Wong v Van Vlymen

Implied term? Was the agreement subject to finance?

1. Ms Oliak, who appeared for Mr Van Vlymen, submitted that it was an implied term of the Contract that it was subject to a condition precedent to the effect that the Van Vlymen Entities were not obliged to execute the Settlement Agreement until they obtained finance.
2. Ms Oliak submitted that such a term was to be implied in fact to "give business efficacy to the Contract".
3. Recently, the High Court of Australia has considered the question of implication in fact in Commonwealth Bank of Australia v Barker [2014] HCA 32; 253 CLR 169.
4. At [22], the plurality (French CJ, Bell and Keane JJ) said: "Implication of a term in fact in a contract, by reference to what is necessary to give it business efficacy, was described in Codelfa Construction Pty Ltd v State Rail Authority (NSW) [(1982) 149 CLR 337] as raising issues 'as to the meaning and effect of the contract'. Implication is not 'an orthodox exercise in the interpretation of the language of a contract, that is, assigning a meaning to a particular provision'. It is nevertheless an 'exercise in interpretation, though not an orthodox instance'. The implication of terms in fact was also characterised in Attorney-General (Belize) v Belize Telecom Ltd [[2009] 1 WLR 1988; 2 All ER 1127] as an exercise in construction. Lord Hoffmann, delivering the judgment of the Privy Council, said: '[i]t is not enough for a court to consider that the implied term expresses what it would have been reasonable for the parties to agree to. It must be satisfied that it is what the contract actually means.' The distinction thus drawn is appropriate even though the scope of the constructional approach adopted by Lord Hoffmann has been debated."
5. The implication of a term in fact will only be made when the conditions set forth in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283 are satisfied (CBA v Barker at [21]), namely that the term: 1. is reasonable and equitable; 2. is necessary to give business efficacy to the contract (so that no term will be implied if the contract is effective without it); 3. is so obvious "it goes without saying"; 4. is capable of clear expression; and 5. does not contradict any express term of the contract.
6. Ms Oliak put her submission on two bases.
7. First, she submitted that: 1. the reference in cl 2 of the Contract to the agreement being "formalised" within 60 days was a reference to a formal agreement being reached as to the terms of the proposed "Settlement Agreement"; 2. this was to be contrasted to the reference in cl 3(a) to payment of the deposit "upon execution" of the Settlement Agreement; 3. there was thus no requirement that the Settlement Agreement be executed within the 60 day period referred to in cl 2; and 4. this somehow bespoke the parties' intention that the Van Vlymen Entities had no obligation to execute the Settlement Agreement until funding was in place.
8. I do not accept the proposition in [17(a)]. In my opinion, a reasonable businessperson in the position of the parties would understand "formalising" the agreement in the proposed Settlement Agreement to mean executing it. In any event, I cannot see how the proposition in [17(d)] follows from the propositions in [17(a) to (c)], even if they are correct.
9. Ms Oliak also submitted that "the objective evidence demonstrates that the plaintiffs were well aware of the fact that Mr Van Vlymen required finance before he could execute the Settlement Agreement".
10. I agree that the evidence shows that Mr Wong (through his solicitor) understood that Mr Van Vlymen may well have required funding to complete the transaction.
11. There is some indication of that in the correspondence leading up to the making of the Contract.
12. Thus: 1. Mr Van Vlymen's solicitor sent Mr Wong's solicitor an email on 18 November 2014 which stated: "[Mr Van Vlymen] will revert to me fully tomorrow but there may need to be some adjusting eg on the share transfer on payment of US$2m, otherwise there will be a funding problem." [Emphasis added] 1. Mr Van Vlymen's solicitor sent Mr Wong's solicitor a letter on 19 November 2014 which stated: "Our client has had the opportunity to consider [an earlier draft of the Contract] and overall the proposal of two separate settlements…is impractical and unworkable as any funding arrangement by our client will require the actual transfer of the Wong shares to occur at the time of release of funds." [Emphasis added]
13. However, Mr Van Vlymen's solicitor's letter of 19 November 2014 continued: "On behalf of our client we therefore respond to your [draft Contract] using the same numbered paragraphs but making some adjustments to reflect our client's above concerns and in an endeavour to overcome those issues." [Emphasis added]
14. None of the "adjustments" included any suggestion of a condition precedent of the kind now contended for.
15. Indeed the letter concluded: "We need to emphasise that the above proposed settlement agreement is a complete agreement…".
16. In these circumstances, I cannot see how it could be concluded that the Contract "actually means" (see [14] above) that the Van Vlymen Entities' obligation to perform it is conditional on them obtaining funding and (for this is the corollary of Mr Van Vlymen's case) is to be postponed for whatever period is required to enable such funding to be obtained.
17. The mere fact that it appears to a seller that his or her purchaser may require finance to complete the transaction referred to in a contract (even if it is "obvious" that this will be so) cannot, without more, make it "so obvious it goes without saying" that it is "subject to finance".
18. The Contract is efficacious without the implication of such a term.
19. I am not satisfied that the term contended for should be implied into the Contract.

Should specific performance be denied?

1. Mr Wong seeks specific performance of the Contract.

Damages an adequate remedy?

1. The general principles on which specific performance is granted are summarised in P W Young, C Croft and M Smith, On Equity, (2009, Lawbook Co.) at [16.900] as follows: "Specific performance is more likely to be granted in some types of cases than in others. However, the underlying principle is that specific performance is only granted when 'damages are inadequate to meet the justice of the case', [Beswick v Beswick [1968] AC 58 at 102] which was adopted by the High Court in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1987) 165 CLR 107 at 119. The fact that certain types of cases more readily attract specific performance simply reflects the fact that, in those types of contracts, damages will frequently not be an adequate remedy to meet the justice of the case."
2. In this case, in substance, the Contract is one for the sale by Mr Wong of his shares in OSTI (see [8] above).
3. Generally speaking, contracts for the sale of shares in private companies, not readily obtainable in the market, are specifically enforceable (for example per Brooking J in ANZ Executors and Trustees Ltd v Humes Ltd [1990] VR 615 at 629 and see generally J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane's Equity: Doctrines & Remedies, (5th ed 2014, LexisNexis Butterworths) at [20-040] and I C F Spry, Equitable Remedies, (9th ed 2014, Lawbook Co.) at 66-67. This is because, very often, it is difficult to prove the value of such shares.
4. In this case, I am satisfied that it would be extraordinarily difficult for Mr Wong to prove the value of his OSTI shares, and thus what damage he has suffered as a result of Mr Van Vlymen's failure to perform the Contract.
5. To prove such damage, Mr Wong would have to prove the value of OSTI's investment in the various underlying companies (incorporated in the Cook Islands and in the Solomon Islands) and the value of those companies' assets (which include land and cocoa and coconut plantations in the Solomon Islands).
6. Since September 2015, Mr Van Vlymen had engaged in what amounts to, at the very least, a reorganisation of several of the companies involved in the Joint Venture. I discuss this further below. For present purposes it is sufficient to say that what has occurred would add, significantly, to the difficulty of proving what damage Mr Wong has suffered by reason of the failure to complete the Contract.
7. In my opinion, damages would not be an adequate remedy for Mr Wong.

What must Mr Van Vlymen do to perform the Contract?

1. An order for specific performance would require Mr Van Vlymen to: 1. execute, and cause the Van Vlymen Entities to execute the Settlement Agreement; 2. thereupon pay the deposit of USD250,000; and 3. within 120 days thereafter pay the balance due of USD1.75m and SBD15 million.
2. Ms Oliak submitted, and Mr Burchett (who appeared for Mr Wong) did not dispute, that at current exchange rates, the amount involved is in the order AUD5.34 million.

Impossibility or hardship?

1. Although Ms Oliak put her case on the basis of both hardship and impossibility, the hardship alleged relates to the alleged inability of the Van Vlymen Entities to obtain finance for completion, and the question before me is really one of impossibility.
2. In that regard, Mr Van Vlymen gave this evidence in one of his affidavits: "I do not want the Contract to be terminated and hope that the Contract will be able to be completed by the parties sometime in the near future."
3. However, in an affidavit sworn on 18 February 2016 (shortly before the hearing before me) Mr Van Vlymen said: "…I confirm that it is still the case that neither I nor any of the other Defendants (either alone or combined) have the financial resources to pay the Deposit (USD$250,000) or the Completion Amount."
4. Dr I C F Spry in Equitable Remedies states, at 133: "But this is not to say that the mere anticipation of possible difficulties leads to a refusal of relief. If, on the materials before the court, performance may or may not be able to be completed, the various probabilities will be taken into account in deciding on the order that is most just in all the circumstances. Thus it may be most appropriate to order specific performance in the ordinary manner, so that if necessary the defendant may later approach the court for a modification or variation by reason of subsequent difficulties or may rely upon them in any subsequent proceedings in relation to the enforcement of the order. Again, if at the time of the original application there is shown to be a substantial risk that performance will not be possible, it may be most appropriate to make a conditional order or else to adjourn the proceedings until the position becomes more clear. Finally, if a sufficiently great likelihood is shown that performance will not be possible, and especially if no strong considerations of hardship appear on the part of the plaintiff, it may be most just to make no order for specific performance at all, whether absolute or conditional, and so to confine the plaintiff to remedies in damages."
5. Although Dr Spry's statement is made without reference to authority, it has been accepted as correct by Lyons J in Evans v Robcorp Pty Ltd [2014] QSC 26 (at [16]) and cited with evident approval by Brereton J in Boyarsky v Taylor [2008] NSWSC 1415; 14 BPR 26,553 at [33].
6. Brereton J also referred to the observations of Holland J in Pasedina (Holdings) Pty Ltd v Khouri (1977) 1 BPR 9460 at 9460-9461 as follows: "The most that I would be prepared to find from the evidence placed before the Court on behalf of the defendants is that for some time since the contract was made and at present they have been under financial pressures, that these would be aggravated if they were forced to complete their contract with the plaintiff and that it is not commercially convenient for them to do so but, in my opinion, they have failed to establish a case of impossibility of the kind of hardship which would lead the Court, in its discretion, to deny to a vendor an order for specific performance to which he was otherwise entitled. Counsel for the defendant was not able to refer me to any case where difficulty on the part of the purchaser in finding the purchase money, was held to amount to a defence of impossibility or hardship. I doubt whether difficulty, however great, could make a defence of impossibility. … A purchaser who pleads hardship as a defence to a vendor's claim that the purchaser be ordered specifically to perform the bargain into which he has entered has to meet and overcome the principle that specific performance is not a remedy which should lightly be refused when the vendor has established the existence of a valid contract that equity ordinarily decrees to be specifically performed which the purchaser has declined to complete: Fullers Theatres Ltd v Musgrove (1923) 31 CLR 524 at pp 548-549 Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at p 438. On the authorities, I doubt whether difficulty confronting a purchaser in finding the purchase money could, by itself, constitute sufficient reason to deny a vendor an order for specific performance. Financial hardship generally appears as only one ingredient in a group of circumstances which would make specific performance work a clear in-justice to the defendant."
7. Those authorities establish, in my opinion, that the mere fact that a purchaser has experienced difficulty in arranging finance is not, without more, a reason to decline specific performance.

Mr Van Vlymen's financial position

1. The evidence adduced on behalf of Mr Van Vlymen did not enable me to come to any clear conclusion as to Mr Van Vlymen's financial position.
2. Mr Van Vlymen owns, jointly with his wife, properties at Bayview and Kulnura. According to statements that Mr Van Vlymen has made to prospective lenders those properties have a combined value in the order of between $4.7 million and $5.4 million and are subject to a mortgage in the order of $2.6 million.
3. Mr Van Vlymen also owns a rural property at Lanitza which has been approved for subdivision.
4. Mr Van Vlymen's estimate of the value of that property is between $1 million and $1.2 million. It is subject to a mortgage securing an amount in the order of $163,000.
5. As a result of steps taken by him between September and December 2015, Mr Van Vlymen is now in effective control of the companies and the assets of the Joint Venture.
6. It is not necessary to set out the detail of the steps Mr Van Vlymen has taken. They include replacing the constitution of several of those companies (the effect of which was, amongst things, to remove a veto that, at least arguably, Mr Wong formerly had in relation to the affairs of those companies), to remove Mr Wong as chairman of directors of those companies and to appoint himself as chairman.
7. Mr Van Vlymen summarised the current position with the Joint Venture in cross-examination as follows: "A. Now, the situation is that it is a clean situation. I have now got [the company within the Joint Venture that owns the cocoa and coconut plantations] with only two shareholders, no more mortgage and - and it is ready to make a sale, or to attract another investor and that's what I'm trying to work on. It's the only way we're going to get money. … Q. So now you say you're fully in position in the Solomon Islands to utilise the assets, to raise the money to pay Mr Wong; is that right? A. That's correct, and that's what I'm working on."
8. Earlier in the cross-examination, he agreed that he had now "taken control" of the critical Joint Venture company and also had the "deciding vote" in the Joint Venture companies that own the cocoa and coconut plantations in the Solomon Islands.
9. Mr Van Vlymen asserts that the Joint Venture is a "basket case", that he is in debt and has no assets of significance (apart from the real estate to which I have referred).
10. Yet, somehow, Mr Van Vlymen is able to service the $2.6 million mortgage secured over the Bayview and Kulnura properties by paying the relevant mortgagee over $200,000 per annum.
11. Mr Van Vlymen said he was able to maintain such payments with borrowings because he had "also been getting repayments of loans from the Solomons".
12. Mr Van Vlymen was not able to explain clearly what those "loans" involved.

Mr Van Vlymen's applications for finance

1. On 25 May 2015 CC Mortgage Fund Pty Ltd approved a USD7 million facility to two of the Van Vlymen Entities.
2. In its letter of approval, CC Mortgage Fund described the purpose of the loan as: "…to provide funds to assist with the acquisition of an associates (Wong) current shareholding, acquisition and development of various property assets located in the Solomon Islands and Guadalcanal and to provide working capital and that the proposed loan is for a commercial purpose."
3. Mr Van Vlymen said that he was not able to proceed with that loan because he was not able to satisfy a number of the "settlement conditions", in particular, one which obliged the Van Vlymen Entities to "provide a clear exit strategy" involving the sale of land in the Solomon Islands owned by one of the Joint Venture entities.
4. More recently, on 5 February 2016 (that is, under four weeks ago), Mr Van Vlymen caused one of the Van Vlymen Entities (Pacific Investments Ltd) to apply to Worldwide Capital Group for a loan of USD7 million.
5. Mr Van Vlymen only annexed to his affidavit a four page "Funding Application Form" which described the "Company/Project Overview" as: "Full corporate structure and Exec[utive] Summary, email separately".
6. Mr Van Vlymen did not produce that email.
7. The application form states that the "loan amount required" is "7 MIO" and that the "borrower net worth" is "18 MIO".
8. In his affidavit sworn on 19 February 2016 Mr Van Vlymen said: "I have recently met with the managing director of [Worldwide Capital Group] but I have not yet been approved or rejected. The application is still pending."
9. In cross-examination Mr Van Vlymen said that the "managing director" in question had recently travelled to Australia from Hong Kong to discuss the proposed loan with Mr Van Vlymen and that Mr Van Vlymen had caused one or other of his entities to pay $5,500 for that person's travel and accommodation expenses.
10. Evidently, Mr Van Vlymen is confident that, were the loan application to Worldwide Capital Group approved, he could procure that the relevant Van Vlymen Entity service the loan. Why else would he cause the application to be made and pay for the managing director of the prospective lender to travel to Australia?

Mr Van Vlymen's "reorganisation" of the Joint Venture entities

1. I have mentioned the steps that Mr Van Vlymen has taken to reorganise the Joint Venture and to place himself in a position where he is now in control of it.
2. The consequence of Mr Van Vlymen's actions is that, were the Contract not to proceed, and were Mr Wong to be confined to a claim for damages, the nature of his interest in the Joint Venture has now changed in a manner which may cause him hardship additional to that involved in proving damage.

Specific performance

1. In all these circumstances, I am persuaded that I should order that the Contract be specifically performed.
2. The Court is able to supervise the implementation of an order for specific performance (for example per Campbell J (as his Honour then was) in Zorbas v Titan Properties (Aust) Pty Limited [2005] NSWSC 440 at [12]. A first step may well be to stay the order to give Mr Van Vlymen an opportunity to raise funds to pay the deposit (an obvious potential source being the Lanitza property) and to progress the pending application to Worldwide Capital Group.
3. I propose to make declarations and orders to the effect sought by Mr Wong and invite submissions as to the manner in which the order for specific performance should be implemented.
4. I invite the parties to confer and agree on the declarations and orders that should be made to give effect to these reasons.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 March 2016