“The deal’s off. Now give me back my $6m!”

P, a Chinese frozen meat company, and D, an Australian feedlot and abattoir company, found themselves in dispute.  

A 2015 contractual arrangement required P to pay a $6m “advance payment” to D to acquire 45% of the shares in D: [7]

P made that payment.

The 45% stake was valued ~$140m: [17]

The deal between D and P included unusual conditional terms. The price was $140m, but subject to further negotiation after an investigation procedure including D providing P with audited accounts, P’s board and shareholders approving etc: [19] - [23]

There were some delays with the audited accounts and the deadline was extended by later agreement: [27]

After reviewing the accounts P’s advisers valued D as less than half of the initial value: [33]

P wrote to D on 30 June 2016 purporting to terminate. This was on the basis of D failing to meet the condition terms, and being late with the audited accounts: [34]

D responded saying P had no right to terminate that the letter was a repudiation which D accepted: [35]

The delay in the provision of audited accounts was considered in depth. Speaking loosely, the audited accounts were finalised save for issues related to external financing. There were some tensions between the auditors and the parties: [41] - [65]

The unqualified audit report was eventually sent at 11.57pm (China time) on 20 May 2016 and received at 12.12am (China time) on 21 May 2016: [66]

The parties had a contractual obligation of good faith to obtain the finalised audit reports by the deadline: [67], [68]

P complained that D’s failure to explicitly instruct the auditor to issue a report by 5.30pm on 20 May 2016 was a breach of this clause: [73]

It was accepted that the auditor could not be validly instructed to issue an opinion they did not hold: [73]

Regarding good faith and the 5.30pm deadline, P’s allegation that D’s good faith obligation required it to have reminded the auditor about the 5.30pm deadline cuts both ways. P could have also issued that reminder!: [82]

The Court found a more fundamental issue with this argument. It was not satisfied that the (unsent) “5.30pm reminder email” would have made any difference noting the auditor’s internal processes for issuing accounts etc: [85]

D’s good faith defence failed: [91]

D argued that P had no entitlement to issue the 30 June 2016 notice of termination.

After carefully considering the wording of the contract and associated law of commercial construction of contracts, the Court found P indeed had a right to issue the relevant notice arising from the delayed audited accounts: [124]

The Court found P complied with its good faith negotiations and had validly terminated. As such P was entitled to recover its $6m plus interest: [132], [133]

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