Rae v Beddison Corporation Pty Ltd [2009] NSWSC 27

New South Wales Supreme Court

CITATION : Rae v Beddison Corporation Pty Ltd [2009] NSWSC 27

HEARING DATE(S) : 2, 3 and 4 February 2009

JUDGMENT DATE : 10 February 2009

JUDGMENT OF : Harrison J

DECISION : The parties are directed to bring in short minutes of order reflecting these reasons for judgment.

CATCHWORDS : CONTRACT – sale of shares in recruitment company – provision in agreement for payment of purchase price by two instalments – calculation of second instalment tied to company profit in the twelve months post-sale – whether purchaser entitled to reduce the second instalment by excluding items of income and including expenses – adjustment of contract price in accordance with terms of agreement

CATEGORY : Principal judgment

PARTIES : Wendy Florence Rae (Plaintiff) Beddison Corporation Pty Ltd (Defendant)

FILE NUMBER(S) : SC 15074 of 2007

COUNSEL : F P Carnovale (Plaintiff) M J Slattery QC with D R Meltz (Defendant)

SOLICITORS : Brown Wright Stein Lawyers (Plaintiff) Gadens Lawyers (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

HARRISON J

10 February 2009

15074 of 2007 Wendy Florence Rae v Beddison Corporation Pty Ltd

JUDGMENT 1 HIS HONOUR: From 28 May 1993 to 19 December 2005 Wendy Rae & Associates Pty Ltd ("the company") carried on a recruitment agency business specialising in the supply of both temporary and permanent workers and staff for clients. On 19 December 2005 the plaintiff, who was the owner of the whole of the issued capital in the company, sold all of her shares in it to the defendant ("Beddison Corporation") in accordance with a Deed for Sale of Shares ("the agreement") bearing that date. The purchase price under the agreement was $975,000, subject to the possibility of an adjustment downwards depending on the company's financial results for the 12 months following the date of the agreement. In circumstances and for reasons that are both uncontroversial and irrelevant, it was subsequently agreed that the relevant 12 month period for the purposes of these calculations should expire on 30 November 2006 rather than on 19 December 2006. 2 The purchase price was payable to the plaintiff in two instalments. The first instalment of $217,000 was referred to in the agreement as the Purchase Price Initial Amount. It was due and payable on the date of the agreement and was paid on that day. The second instalment, referred to in the agreement as the Purchase Price Deferred Amount, was payable on 19 January 2007. Provided that the company achieved a target profit (as defined in the agreement) of at least $275,636 over the following 12 months, the second instalment was to be $758,000 and was calculated at the rate of 2.75 times the target profit of $275,636. However, in the event that the company failed to achieve the target profit by the end of the 12 month period, the second instalment would be adjusted downward at the rate of 2.75 times the amount of the profit shortfall. 3 In these circumstances the precise manner in which the company's profit was to be calculated obviously became a matter of critical importance to the plaintiff and the defendant. Accordingly, the agreement contained specific provisions dealing with what was to be treated as income of the company on the one hand and what were to be treated as allowable expenses of the company on the other hand. 4 On 11 October 2007 the defendant paid the plaintiff $599,121.15. The defendant contended that on a proper interpretation of the agreement the target profit had not been achieved by 30 November 2006 as required and that it was entitled to reduce the second instalment from $758,000 to only that sum. This was disputed by the plaintiff who thereafter sued for what was in effect the full amount of the second instalment. These proceedings are concerned with that dispute and with the question of the proper interpretation of the specific provisions of the agreement dealing with the income and expenses of the company. 5 In the events that have occurred, that dispute has been confined within a relatively small compass. Subject to what appears below, it is limited to four principal areas that can be conveniently discussed under the following headings: 1. Interest received by the company;