Jixing Industries Limited formerly Fusen Industry (PNG) Pty Limited and Pixing Gong, Shun Fu Feng & Yan Zeng Gao v Aitape Metropolitan Forest Investment Limited (2013) SC1294

• Jurisdiction: Papua New Guinea
• Court: Supreme Court
• Date: 04 July 2013
• Citation: (2013) SC1294
• Docket Number: SCA NO 63 OF 2011
• Year: 2013

Full Title: SCA NO 63 OF 2011; Jixing Industries Limited formerly Fusen Industry (PNG) Pty Limited and Pixing Gong, Shun Fu Feng & Yan Zeng Gao v Aitape Metropolitan Forest Investment Limited (2013) SC1294

Supreme Court: Gavara-Nanu, Davani & Makail, JJ

Judgment Delivered: 4 July 2013

SUPREME COURT APPEAL—CONTRACT LAW—Memorandum of Understanding—Whether legally binding—Agreement to agree—Enforceability of

Facts

This was an appeal from the decision of the National Court which held that a memorandum of understanding between the appellants and the respondent was a legally binding contract and enforceable at law.

Held:

1. The question of whether a memorandum of understanding is a legally binding contract is a question of fact and must be decided according to the intention of the parties having regard to all the circumstances of the case.

2. In the present case, the memorandum of understanding is an agreement to agree. It is not a legally binding contract and is unenforceable at law.

3. The primary judge’s finding that the memorandum of understanding was a legally binding contract and enforceable at law is wrong.

4. The appeal is allowed and decision of the National Court is quashed.

Cases cited:

Papua New Guinea cases

Re The Companies Act Chapter 146 and Pacific Rim Corporation Holdings Pty Ltd [1992] PNGLR 491

Nings Trading Pty Ltd -v- ANZ Banking Group (PNG) Limited (1995) N1700

Tian Chen Limited -v- Tower Insurance Limited (2003) N2319

Shell Papua New Guinea Ltd -v- Specko Investment Limited (2004) SC767

Mathew Tolanas -v- Collin Gipe (2008) N3536

Raphael Loowa & Ors -v- Kanawi Pouru & The State (2009) N4029

Madang Timbers Limited -v- Valentine Kambori & National Forest Authority (2009) SC1000

Overseas cases

Masters -v- Cameron (1954) 91 CLR 358

Courtney & Fairburn Ltd -v- Tolaini Bros (Hotels) Ltd [1975] 1 WLR 297

GR Securities -v- Baulkham Hills Private Hospitals Pty Ltd (1986) 40 NSWLR 631

Rushton (Qld) Pty Ltd & Ors -v- Rushton (NSW) Pty Ltd & Ors [2003] QSC 8 (24th January 2003)

DECISION

1. BY THE COURT: The primary Judge determined a preliminary issue which concerned a memorandum of understanding (“MOU”) between the appellants and the respondent in proceedings WS No 482 of 2007, in particular, whether it was as a legally binding contract and enforceable at law. On 13th May 2011, his Honour found that the MOU was a legally binding contract and also ordered the appellants to pay the respondent’s costs. This is an appeal from that decision. As it was an interlocutory decision, leave was applied for and granted on 23rd August 2011.

Background Facts

3. On 22nd November 1996, the respondent entered into the MOU with the first appellant which was formerly known as Fusen Industry (PNG) Pty Limited having changed its name on 13th February 2003 to establish an agro forest project on 300,000 hectares of land in Aitape, West Sepik Province. The main features of the MOU were:

(a) The parties would apply for and take all steps necessary to obtain a permit to develop the resources under the Forest Management Agreement (“FMA”).

(b) The first appellant would undertake that it has the financial and technical resources necessary to carry out the proposed project being the development of the forest resource.

(c) The first appellant would be responsible for employment of the necessary personnel and providing the necessary financial backing for the project and including preparation of feasibility studies, etc.

(d) The parties would enter into a joint venture agreement for the project being the logging activities.

4. On 03rd May 2007, the respondent instituted legal proceedings in the National Court for breach of contract and claimed a sum of K10,000,000.00 or alternatively, damages to be assessed. It alleged that the appellants failed to provide funding of K250,000.00 to enable it to mobilise landowners and apply for the licences and permits. The appellants filed a defence denying the claim relying on:

(a) Doctrine of res judicata.

(b) Frauds and...