Yoo v Kang; Kang v Yoo

[2014] NSWLC 29

Local Court

New South Wales

Medium Neutral Citation:

Yoo v Kang; Kang v Yoo [2014] NSWLC 29

Hearing dates:

2 and 9 September 2013; 11 November 2013; and 6 February 2014

Decision date:

30 April 2014

Jurisdiction:

Civil

Before:

Favretto LCM

Decision:

1. The Statement of Claim is granted and a verdict entered for the Plaintiff in the sum of $50,000;

2. Interest under s 100 of the Civil Procedure Act 2005 from 17 November 2006 to 31 August 2012;

3. The Cross-Claim is dismissed; and

4. Costs to the Plaintiff/Cross-Defendant on an ordinary basis as agreed or assessed.

Catchwords:

CIVIL PROCEEDINGS – contract – sale of restaurant - whether sale agreement a concluded contract – whether conditions of sale agreement complied with

Legislation Cited:

Civil Procedure Act 2005 (NSW), s 100

Cases Cited:

Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603
Malago Pty Ltd v AW Ellis Engineering Pty Ltd [2012] NSWCA 227
Masters v Cameron [1954] HCA 72; 91 CLR 353
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451
Sagacious Procurement Pty Ltd v Symbion Health Ltd (formerly Mayne Group Ltd) [2008] NSWCA 149
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165

Texts Cited:

J W Carter, Carter on Contract (LexisNexis online version as at 1 September 2013)

Category:

Principal judgment

Parties:

S W Yoo (plaintiff/cross-defendant)
P K Kang (defendant/cross-claimant)

Representation:

Counsel:
T Bland (for the plaintiff/cross-defendant)
A Chee (for the defendant/cross-claimant)

Solicitors:
KDL Legal (for the plaintiff/cross-defendant)
Strathfield Law (for the defendant/cross-claimant)

File Number(s):

2012/278539

Publication restriction:

Nil

Judgment

The proceedings

1. The Plaintiff/Cross-Defendant Sung Woo Yoo (“Yoo”) seeks to recover $50,000 plus interest ($26,515.41 as at 31 August 2012 and interest accruing at $10.27 per day thereafter), which he claims is a holding deposit paid under an agreement signed and dated 28 September 2006 (“the September Agreement”) for the purchase of the Redpepper Korean-Japanese Restaurant (“Redpepper”) at Shop 28, 45 The Boulevarde, Strathfield with the Defendant/Cross-Claimant, Pyung Keun Kang (“Kang”). Yoo claims that it was a condition of that agreement that the holding deposit would be refunded if the parties did not enter into a concluded proper Contract of Sale. By letter dated 17 November 2006 Yoo’s then lawyers PSK Legal informed Kang’s lawyers KP Lawyers that Yoo did not intend to proceed with purchase of the Redpepper and that Kang has since failed to refund the deposit.

2. Kang defends the claim on the basis that there was a prior concluded undated and unsigned agreement (“the Sale Agreement”) in early August for the sale of Redpepper for $150,000 on six conditions with which he complied. Kang argues that under the Sale Agreement he was entitled to retain the $50,000 which he claims was the first instalment of the $150,000. Alternatively, Kang claims that Yoo has repudiated the contract by walking away from Redpepper (and which Kang accepted) and is entitled to retain the deposit of $50,000. Yoo denies that the Sale Agreement was a concluded agreement and that at most it merely records the proposed terms for the preparation and entry into of a formal and binding agreement.

3. Further Kang cross-claims $100,000 in damages as a result of the abandonment of the Redpepper and failure to pay rent and other outgoings.

4. It is instructive in understanding the reasons that follow to recite the materially relevant parts of the Sale Agreement and the September Agreement at this point.

The Sale Agreement

5. Exhibit 8, the translated undated and unsigned Sale Agreement, records the details of the proposed sale by Kang to Yoo of Redpepper for $150,000 with a 10% deposit to be paid. Relevantly, it records in part:

The two people, under consent, will entrust the operation of the store to Sung Woo YOO from 3 October 2006, and if all conditions below have been satisfied, the balance of the price $150,000 $135,000 will be paid from Sung Woo YOO to Pyung Keun KANG.

If the conditions below are not satisfied, the contract shall be terminated.

1.    Must get a lease.

2.   The Liquor licence must be approved (except provisional/conditional approval).

3.    The use of the premises must be changed to Restaurant.

4.    The table and chairs outside the Restaurant must be installed lawfully.

5.    All cooking recipes and cooking methods in relation to the operation must be passed on.

6.    The daily average turnover should be at least $1800.

6. Other than as to when this document was created and whether it is a concluded agreement, there is no dispute about its terms, although Kang says the lease condition was not a binding promise by him that it had to be on Yoo’s terms the two had discussed, only that he would arrange for a lease to be granted. Kang argues that he has complied with the terms of the Sale Agreement and more particularly the lease term because the landlord did offer a lease to Yoo. Yoo disputes that Kang complied with conditions 1 to 5. On Yoo’s evidence the reasons he gave Kang for not completing the purchase of Redpepper was the failure to obtain a new lease from the landlord on the terms he says Kang promised and not obtaining a Development Consent to change the use from a takeaway outlet to a restaurant within a reasonable time.

The September Agreement

7. Exhibit 10A (10B is a copy of the original in Korean) is the dated and signed document by Kang and Yoo of 28 September 2006. Leaving aside the formal party and business details it provides in part:

1. In relation to the sale and purchase of Transaction address, ‘B’ is to accept the above price (the recorded price is $50,000) from ‘A’.

2. ‘A’ and ‘B’ faithfully promise to carry out the terms of a proper Contract for Sale which is to proceed at a later stage.

3. If a proper contract for sale does not take place, ‘B’ will refund to ‘A’ the above price.

4. If any of the contracting parties arbitrarily breach or terminate the terms of the Contract for sale, the above price shall be made null and void.

8. Yoo argues that the payment of the $50,000 was made because Kang asked for a holding deposit and it would be refunded if they did not enter into a formal contract. Kang argues that it was the first instalment of the concluded sale price of $150,000 and he was entitled to retain it after Yoo failed to complete the purchase of Redpepper and breached the September Agreement.

The sale of Redpepper

9. ASIC records show that as at 2006 Kang and his wife Young Sun Cho were both the Directors and Secretaries of P & Y Group Pty Ltd. The lease for Redpepper’s premises was in the name of P & Y Group Pty Ltd as was the Liquor Licence with Young Sun Cho as the licensee.

10. Yoo and Kang first met in January 2006 through Yoo’s brother “Tony” Sung Won Yoo, who was a regular customer of Redpepper, to discuss the sale of Redpepper. Yoo and Kang continued discussions through the next few months but no agreement was reached.

11. Kang was very eager to sell Redpepper before the birth of his second child due in early November as his wife was its chef and she did not want Kang to work at Redpepper but to assist her after the birth. To that end Kang wanted the sale completed and the full price paid by 30 September 2006 so his wife could have a month off before the birth.

12. Yoo says that in July 2006 he, Tony Yoo and Kang met where terms of the sale were discussed and they agreed they would each contact their lawyers to prepare a draft contract for sale. The terms discussed were a $150,000 price on the conditions that Kang would get a new lease for 5 years with an option of 3 years, and a 3 month rental security deposit with no more than a 10% rent increase. It was a concern to Yoo that the rental security deposit be no more than 3 months as he had limited funds and could not afford a large rental security deposit. At that time Kang had an option of 3 years with the landlord which had to be exercised by the end of the year. Tony Yoo corroborates those discussions.

13. In cross-examination Yoo agreed that Kang said he would negotiate on his behalf with the landlord and conceded that Kang did not promise he would get Yoo’s lease terms but that “I will do my best to- in order for you to get that” (T2.913 at p 44):

Q. A lease was offered to you but it was unsuitable, correct?

A. INTERPRETER: That’s right.

…

Q. Can you see anywhere in number 1 (Exhibit 8) the words that say “lease must be acceptable”?

A. INTERPRETER: No there is not

[T2.9.13 at p 62]

…

Q. So, he can’t make anything more than his best efforts, can he?

A. INTERPRETER: Of course, he’s not the owner of the building so. [T2.9.13 at p 80]

14. Kang essentially confirms those discussions but says that was what Yoo wanted (rather than he agreeing the lease issues were a condition of their agreement) and he would approach the landlord on Yoo’s behalf. In cross-examination Kang conceded:

Q. To make the sale of Redpepper more attractive to Mr Yoo, you told him that you would obtain a new lease, didn’t you?

A. INTERPRETER: The other party requested that.

Q. You would agree that when there was a discussion of a new lease, it wasn’t merely a new lease on whatever terms possible but there were, in fact, criteria that were required to by Mr Yoo in relation to that lease; you would agree with that?

A. INTERPRETER: Yes

…

Q. One of the criteria that Mr Yoo discussed in the context of a new lease was that rent not increase by more than 10%

A. INTERPRETER: I’m not the landlord….He wanted to have it that way. [T6.2.14 at p 30]

…

Q. Mr Yoo also told you that one of the criteria of the lease would be only a three month rental bond, didn’t he?

A. INTERPRETER: Yes

…

Q. You would agree that, in addition to those two criteria, the 10% and the three months rental bond, at that meeting where the $150,000 price was discussed that he also said that he would require a lease of five years with an option of three years?

A. INTERPRETER: Yes.

[T6.2.14 at p 31]

15. Kang was also cross-examined about the need for the liquor licence and conceded it was important for it to be transferred to Yoo but maintained that that it was for Yoo to seek to have the liquor licence transferred and in re-examination said that Yoo never asked him to sign a transfer application of the liquor licence. Yoo in his cross-examination conceded that he made no attempt to seek the transfer as he could not do so until he had a lease.

16. Yoo says that in late July his lawyer PSK Legal received a draft contract for sale and a copy of the Strathfield Council Development Consent (“DA”) for Redpepper. That July date does not appear correct as the only letter from Kang’s lawyers KP Lawyers in evidence enclosing the draft contract and DA is dated 23 August 2006 (Exhibit 7). Further, Yoo says that in early August 2006 he and Tony Yoo again met with Kang where he raised the issue that the DA only approved a “Takeaway Food Shop” and he would not proceed with the purchase unless the DA was changed. Yoo says that Kang agreed to have the DA changed. Again this evidence is corroborated by Tony Yoo. In cross-examination Kang conceded that the first time Yoo’s lawyers received the DA was by the letter of 23 August but maintained that he and Yoo had discussed the DA issue “Two to three months beforehand.” (T6.2.14 at p 18) which is consistent with what Yoo and Tony Yoo say. Kang also maintained that the way the Redpepper was operating in 2006 was in accordance with the DA but acknowledged that Yoo raised the DA issue and he would get it changed.

17. Kang says that in early August 2006 he and Yoo agreed on a sale price and terms which were reduced to writing as the Sale Agreement (Exhibit 8-see below). Yoo says that the Sale Agreement was typed by his wife after he had met Kang as “as a sketch by me of the sort of conditions that would need to be obtained before I would consider entering into a contract for the purchase of the Business”: Exhibit 3 Yoo Affidavit 22 August 2013 (but not the subsequent amendments). Yoo says that that document was prepared in September 2006 but before the 28 September document and disputes Kang’s evidence that it was prepared in August. However, in cross-examination he said of a copy of the Sale Agreement shown to him from his Affidavit (Exhibit 3/”G”): “Yes, that’s right. It was produced together and then one copy it was given to Mr. Kang” (T2.9.13 at p 59), and in further cross-examination said:

Q. And this is a document that you generated in either August or September of 2006, isn’t it?

A. INTERPRETER: It was May, I recall written by me, however in terms of producing it, we consulted each other therefore it is proper to say we produced this together due the consultation.

[T2.9.13 at p 61]

It is the legal nature of this document which is the crucial issue in the proceedings.

18. Kang says that after the Sale Agreement was entered into he instructed KP Lawyers to draft a contract as well as contacting the real estate agent managing Redpepper’s lease. Kang says that a few days later he instructed his Architect to prepare and lodge a change to the DA from a takeaway outlet to a restaurant.

19. On 15 August 2006 KP lawyers wrote (Exhibit 7) to the managing real estate agent enclosing Yoo’s Statement of Assets and Liabilities and providing Yoo’s retail experience as the prospective tenant. Importantly, that letter says it is in reference to a letter dated 25 July 2006 by the real estate agent which is not in evidence. It is clear that as early as 25 July 2006 that Kang was taking actual steps for the sale of Redpepper and that Yoo had by then provided his financial and retail experience for approval as the incoming tenant.

20. On 23 August 2006 KP Lawyers sent PSK Legal a Contract for Sale of Business and a copy of the DA and existing lease. That letter said in part “Please note that there will be no legally binding relationship between our respective clients until formal exchange of the contracts take place.” Yoo relies upon this statement as part of the composite of evidence to show that the Sale Agreement was not a concluded agreement. Kang argues that those words are unremarkable as by now the parties had and were conducting themselves as if an agreement was on foot.

21. Next on 29 August 2006 KP Lawyers wrote to the managing agent with the name and Statement of Assets and Liabilities of a guarantor for Yoo’s lease which had been requested. Importantly, the letter said in part:

We trust that all your requirements have now been met and urgently seek lessor’s advice as to terms and conditions of a new lease. We advise that the new lessee is wishing to obtain a new lease with a term of five (5) years with an option for another term of three (3) years.

22. On 4 September 2006 PSK Legal wrote to KP Lawyers seeking amendments to the contract.

23. Kang says that in mid-September 2006 Yoo’s cousin (Ms Yoon Hee Hong) started a two week period of training and was provided with all recipes and cooking methods of Redpepper, as well as checking the daily turnover they did together. Kang says that during this two week training period that the daily turnover was at least $1800. Yoo’s cousin was not called to give evidence. Yoo says that Ms Hong is not a relative but a friend and that she commenced at Redpepper on 1 0ctober 2006, the first day he commenced the interim management of Redpepper. Tae So Moon, who had been employed as an assistant chef at Redpepper since April 2005, also says that Ms Hong commenced as a chef on 1 October 2006. In cross-examination it was put to Tae Su Moon that Ms Hong started working on 1 October 2006 with which he agreed.

24. On 19 September 2006 PSK Legal wrote to KP Lawyers seeking the landlord’s approval to the lease guarantor and a 3 month rental security deposit, together with confirmation of the new lease terms were for a 5 year/3 year option, commencement rental, rent review method and outgoings. On 21 September KP lawyers replied saying that P & Y Group Pty Limited (effectively Kang) would use “its best endeavours” to secure the 3 months rental security and guarantee provided by Yoo as well a new 5 year/3 year option lease.

25. On 22 September 2006 KP Lawyers wrote to the landlord exercising the three (3) year option on the current lease on the current lease terms and said:

In the alternative, our client is wishing to sell its business being conducted in the above premises and the purchaser is desirous of obtaining a new lease with the following conditions:-1. Term: Five (5) years 2. Option: Three (3) years 3. Rent: To be confirmed 4. Rental review: As per the current lease.

26. Yoo says that their next meeting was on 28 September 2006 when Kang requested a $50,000 holding deposit pending the resolution of the Sale Agreement conditions. If they did not enter into a formal contract he would give Yoo back the $50,000. In cross-examination Yoo said of the $50,000 payment “Mr Kang demanded that I must present a symbol that I will run the shop so I give it” (T13.9.13 at p 6). Again Tony Yoo corroborates the discussion in those terms. To give effect to this holding deposit agreement the parties then executed the September Agreement (Exhibit 10A is the translation; Exhibit 10B a copy of the actual agreement). Yoo argues that this document is no more than a receipt for the $50, 000 holding deposit. Kang on the other hand argues that the $50,000 is evidence of the payment of the first instalment under the Sale Agreement. Kang says that when they met on 28 September 2006, Yoo paid the $50,000 on the condition that if Kang could not satisfy the conditions of the Sale Agreement he would return the $50,000. Kang says they further agreed that if any party arbitrarily breached or cancelled the terms and conditions of the Sale Agreement that the $50,000 must be returned. As a matter of common sense this must mean that Kang was entitled to the $50,000 if Yoo breached or cancelled the terms of the Sale Agreement. Kang says that Yoo then completed Exhibit 10B.

27. Yoo says that on 1 October 2006 he took over the management of Redpepper. There is a dispute between the parties as to whether Yoo took over no more than the management of Redpepper (as he claims, to assist Kang who wanted to be with his wife) after the payment of the holding deposit, or took possession of Redpepper in his own right under the Sale Agreement after payment of the instalment (as Kang claims). After Yoo commenced at Redpepper he accepts that Kang did not return. Yoo maintained that all he did was management: “It’s not trade, I managed it” (T2.9.13 at p 63). Yoo says that he attended most evenings to check on the daily takings of Redpepper and that is supported by one of the cooks, Tae So Moon, who had been employed by Kang. It is not in dispute that Yoo vacated Redpepper on 11 October 2006 because he could not at least secure his new lease conditions. It is not in dispute that during this period Yoo paid for the rent, outgoings, wages and ordered ingredients out of the daily takings and took the EFTPOS transactions. Yoo also acknowledged that during this period he kept books for Redpepper’s business but did not account for those books to Kang after he ceased Redpepper operations. In cross-examination regarding how he ran Redpepper he said that this was an oral agreement with Kang that “was a condition of the management” (see T2.9.13 at pp 63-66). In cross-examination he agreed that when Kang left Redpepper on 1 October 2006, “He took away all the money from the safe on 30 September” (T2.9.13 at p 66).

28. By letter dated 18 October 2006 the managing agent wrote to KP Lawyers advising relevantly in part, that the landlord would accept a lease at a monthly rental of $6,738.20 plus GST per month from 1 January 2007 for a 3 year/3 year option with a 6 month rental bond. By letter dated 4 October 2006 KP Lawyers forwarded that letter to PSK Legal, and in part said “As essential terms and conditions of a new lease have been confirmed, please proceed to exchange.” Given that the KP Lawyers letter of 4 October 2006 refers to the managing agents letter of 18 October 2006 the 4 October 2006 date must be an error (the letter in evidence bears a facsimile transmission report on “19-OCT-2006 15:21 THU”) and the likely date is 19 October 2006 .

26. Yoo says he and Tony Yoo then met Kang on 20 October 2006 where he advised Kang he could not purchase the business under the proposed new lease terms. Yoo says that Kang asked for more time for his lawyer to negotiate with the landlord. Tony Yoo corroborates this conversation.

27. KP Lawyers sent a further letter on 31 October 2006 seeking a response to their letter of 4 (19) October 2006 and confirming the appointment date of 3pm on 3 November 2006 for exchange of contracts. PSK Legal replied by letter dated 2 November 2006 saying “Your client has informed our client that they have not instructed you to effect exchange of contract by 3pm 3/11/2006.” The letter went on to say that Yoo would not exchange contracts because he could not accept the proposed new lease conditions. This is objectively plausibly consistent with the conversation between Yoo and Kang on 20 October 2006 when Kang asked for more time to negotiate with the landlord.

28. On 16 November 2006 KP Lawyers wrote to PSK Legal saying that the landlord would not alter its position on the new lease terms and asked, “Kindly advise us of your client’s intention in this matter.” On Yoo’s instruction PSK Legal sent a reply on 17 November 2006 stating that Yoo was not proceeding with the purchase of the business.

29. Yoo says he and Tony Yoo next met Kang on 21 November 2006 where Kang offered to lower the sale price because his lawyer “failed to negotiate with the landlord to get the lease terms I promised.” Yoo says he replied:

The sale price is important but more importantly, you also still have not changed the development consent and the landlord is increasing the rent by 23% and asking for a 6 month rental security deposit, being $44, 573.20. I have told you from the very beginning that I have limited funds and will not be able to buy the business if the landlord requests a large rental security deposit.

Yoo says Kang then left to go and see his new baby in the hospital but they would talk about it later. Tony Yoo corroborates this conversation. Kang on the other hand says that Yoo said “The Business is not really going well. I want to hand over the Business back to you. I don’t mind losing my deposit of $50,000.00.” Kang says that in reply he told Yoo he could not take over Redpepper again, because his wife was not available to be the chef because of the birth as she needed to rest. They parted on the basis Yoo asked him to think about his offer. Kang says he went home and discussed the offer with his wife who said she was not prepared to return to work. In cross-examination Kang maintained Yoo’s offer to give up the $50,000.

33. Yoo says that he and Tony Yoo next met Kang on 4 December 2006 and said to Kang:

I want my holding deposit back. I have waited months at your request but you and your lawyer have failed to obtain the new lease terms you promised and have failed to change the development consent. I waited for 5 months because I trusted you and you kept asking for more time to obtain the promised lease terms. You promised that you would return the holding deposit if you failed to obtain the lease terms you promised and to change the listing in the development consent and a formal contract is not finalised, so why are you refusing to return my money?

Yoo says Kang refused to return the $50,000. Tony Yoo corroborates this conversation.

34. In cross-examination Yoo denied saying to Kang at this meeting that Kang could keep the $50,000 but conceded that he did not ask PSK Legal to ask for return of the $50,000 in their letter of 17 November 2006.

35. In cross-examination Kang acknowledged meeting Yoo in early December (which he then denied in re-examination) and that Yoo said he was not going to proceed with the purchase but denied saying that “Q. “I will take over the business again tomorrow so stay for today.” A. INTERPRETER: No I didn’t say that” (T6.2.14 at p 49).

36. On 12 December 2006 KP Lawyers wrote to PSK Legal noting that Yoo was no longer proceeding with the purchase and seeking the return of the keys to the premises and possession by 31 December 2006. There is contradictory evidence as to how and when the keys were returned to Kang but that is only materially relevant to the Cross-Claim.

Who was the vendor of Redpepper

37. Kang says that as result of Yoo’s approach to purchase Redpepper, that in April 2006 P & Y Group Pty Ltd transferred the assets of Redpepper for the purpose of the sale to Yoo. In return Kang says that he agreed to indemnify P & Y Group Pty Ltd for any losses or fees and charges arising from the sale of the business. The transfer to Kang included the right to deal with the lease (including the exercise of the option) and liquor licence and authority to transfer the lease and licenses held by P & Y Group Pty Ltd. As the company was in existence Kang says that it was capable of executing any transfers or assignments for the sale.

38. Yoo claims in his Statement of Claim that P & Y Group Pty Ltd was the proprietor of Redpepper and not Kang and relies upon Kang’s admission to this effect in his filed Defence. Yoo asserts that Kang’s claim that he acquired the property and rights from P & Y Group Pty Ltd is a recent invention for the purposes of establishing damages under the Cross-Claim. Yoo also relies upon the correspondence between the lawyers which clearly refers to P & Y Group Pty Ltd as the vendor or lessee of Redpepper.

39. In cross-examination Yoo agreed that the Sale Agreement recites Kang as the vendor, does not mention P & Y Group Pty Ltd and does not say anything about Kang acting on behalf of a company, Yoo conceding “That’s right I didn’t hear about them” (T2.9.13 at p 61). Further, Yoo concedes (leaving aside its legal effect) that the Sale Agreement was created before the September Agreement.

The relevant principles

40. The objective theory of contract is now firmly established in Australian contract law: Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407 at 322. The rights and liabilities of parties to a contract are to be determined according to the principle of objectivity: Pacific Carriers Limited v BNP Paribas [2004] HCA 35 at [22]. In Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52 at [40] the High Court said:

It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party, by words and conduct, would have led a reasonable person in the position of the other party, to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties and the purpose and object of the transaction.

41. Where it is objectively determined that parties had concluded a preliminary agreement but all that remained was merely to record those terms into a formal contract then that preliminary agreement constitutes a contract: Cameron v Masters (1954) 91 CLR 353. That principle was affirmed as recently in Malago Pty Ltd v AW Ellis Engineering Pty Ltd [2012] NSWCA 227 where the Court of Appeal said at [23]:

23. As indicated by McHugh JA in GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, whether the parties intended to make a binding contract "must be objectively asertained from the terms of the document when read in the light of the surrounding circumstances" (at 634); although note Western Export Services Inc v Jireh International Pty Limited [2011] HCA 45; 282 ALR 604 as to the use that may be made of surrounding circumstances; see also Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; 209 CLR 95 at [25]). I agree with the primary judge that the words "Without affecting the binding nature of these Heads of Agreement" in clause 1(g) of the Heads of Agreement are decisive in revealing the parties' intent to be bound by the Heads of Agreement. The present is the type of case referred to by McHugh JA as follows:

"Even when a document recording the terms of the parties' agreement specifically refers to the execution of a formal contract, the parties may be immediately bound. Upon the proper construction of the document, it may sufficiently appear that 'the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms': Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310 (at 317)" (ibid at 634; see also Niesmann v Collingridge [1921] HCA 19; 29 CLR 177; Godecke v Kirwan [1973] HCA 38; 129 CLR 629 at 639-40).”

42. The intention of the parties and whether a contract has been formed may be determined not only from the specific exchange of correspondence but also from the entire conduct of the parties including future conduct: Sagacious Procurement Pty Ltd v Symbion Health (formerly Mayne Group Ltd) [2008] NSWCA 149 at [99]-[101].

Determination

43. In the circumstances of this proceeding the Court needs to be cautious in considering the evidence of all of the witnesses as each was at times evasive and as the transcript records the Court on a number of occasions had to intervene and direct the witness to answer the question asked. In the case of Tony Yoo and Tae Su Moon there is a reasonable inference that their affidavit evidence was not of sound independent recollection (see for instance Tony Yoo at T11.11.13 pp 48-49; Tae Su Moon at T11.11.13 pp 13-17). Accordingly, the court will be guided by any objective evidence as well as objectively plausible inferences and commercial efficacy to the transaction.

The Sale Agreement was a contract

44. The Court concludes that on an objective analysis of the preceding negotiations to the Sale Agreement and the September Agreement, their written terms and the conduct of the parties thereafter, the Sale Agreement was a concluded contract. Viewed commercially and objectively the only plausible conclusion was that all that remained to be done was for the six conditions to be carried out as well as concluding a formal contract. However, for the reasons that also follow the Court concludes it was a term (albeit partly written and partly oral) that the new lease was to be granted on the terms sought by Yoo. The Court also concludes that Kang failed to have the DA changed and the outside seating approved. With either or both of these conditions not being met, Yoo would have been entitled to terminate the Sale Agreement and to the return of his $50,000. Critically to the Sale Agreement, if the new lease was not on the conditions Kang promised Yoo he would get, then the Sale agreement had to fail at that point.

45. Yoo’s evidence that the Sale Agreement is no more than “as a sketch by me of the sort of conditions that would need to be obtained before I would consider entering into a contract for the purchase of the Business” is implausible when one considers the formal recitals of the document. An objective analysis of the document shows that it records specific terms and conditions consistent with a concluded agreement. For instance the words “will entrust the operation of the store…and if all the conditions below have been satisfied, the balance of the price…will be paid….If the conditions below are not satisfied, the contract shall terminated.” The words emphasised by the Court contemplate that there is in fact an agreement to terminate. There can be no other explanation for those words. Yoo’s own evidence that “It was May, I recall written by me, however in terms of producing it, we consulted each other therefore it is proper to say we produced this together due the consultation” is consistent with the process of negotiation that had been ongoing for months and the further emphasised words represent a conclusion, not a wish list. It is also telling that Yoo made no mention of the Sale Agreement in his original Affidavit but only in reply to Kang’s after he raised it. The inference to be drawn is that Yoo understood the binding nature of the Sale Agreement.

46. From an objective analysis the Sale Agreement records the essential terms of what was necessary to transfer Redpepper: parties, price (consideration) and conditions to be performed. It is the composite of those conditions in the one document with its formal recitals and with a copy for each party which carries inescapable commercial reality of a concluded agreement.

47. While Yoo takes issue as to Kang’s evidence when the Sale Agreement was made (note Yoo seems to say in May), this is not material because he concedes it was made before the September Agreement. Yoo’s concession that there were two copies of the Sale Agreement and that he gave one to Kang is also objectively consistent with a binding agreement rather than a personal “sketch”.

48. That it was a concluded agreement before the September Agreement is also consistent and inherently plausible with Kang’s desire to sell Redpepper by the 30 September 2006. Given that the operation of Redpepper was to commence on 3 October 2006 lends further weight to that conclusion. The September Agreement and the payment of the $50,000 on 28 September 2006 is entirely consistent with Yoo taking a step to take possession of Redpepper under the Sale Agreement from the words “entrust the operation”. The words in the September Agreement “promise to carry out the terms of a proper Contract for sale which is to proceed at a later stage” qualify a future act to be done as part of their agreement. That Yoo was prepared to then pay $50,000 notwithstanding that there is no evidence any of the six conditions had yet been complied with is implausible with his account. In particular, his assertion that all he was doing was managing Redpepper for Kang as a favour to Kang so he could be with and assist his wife is implausible.

49. From an objective basis Yoo ran Redpepper as if it were his own rather than a part of a management agreement. Yoo’s evidence that Kang took all the money out of the safe when he departed at the end of September is plausibly consistent with Kang handing over possession. Yoo then paid for rent, wages and outgoings from Redpepper’s takings. Regarding condition number 6 there is no evidence from Yoo that, for the period of two months in which he checked the daily turnover, it was not at least $1,800. If all that Yoo was doing was running Redpepper and keeping the takings that had been promised, why then vacate Redpepper? If there was no binding agreement then the risk was still Kang’s and Yoo was still receiving at least $1,800 a day (less the outgoings) with no risk to him where there is no complaint by him that the business was not as viable as promised. On Yoo’s own evidence he had all of the benefit as if he owned Redpepper and could walk away from it at any time. That he continued to meet and press for the new lease and DA is consistent with Yoo trying to enforce the Sale Agreement.

50. As early as late July 2006 Kang through his lawyers took a number of considerable steps that are consistent with the negotiations and to give effect to the Sale Agreement conditions. If no concluded agreement had been entered into and the parties were not bound until a formal written agreement was entered into, what was the utility of those acts let alone the considerable legal expense Kang would have incurred? It is notable that the steps taken by Kang before the September Agreement were consistent with the binding Sale Agreement and all that the September Agreement was to achieve was to hand over possession of Redpepper on the payment of $50,000, satisfaction of the six conditions and the conclusion of a formalised contract.

51. There is force in Yoo’s submission that the best evidence of a concluded agreement is by its being signed, and that is absent for the Sale Agreement compared to the September Agreement. However, that is also explicable by the agreement that the parties were to formalise the terms into a “proper Contract for Sale”. Further, the signing of the September Agreement was an irrefutable formal acknowledgement that $50,000 was being paid over, not an inconsiderable amount. That was $35,000 more than the agreed deposit under the contract, and the draft contract again suggests much more than a holding deposit where all Yoo was doing was managing Redpepper on behalf of Kang.

Did Kang comply with the conditions of the Sale Agreement

52. In his written submissions counsel for Yoo asserts that Kang failed to comply with the first five conditions. The difficulty with that submission is that on Yoo’s evidence he decided not to proceed (effectively terminate) with the purchase because “I have waited months at your request but you and your lawyer have failed to obtain the new lease terms you promised and have failed to change the development consent.” The Court must therefore proceed on the basis that it was a breach of the new lease condition and the change of use of the premises condition that led to Yoo’s termination of the agreement under the Sale Agreement provision, “If the conditions below are not satisfied, the contract shall be terminated.”

53. Kang argues that all the parties agreed to in the words “Must get a new lease” was that he would use his best efforts to get a new lease in those terms but not that it was a condition that that lease be made available on those terms. The difficulty with that submission is the words “new lease” must have some real content and cannot be attributed to the exercise of the three year option under the existing lease (not that Kang makes such an argument). The word preceding word “Must” mandates that there be a new lease but is silent on what the new lease was to contain. From an objective analysis and to give some commercial efficacy to this condition the real content of this condition must include those lease terms that Yoo had expressed to Kang that he wanted. There was no other discussion between the parties and it is instructive that Kang does not dispute Yoo wanted those terms, only that he did not promise that a lease in those terms would be available. In fact, Kang’s lawyers wrote to the landlord seeking those very terms.

54. While Kang could not promise that the landlord would grant a new lease in the terms sought by Yoo, does not mean that it was not a condition of their agreement that the sale of Redpepper was conditional upon the grant of a new lease in those terms. The consistent theme of Yoo’s evidence, as acknowledged by Kang, was that Yoo required a new lease in those terms. Kang’s attempts to satisfy that condition with the landlord are also consistent with that requirement. The exercise by Kang of his three year option under the current lease on 22 September 2006 protected his own position should the sale not proceed but also and alternatively sought the new lease. This indicates that Yoo could opt out of their agreement if the new lease could not be obtained on Yoo’s terms. Further, there is no evidence that Kang offered to assign his lease once the option was exercised. In fact there is no suggestion let alone evidence that the parties agreed to seek the assignment of the lease option. This consistent with the new lease condition being all or nothing. That evidence viewed objectively more probably than not coincides with the commercial realities of the sale of Redpepper.

55. The Court concludes that Yoo was entitled to terminate the Sale Agreement and expect the return of the $50,000 on the breach of the new lease condition alone. Kang’s evidence that Yoo said he could keep the $50,000 is so highly improbable to be objectively incredulous given Yoo’s consistent evidence that he would only proceed with the purchase if the new lease was granted.

52. The other ground for Yoo’s decision to terminate the Sale Agreement was the failure to change the use of the premises to a restaurant. Whether or not Kang was permissibly operating Redpepper as a restaurant is not the issue. The DA clearly approved “The occupation of the premises as a Korean Takeaway Food Shop, including the internal fitout works”, and Yoo wanted that use changed. The only evidence of Kang’s compliance with this condition and condition 4 concerning the outside seating is that he instructed his Architect to lodge an application to change the DA and seek an outside seating licence a few days after the Sale Agreement in early August. Yoo relies upon a return of a subpoena to Strathfield Council which fails to disclose any documents lodged with the Council consistent with these two conditions. As no time was stipulated in the Sale Agreement or otherwise Yoo relies upon an implied term at law which provides that those conditions should be complied with in a reasonable time: see generally Carter on Contract at [29-020] (LexisNexis, online version as at 1 September 2013). On Kang’s evidence the DA condition was discussed and required by Yoo months before the Sale Agreement (and was a term of the Sale Agreement on Kang’s evidence in early August 2006), yet all that he had done was instruct his Architect sometime around mid-August 2006. Nearly four months later at the latest there is no evidence that anything had been done despite Yoo’s insistence of it. Objectively, it was the fact that Yoo could not get the new lease that he wanted (consequently and practically the other conditions did not matter) that was determinative. However, Kang’s failure to show any other evidence of an attempt to comply with this condition with Strathfield Council is also a breach of those two conditions entitling termination of the Sale Agreement.

53. While it is strictly not necessary to determine whether the other conditions were complied with as they formed no part of Yoo's decision to terminate, the Court will briefly address those conditions given Yoo’s submissions.

54. In cross-examination about the need for the liquor licence Kang conceded that it was important for it to be transferred to Yoo but maintained that it was for Yoo to seek to have the liquor licence transferred and in re-examination said that Yoo never asked him to sign a transfer application of the liquor licence. Yoo in his cross-examination conceded that he made no attempt to seek the transfer as he could not do so until he had a lease (T2.9.13 at pp 62-63). Given this unchallenged evidence it is not for Kang to show this condition was satisfied. In any event the reasonable time for its compliance had yet to pass because it could not arise on Yoo’s part until the lease was granted.

55. The composite of the evidence favours Yoo and Tae Su Moon’s account that Ms Hong did not start until 1 October 2006 and contradicts Kang’s evidence of a mid-September date. However, Yoo continued to operate Redpepper for two months with Tae Su Moon and other staff and there is nothing to suggest it did not continue to offer its menu. This condition only requires that recipes and cooking methods be passed on but does not name any individual. The inference is that the recipes and cooking methods were passed on by someone or somehow, given that there is no complaint by Yoo that Redpepper could not offer its menu and was not trading as promised.

56. In Yoo’s case there is no evidence or complaint that the daily turnover was not at least $1,800. This from an objective commercial reality would be a critical part of the sale of Redpepper and if it was not complied met one would expect Yoo to give that evidence. In any event it is no part of Yoo’s case.

The Cross-Claim

61. As the Court has found that Yoo was entitled to terminate the Sale Agreement and did so in writing and in person by 4 December 2006 the Cross-Claim must fail.

Orders

62. Subject to hearing from the parties otherwise the following order will take effect on Wednesday 7 May 2014:

1. The Statement of Claim is granted and a verdict entered for the Plaintiff in the sum of $50,000.

2. Interest under s 100 from 17 November 2006 to 31 August 2012.

3. The Cross-Claim is dismissed.

4. Costs to the Plaintiff/Cross-Defendant on an ordinary basis as agreed or assessed.

Magistrate J Favretto

Downing Centre Local Court

30 April 2014

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Decision last updated: 30 November 2015