Ethnic Earth Pty Ltd v Quoin Technology Pty Ltd (Receivers and Managers Appointed) (in Liquidation)

Ethnic Earth Pty Ltd sought a declaration that the contract for sale of a business with Quoin Technology Pty Ltd was void, as well as a declaration that the sums paid under the contract were held by Ernst & Young on trust for Ethnic Earth. Quoin, which was in liquidation, denied the claims and counterclaimed for the balance of the purchase price and damages for breach of contract. The court was required to determine whether the contract was void under section 6 of the Land and Business (Sale and Conveyancing) Act 1994, and whether the payments made by Ethnic Earth were held on trust for them.

The court found that the second variation to the contract, which provided for additional payments before settlement, rendered the contract void under section 6(1) of the Act. The payments did not constitute a deposit as defined in the Act, and the fact that they were to be paid to a stakeholder did not take them outside the operation of the Act. The court also found that Quoin was beneficially entitled to the payments made by Ethnic Earth, and therefore refused the declaration that the monies were held on trust for Ethnic Earth. However, the court noted that there were other outstanding issues to be resolved, including the effect of Quoin’s liquidation on the proceedings and whether Quoin’s counterclaim against Ethnic Earth could be set off against any claim by Ethnic Earth.

The court concluded that it was appropriate to hear the parties further as to the future course of the proceedings and any orders that should be made in light of the reasons given. The court did not make any orders at that stage, but noted that Ethnic Earth would normally be entitled to an order for payment by Quoin of the monies paid by Ethnic Earth pursuant to the terms of the contract, subject to the resolution of the other outstanding issues. The court also noted that the second action should be dismissed.

No specific orders were made by the court at the time of the decision, but the court indicated that it would hear the parties further as to the future course of the proceedings and any orders that should be made in light of the reasons given. The court noted that Ethnic Earth would normally be entitled to an order for payment by Quoin of the monies paid by Ethnic Earth pursuant to the terms of the contract, subject to the resolution of the other outstanding issues. The court also noted that the second action should be dismissed.