A recent case in the District Court of NSW1 has shone further light on the issues of goodwill and oral agreements in relation to the purchase of heavy vehicles in Australia. The case serves as a reminder that written contracts are preferred to oral contracts and that parties should be very clear in expressing what is being sold and for how much. Otherwise, you run the risk of not getting what you (think you) paid for.
The Appellant, B & R Stevens Transport Pty Ltd (Stevens Transport) commenced an action in the District Court seeking damages for breach of contract in the amount of $110,000 and damages for unpaid invoices in the amount of $49,987.27. The Respondents, GW & HW Burkitt Pty Ltd, traded under the name "Cement Express". The principal issue in the proceedings was the terms of the agreement struck between the parties for the sale of a heavy vehicle.
Why was there an appeal?
The dispute arose from conversations between the respective directors regarding the sale of a prime mover owned by Cement Express. It was not in dispute that an agreement was reached, which involved Stevens Transport purchasing more than just the vehicle. However, the exact nature of what was promised in addition to the vehicle was in dispute.
Critical to this issue, a letter passed between the parties dated 2 April 2009, on Cement Express letterhead, and addressed to Stevens Transport, which said:
"This letter is to confirm an offer to yourself to purchase a 2008 K108 Kenworth Prime Mover and job from GW & HM Burkitt Pty Ltd and to tow a company owned fully maintained bulk pressure tanker hauling for GW & HM Burkitt Pty Ltd on a full time basis. As you would be aware GW & HM Burkitt Pty Ltd are unable to guarantee your business because we are governed by market demand..."
Issues at trial
At trial and on appeal, Stevens Transport argued that:
- there was a promise to purchase the concrete haulage business conducted by Cement Express to haul concrete with the prime mover;
- the purchase price was $350,000, comprising $240,000 for the prime mover and $110,000 for the goodwill of the haulage business; and
- it did not receive what was promised, because it only received the prime mover and no other rights, which ran contrary to discussions regarding the sale including 'goodwill'.
In contrast, Cement Express argued that:
- there was an agreement to purchase the Truck 'with work', in accordance with the limited representations in the letters of 2 April 2009; and
- the price was $400,000 for the truck 'with work', and with no component for goodwill.
At trial, the primary judge found, in accordance with Cement Express' testimony, that the term of the contract was $400,000 for a truck 'with work', but limited by the nature of the qualified promise for future work. His Honour also found that there was a 'side deal' between the parties. His Honour described it as "in effect, an interest free loan to the Plaintiff", who could only obtain finance in the amount of $350,000. That was based upon the direct evidence of Cement Express and the regular payments which had been deducted from what was due to Stevens Transport for haulage.
Issue 1: Was there a side-deal?
On appeal, Stevens Transport also contended that the alleged oral 'side deal' was invalid because it was followed by a document titled "Invoice & Disbursement Instructions" dated 26 May 2009, which contained all the relevant details of the Agreement, such that any 'side deal' would run contrary to the terms of the later written agreement.
However, the Court found that no such later comprehensive agreement was shown to have been made. It noted that the Invoice document was directed to the disbursement of funds at settlement and there was no evidence that the document was contractual. As a result, the earlier 'side deal' could subsist without being inconsistent with any later agreement. It was not in any way contradicted by the latter.
Issue 2: Was there a 'goodwill' component?
The Court noted that although the letter from Cement Express did not identify the purchase price payable by Stevens Transport, it clearly identified what Stevens Transport was to receive under the agreement, which was the prime mover and the opportunity for further work, which could not be guaranteed. Therefore, the Court considered that Stevens Transport could not prove that it did not receive that for which it had bargained and dismissed the appeal.
We routinely advise businesses in the Transport sector on issues relating to contract law, including the negotiation, preparation and conduct of written and verbal agreements between parties relating to the sale of goods and services, including vehicles.
The case serves as a gentle reminder to parties that verbal agreements are effective and can be enforced as valid and legally binding contracts. Often in the absence of written documentary evidence, this can come down to one person's word against the other which was the case here, where Cement Express' evidence was considered more reliable than the evidence put forward by Stevens Transport.
The issue of goodwill has also been the subject of constant debate within the transport industry. The case has often been that owner drivers are entering into transport contracts/agreements without properly safeguarding their interests, as we saw in this case. Parties should always prepare a written contract outlining terms, including specifically purchase price/rates, goodwill and termination. In this case, Stevens Transport was unsuccessful because the letter exchanged between the parties clearly stipulated that the sale included the opportunity for further work, which could not be guaranteed. If goodwill or firm work is to be included in any sale arrangement, parties need to express this clearly when documenting the terms of the agreement.
1 B & R Stevens Transport Pty Ltd v Burkitt  NSWCA 259.
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