Wong v Van Vlymen

Since the mid 1990s the plaintiff, Mr Wong, and the first defendant, Mr Van Vlymen have, through various corporate entities owned and controlled by them, been involved together in a business (“the Joint Venture”) involving the trading and transporting of goods and commodities between Pacific Island nations such as Fiji, Vanuatu, Cook Islands and Solomon Islands.

Mr Wong and Mr Van Vlymen agree that by an exchange of emails between their solicitors between 21 and 25 November 2014, they reached a legally binding agreement (“the Contract”) whereby the “Wong Entities” would sell their interest in the Joint Venture to the “Van Vlymen Entities”.

The terms of the Contract are set out in a document headed “Resolution of joint venture affairs” forwarded by Mr Wong’s solicitor to Mr Van Vlymen’s solicitor under cover of an email of 21 November 2014 (with one agreed alteration specified in Mr Van Vlymen’s solicitor’s email response of 24 November 2014).

Relevantly, that document (taking into account the alteration required by Mr Van Vlymen) provided:

Thus, the Contract provided (in cl 2) that “within 60 days…the agreement is to be formalised in a comprehensively drafted settlement agreement (Settlement Agreement)” and (in cl 3(a)) that the Van Vlymen Entities would pay the deposit “on execution” of that Settlement Agreement.

Between 5 and 19 December 2014, the solicitors for Mr Wong and Mr Van Vlymen negotiated and agreed to the terms of the Settlement Agreement.

The parties agree that, subject to the issues referred to at [10] below, the resultant document sets out the “comprehensively drafted” agreement called for by the Contract. That document was executed by Mr Wong, and the company through which he held his interest in the Joint Venture, Overseas Shipping Trading Investments Pty Ltd (“OSTI”), and sent to Mr Van Vlymen’s solicitors on 22 December 2014.

Amongst other things, the Settlement Agreement identifies the various “Wong Entities” and “Van Vlymen Entities” and provides that the sale of the Wong Entities’ interest in the Joint Venture is to be effected by a transfer by Mr Wong of his shareholding in OSTI to one or other of the Van Vlymen Entities.

The Contract is thus one within the “first class” identified by Dixon CJ and McTiernan and Kitto JJ in Masters v Cameron (1954) 91 CLR 353 at 360:

On 27 August 2015, Lindsay J, by consent, noted that “the questions to be determined by the Court” are whether:

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.

Ms Oliak submitted that such a term was to be implied in fact to “give business efficacy to the Contract”.

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.

At [22], the plurality (French CJ, Bell and Keane JJ) said:

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:

Ms Oliak put her submission on two bases.

First, she submitted that:

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.

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”.

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.

There is some indication of that in the correspondence leading up to the making of the Contract.

Thus:

However, Mr Van Vlymen’s solicitor’s letter of 19 November 2014 continued:

None of the “adjustments” included any suggestion of a condition precedent of the kind now contended for.

Indeed the letter concluded:

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.

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”.

The Contract is efficacious without the implication of such a term.

I am not satisfied that the term contended for should be implied into the Contract.

Mr Wong seeks specific performance of the Contract.

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:

In this case, in substance, the Contract is one for the sale by Mr Wong of his shares in OSTI (see [8] above).

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.

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.

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).

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.

In my opinion, damages would not be an adequate remedy for Mr Wong.

An order for specific performance would require Mr Van Vlymen to:

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.

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.

In that regard, Mr Van Vlymen gave this evidence in one of his affidavits:

However, in an affidavit sworn on 18 February 2016 (shortly before the hearing before me) Mr Van Vlymen said:

Dr I C F Spry in Equitable Remedies states, at 133:

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].

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:

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.

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.

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.

Mr Van Vlymen also owns a rural property at Lanitza which has been approved for subdivision.

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.

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.

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.

Mr Van Vlymen summarised the current position with the Joint Venture in cross-examination as follows:

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.

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).

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.

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”.

Mr Van Vlymen was not able to explain clearly what those “loans” involved.

On 25 May 2015 CC Mortgage Fund Pty Ltd approved a USD7 million facility to two of the Van Vlymen Entities.

In its letter of approval, CC Mortgage Fund described the purpose of the loan as:

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.

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.

Mr Van Vlymen only annexed to his affidavit a four page “Funding Application Form” which described the “Company/Project Overview” as:

Mr Van Vlymen did not produce that email.

The application form states that the “loan amount required” is “7 MIO” and that the “borrower net worth” is “18 MIO”.

In his affidavit sworn on 19 February 2016 Mr Van Vlymen said:

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.

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?

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.

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.

In all these circumstances, I am persuaded that I should order that the Contract be specifically performed.

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.

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.

I invite the parties to confer and agree on the declarations and orders that should be made to give effect to these reasons.