No Variation Following Repudiation
Manicured Muttz v Roycar Investments & Anor  VCC 64 (7 February 2019)
The County Court of Victoria recently considered whether an offer to vary the terms of a sale of business contract was accepted by the conduct of the vendor in circumstances where the purchaser had repudiated the contract.
In considering the matter, the Court confirmed that the test to be applied in cases where it is alleged that an offer has been implicitly accepted by way of conduct is the objective bystander test. When applied to the facts of this case, the Court stated that an objective bystander would not conclude from the vendor’s conduct that it had accepted the variation offer put by the purchaser.
Accordingly, the vendor was entitled to the amounts still outstanding under the sale of business contact plus interest.
Roycar Investments Pty Ltd (Roycar) purchased a small retail pet store from Manicured Muttz Pty Ltd (Muttz) in September 2015. An essential term of the sale of business contract was that Roycar would pay Muttz $500 per week for a period of two years, with a lump sum payment of $23,000.00 payable at the end of that period.
Within months of entering the contract, Roycar’s weekly payments to Muttz became infrequent and eventually stopped. In early 2016, Roy Smith, the sole director and shareholder of Roycar, advised Muttz that he had run out of money and was walking away from the business.
Muttz sued Roycar and Roy Smith for the unpaid payments due under the contract. Muttz alleged that Roycar repudiated the sale of business contact and that Muttz had accepted this repudiation by sending a letter of demand for outstanding payments due under the contract.
In defending the claim brought by Muttz, Roycar alleged that prior to Muttz sending of the letter of demand, Roycar had made an offer to vary the contract whereby Roy Smith gave Michele Morris, the Director of Muttz, an unsigned draft agreement including terms that would release Roycar from further liability. Roycar allege that Muttz had accepted this variation agreement by way of its conduct. Roycar specifically stated that:
- The parties entered into a further agreement in February 2017 to vary the original sale of business contract such that Muttz accepted Roycar’s repudiation of the contract and agreed that Roycar no longer owed Muttz anything; and
- The contract for the sale of business was void due to misleading and deceptive misrepresentations about the profitability of the business made by Muttz.
It was not in dispute that Roycar repudiated the sale of business contract. Among other things, Roycar had openly stated that it was unable to perform its obligations under the contract and had stopped making the agreed payments to Muttz.
Therefore, the major issue for determination by the Court was whether it was implied from the conduct of Muttz that it had accepted Roycar’s variation offer.
Ultimately, Judge Marks found that the parties had not agreed to vary the contract. Her Honour referred to P’Auer AG v Polybuild Technologies International Pty Ltd when making the following remark:
An inference that the offer was accepted by conduct will only be drawn if it can be said that an objective bystander would conclude from Muttz’ conduct that it had accepted the offer and conveyed that acceptance to Roycar.
Applying the objective bystander test, her Honour was not satisfied that Muttz acted in a way that unambiguously indicated acceptance of the terms of the draft agreement.
Roycar had argued two factors were indicative of Muttz’s acceptance of the draft agreement – the fact that Muttz continued to pay the pet stores outgoings and the fact that Roycar continued to pay rent until the lease for the pet store premises had expired. Her Honour concluded that Roycar was obliged to pay the rent under its lease in any event and that the payment by Muttz of business outgoings was consistent with Roycar walking away from the business forcing Muttz to mitigate its loss as opposed to being evidence of it accepting the variation offer.
Her Honour also noted that Roy Smith gave evidence to the effect that he told Michele Morris to sign the draft agreement if she agreed to it after she had somebody look over it. Her Honour pointed out that Michele Morris never signed the draft agreement nor said anything about it or verbally agreed to it. Of significance, her Honour felt that instructing lawyers to send a letter of demand was a clear rejection by Muttz of the variation offer Roycar had made.
Misleading and Deceptive Conduct
The Court also dismissed the arguments Roycar made about Muttz’s misrepresentations. Judge Marks preferred the evidence of Michele Morris over Roy Smith and found that there was no evidence of the representations had been made as alleged by Roycar. Her Honour and specifically noted that Roy Smith first raised the issue during these proceedings some two years after the representations were said to have been made and did not raise any issue about being misled while working with Michele Morris at the pet store or at the time Roycar repudiated the contact.
Judge Marks also found that Roycar was not induced to purchase the business as a result of any written representations made to it by Muttz after Roy Smith expressly admitted in cross-examination that he did not rely upon the profit and loss statement.
- In matters involving a breach or repudiation of contract, be careful not to misinterpret the actions of the other party as having an impact on the terms of the contract – where possible, confirm everything in writing and seek legal advice early.
- When undertaking negotiations for the sale of business or variation of a contract, especially in situations where oral representations are being made by either party, it is prudent to ensure that contemporaneous records of any conversations are made. Here, Muttz director was found to be a credible and reliable witnesses by the Court and her evidence was preferred to that of Roy Smith because aspects of her evidence was supported by contemporaneous diary notes which she had made at the time of the conduct in question.
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