Tips & Traps – November 2014

November, 2014

A V8 Supercar win for Woodside

The 2014 High Court decision of Electricity Generation Corporation v Woodside Energy Ltd took out a clear win in October.

In V8 Supercars Holdings Pty Ltd v Lucas Dumbrell Investments Pty Ltd the Supreme Court of New South Wales considered the interpretation of two agreements governing the relationship between V8 Holdings and V8 Supercars Australia respectively with Lucas Dumbrell Investments. Each contract was in the same form and named “Racing Entitlement Contract”.

The defendants failed to submit a car to compete in the V8 racing events, as required by the Racing Contracts. According to the Contracts, V8 Holdings and V8 Supercars Australia then moved to sell Lucas Dumbrell right to race in V8 events.

Lucas Dumbrell contended that the “sale” contemplated by the Contract clauses must be by tender only because they implicitly required a “syntactical variation” compelling a sale by tender.

The Court, in siding with V8 Supercars, applied Woodside Energy to hold that a reasonable businessperson would not have understood the Contracts to contain and implicit “syntactical variation”. In 2014 it is clear that Courts have backed Woodside Energy for the win. Contracting parties should be aware that Courts may, and will, interpret agreements on the assumption that the parties intended to avoid making commercial nonsense or inconvenience.

Your trustee is not your friend

It is no secret that business and pleasure should never mix and the case of Canehire Pty Ltd & Anor v Themis Holdings Pty Ltd heard by the Queensland Court of Appeal this month provides us with that timely reminder.

Mr Trevor Holzapfel carried on a shop-fitting business with Mr Philip Ham, his close family friend, acting as his longstanding business accountant. In 1991, on Mr Ham’s advice, the Holzapfel  Property Trust (HPT) was established. The HPT was a discretionary trust of which Mr Holzapfel, his son and daughter, along with various of his companies were the beneficiaries.

Canehire Pty Ltd, a shelf company, was appointed as the trustee for the HPT with Mr Ham acting as its sole director and shareholder.

In 1993 Canehire, as trustee for the HPT acquired a lessee’s interest in State land and property, upon which Mr Holzapfel conducted part of his business. Mr Holzapfel informed Canehire he was interested in acquiring that land. Mr Holzapfel and Canehire eventually entered into a series of agreements under which Canehire acquired the property, registered in its name only with no reference to the HPT while Mr Holzapfel continued to exercise control over the land.

In October 2003 Canehire sold the property for close to $5 million. No part of these proceed was paid to HPT or its beneficiaries.

The Court of Appeal held that Canehire had acquired the property on constructive trust for the HPT. Mr Ham, being the sole director and shareholder of Canehire ought to have been aware that if Canehire was to acquire the property in any other capacity other than trustee for HPT, the fully informed consent of all the beneficiaries was to be obtained. Here, Mr Ham simply told his friend Mr Holzapfel of the acquisition. The beneficiaries of the HPT were entitled to net proceeds of the $5 million sale.

A juicy contractual payout

In ICM Investments Pty Ltd v San Miguel Corporation and Berri Ltd, the parties were as follows:

ICM and its related companies owned the majority of shares in Berri with the balance owned by institutional investors. The parties entered into an agreement whereby San Miguel acquired the institutional investors’ shares in Berri. In that agreement, San Miguel agreed to sell its shares in Berri providing ICM with all dividends.

Upon the sale of the shares, ICM was not issued with any dividends. At trial, it was found that notwithstanding breach of contract by San Miguel and Berri by, amongst other things, failing to payout ICM, ICM had suffered no loss or damage. This was so because at the time payment of dividends were due, it was not possible for the directors of Berri to disclose sufficient distributable profits and the directors would not have been able to genuinely form this opinion enabling them to pay ICM.

The Victorian Court of appeal rejected this construction. San Miguel’s obligation to pay the dividends was, upon the proper construction of the agreements entered into, unconditional.

Accordingly, as Berri failed to pay the dividend, San Miguel was in breach of its agreement to ensure Berri’s declaration and payment of dividends to ICM. ICM was awarded $4,960,282.91 for loss and damage.

Contact Mills Oakley

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Tony Butler  |  Partner
Property and Commercial
P: (07) 3228 0432
E: 
tbutler@millsoakley.com.au

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Tim Cox  |  Partner
Property and Commercial
P: (07) 3228 0442
E: 
tcox@millsoakley.com.au

 

 

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