KSSLZ v Childs [2006] NSWSC 180

New South Wales Supreme Court

CITATION : KSSLZ v Childs [2006] NSWSC 180

HEARING DATE(S) : 20, 21 March 2006

JUDGMENT DATE : 30 March 2006

JURISDICTION : Equity Division Commercial List

JUDGMENT OF : Associate Justice Macready at 1

CATCHWORDS : Contract. Agreement for sale of a series of childcare centres at prices calculated by use of a formula. Whether condition precedent to the particular childcare centre has been fulfilled. Question of construction of agreement. Held condition fulfilled.

PARTIES : KSSLZ No 2 Pty Limited & 5 Ors v Childs Family Kindergartens Limited

FILE NUMBER(S) : SC 50125 of 2005

COUNSEL : Mr A Bell SC & D. McLure for plaintiffs Mr N Francey for defendant

SOLICITORS : Henry Davis York for plaintiffs Elliot Tuthill for defendant

- 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

Associate Justice Macready

Thursday 30 March 2006

50125/2005 KSSLZ # 2 PTY LIMITED & 5 ORS v CHILDS FAMILY KINDERGARTENS LIMITED JUDGMENT 1 His Honour: This matter concerns a dispute between the parties in respect of the sale of a childcare centre. The sale was pursuant to an agreement between the parties executed on 8 October 2004. 2 The six plaintiffs are companies which are part of a group known as Acre Woods Childcare Group. That group has as its business the establishment and development of childcare centres with a view to the on-sale of those centres. The defendant is a public listed company which owns and operates childcare centres. 3 There were originally discussions between the principals of the relevant companies between December 2003 and July 2004. An offer to sell various childcare centres was made on 12 July 2004. The offer related to the sale of ten childcare centres which were operating with an arrangement that in due course the next ten childcare centres when they developed would be purchased on the same terms. 4 This led to the execution on 8 October 2004 of a series of documents. In respect of the existing childcare centres there were ten options to purchase granted which in due course were exercised and completed. On the same day an agreement to purchase was reached in respect of the childcare centres that were still being developed by the Acre Woods Childcare Group. That agreement related to the purchase of the further ten childcare centres. The centres were in different stages of development and the structure of the arrangement was that as each childcare centre achieved a 70% occupancy rate then the parties were obliged to proceed, subject to various conditions, with the execution of a contract for the sale of business and in due course completion of the sale of that childcare centre. 5 The first of this second group of childcare centres that the defendant was to purchase under the agreement was situated at Lane Cove. On 20 April 2005 notice was given in accordance with the terms of the agreement that the 70% occupancy had been reached. There followed considerable correspondence and discussion with regard to the matter and on 3 August 2005, in accordance with the agreement of October 2004, the first plaintiff, which is the owner of the Lane Cove childcare centre, executed the contract for the sale and forwarded it to the defendant. Under the terms of the agreement there was an obligation to exchange within 30 days after notification of the occupancy having been achieved. The defendant declined to sign the contract for sale and these proceeding have been brought in which the first plaintiff seeks damages in respect of the failure to complete. There are also claims by the first plaintiff and the other plaintiffs who are various vendors under the agreement of October 2004 for declarations as to the defendant's liability to complete the contracts. Deed of Agreement dated 8 October 2004 6 The six plaintiffs are parties to this contract as they are the owners of several of the childcare centres which were the subject of the parties' agreement. Clause 3.1 of the sale agreement provided for the various vendors to sell the businesses referred to in Schedule 1 to the defendant upon the terms contained in the agreement and in particular Schedule 2 to the agreement. Schedule 2 to the agreement provided a trigger on any childcare centre reaching a 70% occupancy of the total number of licensed places. Once that was achieved the defendant was to be advised within 30 days. Thereafter contracts for the sale of the businesses with a 10% cash deposit were to be exchanged within 30 days after the notification and completion was to be effected no later than 60 days after exchange of contract subject to various conditions. 7 Clause 3.2 of the agreement provided for the purchase price. It was in these terms: "3.2 The Purchase Price of each of the Businesses will be set at a multiple of 6 times EBITDA of that Business in accordance with the formula contained in Schedule 3." 8 EBITDA is defined as meaning earnings before interest, tax, depreciation and amortisation. Schedule 3 was the relevant container of the purchase formula. As it is of some importance in the matter the formula is as follows: "1. The businesses will be valued as per the computer generated "Financial Model ("FM") 29.9.04", a copy of which is attached, at six times the EBITDA of each business (indicated in the attached model as the Projected Annual Net Profit).