Playup Australia Pty Ltd v Kay

1. [1]

   By March 2018 the defendant, Mr Ryan Kay had worked in the online gambling industry for approximately 15 years. He was then the sole shareholder of the company then known as Bestbet.com.au Pty Ltd. Bestbet conducted an online gambling business.

2. [2]

   On 23 March 2018 Mr Kay entered a Share Sale and Purchase Agreement with the plaintiff, Playup Australia Pty Limited, by which he agreed to sell his shareholding in Bestbet to Playup for $1.6 million.

3. [3]

   The $1.6 million was to be paid by way of $1 million on exchange, “nil” on completion (subject to any “adjustment”: see below) and the balance of $600,000 by 24 monthly instalments of $25,000 commencing on the “monthly anniversary” of the “Completion Date”. These instalments were described in the Agreement as the “Deferred Payment”.

4. [4]

   Clause 4.3 of the Agreement provided that if any Deferred Payment was not paid within seven days of its due date, time being of the essence, then:

5. [5]

   There is a dispute as to if and when “Completion” took place for the purposes of the Agreement. For the reasons I set out below, I find it took place on 7 June 2018.

6. [6]

   Although the Agreement provided that any “adjustment” to the purchase price was to be made on Completion, the parties proceeded to Completion without any adjustment being made.

7. [7]

   It is now common ground that the necessary adjustment was $10,707.32 in favour of Playup.

8. [8]

   Mr Kay agreed to that adjustment on 16 July 2018; that is, after Completion.

9. [9]

   None of the Deferred Payments having then been made, on 8 August 2018 Mr Kay, without notice, served a creditor’s statutory demand under s 459E(2)(e) of the Corporations Act 2001 (Cth) on Playup claiming $589,292.68, being the total $600,000 Deferred Payment less the adjustment of $10,707.32 Mr Kay agreed to on 16 July 2018.

10. [10]

    Playup then made a number of further Deferred Payments but did not seek to have Mr Kay’s statutory demand set aside.

11. [11]

    On 10 September 2018 Mr Kay commenced winding up proceedings (“the Winding Up Proceedings”) against Playup based on Playup’s failure to pay the amount in the statutory demand.

12. [12]

    On 11 October 2018 Playup, under protest, paid Mr Kay the balance of the Deferred Payment, $520,050.44, in order to procure Mr Kay’s agreement to discontinue the Winding Up Proceedings.

13. [13]

    Playup contends that:

    1. (1)

       on the proper construction of the Agreement, its obligation to make the Deferred Payment was dependent on Mr Kay’s agreement to the appropriate adjustment to be made to the purchase price;

    2. (2)

       as that did not occur until 16 July 2018, its obligation to make the Deferred Payment only arose on the “monthly anniversary” of that date and was subject to an entitlement to set off the agreed adjustment; and

    3. (3)

       it subsequently made the Deferred Payments in a timely manner so that cl 4.3(b) was not engaged.

14. [14]

    Alternatively, Playup contends that cl 4.3(b) is void as a penalty or that Playup ought be granted relief against forfeiture of the benefits obtained by cl 4.3(b).

15. [15]

    Playup seeks declaratory relief to this effect.

Decision

1. [16]

   On the proper construction of the Agreement, Playup’s obligation to make the Deferred Payment was dependent on Mr Kay agreeing an appropriate adjustment.

2. [17]

   Clause 4.3(b) was therefore not engaged.

3. [18]

   Although, in light of my conclusions at [16] and [17], these issues do not arise:

The terms of the Agreement

1. [19]

   Clause 5.1 of the Agreement provided that:

2. [20]

   “Completion” was defined to mean:

3. [21]

   “Completion Date” was defined to mean:

4. [22]

   Clause 4 dealt with “Consideration”. Subclauses 4.2 and 4.3 provided:

5. [23]

   Clause 5 dealt with “Completion” and provided, in addition to cl 5.1:

6. [24]

   Clause 4.3 referred to the possibility of there being an “Adjustment” to the amount payable by Playup to Mr Kay on completion.

7. [25]

   “Adjustment” was defined in cl 6.11 as follows:

8. [26]

   The possibility of there being an adjustment on completion was also referred to in cll 6.3 and 6.7 which provided:

The negotiation of cl 4.3

1. [27]

   Documentary evidence of the negotiations concerning the form of cl 4.3 of the Agreement was received into evidence without objection. Those documents were in the Court Book.

2. [28]

   In addition, over the objection of Mr Kidd SC, who appeared with Mr Walker for Playup, I allowed evidence given by Mr Kay of three conversations between Mr Kay and Mr Daniel Simic, the Chief Executive Officer of Playup. Mr Simic did not dispute two of the conversations. He denied the third. In view of the conclusions to which I have come, I do not need to resolve that dispute.

3. [29]

   I allowed that evidence only in relation to the issues of whether cl 4.3 is a penalty and whether Playup should be granted relief against forfeiture of the benefits obtained by cl 4.3(b).

4. [30]

   In Multiplex Constructions Pty Ltd v Abgarus Pty Ltd (1992) 33 NSWLR 504 at 508, Cole J held that evidence of negotiations of a clause said to be a penalty:

5. [31]

   His Honour also said:

6. [32]

   His Honour later referred to the observations of Mason and Wilson JJ in AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170 at 193-194; [1986] HCA 63 and concluded:

7. [33]

   In his recently published work, Mr Heydon QC expressed doubt as to the correctness of Cole J’s observations: J D Heydon, Heydon on Contract (2019, Thomson Reuters) at [26.1170].

8. [34]

   However the learned author did not refer to the observations of Allsop CJ in Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199; [2015] FCAFC 50 at [255], where his Honour said, when considering a provision impugned as a penalty:

9. [35]

   His Honour’s observations were not criticised by the High Court in the appeal from the decision of the Full Court of the Federal Court: Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28. I will discuss the High Court’s decision in Paciocco further below.

10. [36]

    In a judgment delivered before publication of the decision of the High Court in Paciocco the Full Court of the Queensland Court of Appeal cited Allsop CJ’s observations with evident approval: Grocon Constructions (QLD) Pty Ltd v Juniper Developer (No 2) Pty Ltd [2015] QCA 291 at [132] (McMeekin J with whom Holmes CJ and Atkinson J agreed).

11. [37]

    My conclusion was that those authorities justified reception of the conversations into evidence.

12. [38]

    On 9 March 2018 Playup’s then solicitor, Ms Sharon Robson, sent Mr Kay’s solicitor, Mr Anthony Price, a draft version of the Agreement which provided that the Deferred Payment be payable by monthly instalments for 24 months “commencing on the first monthly anniversary of the Completion Date”. The draft provided for no consequences for untimely payment.

13. [39]

    On 16 March 2018 Mr Price proposed cll 4.2 and 4.3 in terms very similar to those finally agreed, save that there was no provision for a period of grace.

14. [40]

    Ms Robson replied on 19 March 2018 saying that Playup “cannot agree to this clause” and “requires 7 days following the payment date in which to pay before accruing any interest” and proposed that interest accrue on late payment at 2% above the Reserve Bank Cash Rate.

15. [41]

    Mr Kay said that at around that time he and Mr Simic had conversations in which Mr Simic said words to the effect:

16. [42]

    Mr Simic did not dispute these conversations.

17. [43]

    On 20 March 2018 Ms Robson reported to Mr Simic that she had spoken to Mr Price who had said that Mr Kay:

18. [44]

    Later on 20 March 2018 Mr Simic wrote directly to Mr Kay stating:

19. [45]

    On 21 March 2018 Mr Prashant Arora, the Chief Financial Officer of Playup, sent an email to Mr Simic and others at Playup saying that he had “just had a comprehensive discussion” with Mr Kay and that “[Mr Kay] is happy to add a 7 days grace period for monthly deferred payment”.

20. [46]

    On 23 March 2018 the parties executed the Agreement which included cl 4.3 in the form that I have set out above.

21. [47]

    The form of cl 4.3 was thus the subject of focussed negotiation. Mr Kay’s position was that its inclusion in the Agreement was a “deal breaker”. It was, in effect, the price Playup had to pay if it wished to purchase Mr Kay’s shareholding in Bestbet.

The events leading to Completion

1. [48]

   On 18 May 2018 the NTRC gave approval to Playup to operate Bestbet’s business under Playup’s existing NTRC bookmaker’s licence.

2. [49]

   As I have mentioned, the Agreement defined “Completion Date” as being two business days after the NTRC approval “or such other date as the parties agree in writing”.

3. [50]

   The date two business days after 18 May 2018 was 22 May 2018.

4. [51]

   On 22 May 2018, Ms Robson wrote to Mr Price:

5. [52]

   I will return to this communication when considering whether the parties agreed that the “Completion Date” was to be taken to be 22 May 2018.

6. [53]

   On 24 May 2018 Mr Kay wrote to Mr Arora about a number of matters and concluded:

7. [54]

   On 25 May 2018, Mr Kay again wrote to Mr Arora about “the March 23rd financials” of Bestbet and concluded:

8. [55]

   On 28 May 2018 Mr Kay sent a further email to Mr Arora attaching a trial balance for Bestbet and concluding:

9. [56]

   On 29 May 2018 Mr Arora sent Mr Kay a “list of payments made in April or May for the bills accrued before 23rd March”.

10. [57]

    The attached list showed 10 payments made by Bestbet to creditors since 23 March 2018 which in part related to liabilities incurred by Bestbet prior to 23 March 2018. The amount of those payments attributable to liabilities incurred prior to 23 March 2018 was $11,778.05 inclusive of GST or $10,707.32 excluding GST.

11. [58]

    In effect, Mr Arora was suggesting to Mr Kay that there should be an adjustment to the purchase price in Playup’s favour for this amount. The adjustment Mr Arora suggested on 29 May 2018 was the GST inclusive figure of $11,778.05. The adjustment to which Mr Kay agreed on 16 July 2018 was the GST exclusive figure of $10,707.32.

12. [59]

    On 30 May 2018 Mr Kay wrote to Mr Arora:

13. [60]

    On 1 June 2018 Mr Price wrote to Ms Robson referring to a number of matters and concluding:

14. [61]

    On 5 June 2018 Ms Robson replied:

15. [62]

    On 6 June 2018 Mr Simic wrote to Mr Kay raising a number of matters and concluding:

16. [63]

    On 7 June 2018, without notice, Mr Kay delivered to Playup:

17. [64]

    These were the critical documents that Mr Kay was obliged to deliver at Completion.

18. [65]

    However, Mr Kay was also obliged to deliver at completion an “updated debtor list to the date of Completion”. Such a list was never provided.

19. [66]

    On 7 June 2018 Mr Arora sent an email to Mr Simic and Ms Robson informing them that:

20. [67]

    On the same day Mr Price sent Ms Robson a copies of the documents referred to at [63] above “by way of final settlement in this matter” (emphasis added).

21. [68]

    Mr Price concluded his letter:

22. [69]

    Ms Robson did not respond to this letter.

23. [70]

    The parties thereafter acted as if “Completion” had taken place.

Events after Completion

1. [71]

   On 15 June 2018 Playup’s accountant sent Mr Arora a Corporations Act Form 484 “Change to Company to Details” which specified 22 May 2018 as the date when Mr Kay ceased to be, and the date on which Mr Simic was appointed as, director and secretary of Bestbet.

2. [72]

   On the same day Mr Simic signed that document as director of Bestbet.

3. [73]

   In due course that document was lodged with the Australian Securities and Investments Commission (ASIC). An ASIC search conducted on 14 September 2018 records Mr Simic’s appointment and Mr Kay’s cessation as the director and secretary of Bestbet as occurring on 22 May 2018.

4. [74]

   On 22 June 2018 Mr Arora wrote to Mr Kay:

5. [75]

   Mr Arora’s reference to “what Chris [Murrow] sent” was a reference to the list of payments that Mr Arora had sent Mr Kay on 29 May 2018 which, in effect, proposed an adjustment of the purchase price in favour of Playup of $11,778.05 (see [56]-[58] above).

6. [76]

   Having received no reply, Mr Arora wrote a further email to Mr Kay on 26 June 2018:

7. [77]

   On 3 July 2018 Mr Price sent Ms Robson Mr Kay’s bank details.

8. [78]

   On 5 July 2018 Mr Arora sent a further email to Mr Kay:

9. [79]

   Mr Kay replied on 16 July 2018:

10. [80]

    By this email, Mr Kay was, in effect, accepting the correctness of the adjustment Mr Arora proposed by his 29 May 2018 email save that the adjustment should be exclusive of GST and thus be $10,707.32 rather than $11,778.05.

11. [81]

    Mr Arora agreed that the relevant adjustment should be exclusive of GST. In an affidavit Mr Arora swore in the Winding Up Proceedings, Mr Arora described Mr Kay’s 16 July 2018 email as “an agreed adjustment of $10,707.32”.

12. [82]

    Nonetheless Mr Arora did nothing to progress the matter.

13. [83]

    On 10 August 2018, without notice, Mr Kay served on Playup a statutory demand pursuant to s 459E(2)(e) of the Corporations Act which, as I have set out above, claimed an amount of $589,292.68, being the $600,000 Deferred Payment less the by now agreed adjustment of $10,707.32.

14. [84]

    Mr Arora responded with an email to Mr Kay on 10 August 2018:

15. [85]

    The “Payment Schedule” set forth an “Opening Balance” for the Deferred Payment of $600,000 from which was subtracted $30,717.76 for “Reduction on Deferred Payments”.

16. [86]

    That reduction was calculated by reference to, amongst other things, the agreed figure of $10,707.32 together with other deductions which, before me, were not pressed as being warranted.

17. [87]

    The Payment Schedule then set out a schedule of payments commencing monthly from 28 June 2018 and provided for:

18. [88]

    Mr Arora thus proposed 28 June 2018 as the date due of the first Deferred Payment. Neither party now suggests that 28 June 2018 was the “monthly anniversary” of a relevant date. Mr Arora said in cross-examination that he was “confused about the date” and that he “didn’t know what date to put”. There is no suggestion in the evidence that Mr Arora thought to seek the advice of Ms Robson, or anyone else, about this.

19. [89]

    On 13 August 2018 Mr Arora caused Playup to pay to Mr Kay $19,242.24.

20. [90]

    On 28 August 2018 Mr Arora caused Playup to pay Mr Kay a further $25,000.

21. [91]

    On 10 September 2018 Mr Kay commenced the Winding Up Proceedings.

22. [92]

    On or around 13 September 2018, Playup retained Yates Beaggi Lawyers to act for it in lieu of Ms Robson.

23. [93]

    On 13 September 2018 Mr Farshad Amirbeaggi from that firm wrote to Mr Price stating, amongst other things:

24. [94]

    It thus appears that Mr Amirbeaggi’s instructions were that the “Completion Date” was 22 May 2018; hence his conclusion that the first Deferred Payment was due on 22 June 2018 albeit, he said, subject to adjustment to nil.

25. [95]

    On 24 September 2018 Mr Arora caused Playup to make a further payment of $25,000 to Mr Kay.

26. [96]

    Finally, as I have mentioned at [12] above, on 11 October 2018 Playup paid Mr Kay the balance of the Deferred Payments of $520,050.44. This payment was made under protest and to procure the dismissal of the Winding Up Proceedings.

27. [97]

    In the meantime, in the Winding Up Proceedings:

Did Completion occur, and if so, when?

1. [98]

   As I have set out at [20] and [21] above, the Agreement separately defined “Completion” and “Completion Date”.

2. [99]

   The definition of “Completion” described an event (the “completion of the sale and purchase” of the shares in Bestbet in accordance with the Agreement) whereas the definition of “Completion Date” (two business days after NTRC approval or such other date as the parties agreed in writing) referred to a moment in time, a date, on which the event of “Completion” would occur.

3. [100]

   By cl 5.1, and unsurprisingly, the Agreement provided that “Completion will take place on the Completion Date”.

4. [101]

   As I have set out at [51] above, on 22 May 2018, Ms Robson wrote to Mr Price stating that she was instructed that “completion should be deemed to occur today” and asked Mr Price to “please ensure that today’s date is reflected”.

5. [102]

   Mr Condon suggested to Mr Simic that he gave Ms Robson those instructions. Initially, Mr Simic said he could not recall whether this was so, but then said completion “was supposed to be deemed to occur on” 22 May 2018.

6. [103]

   It is not clear why Mr Simic wanted this result. It may be this was because of an apprehension as to the significance of the approval given by the NTRC on 18 May 2018 to Playup to conduct the Bestbet business under Playup’s existing NTRC bookmaker’s licence.

7. [104]

   Both parties later executed documents that specified 21 or 22 May 2018 as key dates. Thus:

8. [105]

   Further:

9. [106]

   As these documents show, the parties appear to have elided the concepts of “Completion Date” and “Completion”.

10. [107]

    Despite the reference in these documents to 21 and 22 May 2018 as being the “Completion Date” or the date on which “Completion” took place, I think it clear that, in fact, “Completion” itself did not occur prior to 7 June 2018 and was accepted to have occurred on that day.

11. [108]

    After 22 May 2018 there were numerous prospective references in the parties’ correspondence to “completion”. Thus:

12. [109]

    From that point forward, Ms Robson did not contest that completion had then taken place and the parties directed their attention to the Deferred Payment.

13. [110]

    It is true, as Mr Kidd pointed out, that as at 7 June 2018 Mr Kay had not complied with his obligations under cl 6.3 to “ensure that all money accrued up to the Completion Date, but not paid, in respect of liabilities…will be adjusted on the Completion Date” nor his obligation under the Agreement to deliver an “updated debtor list to the date of Completion”.

14. [111]

    Nonetheless, I think it clear the parties regarded the transaction as having “Completed” on 7 June 2018 and thereafter conducted themselves accordingly.

15. [112]

    Further, I think the better view of the exchange of correspondence between the parties between 22 May 2018 and 7 June 2018 constitutes “an agreement in writing” between them, for the purposes of the definition of “Completion Date” (see [21] above) that the “Completion Date” would be the day when “Completion” actually took place: 7 June 2018.

Were the parties’ obligations interdependent?

1. [113]

   The question is whether Playup’s obligation to make the Deferred Payment was dependent on Mr Kay performing his obligations under cll 5.2, 6.3 and 6.11 of the Agreement.

2. [114]

   The relevant principles were discussed by Leeming JA, with whom Basten and Ward JJA agreed in Hillam v Iacullo (2015) 90 NSWLR 422; [2015] NSWCA 196 at [93]-[109].

3. [115]

   At [93] his Honour said:

4. [116]

   Leeming JA then cited with approval the observations of Prof Carter in, Carter on Contract (2014, LexisNexis) at [29-040], including the following:

5. [117]

   Leeming JA then referred to the observations of Jordan CJ in Newcombe v Newcombe (1934) 34 SR (NSW) 446 at 450-451:

6. [118]

   Leeming JA concluded at [107]:

7. [119]

   As Mr Kidd submitted, there was a connection between Playup’s obligation to make the Deferred Payment and Mr Kay’s obligation to ensure that adjustments were made at Completion and to deliver the material referred to in Schedule 9. Thus:

8. [120]

   The parties were also conscious of the potential interdependence of provisions in the Agreement. Thus they agreed in cl 5.3 that:

9. [121]

   The obligation of Playup under cl 4.3 was not an obligation “at Completion”. It was an obligation which arose on the “monthly anniversary” of the Completion Date.

10. [122]

    But Mr Kay’s obligation under cl 6.3 to ensure that appropriate adjustments were made was one “at Completion”.

11. [123]

    The question is whether Playup’s Deferred Payment obligation was dependent on Mr Kay’s fulfilment of that obligation, notwithstanding the fact that, unlike in cl 5.3, the parties did not in cl 4.3 direct attention in terms to that question.

12. [124]

    Debate before me focussed on the significance of the provision in cl 4.3(b) that time would be of the essence of Playup’s obligation to make the Deferred Payment within seven days of their due date.

13. [125]

    The question is: did the inclusion of those words have the effect of making Playup’s obligation to make the Deferred Payment independent of Mr Kay’s obligation to ensure the appropriate adjustment of the purchase price?

14. [126]

    The conclusion to which I have come is that it did not.

15. [127]

    It seems to me to be unlikely that the parties intended that, if Completion took place without Mr Kay ensuring that a necessary adjustment be made to the purchase price on Completion, Playup would nonetheless be obliged to start making the Deferred Payment on the “monthly anniversary” of the Completion Date.

16. [128]

    What, in those circumstances, would the parties contemplate that Playup do? Start paying $25,000 until such time as Mr Kay got around to ensuring, belatedly and in breach of his obligations under cl 6.3, that the adjustment be made? Take the gamble that its calculation of the necessary adjustment would be agreed by Mr Kay to be correct, deduct that amount from whatever number of Deferred Payment instalments was necessary and start making Deferred Payments once adjustment to the purchase price was thereby and belatedly effected?

17. [129]

    I think it unlikely that the parties intended that the Agreement operate this way.

18. [130]

    The words making time of the essence appear in cl 4.3(b), rather than cl 4.3(a). That suggests that the parties’ intention was not to make time of the essence regarding the obligation to start paying the Deferred Payment on the “monthly anniversary” of the Completion Date, which was the subject of cl 4.3(a). Rather, it suggests their intention was to make time of the essence regarding the obligation to make such payments within the seven day period of grace referred to in cl 4.3(b); making clear that the period of grace could not be extended.

19. [131]

    The parties may also have intended the words to have the effect of giving Mr Kay a right to rescind the Agreement in the event that a Deferred Payment was not made within seven days of the due date; although it is hard to see what benefit that would confer on Mr Kay over and above that specified in cl 4.3(b) itself.

20. [132]

    My attention has not been drawn to any authority for the proposition that a clause making time of the essence has the effect of converting dependent contractual obligations into independent contractual obligations.

21. [133]

    Indeed, as Mr Kidd submitted, such a proposition would appear to be inconsistent with the accepted functions of a stipulation making time essential. As Mr Kidd submitted, those functions, which include making the time stipulation an essential term of the contract, breach of which gives rise to an entitlement to terminate, as well as barring some types of equitable relief, would not operate effectively if the stipulation making time essential also had the effect of making dependent contractual obligations independent obligations.

22. [134]

    Mr Kidd gave the example of a contract making a time stipulation essential in relation to a purchaser’s obligation to pay the purchase price on a specified completion date. Ordinarily, time stipulations give rise to a right to terminate. It does not follow that the essential time stipulation made the purchaser’s obligations to deliver the purchase price on that date independent of the vendor’s obligations to deliver title documents in exchange for the purchase price. Thus, in the absence of clear words, time stipulations do not necessarily indicate independence.

23. [135]

    In this case, and to paraphrase the language used by Leeming JA in Hillam v Iacullo, to the extent that clear words are required to discern a relationship of independency between cl 4.3 of the Agreement and cll 5.2, 6.3 and 6.11 of the Agreement, I do not see the words “in this regard time should be of the essence” to comprise such clear words.

24. [136]

    For those reasons, my conclusion is that the parties intended that Playup’s obligation to make the Deferred Payment was dependent on Mr Kay fulfilling his obligation to ensure appropriate adjustments to the purchase price.

25. [137]

    By cl 6.3, Mr Kay was obliged to do that on the Completion Date: 7 June 2018.

26. [138]

    His failure to do that, and his actions to in effect cause Completion to take place on 7 June 2018 by the unheralded delivery of the documents referred to at [63] on that day, had the effect of suspending Playup’s obligation to make the Deferred Payment until such time as Mr Kay fulfilled his obligations.

27. [139]

    That occurred on 16 July 2018, whereupon Playup’s obligation to make the Deferred Payment revived.

28. [140]

    The parties must in those circumstances be taken to have intended that Playup would be entitled to set off the amount of the agreed adjustment against the next Deferred Payment.

29. [141]

    I did not understand there to be any controversy about this.

30. [142]

    But when did the parties intend in these circumstances that the first Deferred Payment, subject to such set off, be made?

31. [143]

    Mr Kidd submitted that the parties must be taken to have intended that Playup have until the “monthly anniversary” of the date of agreed adjustment, that is until 16 August 2018, to make the first Deferred Payment. Mr Kidd submitted that this would give Playup the same time to make the first Deferred Payment as it would have had had the relevant adjustments been made on Completion.

32. [144]

    I see the force of that submission. However, that is not expressly contemplated in the Agreement.

33. [145]

    Nevertheless, even if the parties are taken to have intended that the dates of the Deferred Payment continue to be determined in accordance with cl 4.3(a), and thus be made on the next “monthly anniversary” of the Completion Date, the next such date was 7 August 2018.

34. [146]

    Playup made a payment to Mr Kay of $19,242.24 on 13 August 2018: within the seven day period of grace in cl 4.3(b).

35. [147]

    It follows that cl 4.3(b) was not enlivened.

Is cl 4.3 a penalty?

1. [148]

   In the alternative to its submissions as to the proper construction of the Agreement, Playup seeks a declaration that cl 4.3(b) of the Agreement is unenforceable as a penalty.

2. [149]

   In light of my conclusions as to the proper construction of the Agreement, it is not necessary to deal with this question. However, in deference to the careful arguments addressed by the parties I shall do so.

3. [150]

   The High Court has considered the question of penalty in three recent cases, Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656; [2005] HCA 71; Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205; [2012] HCA 30; and Paciocco (to which I referred at [35] above).

4. [151]

   The law was recently summarised by McDougall J sitting as a member of the Court of Appeal in Arab Bank Australia Ltd v Sayde Developments Pty Ltd (2016) 93 NSWLR 231; [2016] NSWCA 328.

5. [152]

   At [72] McDougall J set out the familiar propositions of Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79:

6. [153]

   McDougall J then summarised, at [74], the proposition which emerged from the reasons of the majority (French CJ, Kiefel, Gageler and Keane JJ) in Paciocco:

7. [154]

   As Ward JA (with whom McColl and Gleeson JJA agreed) said in Australia Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd; Guan v Linfield Developments Pty Ltd [2017] NSWCA 99:

8. [155]

   Mr Condon submitted that cl 4.3(b) of the Agreement was a primary, and not merely collateral or accessory by reason of the fact that “Deferred Payment” was defined in the Agreement to mean:

9. [156]

   I do not accept that submission.

10. [157]

    Despite the reference in the definition to cl 4.3(b) as well as cl 4.3(a), the structure and wording of cl 4.3 makes clear that Deferred Payment of $600,000 is “payable” in accordance with cl 4.3(a). Clause 4.3(b) deals with a different question; it deals with what happens if the Deferred Payment is not so paid.

11. [158]

    The transaction represented by the Agreement had an unusual structure.

12. [159]

    Mr Kay agreed to sell to Playup his shareholding in Bestbet for a total consideration of $1.6 million. $1 million of that consideration was payable on exchange. Apart from the making of any adjustment called for, nothing was payable on completion.

13. [160]

    The balance representing 37.5% of the total consideration, was payable over a period of two years from the Completion Date and was, apart from a guarantee given by Mr Simic and another, unsecured.

14. [161]

    Mr Kay was taking a risk by agreeing that 37.5% of the purchase price for his shareholding in Bestbet be paid over time in the two year period following completion and without real property security.

15. [162]

    It was that interest that Mr Kay sought to be protected by cl 4.3(b); the timely payment of the Deferred Payment of $600,000.

16. [163]

    That was made clear to Playup by the conversations between Mr Kay and Mr Simic set out at [38]-[47] above.

17. [164]

    It is true that the consequences of a failure to make a Deferred Payment within seven days of its due date were severe.

18. [165]

    The critical question is whether those consequences are out of “all” proportion to the damage that Mr Kay might, at the date of contract, have anticipated to follow from the failure by Playup to make a Deferred Payment; or “unconscionable” in comparison to the damage that Mr Kay might have anticipated at the date of the contract to thereby follow; or otherwise “extravagant”.

19. [166]

    I do not think such disproportion as exists between the consequences of non-compliance with the provisions in cl 4.3 and the damage that Mr Kay might suffer by reason of non payment can be said to unconscionable.

20. [167]

    An impugned provision cannot be a penalty unless its purpose is punitive.

21. [168]

    In Paciocco Gageler J referred to the need for the punishment to be “the only purpose” (at [158], [165]-[166] and [176]). Keane J referred to “a predominant punitive purpose” (at [221]). Kiefel J (as the Chief Justice then was) (French CJ agreeing) referred to “the purpose” of the stipulation (at [29]). In Arab Bank McDougall J doubted that Kiefel J thereby intended to embrace the Gageler J “sole purpose” test (at [79]).

22. [169]

    In my opinion, the words used by the parties in cl 4.3(b) do not permit the conclusion that the “sole” or even the “predominant” purpose of the clause was intended to punish Playup for failure to pay the Deferred Payments within seven days of their due date.

23. [170]

    The words used by the parties indicate to me that the purpose was to focus Playup’s corporate mind, and the mind of Mr Simic as Playup’s only director, on the high importance of making the Deferred Payment on time.

24. [171]

    My conclusion is that the predominant, if not the sole purpose of cl 4.3(b) was to ensure that the Deferred Payments were made on time.

25. [172]

    Evidently, the clause did not have the desired effect as indicated by Mr Arora’s statement to Mr Kay on 10 August 2018 that “I got tied up with a few things in the last couple of weeks so didn’t get to [the payment]” (see [84] above) and Mr Amirbeaggi’s 13 September 2018 statement that “the second instalment due on 22 July 2018, was not paid on time due to an administrative error within the offices of Playup” (see [93] above).

26. [173]

    To the extent that it is permissible to have regard to what transpired between the parties prior to execution of the Agreement, those matters are strongly confirmatory of that conclusion: see [38]-[46] above. As Mr Kay then said “we want to be sure that you will pay on time”.

27. [174]

    Further, cl 4.3 was the culmination of hard bargaining between well advised, commercially sophisticated parties.

28. [175]

    Mr Kay made it clear that the inclusion of cl 4.3 of the Agreement was a “deal breaker” without which he was not prepared to proceed with the transaction. There was negotiation of the terms of clause, which led to Mr Kay agreeing to the seven day period of grace.

29. [176]

    In Cavendish Square Holding BV v Makdessi; ParkingEye Ltd v Beavis [2015] 3 WLR 1373; [2015] UKSC 67 at [35], Lord Neuberger and Lord Sumption stated that in a the case of a negotiated agreement between properly advised parties of comparable bargaining power, the “strong initial presumption must be that the parties themselves are the best judges of what is legitimate in a provision dealing with the consequences of breach”.

30. [177]

    In Ringrow v BP Australia the High Court (Gleeson CJ, Gummow, Kirby, Hayne, Callinan and Heydon JJ) said (at [31]-[32]):

31. [178]

    For those reasons, had the question arisen, I would not have been persuaded of the need for judicial intervention in this case.

Should Playup be granted relief against forfeiture?

1. [179]

   Mr Kidd submitted alternatively that Playup should be relieved from forfeiture of its accrued rights arising from the Restraints and the Warranties in circumstances where it has now paid to Mr Kay the whole of the Deferred Payment.

2. [180]

   Again, in view of my conclusions as to the proper construction of the Agreement, this question does not arise.

3. [181]

   Assuming that relief against forfeiture was available to preserve accrued contractual rights (see J D Heydon, M J Leeming and P G Turner, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (5th ed, 2015, LexisNexis Butterworths) at [18-320]) I would not, as a matter of discretion, have granted such relief.

4. [182]

   If, contrary to my findings, Playup’s obligation to make the Deferred Payment was not dependent on Mr Kay’s obligation to ensure that adjustments were made on the Completion Date, Playup’s loss of the benefit of the Restraints and Warranties would have been the consequence of the operation of the terms of an Agreement that, well advised, it entered after detailed focus on the terms of the clause in question.

5. [183]

   Had the question arisen, I would have seen no reason for equity to intervene.

Conclusion

1. [184]

   Playup is entitled to the declaratory relief it seeks.

2. [185]

   I invite the parties to confer and agree on appropriate short minutes of order.