Buying or selling a business is a major decision (for both
parties). Typically, business sale and purchase transactions are
conditional on fulfilment of various conditions. The case of
Tony Saab v Earlwood Animal Pharm Pty Ltd  NSWSC 436
is instructive as to what may happen when such conditions are not
satisfied within the timeframe required under the sale of business
On 25 September 2013, Mr Saab and Earlwood Animal Pharm
(Earlwood) entered into a contract for sale of the Earlwood
pharmacy. Under the contract, both parties were required to
diligently process all necessary applications and satisfy the
requisitions of any relevant party whose consent and/or approval
A sunset clause in the contract provided that:
'in the event that all of the approvals and/or consents
have not been obtained within 90 days of the date hereof then
either party may by notice to the other rescind this
In this case, approval from Medicare was necessary for the sale
to take place. Mr Saab promptly sent the Medicare application to an
agent for Earlwood, which was then sent to Medicare Australia.
Medicare advised that the application was incomplete due to a
failure to provide consent of the landlord or evidence of the
transfer of the Lease to the purchaser, which was required from
Earlwood. Neither document was received by Medicare by the sunset
Mr Saab subsequently terminated the agreement by notice to
Earlwood. However, the vendor, Earlwood, refused to accept the
rescission and issued a notice of termination, while retaining the
Did Mr Saab waive his right to rescind the contract?
Earlwood argued that Mr Saab had waived his right to rescind the
contract following the expiry of the sunset date by materially
contributing to the failure to obtain Medicare approval.
It was held that providing the evidence of the consent of the
landlord or transfer of the Lease was the responsibility of the
vendor and the purchaser had not materially contributed to such
failure. Accordingly, the Court ordered the return of the deposit
and awarded costs against Earlwood.
Pay attention to the specific terms and conditions of the
agreement and what the obligations entail.
Where time is of the essence under the contract, failure to
meet what appear to be simple deadlines may mean the entire
transaction falls through.
Make sure that your conduct does not amount to a waiver of a
right to rescind the contract. Otherwise, the other party may seek
damages for wrongful termination.
If you are planning to buy or a sell a business, it is essential
that you seek legal advice to ensure you are in a position to
satisfy such conditions of the contract within the timeframe
required. A legal due diligence at the earliest opportunity will
put you in the best possible position to successfully negotiate the
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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