Norwest Holdings Pte Ltd v Newport Mining Ltd

• Jurisdiction: Singapore
• Judgment Date: 23 August 2011
• Date: 23 August 2011
• Docket Number: Civil Appeals Nos 151 and 153 of 2009
• Court: Court of Appeal (Singapore)

Norwest Holdings Pte Ltd (in liquidation)

Plaintiff

and

Newport Mining Ltd and another appeal

Defendant

[2011] SGCA 42

Chan Sek Keong CJ

,

Andrew Phang Boon Leong JA

and

VK Rajah JA

Civil Appeals Nos 151 and 153 of 2009

Court of Appeal

Contract—Formation—Offer—Buyer of shares making offer ‘subject to contract’—Whether binding contract between buyer and seller—Whether strong and exceptional context overriding plain meaning of ‘subject to contract’—Whether buyer obliged to complete purchase of shares—Whether deposit should be refunded to buyer

On 9 May 2008, Newport Mining Ltd (‘Newport’) made an offer to purchase the entire share capital of Norwest Chemicals Pte Ltd (‘the Shares’) , a wholly-owned subsidiary of Norwest Holdings Pte Ltd (‘Norwest’) , in response to an information memorandum (‘the Information Memorandum’) prepared by the sole liquidator of Norwest (‘the Liquidator’) to inform interested buyers of the conditions of the proposed sale of the Shares. On 12 May 2008 at 2.28 pm a massive earthquake struck Sichuan province in China (‘the Sichuan Earthquake’) where the main assets (consisting of mines and production facilities) of Norwest Chemicals Pte Ltd were situated. Barely two hours later, the Liquidator sent a letter via e-mail to Newport purporting to accept its offer (‘the Acceptance Letter’) . Pursuant to the terms of the Information Memorandum, Newport transferred S$47,500 (being the balance of its 1% deposit) to Norwest on 14 May 2008. Although the stipulated completion date was 1 June 2008, by 3 June 2008 Newport had not completed the purchase of the Shares. In August 2008, the Liquidator sold the Shares to the main creditor of Norwest.

Norwest commenced a suit against Newport claiming damages for breach of contract. Newport counterclaimed for the 1% deposit paid to Norwest, maintaining that there was no binding contract since its offer was ‘subject to contract’ and no Sale and Purchase Agreement had been executed between the parties. The trial judge dismissed Norwest's claim for damages and allowed Newport's counterclaim for the 1% deposit, holding that while there was a binding contract between the parties, after the Sichuan Earthquake the Liquidator was unable to deliver the value that was bargained for as the Shares did not present the same value as at the time of offer and Newport was not bound to accept the Shares or make payment for them.

Norwest appealed, arguing that the offer was not ‘subject to contract’ as there were strong and exceptional reasons for the prima faciemeaning of the phrase ‘subject to contract’ to be displaced, namely, Newport had procured third-party funding under which its obligations were triggered upon Norwest's acceptance of its offer, Newport had made an announcement of a trading halt of its shares on the Australian Stock Exchange (‘ASX’) and Newport had topped up its 1% deposit by S$47,500 despite its knowledge of the occurrence of the Sichuan Earthquake. In its cross-appeal, Newport maintained its position that there was no binding contract between the parties as the agreement was ‘subject to contract’.

Held, dismissing the appeal and allowing the cross-appeal:

(1) The question whether there was a binding contract between parties should be determined by considering all the circumstances, including what was communicated between the parties by words or conduct, not just the inclusion of the stock phrase ‘subject to contract’. The documentary evidence of the communication between the parties contained several indications to an objective observer that they had not intended to be contractually bound until a formal Sale and Purchase Agreement was negotiated and executed. Any objective reading of the relevant documents, such as the Information Memorandum, the letters that Newport sent to the Liquidator concerning its offer price for the Shares, and the Acceptance Letter, would have led to the inference that the parties had intended to negotiate the terms and conditions of a Sale and Purchase Agreement under which Newport's obligation to pay the purchase price would be fulfilled: at [24] to [28].

(2) Even if the essential terms of a contract had been agreed upon and thus needed no further negotiation regarding those terms, parties who entered into an agreement expressly ‘subject to contract’ might be taken to have intended for legal relations to be deferred until the execution of a formal contract, unless there was strong and exceptional evidence to the contrary. Viewed in their proper context, all the circumstances in this case did not constitute a strong and exceptional context sufficient to override the plain meaning of the ‘subject to contract’ provisions contained in the relevant documents. First, Newport needed to secure third-party funding in order to be in a position to complete the transaction with Norwest once the negotiations on the terms and conditions of the Sale and Purchase Agreement were completed. By their very terms those funding letters had provided for an exit procedure should the transaction between Norwest and Newport fall through. Second, Newport's announcement of a trading halt of its shares on the ASX did not suggest that there was already a concluded contract with Norwest. Third, Newport's payment of S$47,500 of its deposit to Norwest was in compliance with the express terms of the Information Memorandum so as to avoid rejection of its offer by Norwest. This was on the understanding that the deposit was refundable if the negotiations did not result in the execution of a Sale and Purchase Agreement: at [29] and [32] to [34].

(3) Considering all the circumstances, there was no binding contract between Newport and Norwest. Newport was therefore under no obligation to complete the purchase of the Shares. The 1% deposit that Newport paid Norwest ought to be refunded because there had been a total failure of consideration: at [2], [19] and [35].

Dysart Timbers Ltd v Roderick William Nielsen [2009] 3 NZLR 160 (refd)

Financings Ltd v Stimson [1962] 1 WLR 1184 (refd)

Ground & Sharp Precision Engineering Pte Ltd v Midview Realty Pte Ltd [2008] SGHC 160 (refd)

Low Kar Yit v Mohamed Isa [1963] MLJ 165 (refd)

Norwest Holdings Pte Ltd v Newport Mining Ltd [2010] 3 SLR 956 (not folld)

Parkway Properties Pte Ltd v United Artists Singapore Theatres Pte Ltd [2003] 2 SLR (R) 103; [2003] 2 SLR 103 (refd)

RTS Flexible Systems Ltd v Molkerei Alois Müller Gmb H & Co KG (UK Production) [2010] 1 WLR 753 (folld)

Thomson Plaza (Pte) Ltd v Liquidators of Yaohan Department Store Singapore Pte Ltd [2001] 2 SLR (R) 483; [2001] 3 SLR 437 (refd)

United Artists Singapore Theatres Pte Ltd v Parkway Properties Pte Ltd [2003] 1 SLR (R) 791; [2003] 1 SLR 791 (refd)

David Chan and Koh Junxiang (Shook Lin & Bok LLP) for the appellant in Civil Appeal No 151 of 2009 and the respondent in Civil Appeal No 153 of 2009

Ang Cheng Hock SC, Tay Yong Seng, Tan Xeauwei and Sylvia Tee (Allen & Gledhill LLP) for the respondent in Civil Appeal No 151 of 2009 and the appellant in Civil Appeal No 153 of 2009.

Andrew Phang Boon Leong JA

(delivering the grounds of decision of the court) :

Introduction

1 These were appeals by both Norwest Holdings Pte Ltd (‘Norwest’) and Newport Mining Ltd (‘Newport’) (respectively, ‘CA 151/2009’ and ‘CA 153/2009’) against the decision of the trial judge (‘the Judge’) in Suit No 28 of 2009 (seeNorwest Holdings Pte Ltd v Newport Mining Ltd [2010] 3 SLR 956 (‘the GD’) ) concerning the sale by the liquidator of Norwest of the entire share capital of its wholly-owned subsidiary Norwest Chemicals Pte Ltd (‘Norwest Chemicals’) to Newport. The Judge dismissed Norwest's claim for S$5.6475 m as damages arising from Newport's failure to complete the purchase of the shares and allowed Newport's counterclaim for recovery of the S$102,500 deposit it had placed with Norwest. Norwest appealed against the entirety of the Judge's decision whilst Newport appealed against the Judge's specific finding that there was a binding contract between Newport and Norwest for the sale and purchase of the entire share capital of Norwest Chemicals (‘the Shares’) .

2 After hearing submissions from both parties, we were satisfied that there was no binding contract between Newport and Norwest and that Newport was therefore under no obligation to complete the purchase of the Shares. That being the case, we dismissed Norwest's appeal in CA 151/2009 and allowed Newport's appeal in CA 153/2009. Even though we arrived at the same result as the Judge below, we respectfully differed in terms of the reasoning. We now set out below the detailed grounds for our decision.

The background facts

3 Norwest is a company incorporated in Singapore. It was placed under compulsory liquidation on 11 January 2008 pursuant to an order of court. Mr Lai Seng Kwoon (‘the Liquidator’) was appointed the sole liquidator of Norwest.

4 Norwest Chemicals is a wholly-owned subsidiary of Norwest. At the material time Norwest Chemicals owned 100% of the share capital of Sichuan Mianzhu Norwest Phosphate Chemical Company Limited (‘Norwest China’) , a company incorporated in the People's Republic of China (‘China’) . Norwest China owns a 30,000 mtpa (ie, metric tonnes per annum) sodium and potassium phosphate production facility and a 6,000 mtpa facility for acid production located in the Sichuan province in China (‘Production Facilities’) as well as the mining rights to two phosphate rock mines (‘the Mines’) for a period up to 2015 (collectively referred to as the ‘Chinese Business’) .

5 Newport is an Australian publicly listed company which was at the material time actively looking to acquire phosphate assets. In response to an information memorandum prepared by the Liquidator (‘the Information Memorandum’) for the intended sale of the entire share capital of Norwest Chemicals, Taylor Collison Limited (‘Taylor Collison’) , acting as...