings, Wet Fix and Darren Starling that if the breaches of the [Vendor Finance Agreement] detailed in this Notice are not rectified as required by this Notice, Gillion may terminate the [Vendor Finance Agreement] pursuant to clause 6.1 of the [Vendor Finance Agreement], and/or commencing proceedings against Holdings, Wet Fix and Darren Starling seeking recovery of all amounts owing to Gillion under the [Vendor Finance Agreement], together with interest and costs.
No payment was made by Holdings to Gillion rectifying the alleged breach of the Vendor Finance Agreement.
Pursuant to cl 2.1 of that agreement, Holdings was required to repay the balance of the Principal Sum outstanding on 11 June 2018 or as agreed. There is no evidence of any agreement extending the date for repayment.
By notice dated 27 September 2018 addressed to Holdings and copied to Wet Fix and Mr Starling, Gillion terminated the Vendor Finance Agreement.
Whether by reason of the termination or the expiry of the term of the Vendor Finance Agreement, pursuant to cl 7.1 the Principal Sum outstanding plus any interest accrued thereon is due and payable by Holdings to Gillion.
Further, pursuant to cl 5.1, Holdings is liable for any costs associated with the exercise or attempted exercise of any of Gillion’s “rights, powers and privileges” under the Vendor Finance Agreement. In the alternative, pursuant to cl 5.2, Holdings indemnifies Gillion against any liability or loss arising from, and any costs, charges and expenses incurred in connection with, among other things, payment of amounts referred to in cl 5.1.
Gillion is entitled to judgment on its cross-claim for the combined total of these amounts.
Gillion has not provided a calculation of the interest payable on the amount outstanding under the Vendor Finance Agreement, being $948,190.34, or of any additional costs claimed pursuant to cl 5.1. I will make an order for Gillion to file and serve an affidavit setting out the amount it claims is due.
6. Conclusion
It follows from the above that:
(1)Holdings has failed to establish its claim and the SFASOC should be dismissed; and
(2)Gillion has succeeded on its cross-claim and is entitled to judgment for the amount outstanding under the Vendor Finance Agreement plus interest accrued and unpaid on that amount and any costs pursuant to cl 5.1 of the Vendor Finance Agreement. As there is no evidence of the total amount claimed, Gillion will be required to file and serve an affidavit setting out that amount within seven days of the date of publication of these reasons.
Within 14 days of the date of publication of these reasons, the parties should provide to my associate draft orders reflecting these reasons. If the parties cannot agree on the form of orders then, within that timeframe, each party is to provide its proposed draft orders to give effect to these reasons together with submissions, not exceeding two pages in length, explaining why those orders should be made. In the event that the parties cannot agree on a form of orders, the proceeding will be listed before me on 26 February 2021 at 9.30 am.
The parties asked that I reserve on the question of costs of the proceeding. Accordingly, in the absence of agreement on this issue between the parties, I will also make orders requiring the parties to provide submissions in relation to the costs of the proceeding, not exceeding three pages in length, within 21 days of the date of publication of these reasons. Unless either party requests an oral hearing, the question of costs will be dealt with on the papers.

I certify that the preceding three hundred and twenty-seven (327) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Markovic.
Associate:
Dated: 5 February 2021

File number:	NSD 721 of 2017
Judgment of:	MARKOVIC J
Date of judgment:	5 February 2021
Catchwords:	CONTRACTS – construction of agreements relating to the sale of a business – where one company was the operating entity and another company owned the assets of the business including the shares in the operating entity – claim for recovery of an alleged overpayment of the purchase price under a share sale agreement – where adjustments were made to the purchase price by reference to a balance sheet made available after settlement – whether applicant is precluded from raising objections to the purchase price and balance sheet – whether objections have been made out – claim dismissed – cross-claim for recovery of amount advanced under a vendor finance agreement – cross-claim allowed
Cases cited:	Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345 Jones v Dunkel (1959) 101 CLR 298 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 Toohey v Gunther (1928) 41 CLR 181
Division:	General Division
Registry:	New South Wales
National Practice Area:	Commercial and Corporations
Sub-area:	Commercial Contracts, Banking, Finance and Insurance
Number of paragraphs:	327
Date of hearing:	7, 8, 9, 10 and 14 September 2020
Counsel for the Applicant:	Mr E Hyde and Mr T Rogan
Solicitor for the Applicant:	BT Lawyers
Counsel for the Respondent:	Mr M Henry SC and Ms M Cowden
Solicitor for the Respondent:	Brown Wright Stein Lawyers

ORDER MADE BY:	MARKOVIC J
DATE OF ORDER:	5 FEBRUARY 2021

1 The evidence	[6]
1.1 The witnesses	[7]
1.2 The Wet Fix Business and its growth	[18]
1.3 Sale of the Wet Fix Business	[28]
1.4 Discussions with Mr Starling	[31]
1.5 Negotiations for the sale of the Wet Fix Business	[40]
1.6 May to June 2015	[53]
1.7 Exchange of agreements for the sale of the Wet Fix Business	[57]
1.8 Share Sale Agreement and Business Sale Agreement	[68]
1.8.1 Share Sale Agreement	[69]
1.8.2 Business Sale Agreement	[75]
1.9 Blow moulder and bottle filling plant	[80]
1.10 Stocktakes	[94]
1.10.1 29 June 2015	[94]
1.10.2 30 September 2015	[96]
1.11 Settlement	[117]
1.12 Events following settlement	[122]
1.12.1 January 2016	[122]
1.12.2 February 2016	[146]
1.12.3 October 2016	[149]
2 The pleaded case	[158]
3 The issues	[163]
4 Holdings’ claim	[164]
4.1 The limitation issue	[164]
4.2 Purchase price – items in dispute	[186]
4.2.1 Inventory	[187]
4.2.1.1 Parties’ submissions	[190]
4.2.1.2 Consideration	[198]
4.2.2 Capital expenditure	[218]
4.2.2.1 Parties’ submissions	[219]
4.2.2.2 Consideration	[225]
4.2.3 Creditors	[232]
4.2.3.1 Parties’ submissions	[233]
4.2.3.2 Consideration	[238]
4.2.4 Other creditors	[243]
4.2.4.1 Parties’ submissions	[244]
4.2.4.2 Consideration	[246]
4.2.5 Blow moulder and bottle filling plant – ANZ leases	[251]
4.2.5.1 Parties’ submissions	[253]
4.2.5.2 Consideration	[274]
4.2.6 Plant and equipment – post 31 March 2015 assets	[295]
4.2.6.1 Parties’ submissions	[297]
4.2.6.2 Consideration	[306]
5 Gillion’s cross-claim	[313]
5.1 Vendor Finance Agreement	[314]
5.1.1 Consideration	[315]
6 Conclusion	[325]

1 x ASB PF24-BB Injection Blow Moulding Machine Serial number: 369CC0024 (subject to finance with ANZ Bank	1,500,000.00	N/T
1 x Barfill RFC Washing, Filing and Capping Machine Serial number: F01939 (subject to finance with ANZ Bank)	880,000.00	N/T
1 x Krones Controll Bottle Labeller Serial Number: K745VC9 (subject to finance with ANZ Bank)	210,000.00	N/T