Nathalie Ker explores the Court of Appeal’s approach to a sale by tender.
It is common practice for receivers or liquidators selling the assets of a company to conduct a sale by tender, issuing an Information Memorandum and inviting tenders from various parties. In such a situation, when does acceptance take place and when is a contract formed?
The Court of Appeal delved into these issues in the recent case of Emas Kiara Sdn Bhd v Michael Joseph Monteiro & Ors; Farcoll Estate Sdn Bhd & Ors (Interveners)
 8 CLJ 17 (“Emas Kiara v Monteiro
”). The Court applied the principles of formation of contract to the issue as to whether a contract existed between the Appellant, Emas Kiara Sdn Bhd (“Emas Kiara”), and the 1st
Respondents who were receivers and managers (“R&M”) of the 3rd
Respondent, Lembah Beringin Sdn Bhd (“Lembah Beringin”).
Lembah Beringin had created a debenture in favour of RHB Bank Berhad (“RHB”) as security for banking facilities granted by RHB to Lembah Beringin. Among the properties charged under the debenture were almost 1400 acres of land (“the Properties”). After Lembah Beringin defaulted on the banking facilities, RHB appointed the R&M in respect of Lembah Beringin.
On 5 May 2011, the R&M advertised in the newspapers seeking expressions of interest from the public to purchase the Properties. The R&M prepared an Information Memorandum (“IM”) which was made available to interested bidders.
Emas Kiara submitted an initial tender offer of RM60.08 million on 3 June 2011, increasing this to RM83.8 million on 17 June 2011. A competing tender of RM50 million (later increased to RM84 million) was submitted by two of the eight other parties who were the interveners in the present case (“Interveners”).
The R&M subsequently met with Emas Kiara on 28 September 2011 to discuss 13 additional terms. On 3 October 2011, Emas Kiara wrote to the R&M stating that they were agreeable to the proposed terms. The next day, i.e. 4 October 2011, Emas Kiara sent a further letter to the R&M clarifying their letter dated 3 October 2011.
The R&M prepared a letter dated 14 October 2011 in response to Emas Kiara’s two letters. However, this letter was not sent until 18 October 2011. The R&M further wrote a separate letter dated 17 October 2011 to Emas Kiara which was faxed and sent on 18 October 2011. Emas Kiara, assuming that the R&M had accepted their offer by way of the letter dated 17 October 2011, paid the balance amount making up the deposit. The letter dated 17 October 2011 stated as follows:
“Having completed our evaluation, we are pleased to inform that the Receivers and Managers (R&M) are agreeable to accept your offer to purchase the Company’s properties (Lands) in the Information Memorandum dated 5 May 2011 (IM) for RM83.8 million, subject to the amongst others, as agreed, the salient conditions stated herein below
The R&M then set out four conditions in relation to sale on an ‘as is where is
’ and ‘en bloc
’ basis, timelines for execution of the Sale and Purchase Agreement (“SPA”) and settlement of the purchase price and the forfeiture of deposit in certain circumstances.
The parties then exchanged correspondence to finalise the draft SPA. However, disagreements arose between the parties on the terms and conditions to be included in the SPA. On 6 December 2011, the R&M informed Emas Kiara of their decision to cease further negotiations.
Emas Kiara subsequently sued the R&M for breach of contract, claiming specific performance based on the terms and conditions in its letter dated 17 June 2011 read together with the IM and its letter dated 4 October 2011. The R&M counterclaimed for damages for wrongful lodgement of a caveat by Emas Kiara over the Properties.
The High Court held in favour of the R&M. It held that there was no agreement between the parties as the ‘acceptance’ by way of the R&M’s letter dated 17 October 2011 had been in respect of the offer in Emas Kiara’s letter dated 17 June 2011. The High Court Judge found that there could not have been an acceptance as the offer in Emas Kiara’s letter dated 17 June 2011 had been superseded by its letter dated 4 October 2011. Interestingly, the High Court further stated that the terms of the IM constituted a ‘process contract’ which governed the manner in which sale and purchase of the Properties would be carried out. Emas Kiara appealed to the Court of Appeal.
THE JUDGMENT OF THE COURT OF APPEAL
According to the Court of Appeal, the central issue to be decided was whether there was a concluded contract between Emas Kiara and the R&M for the sale of the Properties upon which Emas Kiara could launch its claim for specific performance. The Court held that it must apply an objective test when scrutinising all the evidence to determine whether there was consensus ad idem
, i.e. a ‘meeting of the minds’, between the parties.
The Court of Appeal held that the High Court had failed to properly apply the objective test to the material facts of the case as it had considered each of the letters, meetings and other correspondence between the parties in isolation, without regard to the context in which the documents were made and exchanged. The Court of Appeal stated that until there was an express rejection or necessary inference of rejection of Emas Kiara’s offer, it was not open to the High Court to construe the letters as superseding each other, one overtaking the other.
The Information Memorandum and the ‘Process Contract’
The Court first examined the IM, holding that even though the IM was not itself a contractual document, it contained material information on, among others, the intention of the R&M; the Properties; how the expressions of interest, offers and negotiations would be conducted and the related timelines and formats to be used; the powers and rights of the R&M and of the interested parties; and the conditions of sale. The Court stated that the IM formed the basis of a ‘process contract’.
The concept of a ‘process contract’ was dealt with briefly by the Court of Appeal. Mary Lim JCA stated that the principle evolved to protect the integrity of the bidding process in tender exercises. The learned Court of Appeal Judge explained that a ‘process contract’ concerns the way the tender exercise is to be carried out and that there is a duty of good faith and an implied obligation on those who invite tenders to only accept conforming tenders.
The Court made the following key observations on the clauses in the IM: