Norwest Holdings Pte Ltd (in liquidation) v Newport Mining Ltd

• Judge: Belinda Ang Saw Ean J
• Judgment Date: 07 May 2010
• Neutral Citation: [2010] SGHC 144
• Citation: [2010] SGHC 144
• Docket Number: Suit No 28 of 2009
• Published date: 22 June 2010
• Hearing Date: 07 August 2009,05 August 2009,04 November 2009,15 October 2009,14 August 2009,06 August 2009
• Plaintiff Counsel: David Chan and Koh Junxiang (Shook Lin & Bok LLP)
• Date: 2010
• Defendant Counsel: Ang Cheng Hock SC, Tay Yong Seng and Emmanuel Duncan Chua Zhenglong (Allen & Gledhill LLP)
• Court: High Court (Singapore)
• Subject Matter: Contract

Belinda Ang Saw Ean J: Introduction

This case concerned the sale by the liquidator of the plaintiff company, Norwest Holdings Pte Ltd (in liquidation)(“Norwest”) of the entire share capital of its wholly-owned subsidiary, Norwest Chemicals Pte Ltd (“Norwest Chemicals”), to the defendant, Newport Mining Limited (“Newport”). That sale was aborted as a consequence of the earthquake in Sichuan on 12 May 2008 and the events which followed. Norwest’s action was brought to recover the sum of $5.6475m as damages arising from Newport’s failure to complete the purchase of the entire share capital of Norwest Chemicals. Newport denied that there was a valid and binding contract of sale between itself and Norwest and counterclaimed for the return of the $102,500 deposit it placed with Norwest. On 4 November 2009, I delivered oral judgment dismissing Norwest’s claim and allowing Newport’s counterclaim. Norwest has since appealed against my decision. I now set out and elaborate upon the brief grounds I gave in my oral judgment.

I begin with a brief overview of the facts and the parties’ legal arguments. As stated, Norwest is in liquidation. Its principal asset is its shares (“the NC Shares”) in a wholly owned subsidiary, Norwest Chemicals who, in turn, is the sole shareholder of a Chinese company, Sichuan Mianzhu Norwest Phosphate Chemical Company Limited (“Norwest China”). Norwest China owns the mining rights to two phosphate rock mines (“the Mines”) for a period up to 2015. It also owns production facilities described in Norwest’s statement of claim as including, inter alia, a 30,000 metric tonnes per annum (“mtpa”) sodium and potassium phosphate production facility and a 6,000 mtpa facility for acid production (“the Production Facilities”). The Production Facilities and the Mines are located in the Sichuan province of the People’s Republic of China (“PRC”). Specifically the Production Facilities are located in Hangwang, Mianzhu while the mines are located north of Mianzhu, approximately 45kim away from the Production Facilities.

Essentially, Newport had made a “Firm Letter of Offer” to buy the NC Shares for a price of $10.25m. Norwest argued that this was an offer in the legal sense capable of becoming a contract upon acceptance. Newport rejected the stance taken. It argued that the offer was made subject to the conclusion of a formal contract. In any event, it was common ground that, after Newport made the Firm Letter of Offer, a massive earthquake (“the Sichuan earthquake”) measuring 7.9 on the Richter scale struck the Sichuan province at 2.28 pm Singapore time on 12 May 2008. Two hours later, Norwest’s liquidator, Mr Lai Seng Kwoon, purported to accept the Firm Letter of Offer. Newport argued that even if the Firm Letter of Offer was an offer in the legal sense, it would have lapsed as a result of the damage wrought to Norwest China’s business, which was the underlying basis of the offer, by the Sichuan earthquake. Norwest argued that, as the sale was conducted on an “as is, where is” basis, and in any case was in relation to the NC Shares and not Norwest China’s business, Newport remained bound to complete. The deadline for completion, fixed for 1 June 2008, came and went without the sale being completed.

After the sale of the NC shares fell through, Norwest’s liquidator sold the NC Shares to Norwest’s holding company, Hwa Hong Edible Oil Industries (“Hwa Hong”), for $4.5m. That sale to Hwa Hong was said to be in mitigation of Newport’s breach in failing to complete. I pause here to highlight that Hwa Hong was a creditor of about 90% (approximately $4.1m) of Norwest’s debts and a shareholder of 49.5% of its shares. This meant that Hwa Hong did not need to pay much in cash for its purchase of the NC Shares and stood to gain as a contributory, a substantial portion of the sum of $5.6475m claimed as damages by Norwest in this action. Hwa Hong seems well aware of this – it is indemnifying Norwest’s liquidator for his prosecution of this action to the tune of $800,000. It is also worth noting that in May 2008 Norwest’s liquidator was already in contact with Mr Simon Ong, the Chief Financial Officer of Hwa Hong, on the status of the sale of the NC Shares to Newport.¹ While this background is strictly irrelevant to the issues before me, I must say that Norwest’s sale of the NC Shares to Hwa Hong struck me as highly opportunistic and tactical.

The liquidator’s sale of, and Newport’s “Firm Letter of Offer” for the NC Shares on an “as is, where is” basis

I turn now to a more detailed examination of the facts surrounding the liquidator’s sale the NC Shares. As part Norwest’s liquidation, its liquidator produced an Information Memorandum providing details about Norwest Chemicals and Norwest China, as well as the basis and format of the proposed sale of the entire share capital of Norwest Chemicals. The Executive Summary in the Information Memorandum described Norwest Chemicals and Norwest China’s operations as follows:²

[Norwest Chemicals] was founded in 1996 with a stated mission “to become a vertically integrated manufacturer and supplier of phosphorous, phosphate chemicals and phosphorous derivatives under ISO9002 and ISO14001 standards, delivering these products to the world through a seamless supply chain system”.

[Norwest Chemicals] has a phosphorous production base in Sichuan, China, through its participation as a majority partner in a 60% – 40% joint venture with an existing phosphorous manufacturer. This allowed them to secure a supply of Yellow Phosphorous, the essential raw material to manufacture phosphate chemicals and phosphorous derivatives.

In March 1997, [Norwest China] constructed a 30,000 MTPA Sodium and Potassium Phosphate production facility, based on technology acquired from Monsanto of the United States of America. Construction was completed in September 1998 and provided [Norwest China] with the ability to produce many different food and industrial grade sodium and potassium phosphate chemicals... To meet the increased demand for phosphoric acid to produce the downstream chemicals, [Norwest China] also built a 6,000 MTPA facility for acid production.

...

In 2000, [Norwest China] became the first chemicals manufacturer in Mianzhu to be certified with both ISO 9001 and ISO 14001 Quality and Environmental Standards. In 2002, they acquire the mining rights to a 50,000 MTPA phosphate rock mine for a period up to 2015.

[Norwest China] was re-incorporated as a wholly-owned Foreign Enterprise on 26 September 2002, after [Norwest Chemicals] acquired all of the other partners’ equity.

As can be seen from the description, Norwest China operated a vertically-integrated phosphate mining, processing and production business – a fact which was accepted by both sides. The business also included the sale of phosphorous, phosphate chemicals and phosphorous derivatives. For convenience, I will refer to the entire business of Norwest China as the “Chinese Business”.

The basis of the proposed sale of the NC Shares was described as follows:³

It is the intention of the liquidator to sell NC [ie, Norwest Chemicals] together with NC China [ie Norwest China] in its present state and condition on an “as is, where is” basis and subject to a Sale and Purchase Agreement.

…

Whilst all reasonable steps have been taken to ensure the accuracy of the information contained in this document, no warranty of its accuracy is given and the liquidator accept[s] no responsibility for any inaccuracy or omission. Interested and shortlisted parties will be given the opportunity to conduct their own independent investigations and due diligence at their own expense.

[emphasis in original]

The proposed sale was advertised in a similar fashion in The Australian and the Business Times. The advertisements in both newspapers were identical and the material part read as follows:⁴

Strategic Acquisition Opportunity

PRC based manufacturer of phosphorous phosphate chemicals and phosphorous derivatives. For sale on an “as is, where is” basis.

The Liquidator is seeking buyers for a Singapore company who owns a phosphorous production base in Sichuan, China PRC. The plant has mining rights to a MTPA phosphate rock mine up to 2015. It is involved in the exploitation, production, process and sale of phosphorous ores, phosphorous, phosphate chemicals and other chemicals. The plant, built based on technology acquired from the USA, has production facilities with potential of 30,000 MTPA Sodium and Potassium Phosphate and 6,000 MTPA acid.

The structure of the sale process, together with timelines, was set out in a table in the Information Memorandum as follows:⁵

	Item	Proposed Deadline
i	Interested parties to revert with an Expression of Interest on [Norwest Chemicals] in the format as annexed hereto (see Appendix A)	6 April 2008
ii	Liquidator to inform shortlisted parties of his intention to proceed with them to the due diligence stage and to request them to confirm their participation by submitting a refundable Cashier’s Order equivalent to 1% of their proposed offer or S$25,000, whichever is higher.	15 April 2008
iii	Shortlisted parties to reply to the Liquidator’s invitation to proceed to due diligence stage by the remittance of a refundable cashier’s order amounting to 1% of their proposed preliminary offer or S$25,000, whichever is higher. Shortlisted parties are also required to submit a list of documents that they would like to inspect at the due diligence process.	22 April 2008
iv	Due diligence in Singapore and China.	28 April 2008 – 11 May 2008
v	Interested parties to deliver to the Liquidator a firm letter of offer in the format as annexed hereto (see Appendix B).	16 May 2008
vi	Liquidator responds with acceptance subject to...