SAB Closed 1 Pty Ltd v Bees & Honey Pty Ltd; Bees & Honey Pty Ltd v SAB Closed 1 Pty Ltd

These proceedings concern an Asset Sale Agreement (“the Agreement”) dated 3 February 2015 made between the plaintiff (then known as Sabbaba Corporate Stores Pty Ltd) as vendor and the defendant as purchaser. By the Agreement, the defendant agreed to purchase certain “Assets” associated with two food stores branded “Sabbaba”. Those stores were in the MLC Centre at 19-29 Martin Place, Sydney and in the Met Centre at 273 George Street, Sydney.

The “Assets” the subject of the Agreement comprised “the plant and equipment, fixtures and fittings” of the two stores as described in a schedule to the Agreement, together with “the Stock” at the stores. The “Purchase Price” was defined as “$100,000 (plus GST) plus the Stock Valuation”. The Agreement provided for a deposit of $15,000, which the defendant paid on or about 3 February 2015.

The plaintiff was the operator of the stores. However, it was not the lessee of either store. At the time of the Agreement, the lessee of the MLC Centre store was Sabbaba Leasing Pty Ltd and the lessee of the Met Centre store was Sumo & Sabbaba Leasing Pty Ltd. Each of the plaintiff, Sabbaba Leasing Pty Ltd and Sumo & Sabbaba Leasing Pty Ltd is a wholly owned subsidiary of Sumo Group Australia Pty Ltd.

The defendant purported to terminate the Agreement on 17 April 2015. The plaintiff contends that the defendant was not so entitled and that its purported termination was a repudiation by the defendant of its obligations under the Agreement.

Originally, the plaintiff did not accept that repudiation and called on the defendant to perform. Thus, when the plaintiff commenced these proceedings on 11 May 2015, it sought specific performance of the Agreement. However, by an amended summons filed in Court at the outset of the hearing, the plaintiff abandoned that claim and confined its claim to damages. Its damages claim is, in my opinion, confined to the balance of the purchase price: that is, $85,000. The plaintiff made no claim in respect of the stock. It claimed damages for losses associated with the ongoing leases at each store. But, as I have said, it was not the lessee of those stores and has not proved that it, as opposed to those lessees, suffered any loss. By cross-claim, the defendant seeks the return of the $15,000 deposit.

The operative part of the Agreement was cl 2.2, which was in the following terms:

Clause 3 was headed “Completion” and provided, so far is relevant:

The Agreement defined the “Completion Date” as “2 April 2015 or such earlier date as may be agreed by the parties”.

Clause 6 of the Agreement was headed “Leases” and was in the following terms:

Clause 2.5 was headed “Approval Condition Precedent” and was in the following terms:

So far as concerns the deposit, cl 2.1(d) provided:

Clause 10.4 of the Agreement was an “entire agreement” clause and provided, relevantly:

The dispute between the parties can, in my opinion, be resolved by reference to four issues.

First, did the parties agree to extend the Completion Date. In my opinion, the answer to this question is no. Second, were the “Conditions Precedent” referred to in cl 6.1 of the Agreement satisfied prior to the Completion Date. In my opinion, the answer to this question is also no so far as concerns the question of the consent of the lessors of the Met Centre to the assignment of the lease. Third, in those circumstances, was the defendant entitled to terminate under cl 6.4 of the Agreement. In my opinion, the answer to this question is yes. Fourth, was the plaintiff obliged to return the deposit to the defendant. In my opinion, the answer to this question is no.

Thus, in my opinion, the defendant was entitled to terminate the Agreement, but is not entitled to a return of the deposit.

During the four day hearing before me, the parties raised many other issues concerning the Agreement. In my opinion, in view of the conclusions to which I have come, it is not necessary to deal with those issues, although I will identify them briefly at the conclusion of these reasons.

As I have stated, the Completion Date was defined to mean 2 April 2015 or such earlier date as might be agreed between the parties.

Clause 10.1 of the Agreement provided that the Agreement could only be amended “in writing, signed by the parties”. The parties regularly communicated by email and I proceed on the basis that such emails constitute writing “signed by the parties” for the purpose of cl 10.1.

On 31 March 2015, Mr Luke Baylis, the sole director of the plaintiff, sent an email to Mr Eilon Bar, the sole director of the defendant.

Mr Baylis’s email was in the following terms:

Three hours later Mr Bar replied:

Mr Bar attached to his email the “proposal”, which was in the following terms:

In cross-examination, Mr Baylis said, referring to Mr Bar’s email of 31 March 2015, that Mr Bar “came back with a counter response different to our discussion”. The cross-examination continued:

Mr Baylis’s comment “off the back of my email it appears that I felt they did” suggests to me that Mr Baylis did not have an independent recollection of the terms of his 31 March 2015 discussion with Mr Bar. He did not refer to the conversation in his affidavit, although he referred to a number of other conversations with Mr Bar.

Although the defendant served a number of affidavits sworn by Mr Bar, Mr Bar did not give evidence. I must therefore assume that his evidence on this (or any other) point would not have assisted the defendant.

Nonetheless, I cannot conclude from the exchange of emails that any agreement was reached between Mr Baylis and Mr Bar that either party thought was conclusive or binding.

Later communications between the parties make clear that neither thought any agreement was reached by reason of the events of 31 March 2015. On that date, the matter rested with Mr Bar’s conditional proposals for an extension of the Completion Date to 1 May 2015 in relation to the MLC Centre and an unspecified later date in relation to the Met Centre.

During the morning of 2 April 2015 Mr Baylis sent an email to Mr Bar stating that he wished to work with Mr Bar to ensure a “smooth and timely transition for both stores” and that the plaintiff was “prepared to discuss amending the dates should a mutually agreeable date be determined”.

Some 20 minutes later, the plaintiff’s solicitors sent an email to Mr Bar asserting that the cl 6.1 conditions precedent had been satisfied (I return to this below), that the Agreement was now “unconditional” and that the plaintiff was “in a position to settle today”. The email continued:

The plaintiff’s solicitors’ statement that the plaintiff proposed that the Completion Date be “push[ed] back” to 18 April 2015 makes clear that Mr Baylis did not contend that any agreement had been reached on 31 March 2015.

Around 10 minutes later, Mr Bar and Mr Baylis agreed to meet “this morning to discuss revised dates of the settlement”.

A short time later, Mr Baylis and Mr Bar met. Mr Baylis’s account of their conversation makes perfectly clear that no agreement as to the Completion Date had yet been made, or was made as a result of that conversation.

Mr Baylis’s account of the conversation was as follows:

2 April 2015 was the Thursday before Easter. Thus, “the weekend” to which Mr Bar referred was the Easter long weekend.

Several days later, on 8 April 2015, the plaintiff’s solicitors wrote to the defendant’s solicitors asserting that the cl 6.1 conditions precedent had been satisfied, and that the plaintiff had been “ready to complete on 2 April 2015, as required by the Agreement”, but was “prepared to assist” the defendant with completion by proposing a new completion date of 8 May 2015.

On 14 April 2015, the defendant’s solicitors replied to the plaintiff’s solicitors’ letter of 8 April 2015 stating that the defendant did not accept there had been any amendment to the Completion Date.

On 15 April 2015, the plaintiff’s solicitors sent an email to the defendant’s solicitors to which I shall refer further below. In that letter, the solicitors made a “without prejudice” proposal (which was included in the Court Book without objection by either party) which included extension of the Completion Date to mid May 2015. Although the email referred to the “communications” of 2 April 2015, it contained no suggestion of any earlier agreement as to extension of the Completion Date.

In these circumstances, my conclusion is that no agreement was reached between the parties to extend the Completion Date. It remained as 2 April 2015.

Clause 6.1(a) of the Agreement provided that it was a condition precedent to completion that the plaintiff receive the consent of the lessors of each of the MLC Centre and Met Centre stores, and their mortgagees, to the assignment or sublease of the leases of those stores to the defendant.

So far as concerns the lessors’ consent, I shall deal separately with the MLC Centre and the Met Centre. It was common ground that satisfaction of this condition precedent required that any conditions imposed by the lessors to their consent would have to be either satisfied or waived prior to the Completion Date.

On 24 March 2015, Ms Leigh Dunn, the project general manager from MLC Centre Management, sent an email to Mr Bar attaching the MLC Centre’s “conditional consent” to the assignment of lease. The conditions were that the defendant:

By 1 April 2015, Mr Bar had agreed to a compromise proposal concerning the bank guarantee and had otherwise agreed to the MLC Centre’s conditions. Ms Dunn gave unchallenged evidence to that effect.

On 1 April 2015, Ms Dunn sent an email to Mr Baylis’s executive assistant confirming this arrangement. Ms Dunn’s email was in the following terms:

Thus, this aspect of the cl 6.1(a) condition precedent was satisfied or waived prior to the Completion Date of 2 April 2015.

Mr Bar did not, however, “sign and return” Ms Dunn’s 24 March 2015 letter of approval, nor did he execute the direct debit form that Ms Dunn sent him the same day. I will return to this below.

I have reached a different conclusion concerning the Met Centre.

There was a complication in relation to the Met Centre store which Mr Hyde, who appeared for the plaintiff, summarised in his submissions in the following terms:

I accept Mr Hyde’s submission that Mr Baylis’s evidence makes clear that Mr Bar knew there could be no assignment or sublease of the Met Centre store, that there would have to be a “split” tenancy and that he was content to proceed upon that basis.

On 2 April 2015, Ms Diane Rowley, the centre manager for the Met Centre, sent an email to Mr Baylis confirming conditional agreement to a split tenancy. The conditions were:

The first condition was satisfied. The deposit of $40,000 was made (albeit on 2 April 2015, and thus on, rather than “prior to”, the Completion Date).

The second condition, concerning the “$142K clawback”, was not.

The Met Centre lease contained a provision entitling the lessor to recover (“clawback”) from the lessee funds earlier provided by the lessor for the fit out of the premises (the “$142K” referred to).

Thus, what Ms Rowley was conveying was that the Met Centre’s lessors’ consent to the new leasing arrangements was conditional upon the defendant agreeing to accept an obligation to pay 70 per cent of that amount.

Notwithstanding the failure by Mr Bar to give evidence on this subject, I am satisfied that he, and thus the defendant, did not agree to this.

The plaintiff’s case was that it, through Mr Baylis, agreed to be responsible for 100 per cent of the clawback, that there was thus no need for the defendant to assume any liability for it and that the Met Centre’s condition was thereby satisfied.

In cross-examination, Mr Baylis said that he had a conversation with Mr Bar “where we agreed that we would take on 100 per cent”.

The cross-examination continued:

Later in the cross-examination, Mr Baylis gave this evidence:

However, I find Mr Baylis’s written communications with Ms Rowley a more reliable guide to what occurred.

Thus, on 13 April 2015, Mr Baylis sent an email to Ms Rowley as follows:

Mr Baylis’s email makes clear, in my opinion, that as at 13 April 2015 there had been no agreement concerning the “clawback”. As Mr Baylis said in his email, Mr Bar’s position as at this date was that the defendant would not “take on” any liability for the “clawback”.

The matter was taken further in the plaintiff’s solicitors’ email of 15 April 2015 to which I have referred. That email included, under a heading “Concessions offered by my client”, the following:

That email contains no suggestion of an earlier agreement concerning the clawback. The offer in that email that the plaintiff “will take on 100% of the liability for the fit-out clawback” was, in my opinion, conditional on the defendant agreeing to the other three elements of the “concessions offered” by the plaintiff; in particular, extension of the Completion Date to mid May and the defendant agreeing to replace the bank guarantees provided by the lessees of both the MLC Centre and Met Centre stores forthwith.

I do not read the plaintiff’s solicitors’ email of 15 April 2015 as being an unconditional offer to assume all liability under the clawback provision.

The defendant did not accept the proposal in the plaintiff’s solicitors’ email of 15 April 2015. Rather, as I have mentioned, two days later, on 17 April 2015, the defendant purported to terminate the Agreement.

In those circumstances, my opinion is that the condition precedent referred to in cl 6.1(a) of the Agreement was not satisfied prior to the Completion Date in relation to the Met Centre.

As cl 6.1 called for satisfaction or waiver of “each” of the conditions precedent, it is not necessary for me to consider whether the remaining condition precedent referred to in cl 6.1(a) (consent of the lessors’ mortgagees) or those referred to in cll 6.1(b), (c) and (d) of the Agreement were satisfied.

However, I will do so, albeit briefly.

So far as concerns the consent of the lessors’ mortgagees, it is common ground that the lessors of the MLC Centre had no mortgage and that this question did not arise concerning that lease.

So far as concerns the lessors of the Met Centre shop, that lessor did have a mortgagee. However, Ms Lan Leung, the centre manager of the Met Centre, and Ms Rowley’s superior, gave unchallenged evidence that:

I accept Mr Hyde’s submission that this evidence shows that there was no need separately to obtain the Met Centre’s lessor’s mortgagee’s consent. There was, to adopt Mr Hyde’s language, a blanket consent in place.

The condition precedent referred to in cl 6.1(b) (that the lessors release the plaintiff and the existing lessees of the two stores from their obligations as tenants under the leases) was satisfied, although that was only confirmed to the defendant by the plaintiff’s solicitors’ email of 15 April 2015 to which I have referred.

Compliance with the condition precedent referred to at cl 6.1(c) (confirmation from the MLC Centre lessor that it would be liable for the cost of the “Lessors Works”) did not arise. The Agreement defined “Lessors Works” as such works as the lessor of the MLC Centre required “as part of any assignment of the lease for the MLC Centre to the [defendant]”. On the evidence, there were no such works.

As to the condition precedent referred to in cl 6.1(d) (confirmation from the MLC Centre lessor of a reduction in the rent and marketing levy payable), this was confirmed by Ms Dunn on behalf of the MLC Centre lessor as early as 24 March 2015.

As I have mentioned, although Mr Bar, on behalf of the defendant, agreed to each of the MLC Centre’s conditions of consent to the assignment of the MLC Centre store lease, Mr Bar did not sign and return to Ms Dunn her letter of 24 March 2015 or the direct deposit form.

In those circumstances, Mr Hyde submitted that the defendant was in breach of its obligations under cl 6.2 of the Agreement to “do all things required by each Lessor to facilitate obtaining their consent to the assignment (or sublease) of the Leases”. It followed, Mr Hyde submitted, that the defendant had not “complied with its obligations under this Agreement” for the purpose of the proviso to cl 6.4 and was therefore not entitled to exercise a right of termination under that clause.

I do not accept the second part of that submission.

Clause 6.4 provides that a party may terminate the Agreement if “any” of the conditions precedent is not satisfied or waived. That wording is consistent with cl 6.1, which provides that completion is subject to satisfaction or waiver of “each” of the conditions precedent specified.

The defendant was thus entitled to terminate the Agreement by reason of the want of satisfaction or waiver of any one of the conditions precedent; even if all other conditions precedent had been satisfied or waived.

Having stated the circumstances in which either party could terminate the Agreement, cl 6.4 continued: “provided that the Purchaser has complied with its obligations under this Agreement the Vendor will refund the Deposit in full to the Purchaser”.

As Mr Blank, who appeared for the defendant, pointed out, the proviso is not directed to termination but to a different question, namely the return of the deposit. The proviso thus addresses the possibility that it is the purchaser (that is, the defendant) that terminates the Agreement, and provides that, in that event, the vendor (the plaintiff) must refund the deposit “provided that the Purchaser has complied with its obligations under this Agreement”.

Read literally, the proviso requires compliance by the terminating purchaser with all of its obligations under the Agreement, whether or not those obligations are referable to the condition precedent providing the basis for termination.

I see no reason not to give the proviso that meaning.

That reading does not produce an unreasonable or commercially irrational result. It attributes to the parties an intention that if the defendant, as purchaser, was entitled to terminate for want of satisfaction or waiver of one of the cl 6.1 conditions precedent, but was itself in breach of any of its obligations under the Agreement, then the losses should lie where they fall; namely, the plaintiff vendor would lose its entitlement to recover the balance of the purchase price, and the defendant purchaser would forfeit its deposit.

I accept Mr Hyde’s submission that the defendant was in breach of its obligations under cl 6.2 in the respect set out at [76].

It follows that the proviso is enlivened and that, although the defendant was entitled to terminate the Agreement, the plaintiff is not obliged to refund the deposit.

Mr Blank submitted that, quite apart from the question of the conditions precedent, on the proper construction of the Agreement, time was of the essence and, accordingly, the defendant was entitled to terminate by reason of the plaintiff’s failure to complete by the Completion Date.

I do not accept that submission. It is true that the parties defined the Completion Date with specificity to refer to “2 April 2015 or such earlier date as may be agreed by the parties”, and provided in cl 3.1 for completion to occur at 10am on the Completion Date. However, cl 3.1 also provides that completion might occur “at any other time or place agreed in writing by the parties”.

Further, the parties made specific and detailed provision in cl 6 for when and how the Agreement might be terminated. I see no room for the conclusion that they intended there to be some other, unstated, basis for termination, especially in light of the “entire agreement” clause to which I have referred (see [12] above).

Mr Blank also submitted that the Approval Condition Precedent referred to in cl 2.5 of the Agreement (see [10] above) had not been satisfied, as the plaintiff had not obtained the consent of “all interested parties” to the sale of the “Assets”. That matter does not need to be considered because the Approval Condition Precedent did not have to be satisfied until 1 May 2015, and if it was not, the Agreement simply came to an end (see cl 2.5(c)).

I have concluded that the defendant rightly terminated the Agreement on 17 April 2015. Thus the question of whether the Agreement would have been “at an end” on 1 May 2015 for want of satisfaction of the Approval Condition Precedent does not arise. Nor would it have arisen had I concluded that the defendant was not entitled to terminate the Agreement as, in that event, the defendant would have repudiated its obligations under the Agreement.

Nor do I need to consider Mr Blank’s submission that the plaintiff was not “ready, willing and able” to complete the Agreement for the reason that it was not able to give the defendant “unencumbered title to” or “effective possession and control of” the “Assets” (for the purpose of cl 3.2 of the Agreement). That obligation would only have arisen “at completion”. “Completion” did not take place because the defendant terminated the Agreement.

Mr Blank also submitted that it was an implied term of the Agreement that, on completion, the plaintiff would place the defendant in the position of lessee of both the MLC Centre and Met Centre stores. In light of the detailed provisions made in cl 6.1 of the Agreement concerning the conditions precedent, I very much doubt that it would be necessary to “give business efficacy” to the Agreement to imply any such term (for example see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; 149 CLR 337 at 346). However, in view of the conclusion to which I have come it is not necessary to reach any view about this.

Nor do I need to consider Mr Blank’s submission that cl 6.3 be either rectified or construed (under the principles in Fitzgerald v Masters [1956] HCA 53; 95 CLR 420) to commence “by” rather than “from” the Completion Date. That question does not arise.

In final written submissions, Mr Blank also contended that the plaintiff was “estopped from relying on the terms of the Agreement, having promised and represented that it would ensure the Defendant obtained occupation by 2 April, 2015”. Quite what was meant by that submission was not developed. However, as I have said, Mr Bar did not give evidence. There is thus no evidence of the representation alleged or of the defendant’s reliance on it.

In view of the conclusion to which I have come, it is also not necessary for me to consider the damages to which the plaintiff would have been entitled, were it to have been successful.

However, as I have mentioned, had I concluded that the plaintiff was entitled to damages, I would have awarded it only $85,000, being the difference between the purchase price of $100,000 and the $15,000 deposit paid by the defendant.

That is for two reasons.

The first is that although the “Purchase Price” under the Agreement was $100,000 “plus the Stock Valuation”, the plaintiff adduced no evidence before me to justify an award of damages in respect of stock.

The second is that the plaintiff has not proved any other loss.

The plaintiff’s claim for damages was, apart from the balance of the purchase price, for the following amounts:

The difficulty with this claim is that these losses, if they were incurred, were not incurred by the plaintiff but rather by the lessees of the MLC Centre and Met Centre stores. The plaintiff adduced no evidence to show that it had any obligation to reimburse those lessees for such costs or that those costs otherwise represented a loss that it had suffered.

I invite the parties to bring in short minutes of order to give effect to these reasons.

I will hear the parties as to costs.