Case Summaries

Solomon Lew v Kaikhushru Shiavax Nargolwala and others and another appeal (Case Summary)

10 February 2021

Case summary

Solomon Lew v Kaikhushru Shiavax Nargolwala and others and another appeal [2021] SGCA(I) 1
Civil Appeals Nos 38 and 126 of 2020

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Decision of the Court of Appeal (delivered by Lord Jonathan Hugh Mance IJ):

Outcome: Court of Appeal dismisses appeal by purported purchaser and held that no contract of sale to sell shares in a BVI company owning certain rights to a luxury villa in Thailand was validly concluded. Court of Appeal allows the shares’ owners’ appeal on costs.

Pertinent and significant points of the judgment

  • A contract cannot be validly concluded if the agent seeking to enter into the contract on behalf of the purported principal did not have authority – whether actual or apparent – to do so: at [57].
  • A company cannot be imputed with the knowledge of a, or the, shareholder, held purely in his capacity as a shareholder: at [60].
  • The proper law to govern the issue of whether a contract has been validly formed is to be determined by the traditional three-stage test. The court first considers if the contract expressly states its governing law. If the contract is silent, the court then considers whether it can infer the governing law from the intentions of the parties. If the court is unable to infer the parties’ intentions, the court determines the law which has the closest and most real connection with the contract. There is no room for the lex fori to apply in determining whether a contract has been validly formed: at [70]–[83].

Background to the appeal

1  These civil appeals, CA/CA 38/2020 (“CA 38”) and CA/CA 126/2020 (“CA 126”), arise from the suit, SIC/S 2/2019, commenced by the appellant in CA 38, Mr Solomon Lew (“Mr Lew”), resident in Melbourne, Australia, against the five respondents in CA 38.

2  Colloquially, CA 38 and CA 126 are about the sale of a villa. Legally, the dispute relates to the sale of shares in a British Virgin Islands (“BVI”) company owning certain rights in relation to a luxury Villa, Villa 29 (“the Villa”), in the Andara Resort (“the Resort”) in Phuket, Thailand. The key title rights consist of the lease of a plot of land, ownership of the building on it, a construction permit and house registration, together giving occupation rights. The Resort’s general manager was at all relevant times Mr Daniel Meury (“Mr Meury”).

3  Under Thai law, foreign nationals cannot own land; they are only allowed to own the building erected on the land. The BVI company owning Villa 29 is the fifth respondent in CA 38, Querencia Limited (“Querencia”). Querencia was the vehicle which the first and second respondents in CA 38, Mr Kaikhushru Shiavax Nargolwala and Mrs Aparna Nargolwala (“Mr Nargolwala” and “Mrs Nargolwala” respectively; “the Nargolwalas” collectively), residents of Singapore, used to acquire Villa 29 while it was being built in 2007.

4  On 11 October 2017, Mr Lew communicated, through Mr Meury, to the Nargolwalas an offer to purchase the Nargolwalas’ shares in Querencia for $5,250,000 on a “walk in, walk out” basis “with a settlement within 14 days”. Mr Lew says that the Nargolwalas, in response to this offer, communicated on the same day to him, through Mr Meury, their binding oral agreement to sell their shares in Querencia to him. The Nargolwalas deny this and say that they sold, and on 14 November 2017 transferred, their shares in Querencia to the third respondent in CA 38, Quo Vadis Investments Limited (“Quo Vadis”), a Hong Kong company controlled by the fourth respondent in CA 38, Mr Christian Larpin (“Mr Larpin”).

5  In these circumstances, Mr Lew claims that the Nargolwalas acted in breach of their agreement for sale to him, and acted in breach of fiduciary duty in transferring the shares in Querencia to Quo Vadis. He further claims that Mr Larpin and hence Quo Vadis knew of the Nargolwalas’ agreement to sell to him, and are liable for inducing its breach, and that Querencia itself was in breach of fiduciary duty and trust by dishonestly assisting the Nargolwalas’ breach by registering the transfer of its shares to Quo Vadis.

6  The judge, Simon Thorley IJ (“the judge”), after a nine-day trial, held that Mr Lew’s claims failed in their entirety. They failed as against Mr and Mrs Nargolwala because no binding agreement had been reached between them and Mr Lew, and they necessarily failed in consequence against all the other respondents. However, the judge also held that, had a binding agreement come into existence between the Nargolwalas and Mr Lew, then (a) Mr Larpin would not have had sufficient knowledge of any sale to render him liable for inducing its breach, but (b) Querencia would had had sufficient knowledge through the Nargolwalas. The first appeal, CA 38, is by Mr Lew against the dismissal of all his claims against all the respondents.

7  In reaching his conclusions, the judge treated Singapore law as governing the issue of whether a binding agreement had been reached between the Nargolwalas and Mr Lew. That is the law for which Mr Lew had argued. The Nargolwalas argued on the other hand for Thai law. The judge heard evidence about Thai law and concluded that, even if Thai law applied, there would be no different outcome on the primary question of whether a binding oral contract was reached. However, the judge went on to hold that, under Thai law, any such oral contract would, as the Nargolwalas submitted, have been unenforceable. In these circumstances, when it came to costs, the judge ordered that, although the Nargolwalas should recover their reasonable costs of the proceedings generally, they should be deprived of their costs on the issue of whether Thai law applied, and they should also bear Mr Lew’s costs on that issue. The second appeal, CA 126, is by the Nargolwalas against that latter aspect of the judge’s costs order.

 

The Court of Appeal’s decision

8  The Court of Appeal dismissed CA 38 and allowed CA 126.

CA 38

9  There is no basis to disturb the judge’s finding that Mrs Nargolwala, who was the person Mr Meury spoke to on 11 October 2017, did not agree to Mr Lew’s offer, and that she had instead told Mr Meury that she needed an “offer letter in writing” with “details” so that she could discuss the proposal with Mr Nargolwala: at [32].

10  The judge erred in finding that Mr Lew considered that the alleged agreement was merely the precursor to completion at a later date and that an objective assessment of the contemporaneous documents leads to the same conclusion. Instead, the contemporaneous documents show that Mr Lew understood from Mr Meury on 11 October 2017 that a legally binding contract for sale had been achieved, even though it was also contemplated that it would or might later be put on the more formal basis of documentation drafted by lawyers: at [33]–[41].

11  Mr Lew’s unilateral understanding is not however sufficient, as it takes two to agree to contract. The critical question is whether Mr Meury was speaking with the authority of or in a way which bound the Nargolwalas: at [42].

12  In this case, Mr Meury had no authority from the Nargolwalas to conclude a contract with Mr Lew. First, Mr Meury was acting without any actual authority when he told Mr Lew on 11 October 2017 that an agreement had been reached with the Nargolwalas, because the Nargolwalas said and did nothing to confer on Mr Meury any express or implied authority to make a contract on their behalf, or to convey messages in terms which they did not specifically authorise but which committed them contractually: at [43]–[48].

13  Second, Mr Meury also did not have apparent or ostensible authority to bind the Nargolwalas to a binding contract on 11 October 2017 because there was no representation by the Nargolwalas to Mr Lew to cloak Mr Meury with an authority as agent beyond that which he actually had. No contract was therefore objectively concluded between the Nargolwalas and Mr Lew: at [50]–[57].

14  The judge was also correct to dismiss Mr Lew’s claim that the Nargolwalas had ratified the acceptance of Mr Lew’s offer purportedly conveyed to him by Mr Meury on the Nargolwalas’ behalf: at [49].

15  The appeal in CA 38 fails accordingly as against the Nargolwalas, and it also fails as against all the other respondents in CA 38, whose liability depended on knowledge of an actual binding contract between the Nargolwalas and Mr Lew: at [57].

16  For completeness, the judge was incorrect to observe that, had there been a binding contract between the Nargolwalas and Mr Lew, Querencia would have been in breach of fiduciary duty and trust by dishonestly assisting the Nargolwalas’ breach by registering the transfer of its shares to Quo Vadis. This is because a company cannot be imputed with the knowledge of a, or the, shareholder, held purely in his capacity as a shareholder. In this case, the disposition of the Nargolwalas’ shares was undertaken by them as shareholders, not in any capacity on behalf of Querencia. Therefore, Querencia cannot be attributed with the Nargolwalas’ knowledge when the transfer of shares to Quo Vadis was registered: at [60].

CA 126                                                       

17  The proper law to govern the issue of whether a contract has been validly formed is to be determined by the traditional three-stage test as outlined in JIO Minerals FZC and others v Mineral Enterprises Ltd [2011] 1 SLR 391 at [79] (“three-stage test”). At the first stage, the court considers if the contract expressly states its governing law. If the contract is silent, the court proceeds to the second stage and considers whether it can infer the governing law from the intentions of the parties. If the court is unable to infer the parties’ intentions, it moves to the third stage and determines the law which has the closest and most real connection with the contract. This three-stage test gives effect by analogy to what can or would be regarded as the reasonable expectations of the parties in all the circumstances with regard to the issue of whether they made any contract: at [70]–[80].

18  There is no room for the lex fori to apply in determining whether a contract has been validly formed. The judge erred in holding that the lex fori should apply in cases of doubt where the court could not, after applying the three-stage test, reach a “clear” conclusion as to the governing law: at [81]–[83].

19  In the present case, Thai law arguably applied to govern the issue of whether a valid contract had been formed on 11 October 2017. Villa 29 was in Thailand. Mr Lew and Mr Meury were in Thailand. While the shares being sold were in a BVI company, any buyer would be much more concerned to know and take account of the Thai legal position regarding the title held by that company in respect of the construction, leasing and occupation of the villa when tying up the legal formalities to complete the oral agreement. Indeed, the entire structure of the transaction could be said to be derived from Thai law: it is Thai law that prohibits foreign nationals from owning property in Thailand, and Mr Lew would need to check the Thai legal position in this respect in order to ensure that he indirectly “owned” Villa 29: at [84]–[89].

20  The judge erred in focusing on later developments after the alleged making of the agreement on 11 October 2017 and the Nargolwalas’ subjective state of mind to identify the law governing the existence and validity of any alleged earlier oral agreement. The judge’s view that the case advanced on Thai law was unreasonable and merely “opportunistic” was unjustified. It went to a point – the unenforceability under Thai law of any oral agreement – which the judge actually accepted. That point would, by itself, have been fatal to Mr Lew’s whole case. On that basis, the judge’s order on costs cannot be sustained. Therefore, the appeal in CA 126 is allowed: at [92]–[93].

This summary is provided to assist in the understanding of the Court’s judgment. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s judgment.