Wu & Anor v King Enterprises & Trading Pty Ltd & Ors [2005] NSWSC 283

New South Wales Supreme Court

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.

Alfred Wu - First Plaintiff/First Cross Defendant Susan Chi - Second Plaintiff/Second Cross Defendant King Enterprises & Trading Pty Ltd - First Defendant/Cross Claimant PARTIES : 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

M.D.O. Broun QC, V. Bedrossian - Plaintiffs COUNSEL : No appearance for Defendants

William Chan & Co - Plaintiffs SOLICITORS : 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."