Papua New Guinea Law Reports - 1964
[1964] PNGLR 110
PAPUA NEW GUINEA
[SUPREME COURT OF JUSTICE]
RONALD DOUGLAS FIRNS
(PLAINTIFF)
V
CHARLES HENRY BIRD
(DEFENDANT)
Port Moresby & Rabaul
Ollerenshaw ACJ
17-21 August 1964
24-26 August 1964
23 October 1964
CONTRACT - Specific enforcement - Agreement for options - Formal agreement to be drawn up - Parties construction of agreement not conclusive.
The defendant, B, prepared and circularised a document containing proposals for the sale of his business. On the 4th April, 1963, B. and F. executed a document entitled “Agreement for certain options” to which was annexed a document signed by both parties called “Agreement for Lease and Sale”. The options agreement purported to give `F. an options to purchase the whole of B.’s business in accordance with the terms set forth in the annexed “Agreement for Lease and Sale”, with a further provision that the sale and lease agreement should be subject to such modifications as to content and phrasing as were consistent with the spirit of the agreement and as were found necessary to give the agreement legal validity. There was a further clause in the options agreement which stated that the agreement would remain in force until an agreement in the required legal form had been executed, and if no such agreement in legal form had been executed within three months from the date of the options agreement then B. would be entitled, upon one week’s notice in writing to F. to fix a date upon which the options were to be deemed to have expired.
In spite of protracted negotiations between the parties a formal agreement had not been executed by the 5th July, 1963, and in a letter of that date B. purported to give F. seven days notice that the options were to be deemed to expire at midnight, 12th July, 1963. F. made no demur to this notice and by letter dated 8th July, 1963, he accepted the offers contained in the options agreement. No further agreement was drawn up and B. declared that he regarded himself as not bound by the options agreement after the 12th July, 1963.
F, claiming as a purchaser under the Agreement for Lease and Sale, sought an order for specific performance by the execution of an appropriate formal agreement.
Held:
That:
(1)      It was not necessary for the acceptance of the options granted by the agreement that F. should tender to B. a document for execution as their formal agreement.
(2)      The acceptance of the options by F. in his letters of 8th July, 1963, contributed a binding agreement between the parties in the terms of “The Agreement for Lease and Sale” the further formal contract being intended only as a restatement of those terms for the purpose of giving them full force and effect in accordance with the law for the time being in Papua.
(3)      B. had never properly exercised his rights to determine the options.
(4)      The Court is not always bound to adopt the construction placed upon an agreement by the parties.
(5)      For the purpose of specifically enforcing the agreement in existence between the parties a proper form of contract was to be settled and executed by F. and B. in accordance with the directions of the Court and upon its execution its terms and provisions were to be duly and properly performed according to the respective obligations thereunder.
Counsel:
L. W. Street, Q.C. with him N. H. White, for the Plaintiff.
C. F. McLoughlin with him S. Cory, for the Defendant.
C.A.V.
OLLERENSHAW ACJ:  This is an action for specific performance in the true sense brought by the Plaintiff, as purchaser under an agreement for sale and purchase, which he says was reached between himself and the Defendant, as vendor, after certain transactions had taken place between them during part of last year, the Plaintiff claiming the specific performance of such agreement by the execution of an appropriate formal agreement.
(His Honour recorded the appearances and continued:)
The Plaintiff is an experienced businessman of some substance in Port Moresby, where he is engaged in a variety of enterprises.
The Defendant, also, is an experienced business man of Port Moresby, where for some years he has carried on a retail and other businesses shop or store in his premises known as “C. Bird’s Town Store” or “Bird’s Store”, which are erected upon Allotment 6, Section 45 in Cuthbertson Street, Port Moresby, land that is more particularly described in paragraph 1 of the Defence, where it is asserted that the Defendant is the Lessee of of it from the Crown. There it attached or close to this main building a small, but permanent building that is used as living quarters. The main building consists of a basement and ground and first floor, parts of which are, and at all material times were let to various tenants, who carry on their respective businesses in such parts.
(His Honour explained the delay in delivering his written reasons for judgment and continued:)
I accept the Plaintiff as a witness of truth. Both the Plaintiff and the Defendant gave evidence, some of which was relevant, as to the various discussions and the like during the course of negotiations which took place between them before and after the execution of the options agreement, to which I must soon come. The Plaintiff’s recollection was not always clear about some of the details, but, in my finding his recollection was much clearer than the Defendant’s appeared to be and where they are in conflict I prefer the evidence of the Plaintiff.
The history of the matter up to the execution of this agreement briefly is: the Defendant, being minded to sell his property, to which I have referred, prepared and caused to be circulated a document, entitled: “Proposals for selling C. Bird Town Store over Ten Years”. He also placed a copy of it in the hands of a Real Estate Agent in Port Moresby.
The Plaintiff received a copy of the “Proposals” and after negotiations between himself and the Defendant in the course of which the Defendant accepted a tender made by the Plaintiff, they executed on the 4th April, 1963, a document called: “Agreement for Certain Options”, which the Plaintiff had had prepared by a solicitor and to which was annexed a document called: “Agreement for Lease and Sale”. This annexure contains terms that were based largely upon the “Proposals for selling C. Bird Town Store over Ten Years” and it has some additional terms that the Plaintiff inserted with the concurrence of the Defendant.
The “Agreement for Certain Options” is in these terms:
“IN CONSIDERATION of the sum of Five pounds (£5) the receipt whereof is hereby acknowledged CHARLES HENRY BIRD of Port Moresby in the Territory of Papua, businessman, HEREBY GRANTS to RONALD DOUGLAS FIRNS of Port Moresby aforesaid company director, (or his appointee), an option over ALL THAT portion of the land and buildings erected thereon known as C. Bird’s Town Store situated in Cuthbertson Street, Port Moresby aforesaid (hereinafter called “the whole of the subject premises”) constituted by the Ground Floor Store and Office, the Basement Bulk Store and the annexed Living Quarters (hereinafter called “the ground floor premises”) TOGETHER WITH the photographic business now conducted on the ground floor premises AND A FURTHER OPTION ultimately to purchase the whole of the subject premises in each case IN ACCORDANCE WITH the terms of the form of agreement marked “A” signed by the parties and annexed hereto PROVIDED ONLY that the said agreement shall be subject to such modifications, alterations and additions to the content and phrasing of the agreement aforesaid as may be found necessary or expedient, while adhering to the spirit of the said agreement, to give to the agreement aforesaid full force and effect in accordance with the law for the time being prevailing in the Territory of Papua.
THESE OPTIONS shall continue in force until such agreement or agreements in legal form as may be required shall have been duly executed and assented to by the Administrator where such assent is by law required provided that if the agreement or agreements in legal form hereinbefore referred to shall not within three months from the date hereof have been duly executed by the parties the said CHARLES HENRY BIRD shall be entitled upon one week’s notice in writing to the said RONALD DOUGLAS FIRNS to fix a date upon which these options and each of them shall be deemed to have expired.
DATED this fourth day of April, 1963. SIGNED by the said CHARLES HENRY BIRD in the presence of:
(Sgd) J. M. Firns.
(Sgd) Charles H. Bird.
SIGNED by the said RONALD DOUGLAS FIRNS in the presence of:
(Sgd) J. M Firns.
(Sgd) Ronald D. Firns.”
I find for the Plaintiff upon all the issues, both main and subsidiary.
The main issues are three - firstly, whether it was necessary for the acceptance of the options granted to the Plaintiff in the agreement set out above that the Plaintiff should tender to the Defendant a document for execution as their formal agreement. I do not think it was.
Secondly, assuming that the letters, addressed by the Plaintiff to the Defendant on the 8th July, 1963, did constitute an acceptance of the options, whether this created a binding agreement between the parties.
It was submitted for the Defendant that the options agreement in this action fell within the second or third of the three classes of cases distinguished in Masters v. Cameron[lxxxii]1. That is to say that it is: “a case in which the parties have completely agreed upon all the terms of their bargains and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document”, or, “one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract”.
In the course of his industrious argument, Mr. McLoughlin cited Von Hatzfeldt-Wildenburg v. Alexander[lxxxiii]2 and I would think, most of the important relevant English cases since Parker J. delivered his judgment in that case. Typical of these were: Government of Kelantan v. Duff Development Company Ltd.[lxxxiv]3 and G. Scammell and Nephew Limited and H. C. and J. G. Ouston[lxxxv]4, which latter case I mention because in the judgments there is reference to the use that may be made of the circumstances surrounding the transactions between the parties and the negotiations and the like that took place between them. Mr. McLoughlin also cited most, I would think, of the important relevant cases that have been decided in Australia, typical of which are: Barrier Wharfs Ltd. v. W. Scott Fell and Co.[lxxxvi]5, Niesmann v. Collingridge[lxxxvii]6 and Sinclair, Scott and Company Limited v. Naughton[lxxxviii]7.
For the Plaintiff it was submitted that the agreement fell within the first of the classes of cases defined in Masters v. Cameron[lxxxix]8; that is to say that it is a case: “in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect”-with this difference, that it was merely intended by the parties that the formal agreement should be such as would satisfy the requirements of the law of the Territory of Papua relating to such matters as the assent or the approval of the Administrator, Local Government restrictions and the like.
Reliance was placed by counsel for the Plaintiff, in the main, upon the judgments in Australian Can Co. Pty. Ltd. v. Levin and Co. Pty. Ltd.[xc]9, in as much as the option in that case expressly contemplated that there might be further provisions determined upon by the parties and the evidence in this subject case showed that, here too, the parties, in the discussions that took place between them before the execution of the options agreement, contemplated such a possibility. The particular submission for the Plaintiff was that if no such further provisions were agreed upon then the exercise of the options would mean that the terms in the “Agreement for Lease and Sale” would be the terms of the formal agreement together with such terms as were found to be necessary to give such agreement “full force and effect in accordance with the law for the time being prevailing in the Territory of Papua”. These submissions appeal to my mind.
Thirdly, assuming that the options were duly exercised and a binding agreement was thereby created between the parties, whether it was a condition, as Counsel for the Defendant put it - either precedent or subsequent - of that agreement that the Plaintiff should comply with Clause 20 of the “Agreement for Lease and Sale” in these terms:
“No tender will even be considered unless a favourable report is received from the Bank Manager that the intending Purchaser appears to be in an excellent financial position to be able to keep to the Agreement, once made.”
This provision appears in the “Proposals” to which I have already referred and I can but think that it got into the “Agreement for Lease and Sale” by accident. The Plaintiff’s tender had been considered and accepted by the Defendant and it was this that resulted in the execution of the options agreement. There was some discussion about it between the parties that appears to have taken place before the execution of the options agreement. In any event, accepting the Plaintiff as a witness of truth, as I do, and considering the probabilities, I find upon the evidence that it was waived by the Defendant and that the Plaintiff was released from any obligation that he may have incurred by reason of the presence of this clause in the “Agreement for Lease and Sale”.
Of the subsidiary issues I refer only to that one arising from Mr. McLoughlin’s submission that the property, the subject of the options, was not sufficiently defined in the “Agreement for Certain Options” or the “Agreement for Lease and Sale”, although he conceded that there was no dispute between the parties as to what such property was and in the Defence the Defendant has pleaded his title to the Crown Lease, which I have no doubt the parties understood to require the payment of an annual rent of £200 as set out in Clause 24 of the “Agreement for Lease and Sale”. I think that it is not inapt and that it is sufficient to cite upon this issue, the following passage from the judgment of Street J. (as he then was), in Kell v. Harris and others[xci]10:
“I should be surprised to hear that it is a good defence to a suit for specific performance for a defendant to say: ‘We are both agreed as to our obligations under the contract, but if its terms are looked at it will be seen that there is some degree of ambiguity in the way in which we have expressed ourselves, and therefore, notwithstanding our consensus ad idem, I ask the Court to refuse to enforce the agreement. Apart from this, however, I think that, as a matter of fair inference from the language of the document, and without resorting to conjecture, it is apparent that it was intended that the obligations should be borne by the lessee.”
There were some other issues raised by the pleadings but these were resolved before the hearing commenced and I refer only to the issue raised by the Defence that the options agreement was void and of no effect because the Administrator’s prior consent had not been obtained as required by the Transfer of Land Control Ordinance, 1951, and the Land Ordinance, 1962. Evidence was tendered for the Plaintiff and admitted without objection to establish that the Deputy of the Administrator had approved of the options agreement after its execution and Mr. McLoughlin abandoned this defence. I think his attitude was a proper one and perhaps it is permissible for me to refer in this connection to the judgment delivered by me in this Court at Port Moresby on the 5th May, 1954, in the unreported case of McCosker and anor. v. Kuster, because leave to appeal it was refused by the High Court of Australia.
Although there is no disagreement between the parties as to the meaning of the “Agreement for Certain Options”, I found it a difficult document to read. Although light was shed upon some of its provisions by Counsel’s concurrence in the proper construction to be placed upon them I do not consider that the construction placed by both parties upon the proviso, with which the agreement concludes, is the correct one.
In spite of protracted negotiations between the parties, with some assistance from their solicitor, a formal agreement had not been executed by the 5th July, 1963, and in his letter of that date the Defendant purported to give to the Plaintiff: “seven days notice that the options shall be deemed to have expired at midnight, 12th July, 1963”. The Plaintiff made no demur to this notice and by his letters of the 8th July, 1963, to which I have already referred, he accepted the offers contained in the options agreement. Since the expiry of the date fixed by the Defendant he claims that there is no agreement between them because a formal agreement had not been executed, although he has shown himself as willing to continue to negotiate.
As I read this proviso and notwithstanding what the parties may have intended to say and notwithstanding what they think they did say, it clearly means, to my mind, that the defendant shall be entitled, after giving the Plaintiff one week’s notice in writing, to fix a date upon which the options shall be deemed to expire. This would involve two steps-the giving of the notice and the fixing of the date. This may seem an unrealistic construction in as much as, on the face of it, the Defendant, upon the expiry of the week, could have fixed the next day or so. However, I am inclined to think that he would have had to fix a reasonable time for the completion of the formal agreement and that his failure to do so would have given the Plaintiff a right to relief from this Court in this exercise of this equitable jurisdiction.
It follows from the construction which I place upon the proviso that the Defendant has never exercised his right to determine the options with the result that they still obtain. As I have said this is not the construction placed upon the proviso by the parties; however, I consider that it is apt to apply, by analogy, the principle applied in Kell v. Harris and others[xcii]11 to which I have already referred. In the upshot I think that the result is the same, whether one adopts the construction placed upon the proviso by the parties or the construction which I place upon it, and, I consider that the Plaintiff is entitled to the relief which he claims.
I gave Judgment for the Plaintiff and made the following Declarations and Orders:
“1.      DECLARE that the Plaintiff by letter dated 8th July, 1963, duly exercised the options granted to him by agreement dated 4th April, 1963, made between the Plaintiff and the Defendant.
2.       DECLARE that the contract brought into existence by the aforesaid exercise of the said options ought to be specifically performed and carried into effect.
3.       ORDER that for the purpose of specifically performing and carrying into effect the said contract a proper form of contract be settled and executed by the Plaintiff and the Defendant in accordance with directions set forth hereunder and that upon execution of the same its terms and provisions be duly and properly performed by the parties according to their respective obligations there under. The aforesaid directions are:
(a)      That the Plaintiff or his solicitor do within fourteen days from this date file and serve upon the Defendant’s solicitor a draft form of contract complying with the laws of the Territory of Papua and embodying the terms and conditions set forth in the agreement dated 4th April, 1963;
(b)      that the Defendant or his solicitor do within a further period of fourteen days file and serve upon the Plaintiff’s solicitor particulars of any amendments sought to be made to the said draft;
(c)      that the Plaintiff or his solicitor do within a further period of seven days file and serve upon the Defendant’s solicitor a second draft incorporating such of the amendments sought by the Defendant as are acceptable to the Plaintiff and indicating clearly such of the matters (if any) as remain in dispute between the parties;
(d)      that the Plaintiff be at liberty at the expiration of thirty-six days from the date of this judgment to restore this action to the list for further hearing and further consideration on the settling and execution of a proper form of contract on two clear days’ notice to the Defendant’s solicitor.
4.       DECLARE that the Defendant by refusing on and from 12th July, 1963, to be further bound by the aforesaid agreement dated 4th April, 1963, committed a breach thereof.
5.       ORDER that further hearing and further consideration of the Plaintiff’s claim for damages of such breach be stood over generally pending the settling and execution of a proper form of contract in accordance with the foregoing directions with liberty to either party to restore to the list on seven days notice the further hearing and further consideration of the claim for damages.
6.       ORDER that the Defendant pay the Plaintiff’s costs of this action up to and including the settling of this judgment.
7.       Further costs and further consideration reserved.
8.       Liberty to either party to apply generally on four clear days’ notice.
9.       ORDER that the exhibits remain in Court until the time for appeal has expired or until further order.
Solicitor for the Plaintiff: N. H. White.
Solicitor for the Defendant: S. Cory.

[lxxxii](1954) 91 C.L.R. 353. Per Dixon C.J., McTiernan, J. and Kitto, J., at page 360 et seq.
[lxxxiii](1912) 1 Ch. 284.
[lxxxiv](1923) A.C. 395.
[lxxxv](1941) A.C. 251.
[lxxxvi](1908) 5 C.L.R. 647.
[lxxxvii](1921) 29 C.L.R. 177.
[lxxxviii](1929) 43 C.L.R. 310.
[lxxxix](1954) 91 C.L.R. 353. Per Dixon C.J., McTiernan and Kitto JJ. at page 360 et seq.
[xc](1947) V.L.R. 332.
[xci](1915) 15 S.R. (N.S.W.) 473 at page 479.
[xcii](1915) 15 S.R. (N.S.W.) 473 at page 479.