Wenhai Lin v Baosen International Holdings Ltd [2020] PGNC 185; N8401 (8 May 2020)

N8401

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS 404 of 2018 (COMM)

BETWEEN:
WENHAI LIN
Plaintiff

AND:
BAOSEN INTERNATIONAL
HOLDINGS LIMITED
Defendant

Waigani: Hartshorn J
2020: 8^th May

CONTRACT – Trial - share sale agreement – construction and interpretation of - Whether Share Sale Agreement entered into between plaintiff and defendant been terminated by the plaintiff - Agreement terminated by the doctrine of frustration - Whether the first payment of K6 million made to the plaintiff may be forfeited to the plaintiff – relevant clause of forfeiture not expressly stated in share sale agreement - whether plaintiff should be restored to the share register on condition that K6 million is refunded to the defendant ––K6 million forfeited to the plaintiff because defendant defaulted in fulfilling conditions of the share sale agreement - defendant name to be removed from the share register – plaintiff restored to the share register - costs awarded to the plaintiff

Cases Cited:
Meridian Motors Ltd v. Boroko Motors Ltd (2018) N7699

Counsel:

Mr. I.R. Shepherd, for the Plaintiff
Mr. G. Geroro, for the Defendant
8^th May, 2020

1. HARTSHORN J: This is a decision on the construction and interpretation of a Share Sale Agreement between the parties.

Background

2. The plaintiff Mr. Wenhai Lin, agreed to sell his shares in PNG Land Ltd to the defendant Baosen International Holdings Ltd for K30 million. The parties entered into a Share Sale Agreement on 21^st April 2017 (Agreement) for that purpose. The defendant made a first payment of K6 million. The plaintiff transferred the shares to the defendant. The defendant was required to complete its due diligence within six months of the date of the Agreement and confirm in writing with the plaintiff whether or not due diligence had been completed. That has not occurred and the defendant has not given any notice of recession. Not all of the conditions subsequent referred to in the Agreement have been complied with and they have not been waived by the defendant.

3. The balance of the purchase price for the shares would be paid on completion of Related Share Sale Agreements as defined in the Agreement. By letter dated 20^th April 2018, the Related Share Sale Agreements were rescinded by the sellers.

4. The plaintiff seeks amongst others, a declaration that the Agreement is terminated, that the K6 million is forfeited to him and that pursuant to s. 71 Companies Act the Share Register for PNG Land Ltd is rectified.

5. The parties agreed three issues for trial in a statement of agreed and disputed facts and issues for trial. I now consider those issues.

Whether the Share Sale Agreement entered into between the plaintiff and the defendant on 21^st April 2017 has been terminated by the plaintiff

6. The defendant submits that the plaintiff did not terminate the Agreement and that instead, the Agreement was terminated by the doctrine of frustration. The plaintiff deposes and submits that he accepted that the defendant has refused to complete and accepted that refusal as termination of the Agreement. So the parties agree that the Agreement was terminated.

7. As to whether the Agreement was terminated by frustration or the conduct of the defendant in not completing the Agreement, clause 6.3 of the Agreement provides for conditions subsequent to be satisfied before the balance of the purchase price is paid. The defendant was entitled to waive those conditions but did not. Clause 6.3(c) is one of those conditions subsequent and provides that the defendant would conduct due diligence. Clause 6.6(a)(ii) provides that the defendant must use all reasonable endeavours to ensure that each condition precedent referred to in clause 6.3 is satisfied within the time limits specified for that condition precedent.

8. Clause 6.6(c) of the Agreement is in mandatory terms. The defendant must complete its due diligence... within six months of the date of the document. The defendant also had 15 business days to rescind. Alternatively, if the defendant did not rescind in accordance with clause 6.6(c), the defendant must pay the balance of the purchase price within 30 business days from the date of the Due Diligence Notification. In addition, the defendant had until six months after the date of document to rescind under clause 6.7. The defendant was entitled to waive fulfilment of one or more of the conditions subsequent pursuant to clause 6.5 by notice in writing to the plaintiff, but did not exercise such entitlement.

9. As submitted by the plaintiff, the Agreement was entered into on 21^st April 2017. It appears to contemplate that it would be completed within six months: clause 6.6(c) and definition of "End Date".

10. The defendant did not waive any or all of the conditions subsequent and did not rescind the Agreement. The defendant also did not complete due diligence and comply with the time limits in clause 6.6(c) as it was obliged to do as it had not waived compliance with this condition subsequent.

11. These time limits placed obligations upon the defendant to comply by at the most, the end of 2017. That the defendant did not comply with these time limits and did not communicate with the plaintiff may in my view, be categorised as conduct which evinces an intention not to perform future obligations when they fall due: Meridian Motors Ltd v. Boroko Motors Ltd (2018) N7699 and the authorities referred to therein. I am satisfied that the plaintiff was entitled to accept the conduct of the defendant as so categorised, from the end of 2017. This is before the event upon which the defendant relies for its claim that the Agreement was terminated pursuant to the doctrine of frustration.

Whether the first payment made to the plaintiff may be forfeited to the plaintiff

12. The defendant submits that the sum of K6 million should not be forfeited, particularly in the absence of an express or implied term. This submission was made in the context of the defendant's other submission that the Agreement was terminated by frustration.

13. The plaintiff submits that, "A provision that money paid shall not be recoverable on the payer's default may be either express or implied. An express provision of this type generally takes the form of a forfeiture clause, a clause stating that the money shall be forfeited on default; on the other hand a provision of this type is generally implied by the fact that the money is stated to be paid as a deposit.": MacGregor on Damages 15^th ed [503] authors note. The plaintiff also refers to the decision of Stockloser v. Johnson [1954] 1Q.B. 476 and comments of Lord Denning at 490 which are to the effect that in the absence of an express or implied provision that money paid shall not be recoverable on the payer's default, the fact that money is stated to be paid as a deposit does not imply that such money shall not be recoverable on the payer's default, apart from contracts for the sale of land.

14. The plaintiff submits that the payment of the K6 million to him and not to lawyers or as a deposit, the conduct of the defendant in not rescinding and thereby being entitled to the K6 million being refunded and the defendant not responding to any correspondence, indicates that the K6 million should be forfeited.

15. There is no indication in the Agreement concerning what should happen to the K6 million if the Agreement is terminated because of the conduct of the defendant. In my view, as the Agreement specifically provides that on recession by the defendant the K6 million is refunded, and that result had to be specifically provided for in the Agreement; that there is no provision in the Agreement that covers termination by virtue of the conduct of the defendant, it may be implied that it was agreed that the K6 million would be forfeited if the Agreement was terminated by virtue of the conduct of the defendant.

16. This, together with the conduct of the defendant referred to, leads me to the conclusion that the sum of K6 million should be forfeited to the plaintiff.

Whether pursuant to s. 71 Companies Act the plaintiff is entitled to the relief sought in paragraph 3 of the originating summons

17. The defendant submits that the plaintiff should be restored as shareholder of the shares, "... as pleaded in paragraph 3 of the Originating Summons ..." on condition or subject to the repayment of the sum of K6 million to the defendant. I have already found that the K6 million should be forfeited to the plaintiff. As submitted by the plaintiff, in view of the defendant's default and in the circumstances, it is clear that the Share Register must be rectified in accordance with the orders sought.

Orders

18. The Court orders that:

a) It is declared that the Share Sale Agreement entered into by the parties on 21^st April 2017 (the Agreement) is terminated;

b) The First Payment as defined in the Agreement made pursuant to clause 3.2(a) of the Agreement is forfeited to the Plaintiff;

c) Pursuant to section 71 Companies Act, the Registrar of Companies shall rectify the Share Register of PNG Land Limited (Company No. 1-16326) (the Company) by:

(i) removing the name of the Defendant as the registered holder of 381,776 shares (the Shares) in the Company; and

(ii) restoring the name of the Plaintiff as the registered holder of the Shares.

d) The defendant shall pay the plaintiff's costs of and incidental to this proceeding;

e) The time for entry of these orders is abridged to the date of settlement by the Registrar which shall take place forthwith.
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Ashurst Lawyers: Lawyers for the Plaintiff
Geroro Lawyers: Lawyers for the Defendant