When buying a business, most people focus on the obvious: the revenue, the client list, the lease, the equipment and the goodwill. What they often don’t think to ask is whether they are also buying the seller’s unfinished work, unhappy customers and legal disputes.
A Queensland District Court decision handed down in 2026 shows exactly what can happen when that question goes unasked.
What happened in Lam v Wichgers?
In Lam v Wichgers Family Pty Ltd [2026] QDC 74, a mechanic’s workshop known as JW Racing was engaged to restore a vintage car. Before the job was finished, the owner sold the business to a new company, Juliet Capital Pty Ltd, which took over the workshop and its jobs in progress.
The customer, Mr Lam, did not realise the sale had been completed until early 2020. At that point, he continued dealing with Juliet and left the vehicle with them to complete the restoration. No formal dispute was on foot at the time of the sale.
The work, however, was not finished to the required standard. When the matter came before the court, one of the key issues was what happened when the business changed hands. The new owner continued working on the restoration after the sale and Mr Lam continued dealing with the new business as though it had taken over responsibility for the project.
The Court found JW Racing liable for $21,354 in damages, subject to further submissions on interest and costs.
In reaching that conclusion, the judge discussed whether responsibility for the contract had effectively transferred from the seller to the buyer after the sale. That legal concept is known as novation and has important implications for anyone buying a business. In this particular instance, the judge did not find the buyer responsible for the seller’s errors in the services, but considered that in the usual course if a contract was novated, the buyer would be “obliged to complete the contract including, if necessary, to correct any prior work that did not comply with the terms of that contract” [see para 98].
What is novation and why does it matter to business buyers?
Novation occurs when all parties to a contract agree – expressly or through their conduct – that a new party steps in to replace one of the original parties, taking on both the benefits and obligations of the original contract.
In a business sale context, novation does not always need to be formally documented. As Lam v Wichgers demonstrates, it can happen through conduct alone, simply by continuing to perform a contract that was originally entered into by the seller. Once a court finds that novation has occurred, the incoming business owner is responsible for fulfilling that contract in its entirety, including correcting anything the outgoing owner got wrong.
When you ask a Gold Coast business lawyer for advice, this is one of the first questions to address: what existing contracts and jobs in progress will I be stepping into buying this business? And what liability might follow?
What obligations might continue after a business sale?
While Lam v Wichgers focused on unfinished customer work, the broader lesson is that a buyer should identify all obligations connected to the business before settlement.
Existing customer contracts, jobs in progress, warranty obligations, employee arrangements and known disputes should all be examined carefully during due diligence.
The precise risks depend on the structure of the transaction and the terms negotiated between the parties.
How can you avoid inheriting the seller’s problems?
If you address these issues before settlement, rather than after, you may be able to avoid inheriting unexpected liabilities. This is where experienced Gold Coast business lawyers will be most important.
Due diligence on contracts and disputes
Before settlement, a buyer should receive full disclosure of all existing customer contracts, work in progress and any actual or threatened disputes. In Lam v Wichgers, the Court noted that the sale agreement contained no indemnity from JW Racing in favour of Juliet for claims arising from pre-sale work.
Warranties and indemnities
A well-drafted agreement should include seller warranties that there are no undisclosed disputes or defective works, and an indemnity clause requiring the seller to compensate the buyer if a pre-sale liability emerges after settlement.
Treatment of existing contracts
The sale agreement should address how existing customer contracts are handled, whether formally assigned, novated with the customer’s consent or wound up before completion.
Employee entitlements
Under Queensland’s Industrial Relations Act 2016 and the federal Fair Work framework, a buyer may inherit long service leave and other accrued entitlements. A proper disclosure schedule is essential. Gold Coast employment lawyers regularly assist buyers in auditing these obligations before contracts are signed.
The cost of this thorough due diligence is modest compared to the potential cost of discovering a significant pre-sale liability after settlement, when the seller has long-since been paid and moved on.
Asset sale vs share sale
The structure of the sale matters significantly and is one of the most important decisions a buyer and seller make. This is a legal decision as much as a commercial one.
In a share sale, the buyer acquires the company itself, together with its existing liabilities, obligations and legal risks, whether or not they have been fully identified during due diligence.
In an asset sale, the buyer acquires specific assets of the business and liabilities generally remain with the seller. However, as Lam v Wichgers demonstrated, conduct after settlement can create new liabilities even in an asset sale, particularly where the buyer steps into existing customer relationships without clearly addressing the terms on which they do so.
Both structures have advantages and risks. A commercial lawyer on the Gold Coast will work through the implications of each structure for the specific transaction before advising which approach is appropriate.
Protect yourself before you sign
Buying or selling a business is one of the most significant financial transactions most people will undertake, and the legal complexity goes well beyond what a standard contract template can address.
Whether you are buying a business on the Gold Coast or preparing one for sale, contact the team at QBM Lawyers to speak with an experienced Gold Coast business lawyer. Early advice often provides the clearest path forward.
Frequently Asked Questions
Not automatically, but if you continue performing an existing customer contract after buying a business, a court may find that novation has occurred, making you responsible for the entire contract, including fixing defective work done before the sale.
In a share sale, you acquire the company and all its liabilities. In an asset sale, liabilities generally stay with the seller, but in Queensland, as Lam v Wichgers shows, your conduct after settlement can still create exposure. Both structures carry risk and both require legal advice.
At a minimum: seller warranties confirming no undisclosed disputes or defective works, an indemnity if a pre-sale liability surfaces after settlement, a disclosure schedule of all existing contracts and work in progress and clear provisions on how customer contracts are handled at settlement. If a dispute emerges after settlement, obtaining early advice from lawyers for litigation can help preserve your rights and identify any available contractual remedies.
