A recent Federal Court decision concerning the sale of a licensed hotel illustrates some of the difficulties a nominee purchaser may confront when they try to sue on the contract.

In Avzur Hotels Pty Ltd v Ivanhoe Entertainment Pty Ltd1 the Court determined, as a separate issue before trial, whether a nominee under a contract for the sale of a licensed hotel business could sue the vendor. The nominee claimed the vendor had breached certain warranties relating to the financial performance of the business.

The Court was asked to decide whether the contract of sale permitted the appointment of a substitute purchaser for, or in addition to, the named purchaser, or whether the nomination was no more than a direction to the vendor to transfer the business to the nominee.

A finding that the former applied would allow the nominated purchaser to sue, while a finding that the latter applied would not.

Not surprisingly, the case was decided by reference to the particular facts concerning the formation and terms of the contract.

While the court found the nomination form to be ambiguous to the extent that it failed to make clear whether the nominee was to be a substitute purchaser or whether the nominee was simply taking a transfer of the business, it was held that, when read in the context of the remainder of the nomination form, as well as the provisions of the sale agreement and guarantee, it was clear that the nominee was intended to be a substitute purchaser with all the rights and obligations attached to that position.

In any event, even if a nominee is unable to sue on a contract, it may be able to sue the vendor alleging misleading and deceptive conduct in connection with the supply of financial information.

While this will ultimately depend on the facts of the particular case, it is not uncommon for a misleading and deceptive conduct allegation to be made at the same time as a breach of warranty claim.

Timely reminder

The decision in Avzur is a timely reminder of the need to take care when considering nomination clauses. Nomination clauses may be considered less significant, and perhaps mechanical, or may be omitted altogether by a purchaser intending to nominate at general law, but doing so raises the risk of the nominee being prevented from suing on the contract.

In difficult economic times, it is no coincidence that claims for breach of financial warranties come to the fore, and the nominated purchaser should ensure it can make such a claim on a contractual basis by paying proper attention to the nomination clause.