N740
PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

NINGIGA

V

KOAVEA

Waigani
Los J

25 July 1989
4 August 1989
11 August 1989

REAL PROPERTY - Approval of certain dealings - Transfer of land - Of no effect until ministerial approval obtained - Contract voluntarily entered into - No statutory protection until steps taken to obtain approval - Specific performance required - Land Act (Ch No 185), s 69.

VENDOR AND PURCHASER - Contract for sale of land - Ministerial approval required to transfer - Transfer not effective until approval obtained - Contract otherwise enforceable - No statutory protection until steps taken to obtain approval - Specific performance required - Land Act (Ch No 185), s 69.

VENDOR AND PURCHASER - Contract for sale of land - Option to purchase in lease exercised - Improvements effected - Improvements made not subject to covenants in lease - Change in relationship of parties.

The Land Act (Ch No 185), s 69, provides that land shall not be transferred without the approval of the Minister.

Parties entered into a memorandum of lease which included a covenant by the tenant not to effect improvements without the consent of the landlord and an option to purchase the property leased, which option was exercised and a contract of sale executed. After the contract was executed, the purchaser effected considerable improvements to the property. The vendor refused to complete and the purchaser sought specific performance.

Held:

(1) Where parties have voluntarily entered into a contract for the sale of land, the party who is charged with the obligation to obtain the approval of the Minister under s 69 of the Land Act, cannot rely on s 69 as rendering the transaction ineffective until he has taken the necessary steps to obtain that approval.
McCosker and King v Kuster [1967-68] P & NGLR 182 and Re Luabar Logging Pty Ltd [1988] PNGLR 124, applied.

(2) Because the relationship of landlord and tenant changed to that of vendor and purchaser on the exercise of the option to purchase, improvements effected to the property thereafter were not subject to the covenant in the lease not to effect improvements without consent.

(3) In the circumstances, the vendor should be ordered to take all necessary steps, within one month, to obtain approval under s 69 of the Land Act to transfer the title of the property.

Cases Cited:

McCosker and King v Kuster [1967-68] P & NGLR 182.
Re Luabar Logging Pty Ltd [1988] PNGLR 124.

Summons for Specific Performance
These were proceedings in which the purchaser under a contract for the sale of land sought specific performance thereof.

Editor’s Note
An appeal to the Supreme Court has been lodged.

Counsel:

F Talao, for the plaintiff.
I Wartovo, for the defendant.
Cur adv vult

11 August 1989

LOS J: By a writ of summons the plaintiff seeks to have the defendant comply with an agreement allegedly entered into between them over a property described as Allotment 16, Section 54, Boroko. The plaintiff says that through the Boiboi Real Estate agency he found a house for sale in Boroko (the subject of this dispute) and wanted to buy it. The defendant was introduced to the plaintiff as the owner of the house. The plaintiff says that he and the defendant entered into a lease agreement and eventually signed a memorandum of lease over the property. Apart from the normal conditions of the lease between the parties, included in the memorandum of lease was a clause giving an option to the plaintiff to buy the property on certain conditions.

The rent payable for the property was specified in the second schedule:

"THIS LEASE commences on the 15th day of April 1985 for a period of one year at the rental of FOUR THOUSAND AND EIGHT HUNDRED KINA (K4,800.00) per annum payable by instalments of FOUR HUNDRED KINA (K400.00) per month of which SIXTY FIVE (K65.00) is to be paid to the Housing Commission and THREE HUNDRED AND THIRTY FIVE KINA (K335.00) paid to the Landlord the first instalment to be paid on the 15th day of April 1985."

The plaintiff says that subsequently a contract of sale was signed between the parties confirming the sale and the conditions including a variation of the sale price. The plaintiff says that, in view of the imminent purchase of the property, he had effected substantial improvements and renovations at the cost of approximately K27,000. He claims that despite having done all that he could on his part, the defendant had not done anything to complete the sale and transfer the title over the property to him.
There is little dispute that a lease agreement was validly entered into between the plaintiff and the defendant. This conclusion was reached on two bases. First, there was a direct concession in the submissions of the defendant’s lawyer. Secondly, the defendant relies on the covenants in the memorandum of lease especially covenants 1(c) and (e) and the amount of rent in the second schedule. He cannot, on the one hand, say there was no valid lease agreement and, on the other hand, rely on the covenants in the lease.

1. THE TENANT’S COVENANTS

"The tenant covenants and agrees with the landlord as follows:

(c) Not at law or in equity except to an employee of the tenant to assign, transfer, underlet or part with the possession of the demised premises or any part thereof without the previous written consent of the landlord such consent not to be withheld in the case of a proved solvent and responsible person the onus of proving which shall be upon the tenant provided however that as a condition of consent to any assignment or subletting the landlord may require that the proposed assignee or subtenant shall enter into a direct deed of covenant with the landlord to observe and perform the covenants and conditions herein expressed and implied and provided further that the landlord’s costs of such deed of covenant and of any investigation of the proposed assignee and of any investigation of the proposed assignee or subtenant are paid by the tenant [sic].

(e) Not to make any alterations or additions to or paint or paper the demised premises without the landlord’s consent. Unless the landlord agrees otherwise in writing, any improvement made to the premises by the tenant shall on the expiration of the term hereof vest in the landlord and the tenant shall not be entitled to remove the same."

So the only two major questions to answer are: first, whether the defendant knew and accepted the option-to-purchase clause in the lease. Secondly, whether he knew that the document he signed subsequently was a contract for sale; consequently whether the argument by the plaintiff is correct, that is, that he has honoured his part of the agreement whereas the defendant had failed to honour his part of the agreement, and whether this entitles the plaintiff to obtain an order from this Court compelling the defendant to honour the agreement or alternatively whether that entitles the plaintiff to recover damages for breach of the agreement.

The plaintiff relies on the special clauses in the memorandum of lease and the document entitled "contract for sale of land" and says that these form the basis of the purchase and sale agreement. Special clause 11 says:

"In consideration of the rent to be paid hereunder the Landlord hereby grants to the Tenant the option of purchasing the land within twelve months of the date borne by this agreement."

And clause 11(a) to (e) provides for the method of the purchase and the purchase price of the property in question as follows:

"11
(a) The option may be exercised by notice in writing given by the Tenant to the Landlord at any time before the expiry thereof.

(b) If the Tenant exercises the option the following conditions shall apply:

(c) The purchase price shall be thirty-five thousand kina K35,000.

(d) A contract in the terms of Schedule Three hereto shall be deemed to have been entered into between the parties hereto dated the day the option is exercised.

(e) Until completion of the sale the Tenant shall be entitled to remain in occupation of the premises as on the holding over hereunder."

The purported sales agreement is dated 7 July. Paragraph 2 of the agreement contains the price of the property altered from K32,000 to K35,000 with the initials acknowledging and accepting the alterations. The plaintiff has identified his signature on both the memorandum of lease and the contract for sale. The defendant had also identified his own signature on both documents. Witnesses also verified the signatures. The defendant says he did sign and he did initial those changes but he did not know what he was signing partly because he was sick at that time and partly because he was forced to sign by the plaintiff.

The defendant’s claim that he was forced to sign cannot stand because there is no evidence supporting that allegation. Secondly, his claim that he did not know what he was signing cannot stand. The defendant was a housing officer with the Department of Urban Management for 10 years. He was involved with the allocation of houses, advising how one would apply for and get a house. He could read and understand English. Looking at par 2 of the contract for sale, he could not blindly have initialled anything because K32,000 was clearly crossed off and instead K35,000 was hand-written on the side. It would be very strange to say that K32,000 in the first place did not represent anything to him and therefore a change from that figure to K35,000 did not mean anything to him at all. Even in the memorandum of lease, cl 11(c), he initialled the alteration of the sale price from K32,000 to K35,000.

The defendant’s demeanour in the courtroom did not help him at all. It is very obvious to me that the defendant had agreed to the special clauses in the memorandum of lease and then subsequently agreed and signed the contract for sale. He has only lately realised that he made a big mistake by trying to sell a house at such a price when, with the improvements effected on the house by the plaintiff, he could sell it for more money than he had agreed in the first place. This conclusion is further supported by an open statement made by the defendant in court that he would only sell the house to a person who offered to buy it at about K120,000. It is too late now; he has bound himself up. I therefore find that there was a valid agreement between the two parties, the plaintiff on the one hand as the buyer and the defendant on the other hand as the vendor.

In what seems to be the main defence, the defendant says that by virtue of s 69 of the Land Act (Ch No 185), the sale agreement has no effect. Section 69 provides:

"69. Approval of Certain Dealings

(1) Notwithstanding anything in any law, but subject to this section, a person shall not, without the approval of the Minister:

(a) transfer land; or

(b) give a mortgage or encumbrance of or over land; or

(c) grant a lease, easement, right, power or privilege of, over, in or in connexion with land."

I think it would be most unfortunate if there was a principle of law that could allow a party who had consciously entered into an agreement to lease or to sell a house or land to change his mind later and rely on s 69 as a defence. Section 69 is meant to control the acquisition of land in the country and not to stand in the way of an agreement voluntarily entered into by the parties. Someone has to do something constructive to obtain the required approval. The defendant had openly said in court he would not sell the house to the plaintiff. This clearly indicates he does not wish to obtain any approval for the sale. There is an old case which is very much on the point. It gives the history of what is now s 69 of the Land Act. The defendant in that case also raised duress as a defence, as the defendant in this case had tried to do. But the main point relevant here is that an argument similar to the s 69 argument was raised in that case. The case is McCosker and King v Kuster [1967-68] P & NGLR 182. At 189, Ollerenshaw AJ said:

"Having regard to the policy of the Ordinance and its wording, particularly the opening words of sub-s (2) of s 1, I am inclined to think that, pending an application for the Administrator’s declaration and his decision to grant or refuse consent, the parties to a transaction are not without obligations towards each other. I am also inclined to think that any agreement entered into with respect to the acquisition of an interest in land in the Territory of New Guinea would be subject to an implied condition that it was subject to the approval of the Administrator and that if such approval were refused, it would go off. Furthermore, I think that the parties would be bound not to do anything to prevent approval and, in some circumstances, to do what was reasonably necessary towards obtaining approval. A somewhat similar position exists in relation to Crown Lands in New South Wales: see Egan v Ross (1929) 29 SR (NSW) 382."

Recently Bredmeyer J, in Re Luabar Logging Pty Ltd [1988] PNGLR 124, followed McCosker and King’s case. His Honour said (in the headnote to the unreported judgment):

"despite that section an unapproved dealing can have some effect. Where the parties have acted on an unapproved lease, the tenant has gone into possession and the landlord has allowed the tenant to go into possession, the tenant is estopped from saying that the lease is of no force and effect. The landlord can sue for, and recover, the rent owing."

I am not aware of any recent Supreme Court decision on this point. If such a point comes before the Supreme Court, it may decide it differently. However, in my view, until the party who is charged with an obligation to take steps to obtain the s 69 approval, does anything at all, for example, getting the necessary documents ready and forwarding them for consideration under s 69, that party cannot hide behind the section either to cover up his inaction or cover up a change of heart on the agreement that he had voluntarily entered into previously.

In the other argument the defendant says that the plaintiff had breached the memorandum of lease by sub-letting the property without getting any written approval from the defendant as required by covenant 1(c). Further, he says the plaintiff had also breached the memorandum of lease by effecting improvements on the property without getting any approval from the defendant as required by covenant 1(e).

There could have been breaches if the renovations and sub-lease occurred before the plaintiff had exercised his option to buy the property under the special clauses. Once the option was exercised, the relationship changed from that of landlord and tenant to vendor and purchaser. Thereafter the improvements were done by the plaintiff with the view to benefiting himself as the purchaser and eventually as owner of the property.
It is obvious to me that the defendant had agreed to sell the property to the plaintiff at the price of K35,000. Now he realises that he should have asked for more. The plaintiff, relying on the agreement, has paid a normal 10 per cent deposit. He had also effected considerable improvements on the basis that, except for the s 69 requirement, everything was set for him to buy and own the house. I find that the defendant has failed badly on his part.

As at the end of June 1989, a sum of K20,000 has been paid as rent. At the time of this decision, a further K600 would have been paid or be due to be paid. A sum of K3,500 has been deposited and is being held by the plaintiffs lawyer. I was under an impression that the plaintiff was arguing that the rent paid thus far be applied in reduction of the purchase price. As this point has not been argued fully and because cl 11 in the memorandum of lease may not be so supportive of the plaintiffs claim in this respect, I go no further on this point. However, if the plaintiff were successful in this respect, there would be a difference of K10,900 left to be paid as at the date of the decision. I accept that the plaintiff had made major renovations upon the property. He has spent a sum in excess of K27,000 in this respect. The property is now worth approximately K75,000.

If the Court cannot order specific performance, it must order damages for breach of the contract for sale against the defendant. To order damages for breach of contract would be to make the plaintiff lose badly. He would lose the house as well as being unable to recover any damages because the defendant is not financially secure. This would not be equitable to the plaintiff who has been ready and willing to honour the agreement and who has, in good faith, done so much in renovating the house. On the other hand, if I order specific performance both parties will benefit from the order.

I therefore make the following orders:

(1) That the defendant take all the steps necessary to obtain approval under s 69 of the Land Act to transfer the title of the property being Allotment 16, Section 54, Boroko to the plaintiff.

(2) That all the steps required of him be completed within 1 month of today’s date.

I make no orders as to costs.

Orders accordingly

_______________________________________

Lawyers for the plaintiff: Young & Williams.
Lawyers for the defendant: Wartovo & Associates.