Wu v King Enterprises and Trading Pty Ltd

[2005] NSWSC 283

CITATION:	Wu & Anor v King Enterprises & Trading Pty Ltd & Ors [2005] NSWSC 283
HEARING DATE(S):	29 March, 2005
JUDGMENT DATE :	29 March 2005
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
DECISION:	Judgment for Plaintiffs.

CATCHWORDS:	CONTRACT - RECTIFICATION - Plaintiffs allege contract debt - clear error in drafting of agreements - rectification ordered - no question of principle.
PARTIES:	Alfred Wu - First Plaintiff/First Cross Defendant Susan Chi - Second Plaintiff/Second Cross Defendant King Enterprises & Trading Pty Ltd - First Defendant/Cross Claimant Chi & Wu Pty Ltd (formerly Carlington International Trading Pty Ltd) - Second Defendant/Second Cross Claimant Yong Chang - Third Defendant/Third Cross Claimant Zan Zhang - Fourth Defendant/Fourth Cross Claimant
FILE NUMBER(S):	SC 3040/02
COUNSEL:	M.D.O. Broun QC, V. Bedrossian - Plaintiffs No appearance for Defendants
SOLICITORS:	William Chan & Co - Plaintiffs No appearance for Defendants

LOWER COURT JURISDICTION:

Ex tempore

1    By an Amended Statement of Claim the First and Second Plaintiffs (“the Plaintiffs”) seek judgment against the First Defendant for the payment of a contract debt arising out of the sale of a business conducted by a company formerly owned by them, namely, Carlington International Trading Pty Limited (“Carlington”). The Third and Fourth Defendants are alleged to have guaranteed the obligations on the purchasers’ part arising under the sale of the business.

2    The proceedings were first commenced in 2002 and there have been a large number of appearances at interlocutory hearings and directions on the part of the Defendants. However, after the matter had been set down for trial before me it appears that the Defendants ceased to have any interest in actually pursuing their Defence and the Cross Claim which had been filed. Their solicitor has filed a Notice of Ceasing to Act.

3    There was no appearance on behalf of the Defendants at pre-trial directions before me on 24 February 2005. Enquiries made by the Plaintiffs at that stage suggested that the Third and Fourth Defendants, who owned the First and Second Defendants, had gone back to China and were likely to remain there for some time. I directed that further enquiries should be made by the Plaintiffs with a view to ensuring that the Defendants were notified that the proceedings had been listed for hearing today and that, if there were no appearance by the Defendants, the matter would proceed in their absence.

4    At the commencement of today's proceedings, affidavit evidence showed that appropriate enquiries had been made as to the Defendants’ whereabouts and I was satisfied that all proper attempts had been made to notify them that the matter would be heard today in their absence if they did not appear. The matter proceeded and the Plaintiffs have sought to demonstrate on the evidence filed that there should be judgment for them on their Amended Statement of Claim and on the Cross Claim.

5    The first question which arises is whether it is the Plaintiffs who are entitled to claim against the Defendants. That question arises from the fact that the business which is the subject of the sale was owned by Carlington, which was, up until 26 July 2000, wholly owned by the Plaintiffs but was then acquired by the Third and Fourth Defendants. On 26 July 2000, a sale of business agreement was entered into whereby Carlington sold its business to the First Defendant, King Enterprises & Trading Pty Limited (“King Enterprises”), for $206,000, together with the value of its stock in trade, then estimated at $300,000. Under the terms of the agreement for sale of business, the purchase price payable by King Enterprises was payable to the vendor, namely, Carlington.

6    However, on the same day, that is 26 July 2000, the Plaintiffs entered into an agreement whereby they sold all of their shares in Carlington to the Third and Fourth Defendants for a nominal consideration. The effect of the two agreements being entered into and completed on the same day was that Carlington sold its business to a company controlled by the Third and Fourth Defendants and was entitled to receive a substantial sum in consideration of the sale, and yet Carlington itself was sold for nominal consideration to the same purchasers on the same day. Prima facie, the result would be that the former shareholders of Carlington, the Plaintiffs, would receive a sum of $1 in consideration of the sale of a very valuable business owned by their company, Carlington, and the sale price would be retained for the benefit of those who controlled the purchaser.

7    It is very obvious that an error has been made in the way the sale documents have been drawn. The persons who were obviously intended to receive the payment of the substantial sum of money due for the goodwill and stock in trade of Carlington were not Carlington itself but its then shareholders, the Plaintiffs.

8    This result was clearly the common intention of the parties. On 24 July 2000, two days before the simultaneous execution and settlement of the business sale agreement, the Plaintiffs' solicitor wrote to the Defendants' solicitor directing payment of the balance of purchase price, namely $185,400, to the Plaintiffs themselves. It is clear that on settlement of the business sale agreement, which occurred on 26 July 2000, the First, Third and Fourth Defendants complied with that direction and made available a bank cheque for the balance of purchase moneys directly in favour of the Plaintiffs. The amount of the balance of purchase price is shown as deposited in their personal account on the following day.

9    Accordingly, it seems to me that the Plaintiffs have made out a case for rectification of the business sale agreement so as to insert a term therein requiring the purchaser to pay the purchase price, not to Carlington, but rather to the Plaintiffs.

10    The next question that arises is as to the amount said to be owing under the sale of business agreement for stock in trade as at the date of completion. It is clear in my opinion that another error has been made in the preparation of the sale documents in that the completion date as shown in the sale of business agreement is given as 21 July 2000 although the agreement for sale was executed on, and is dated, 26 July 2000. The agreement clearly requires further acts of performance under it. It seems that the parties overlooked the fact that the document contained an inappropriate date for completion – probably because it had appeared in an earlier draft.

11    Condition 2 of the sale agreement provides:

“The Purchasers shall also purchase from the Vendors all the good and saleable stock-in-trade of the business at the value thereof at the date of completion (estimated to be the sum as set out in 1 of the Particulars) such value and saleability or otherwise to be determined by agreement between the parties and in default of agreement by an independent stocktaker appointed by the parties and in default of agreement in that regard appointed at the request of either party by the President for the time being of the Real Estate Institute of NSW provided always that if the value of such stock-in-trade exceeds the sum as set out in 1 of the Particulars the Purchasers may reject such items as they may select to reduce the value to the sum as set out in 1 of the Particulars. The cost of making any valuation shall be borne equally by the parties (irrespective of completion of this agreement). The valuation shall be made prior to completion.”

Condition 18 provides:
“The Purchasers shall be deemed to have waived any objection or requisition which has not been made and served on the Vendors within seven business days after the date hereof.”

Special Condition 32 provides:
“If completion of this contract does not take place on the completion date, other than the default of the vendor, it is an essential condition of this contract that the purchaser shall pay to the vendor upon completion, in addition to the other moneys payable pursuant to this contract, the amount obtained by applying a simple interest formula of eight percent (8%) per annum to the balance of the price and calculated on a daily basis up to the date of completion.”

Special Condition 37 provides:
“Payment of stock in trade by the Purchaser shall be effected within 60 days from the date of completion and where appropriate, payment of stock in trade shall be adjusted according to adjustment requirements agreed at the time of completion between the parties.”

12    The evidence shows that although the balance of the purchase price specified in the sale agreement, namely $185,400, was paid on the 26 July 2000, the parties did not comply with the machinery provisions of Condition 2. That is, they did not agree upon the value of sale of stock in trade of the business prior to the completion of the agreement on 26 July 2000.

13    The evidence shows that both sides to the agreement engaged in a stock take and valuation exercise which concluded on 30 July 2000. I am satisfied by the evidence that representatives of the Defendants attended this stock take and agreed upon a schedule of items to be acquired by the purchaser and on the price which would be paid for those items. I am satisfied that the final agreed list of items and prices is as set out in the schedule to the Amended Statement of Claim.

14    The machinery provided in Condition 2, coupled with the provisions of Condition 18 of the sale of business agreement, make it clear that the purchaser’s right to reject stock or to quibble with the price for the purposes of the sale agreement would come to an end at the conclusion of the process engaged in pursuant to Condition 2. In this case, it came to an end when the parties, by mutual agreement, varied the provisions of Condition 2 so as to result in an agreed valuation of stock to be sold, as at 30 July 2002. It is clear that after that agreement had been made the purchasers no longer had the right under the sale agreement to reject further stock or to argue with the purchase price to be paid for that stock. It was consequent upon the agreement between the parties as to stock valuations on 30 July that the purchasers' obligations arose under Special Condition 37 to make payments in respect of the stock within sixty days from the date of completion. The date of completion for the purposes of Special Condition 37 is, in my opinion, 30 July 2000.

15    The purchaser attempted to reject further stock and to dispute the valuation of stock in a complaint made to the Plaintiffs in September 2000. In my opinion, for the reasons which I have given, it is clear that as at this time the purchaser was bound by the agreement as to stock which it had made on 30 July 2000 and had no further right to dispute the price for the stock payable in accordance with Special Condition 37.

16    I am satisfied that the purchaser under the sale agreement, i.e. King Enterprises, has failed to pay the balance of moneys owing under the sale agreement in respect of stock as set out in the schedule to the Amended Statement of Claim. I am satisfied also that by the service of the Statement of Claim on the Third and Fourth Defendants, demand has properly been made upon the Third and Fourth Defendants pursuant to a guarantee of the obligations of the First Defendant under the sale agreement which the Third and Fourth Defendants gave in a document entitled Deed of Novation dated 26 July 2000.

17    I am satisfied, therefore, that the Plaintiffs have made out their case of an entitlement to be paid directly the balance of the proceeds of sale due under the business sale agreement in respect of stock in trade in the amount shown in the schedule to the Amended Statement of Claim. Those amounts appear in United States dollars as well as in Australian dollars. Mr Bedrossian, who appears for the Plaintiffs, made the suggestion that it may be appropriate for judgment to be entered against the Defendants in both currencies, but I do not think that is appropriate.

18    It seems to me that the ordinary implication of law as to currency of payment should apply in the present action. The obligation on the purchaser under the sale agreement was to seek out and pay the vendor at the vendor’s location and to pay in the currency of the place in which the debt had to be paid. Accordingly, it seems to me that even though the vendor of the business had itself paid for stock in US dollars, in the absence of a contractual provision to the contrary, it was the obligation of the purchaser under the sale agreement to pay the vendor for that stock in Australian dollars. The obligation to pay arose at the time stipulated in Special Condition 37 of the sale agreement. It seems to me there is no cause shown for departure from the application of the ordinary implication of law as to currency of payment.

19    In my view, the Plaintiffs are entitled to payment in Australian dollars of the amounts shown in the First Schedule to the Amended Statement of Claim calculated as at the latest date when the amounts ought to have been paid pursuant to Special Condition 37, which is 24 September 2000. A calculation should therefore be done to show what is the amount in Australian dollars which ought to have been received by the Plaintiffs on 24 September 2000.

20    The Plaintiffs have claimed interest on the amount from the date for due payment, that is, 24 September 2000, until the date of judgment. The contract provided in Special Condition 32 for interest on any amount due under the contract from the date of completion until payment, at the rate of 8% simple interest. It seems to me that it is appropriate to order the calculation of interest on the judgment debt at 8% from 24 September 2000 until the date of entry of judgment. Thereafter, interest should run on the judgment debt in accordance with the Supreme Court Act. A calculation will need to be done showing the amounts of the judgment debt in Australian dollars and the amount of interest in accordance with the calculation which I have given.

21    I will stand the proceedings over for a short time to enable the calculations to be done. Short Minutes can then be provided and I will make the appropriate order. Costs of the proceedings will be paid by the Defendants. It should be made clear that costs to which the Plaintiffs are entitled are the costs of the whole proceedings including defence of any Cross Claim.

– oOo –