N2513

Papua New Guinea

[IN THE NATIONAL COURT OF JUSTICE]

WS 332 of 1998

BETWEEN:

WATT K. KIDDIE & KIDDIE AND ASSOCIATES
Plaintiffs

AND:

ROBERT PAVEY & BETTY PAVEY
Defendants

Lae: Manuhu, AJ
2003: August 7 &
2004: March 11

DECISION

Real Property – contract of sale unexecuted – specific performance not available.

Contract – collateral contract – prior occupation – repair and maintenance upon prior occupation - enforceability.

Tort – remoteness of damage –tort of dispossession of property – damage is rental value. 

Cases cited:
King & McCosker v Kuster [1967-68] PNGLR 182. 
Daba Hisiuna Pty Ltd v Turner & Davey Electrical Pty Ltd [1974] PNGLR 164.
Seafreight Pty Ltd v Bishop Shipping Services Pty Ltd [1976] PNGLR 22. 
Madaha Resena & Ors v The State [1990] PNGLR 22.

Counsel:
Mr. D. Poka, for the Plaintiffs.
Mr. P. Ousi, for the Defendants.

11 March 2004.

MANUHU, AJ: This is a claim for costs of repairs and maintenance to a property at Section 57 Allotment 18 Lae which was to have been sold to the plaintiffs for K56,000.00. The plaintiff also claims for loss of income, cost of insurance and lawyers fees, interests and fees on a Rural Development Bank loan of K44,000.00. In the alternative, the plaintiffs seek orders for specific performance to compel the defendants to sell the property to them.

The defendants deny any agreement to sell the property but admitted there were discussions on a possible sale. Since the sale did not materialize, the defendants claim rental value for the period the plaintiffs failed to vacate the property upon demand.

The facts of the case are apparent from the claims and counterclaims. The property referred to was to be sold to the plaintiffs but the defendants refused to have the sale completed. The reasons for the cancellation, according to the defendants, are that first, they did not like a certain term in the proposed contract of sale. That term states:

"The purchaser has the right to be reimbursed by the vendor for monies expended on the maintenance and repairs done to the property upon prior occupation should the property vanish or the transaction fails to materialize."

The second reason given is that the 10 per cent deposit was only K5,000.00 and not K5,600.00. The plaintiffs say they paid K5,200.00. I do not intend to dwell on what was actually paid.

If these are the only grounds relied upon by the defendants then they are not serious enough to warrant a cancellation of the contract of sale. On the balance of probabilities, prior occupation of the property was part of the pre-sale agreement between the parties. The plaintiffs could not have secretly moved into the property and without the knowledge and authority of the defendants. 

Consistent with prior occupation, I am so satisfied, is the agreement or permission that the plaintiffs carry out repair and maintenance to suit the purpose of prior occupation. Maintenance and repairs could not have been carried out without the defendants knowing. By such conduct, I am satisfied that there was a serious discussion to sell the property to the plaintiffs.

Against this background, I find it unreasonable that the defendants should frustrate the sale on the basis of an undesirable term of the proposed contract of sale. I am of the view that the proposed term of the contract is a valid one and one that does not undermine the sale and any benefits the defendants would have enjoyed from the sale. In fact, the term was part of the contract of sale instrument which if signed would have done no harm to the defendants. I also find that the defendants’ reason concerning the 10 per cent deposit being K600.00 less than required to be of no threat to the agreement. It was not serious enough to warrant a cancellation of the sale agreement. Any amount outstanding could have been settled at the time of settlement. The defendants must have had other reasons for not proceeding with the sale agreement. They know what those reasons are but have not disclosed them. 

It is trite law that in dealing with land there can there can be no rights until a contract embodying the terms has been executed by both parties. And until any such agreement is signed, the court cannot order specific performance. See King & McCosker v Kuster [1967-68] PNGLR 182 and Daba Hisiuna Pty Ltd v Turner & Davey Electrical Pty Ltd [1974] PNGLR 164. But I am of the view that the plaintiffs claim in relation to repair and maintenance costs is not a claim based on the main contract of sale of the property. The claim is based on the pre-contractual arrangement which is a contract in itself and is enforceable. It is a collateral contract between the parties, the consideration for which is the completion of the contract of sale of the property. It is a contract that is the same as the one regarding the usual requirement for a 10 per cent deposit. Upon payment of the 10 per cent deposit, the vendor is under the obligation to ensure that the sale is completed. When the vendor fails without just cause, the would-be purchaser would be entitled to recover the deposit. Similarly, when the defendants failed without just cause to complete the sale, the plaintiffs should be able to recover damages for breach of the collateral contract which is the costs of repair and maintenance.

The only difficulty I have presently is in quantifying the costs of repair and maintenance. There are no primary or original documents to substantiate the claim. What is relied upon is a summary showing dates, names of suppliers of materials, invoice numbers, amounts spent, remarks, and total payment which show a grand total of K53,093.19. I am satisfied on one hand that the plaintiffs carried out repairs and maintenance. On the other hand, I do not have the primary materials to satisfy myself on the repair and maintenance costs. 

In the circumstances, I can only resolve the question of liability, and will defer assessment to a later date. It is unusual but I do so so that the case is finalized fairly. The plaintiffs must produce all the primary documents consistent with the summarized records for the court to finalize its orders. If it fails to do so, the defendants may apply to have this particular claim dismissed.

The plaintiffs also claim for loss of income, cost of insurance and lawyers fees, interests and fees on a Rural Development Bank loan of K44,000.00. These claims are not based on contract but on tort. I have found that the defendants failed without just cause to ensure that the contract of sale is completed. The plaintiff argues that if the defendant was at fault then they are liable for loss of income, costs of insurance and lawyers fees, interests and fees on the loan.

However, the defendants’ liability in this regard is also dependent on whether the defendants’ breach and the plaintiffs’ injury is one of cause and effect in accordance with the objective notion of physical sequence. Were the losses by the plaintiff a natural consequence of the defendants breach and failure to formalize the contract of sale? I do not think so. There is no evidence that the defendants were aware of what the plaintiffs would do on the property. What did not happen did not happen. The plaintiffs claim is for loss off income from a business that did not come into existence. Similarly, there is no evidence that the defendants knew that the plaintiffs would be obtaining a bank loan. A bank loan to start a business is not a matter that would normally form part of the discussion or agreement for the sale of the property. Accordingly, I will dismiss these claims.

I now turn to the cross-claim which is a claim for rental value of the property. I have already found that the defendants were at fault in terminating formalization of the contract of sale but when the contract fell through, the plaintiffs did not have any reason to continue occupation of the property. Such occupation would be inconsistent with the right of the party having title to the property. In this case, the plaintiff should have vacated the property. 

I rely on the cases of Seafreight Pty Ltd v Bishop Shipping Services Pty Ltd [1976] PNGLR 22 and Madaha Resena & Ors v The State [1990] PNGLR 22, where similar issues arose. Essentially, a claimant is entitled to damages in respect of all loss suffered by him during the period of dispossession of his property, the normal measure for which is the rental value, to be paid by the party over-holding. The requirement of a contract or agreement is not necessary as the claim is based on the tort of ‘dispossession of property’.

In this case, the defendants gave notice to the plaintiffs to vacate the property on 15th January 1998. The property was eventually vacated in or around December 1999. The period of over-holding is 22 full months. It was clearly stated in the letter of 15th January that the defendants intended to charge rent at K3,500.00. After receiving this letter, the plaintiffs continued to occupy the property for another 22 months.

It is submitted that K3,500.00 may not be reasonable but the plaintiffs do not offer any figures that is reasonable. Conduct of the plaintiffs should also be taken into account. They raised no objection to the proposed rent and continued to occupy the property for 22 months. By such conduct, they must have accepted the proposed rental.

In any event, I will have the proposed rental reduced. I do so taking into account that the defendants were at fault at the first place in letting the original contract of sale to fall through and have thereby contributed to the plaintiffs’ demise. I also take into account that the proposed rental of K3,500.00 was made at a time when the parties were not in good terms. Consequently, the proposed rental may be tainted by disaffection between the parties. For these reasons, I will reduce K3,500.00 to K2,500.00 as the final basis for calculating damages for the plaintiffs over-holding. 

I find ultimately that the defendants are liable to the plaintiffs for costs of repair and maintenance to the property. Such costs are to be assessed within two months or as directed by the court. I dismiss the plaintiffs claims in relation to loss of income, cost of insurance and lawyers fees, interests and fees on a Rural Development Bank loan of K44,000.00. I find for the defendant on the cross-claim in the sum of K55,000.00. The final orders, including orders as to costs and interests, shall be made upon assessment of costs of repair and maintenance. 

Orders reserved accordingly.
________________________________________________________________________
LAWYER FOR THE PLAINTIFFS		:	PRYKE & BRAY LAWYERS
LAWYER FOR THE DEFENDANTS 	:	WARNER SHAND LAWYERS