New South Wales Supreme Court CITATION : Atlas International Travel Pty Ltd & Anor v Bennet & Ors [1999] NSWSC 877 CURRENT JURISDICTION : Common Law Division FILE NUMBER(S) : 011156/99 HEARING DATE(S) : 5 July 1999 JUDGMENT DATE : 2 September 1999 Atlas International Travel Pty Ltd (First Plaintiff) Pacific and International Travel Company Pty Ltd (Second Plaintiff) PARTIES : Warwick Donald Bennet (First Defendant) Alan Graham Smith (Second Defendant) Shirley Margaret Smith (Third Defendant) Warwick Bennet Pty Ltd (Fourth Defendant) JUDGMENT OF : Bell J at 1 COUNSEL : G A Sirtes (Plaintiffs) P Robinson (Defendants) SOLICITORS : Alan Brown & Company (Plaintiffs) Lyons Barnett & Kennedy (Defendants) CATCHWORDS : CONTRACT; Privity; Agreement for sale of share/unit holding; Whether acknowledgment that vendors' costs 'shall be payable by the business' enforceable against company ACTS CITED : Local Courts (Civil Claims) Act 1970 Justices Act 1902 CASES CITED : Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 Muirhead v Commonwealth Bank of Australia (1996) 125 FLR 434 DECISION : See paras 25 and 26 IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION BELL J Thursday, 2 September 1999 011156/99 - ATLAS INTERNATIONAL TRAVEL PTY LTD ACCN 001 971 282 & ANOR. v WARWICK DONALD BENNET & ORS. JUDGMENT 1 HER HONOUR: This is an appeal brought pursuant to s 69(1) of the Local Courts (Civil Claims) Act 1970 against the determination of a Magistrate given on 20 April 1999. Accordingly, the provisions of Pt 5 of the Justices Act 1902 together with Pt 51B of the Supreme Court Rules apply. 2 The defendants (the plaintiffs in the proceedings before the Local Court) sued the appellants, Atlas International Travel Pty Ltd ("Atlas") and Pacific and International Travel Company Limited ("PITC") by Statement of Liquidated Claim for the sum of $10,000. It was pleaded that the plaintiffs had agreed to pay the defendants' legal costs in relation to the sale of a business conducted by the plaintiffs and that they had failed so to do. The proceedings were commenced in the Local Court at Tamworth but subsequently transferred to the Downing Centre. 3 The Magistrate gave judgment for the defendants in the amount of $10,000. 4 The defendants sued upon an agreement made on 9 October 1997. On the face of it the plaintiffs were not parties to that agreement. 5 The plaintiffs appeal against the whole of the decision of the court below. It is contended that the Magistrate erred in law in finding the plaintiffs liable to the respondents in the sum of $10,000. In the Statement filed pursuant to r (8) Pt 51B SCR the plaintiffs contend that the Magistrate disregarded the doctrine of privity of contract and decided the matter upon a consideration of the intention of the parties. This, it is submitted, disclosed error. 6 The defendants tendered a number of documents before the Magistrate. No oral evidence was adduced. The material before his Worship comprised agreements signed by the defendants dated 3 October 1997, 9 October 1997 and 10 December 1997, a statement of Warwick Donald Bennet, certain ASIC historical extracts, and two other documents not presently relevant. 7 The agreement sued upon was a handwritten agreement dated 9 October 1997. It was stated to be a variation of an earlier agreement dated 3 October 1997. The latter was described as being a "preliminary agreement". The preliminary agreement contemplated, upon the happening of certain events, that the parties would enter into a formal contract for the defendants to sell their share and unit holdings in Atlas and the Atlas International Travel Trust ("the Trust") to Siva Subramaniam or his nominee. The defendants did enter into such an agreement on 10 December 1997. The Magistrate had regard to the contents of the three agreements read together in arriving at his decision. It is not submitted that he erred in so doing. 8 Atlas and/or PITC operated the business of a travel agency. Atlas was the trustee of the Trust. In that capacity Atlas owned all of the assets and the whole of the issued capital of PITC. In the period 3 October to 10 December 1997 the two directors of Atlas were Warwick Donald Bennet (the first defendant) and Allan Graham Smith (the second defendant). Shirley Margaret Smith, the third defendant, and Warwick Bennet Pty Ltd (ACN 000 583 415), the fourth defendant, owned units in the Trust. 9 The preliminary agreement entered into on 3 October 1997 recited that Siva Subramaniam ("the purchaser") had offered to purchase the shares and units held by the defendants in Atlas and the Trust and that the defendants had agreed to accept his offer. The purchase price was expressed to be $2,050,000 subject to the net tangible assets of the business being not less than a named amount. Provision was made for two "due diligence periods" during which the purchaser might make certain inquiries and raise requisitions in respect of the same. It was agreed that the purchaser might nominate a substitute purchaser to enter into the final contract. Upon completion, and subject to the payment of the balance of the purchase price, the defendants agreed to procure: (a) the approval by the Board of Directors of Atlas of the transfer of the shares to the purchaser or his nominee; (b) the appointment as directors of Atlas and PITC of the persons nominated for that purpose by the purchaser; (c) the resignation of all other directors of Atlas and PITC; and (d) the registration of the purchaser (or his nominee) as holder of the units. 10 The preliminary agreement further provided for the purchaser to elect, by notice in writing, in lieu of the purchase of the shares and units in Atlas and the Trust, to call upon Atlas and/or PITC to sell to the purchaser all of their assets. In the event of the purchaser so electing the defendants agreed to procure Atlas and/or PITC to negotiate in good faith with the purchaser in relation to the sale and that it should be a term of any resulting contract between the purchaser and Atlas and/or PITC that the purchaser be entitled to select any of the employees of the business to join the purchaser and the defendants must make (and procure Atlas and PITC so to do) such employees available to accept such offers. 11 By handwritten agreement dated 9 October 1997 the parties agreed to vary the preliminary agreement in certain respects. The purchase price of the business was fixed at $1,575,000 (AUD). Provision was made for the deferred payment of a portion of that sum. 12 Cl 9 of the agreement of 9 October was in these terms: "Siva shall be entitled to any profit from 1 July 1997. Notwithstanding the aforesaid the business shall continue to operate in the normal manner and it is expressly acknowledged that Siva's bonus and the legal fees of John Lyons related to this transaction, not exceeding $10,000 AUD, shall be payable by the business." 13 It was upon cl 9 of the agreement namely that the legal fees of John Lyons, not exceeding $10,000, should be paid by the business that the present proceedings were brought. Mr Lyons, a solicitor with Lyons, Barnett & Kennedy, was retained by the defendants in connection with the sale of their interest in the plaintiff companies. The reference to Mr Lyons' legal fees being payable by "the business" needs to be read in conjunction with the definition contained in cl 1.1 of the preliminary agreement. "The business" is there defined to mean the business conducted by Atlas and/or PITC. 14 The final agreement dated 10 December 1997 was between the defendants and Breniva Pty Ltd (ACN 080 870 784), the nominee of Mr Subramaniam. As at 10 December 1997 Mr Subramaniam was a director of Breniva. That agreement in cl 2.2(d)(v) made provision both that Mr Subramaniam's bonus and the legal fees of John Lyons relating to the transaction, not exceeding $10,000, should be payable by the business. The business was defined in that agreement, again, to mean the business conducted by Atlas and/or PITC. 15 Settlement was effected on 10 December 1997. On that occasion the first defendant, Warren Bennet, was present together with the solicitor, John Lyons. Mr Subramaniam and Andrew Chalmers, the other director of Breniva, were also present with their solicitor, Alan Brown. Mr Bennet heard John Lyons say to Alan Brown, "There's one little matter remains and that's a cheque for myself". Mr Brown said he had not noticed the matter and would go and make inquiries. He left the room and returned a short time later saying, "I'm sorry it's been overlooked. They don't have another bank cheque with them. I'll see you get it tomorrow". It is common ground that no such cheque was forthcoming. The defendants paid Mr Lyons' legal fees and brought the proceedings in the Local Court against the plaintiffs to recover the same. 16 In the Local Court, and before me, the plaintiffs contended that they could not be sued upon the agreement since they were not parties to it. It appears that various other contentions were also advanced before the Magistrate which are not relevant to the hearing of this appeal. His Worship's reasons for decision on the critical issue are contained in the final paragraph of his Judgment: "Notwithstanding what is put on behalf of the defendants plural, especially in relation to Privity of Contract the court would be prepared to hold that the parties entering into the Agreements, plural did so in their capacities as Directors and specifically and virtually solely in relation to the transfer and/or sale of the business enterprise. The Plaintiffs, in the view of the court have effectively bound their former companies with the charge for the professional work to the stipulated ceiling or limit claimed." 17 Mr Robinson who appeared for the defendants submitted that no point of law was raised by the appeal. He contended that the Magistrate had, by reference to the agreements, found that the directors were acting on behalf of the company and that they had bound the company. This, Mr Robinson submitted, was a finding of fact not open to challenge in these proceedings. He referred me to Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139. I do not consider that this submission is well founded. Whether the plaintiff companies are liable to be sued upon the agreement between the defendants and Mr Subramaniam made on 9 October 1997 seems to me to be a question of law. 18 Mr Robinson further submitted that: "Whilst the parties may have contracted in their personal capacities, it is clear that they acted and intended to act on behalf of the corporate entities. The Directors representing the corporate mind of the companies intended (as did the purchaser) to bind the companies to the agreements. As agents, they were able to bind their principals. Further, acting within authority, the companies as principals were liable to their agents for the expenses relating to the agreement." 19 In support of his submission that the directors intended to bind the companies by the agreements, Mr Robinson referred me to a number of clauses in the preliminary agreement of 3 October 1997 which are summarised in paragraphs 9 and 10 above. He also relied on cls 9 and 10 of the agreement of 9 October 1997 and cl 4.1(a) and (f) of the agreement of 10 December 1997 (the agreement between the defendants and Breniva) which he submitted further evidenced a clear expression of intention that the plaintiff companies were to be bound by the agreements and that the defendants were acting "on behalf of and for the benefit of the same". 20 The preliminary agreement, as varied by the parties' agreement of 9 October 1997, was an agreement whereby the defendants agreed to sell and the purchaser agreed to purchase shares and units in Atlas and the Trust (subject to the purchaser's right to elect to require Atlas and PITC to sell or assign their assets to him or his nominee pursuant to cl 9.1 of the preliminary agreement). It is clear that the defendants by virtue of their share and unit holdings were in a position to control both Atlas and PITC. They bound themselves to exercise that control over the plaintiff companies in accordance with their agreement with the purchaser. It is in this light that the provisions of the three agreements to which Mr Robinson refers need to be read. 21 It does not seem to me that a reading of the agreements demonstrates that Atlas and PITC were to be made parties to them. The companies were not contracting with the purchaser. Shares and unit holdings in the plaintiff companies were being sold. I accept the submission made by Mr Sirtes, who appeared for the plaintiffs, that it would not have been possible for the purchaser to obtain specific performance as against Atlas and /or PITC for breach of cl 9.1 of the preliminary agreement since neither company was a party to the contract. 22 As noted in paragraph 18 above, Mr Robinson submitted that the defendant directors were acting as agents for the plaintiffs. As such, he contended, they had bound the plaintiffs. He referred to Muirhead v Commonwealth Bank of Australia (1996) 125 FLR 434 at 438-439 as authority for the proposition that the agent's signature on a contract, whether in the name of the principal or agent, may operate as that of the principal. This submission seems to me not to address the issues raised by the subject agreement. The defendant directors were parties to the agreement (as varied) in their personal capacity. They were agreeing to dispose of their personal property namely their shareholding in the first plaintiff. The agreement was between the defendants as the owners of shares and units in the plaintiff companies and the purchaser. 23 I should note that Mr Robinson also referred to the principle that an agent who incurs liabilities, or makes payments, on behalf of the principal may be indemnified against such liabilities or entitled to recover monies paid out. He went on to submit that the agreement of 9 October 1997 did no more than secure by way of agreement or charge a guarantee that the directors' liabilities incurred as agents of the company in relation to the sale of the company's business to a maximum of $10,000 would be met by the plaintiffs. I am not persuaded by this analysis. The directors in this instance did not incur liability as agents on behalf of the company. The liability incurred was the legal costs associated with the sale of defendants' share and unit holdings in the company and the Trust. 24 I do not consider that the acknowledgment in cl 9 of the agreement of 9 October 1997 that the costs "shall be payable by the business" is enforceable by the defendants against the plaintiff companies. It follows that I consider the Magistrate erred in law in his determination set out in paragraph 16 above. 25 I order that the decision of the Magistrate herein given on 20 April 1999 be set aside. 26 I order that the Statement of Claim filed by the defendants (as plaintiffs in the court below) being Local Court proceedings No 12954 of 1998 be dismissed. ********** Last Modified: 09/02/1999 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.