Norwest Holdings Pte Ltd v Newport Mining Ltd

• Jurisdiction: Singapore
• Judgment Date: 07 May 2010
• Date: 07 May 2010
• Docket Number: Suit No 28 of 2009
• Court: High Court (Singapore)

Norwest Holdings Pte Ltd (in liquidation)

Plaintiff

and

Newport Mining Ltd

Defendant

[2010] SGHC 144

Belinda Ang Saw Ean J

Suit No 28 of 2009

High Court

Contract—Contractual terms—Effect of sale on ‘as is, where is’ basis—

Contract—Contractual terms—Sale of shares in subsidiary—Whether affected by damage to business of subsidiary—

Contract—Formation—Agreement on price, subject matter and risk—Whether substantial or essential agreement reached—

Contract—Formation—Substantial but incomplete agreement—Mechanics to be supplied—

Contract—Intention to create legal relations—

Contract—Offer—Effect of change of circumstances between offer and purported acceptance—Correct approach

As part of its liquidation, the plaintiff (‘Norwest’) put up for sale its shares (‘the NC Shares’) in a wholly-owned subsidiary, who in turn wholly owned a Chinese corporation with a phosphate mining, processing and production business in Sichuan, China (‘the Chinese Business’). The sale process was set out in an Information Memorandum issued by Norwest's liquidator, which prescribed the documents to be used in the sale process stated that the sale was on an ‘as is, where is’ basis. The defendant (‘Newport’) expressed its interest in the NC Shares and was allowed to perform due diligence on the Chinese Business. On 9 May 2008, Newport sent in the Firm Letter of Offer (‘the 9 May Offer’) prescribed in the Information Memorandum, stating that it wished to purchase the NC Shares for $10.25m ‘subject to the terms and conditions in the Sale and Purchase Agreement to be negotiated’ (with the italicised portion being added by Newport). On 12 May 2008, at 2.28pm Singapore time, an earthquake measuring 7.9 on the Richter scale struck the Sichuan province, causing substantial damage to the Chinese Business. At about 4.20pm, Norwest e-mailed Newport, purporting to accept the 9 May Offer. Both parties were unaware of the Sichuan earthquake at that time. Newport eventually declined to complete the sale, and on 1 August 2008 the NC Shares were sold to the parent company of Norwest (‘Hwa Hong’) for $4.5m.

Norwest brought suit for the difference between the price offered by Newport and the price obtained from Hwa Hong. Newport counterclaimed for the deposit it paid to Norwest. Newport argued that the 9 May Offer was incomplete and made subject to contract. It also argued that the 9 May Offer lapsed upon the Sichuan earthquake, either because it was impliedly conditional on the subject matter of the contract remaining in substantially the same condition as at the time of the offer, or because a rule of law that an offer would lapse upon a fundamental change of circumstances. Norwest argued that since the sale was of the NC Shares and not the Chinese Business, and in any case was on an ‘as is, where is’ basis, it was unaffected by the damage wrought by the Sichuan earthquake.

Held, dismissing the claim and allowing the counterclaim:

(1) The parties had agreed on the price, subject matter and risk, when Norwest accepted Newport's 9 May Offer on 12 May 2008. These factors were obviously the most essential matters in a sale and purchase transaction - and, a fortiori, in the case of a liquidation sale on an ‘as is, where is’ basis. The parties had therefore reached substantial agreement. The agreement would have been only incomplete as to the mechanics of the sale, and that would not prevent any contract from coming into existence as the mechanics could easily be supplied by the court having regard to what was usual and reasonable in the circumstances: at [30] and [31].

(2) On the facts, Newport also evinced an intention to enter into legal relations immediately upon Norwest's acceptance of the 9 May Offer. Therefore, putting aside any effect of the Sichuan earthquake and the consequent damage to the Chinese Business, the parties had entered into a valid and binding agreement immediately upon Norwest's acceptance of the 9 May Offer: at [38].

(3) Newport's 9 May Offer was objectively aimed at gaining access to and control over the Chinese Business in the state and condition it was actually in at the time of the offer - ie, a vertically-integrated and fully operational phosphate mining, processing and production business. The fact that the sale was on an ‘as is, where is’ basis meant that the buyer could not ask for the subject matter to be better than it actually is, but, at the same time, and crucially for this case, the buyer had not agreed to accept anything less. Accordingly, it was entirely possible for the contract between Norwest and Newport to be affected by the damage caused by the Sichuan earthquake to the Chinese Business: at [42] and [43].

(4) After the Sichuan earthquake, the Chinese Business was substantially not in the same state and condition it was in at the time of the 9 May Offer -ie, a vertically-integrated and fully operational phosphate mining, processing and production business: at [48].

(5) It was clear that at no point between 12 May 2008 (the date of acceptance) to 1 August 2008 (the date the sale to Hwa Hong was completed) was Norwest anywhere near being able to deliver the Chinese Business in the state and condition it was actually in at the time of the offer. On 1 August 2008, Norwest's transfer of the NC Shares to Hwa Hong's nominee made it impossible for it to perform its end of the bargain and thereby to claim the price. In other words, there was no point at which Norwest became entitled to the $10.25m price: at [50] to [52].

(6) Since Norwest did not perform its end of the bargain at all, Newport would be able to recover the $102,500 deposit it placed with Norwest for total failure of consideration: at [71].

[Observation: In finding an intention to enter into legal relations, and more generally, an intention to make or accept an offer, the law was predominantly concerned with the objective intentions of a party, and not his subjective or actual intentions. The internal minutes of Newport's board, and the e-mail exchanges between Norwest's liquidator and Hwa Hong, were therefore irrelevant to the question whether Newport intended to enter into legal relations with Norwest: at [34] to [36].

The case of Financings Ltd v Stimson [1962] 1 WLR 1184, where the offer was held to be impliedly conditional on the subject matter of the contract remaining in substantially the same condition as at the time of the offer, was distinguishable on the facts. The parties here had already made provision for the risk of any damage or change to the Chinese Business - Newport only offered to buy the Chinese Business in its state and condition as at the date of the offer, ie, 9 May 2008. It would therefore be redundant, and therefore not necessary for the business efficacy of the offer, to further imply a condition that the Chinese Business was to remain until acceptance in substantially the same condition as it was in at the time the offer was made: at [63].

The case of Dysart Timbers Limited v Roderick William Nielsen [2009] NZSC 43, which recognised a rule of law that an offer would lapse upon a fundamental change of circumstances, was also distinguishable. The rule inDysart Timbers was based on a situation where both the offeror and offeree were aware of the change of circumstances. Here, neither the offeror nor the offeree knew about the change in circumstances: at [64].

The usual objective approach to offer and acceptance, or the doctrine of common mistake, was more than adequate to provide a principled approach to changes in circumstances occurring after an offer was made and before the offer was purported to be accepted. If the change of circumstances was known to the parties, it became part of the context in which they dealt with each other, and the question then was whether the offeror's original intention to make an offer had, on an objective view, changed in light of the change of circumstances. If, as here, the change was unknown to the parties, then the doctrine of common mistake should apply, subject to its other requirements being met. Adopting an overly expansive approach to the lapse of offers would have the effect of undermining the objective approach to offer and acceptance, as well as the doctrine of common mistake. Financings and Dysart Timbers should therefore not be followed. For the same reasons, this case should have been approached from the alternative perspective of common mistake: at [67] and [70].]

Alpenstow Ltd v Regalian Properties plc [1985] 1 WLR 721 (refd)

Chillingworth v Esche [1924] 1 Ch 97 (refd)

Clark Agri Service Inc v 705680 Ontario Ltd (1996) 2 CPC (4th) 78 (refd)

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

Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] 1 QB 679 (refd)

May and Butcher Ltd v R [1934] 2 KB 17 (refd)

Mensa Mercantile (Far East) Pte Ltd v Eikobina (M) Sdn Bhd [1989] 2 MLJ 170 (refd)

National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 (refd)

Ng Giap Hon v Westcomb Securities Pte Ltd [2009] 3 SLR (R) 518; [2009] 3 SLR 518 (refd)

Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd's Rep 601 (folld)

Projection Pte Ltd v The Tai Ping Insurance Co Ltd [2001] 1 SLR (R) 798; [2001] 2 SLR 399 (folld)

Roderick William Nielsen v Dysart Timbers Ltd [2009] NZSC 43 (distd)

David Chan and Koh Junxiang (Shook Lin & Bok LLP) for the plaintiff

Ang Cheng Hock SC, Tay Yong Seng and Emmanuel Duncan Chua Zhenglong (Allen & Gledhill LLP) for the defendant.

Belinda Ang Saw Ean J

Introduction

1 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...