Paradise Farms Ltd v Bank South Pacific Ltd [2010] PGNC 191; N3825 (8 January 2010)

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Mount Hagen: Makail, J
2008: 8th September & 27th October &
2009: 9th June & 2010: 8th January

LAW OF CONTRACT - Agreement for sale of land - Early possession - Improvements - Agreement rescinded - Effect of - Authorization or approval to take early possession - Authorization or approval to make improvements - Variation of agreement - Variation in writing and by conduct of parties - Parties bound by variation of agreement.

EQUITY - Principles of equity - Promissory estoppel - Reliance on assumptions - Detrimental - Unjust enrichment - Substantial improvements - Party estopped from denying claim - Constitution - Schedule 2.2.

DAMAGES - Assessment - Recovery of expenses incurred - Value of improvement of property - Operational expenses - Two distinct claims - Whether recoverable - Expenses directly related to improvement recoverable - Whether claims established - Evidence of - Lack of - Insufficiency of - Vague and inconsistencies.

Curtain Brothers (PNG) Limited & Anor -v- The State [1993] PNGLR 285
Maip Pty Limited -v- Ambra Coffee Estates Pty Limited [1995] PNGLR 25
Kwila Insurance Corporation Limited -v- Kwantun Pty Limited [1992] PNGLR 200
Jacobs -v- Kwaindu [1991] PNGLR 366
Ningiga -v- Koavea [1988-89] PNGLR 312
Mondo Merchants Limited -v- Melpa Properties Pty Limited & Koang No 47 Pty Limited: OS No 11 of 1999 (Unnumbered & Unreported Judgment of 10th March 1999)
Koang No 47 Pty Limited -v- Mondo Merchants Limited & Melpa Properties Pty Limited (2001) SC675
Investment Promotion Authority -v- Niugini Scrap Corporation Pty Ltd (2001) N2104
New Ireland Development Corporation Limited -v- Arrow Trading Limited (2007) N3240
Spirit Haus Limited -v- Robert Marshall & Ors (2004) N2630
Soroi Eoe as Director of PNG National Museum & Art Gallery & Ors -v- Steamships Limited & Ors (2005) N3013
Madiu Andrew -v- Mineral Resources Development Company Limited (2007) N2601
Jack Topo -v- Kelly Kaman & The State (2009) N3773

1. MAKAIL, J: In this action, the plaintiff, a company incorporated under the Companies Act 1997 sues the defendant for expenses in the total sum of K753, 205.00 incurred in taking early possession of a coffee plantation located outside the town of Mt Hagen after an agreement for the sale of the property between the plaintiff and the defendant was rescinded by the defendant. The defendant denies the claim and trial was conducted on both liability and assessment of damages.

2. In its writ of summons filed on 28th May 2001 and subsequently amended on 25th March 2005, the plaintiff alleges that sometimes in 1995, the defendant advertised two portions of land described as portions 53 and 1011 situated between Mt Hagen town and Baisu Corrective Institution. Both portions of land were consolidated and had improvements comprising of fully developed coffee plantation which is commonly known as "Kuga Coffee Plantation", ("the property").

3. The plaintiff tendered for the property for K165,000.00 at K82,500.00 for each portion of land and was the successful bidder. Upon acceptance of the plaintiff's offer and prior to execution of the agreement for sale of land (the "agreement") by the parties, the plaintiff paid the required 10% deposit price of K16,000.00 but the defendant refused to accept that amount and demanded payment of the total purchase price of K165,000.00 before execution of the agreement.

4. On 17th March 1998, the plaintiff paid the total purchase price of K165,000.00. Before it executed the agreement with the defendant, it took early possession of the property and proceeded to carry out improvements on it. It alleges that the total value of improvements it put up was K753,205.00. The agreement and transfer instruments were not executed until 9th August 1999. At the time of the execution of the agreement, there were two un-discharged mortgages registered in favour of the defendant and one John Esana Leahy.

5. While the defendant was able to discharge its own mortgage, it was not able to obtain a discharge on the second mortgage and consequently, the sale could not be completed. Parties then rescinded the agreement and the defendant refunded the total purchase price of K165,000.00 to the plaintiff. The defendant however, did not refund the expenses incurred by the plaintiff for improving the property. The plaintiff alleges that this is in breach of the agreement and seeks refund of its expenses from the defendant.

6. In its defence filed on 31st July 2001 and subsequently amended on 29th November 2005, the defendant admits that it entered into an agreement with the plaintiff for the sale of the property and that at the time of executing the agreement with the plaintiff, there were two un-discharged mortgages. Further, it admits that the agreement was rescinded as it was unable to discharge the second mortgage. However, it denies any liability because first, clause 9 of the agreement prohibited the plaintiff from commencing any action for damages in law in the event that the agreement is rescinded. It alleges that the action for recovery of the expenses incurred in putting up improvements on the property is indeed an action for damages which is prohibited by clause 9 of the agreement.

7. Secondly, even if the plaintiff did incur expenses for putting up improvements on the property, it incurred these expenses without the knowledge and approval of the defendant, hence the defendant should not be liable for these expenses. Thirdly, as a matter of law, the expenses if incurred by the plaintiff were incurred by the plaintiff who had no registered title or interest in the property, hence there is no legal or equitable obligation on the defendant to repay the plaintiff for incurring these expenses. Finally, it alleges that the plaintiff is a foreign company within the meaning of section 3 of the Investment Promotion Act 1992 (the "IP Act") and since it was not certified to carry on business in Papua New Guinea, the agreement it entered into with the defendant to purchase the property is void pursuant to section 41A of the IP Act. Hence, it is unenforceable against the defendant.

1. Affidavit of Thomas Serowa sworn on 25th August 2005 and filed on 26th August 2005 (Exhibit "P1");

2. Affidavit of Luke Yaluma sworn on 7th December 2007 and filed on 13th December 2007 (Exhibit "P2"); and

3. Affidavit of Noah Kana sworn on 6th August 2002 and filed on 8th August 2002 (Exhibit "P3").

9. All the deponents of these affidavits were cross examined by counsel for the defendant in relation to the contents of their affidavits. As far as the evidence of the defendant is concerned, the following affidavits were tendered into evidence by consent and none of the deponents of these affidavits were cross examined by counsel for the plaintiff in relation to their contents:

1. Affidavit of Ivan Pomaleu sworn and filed on 15th August 2008 (Exhibit "D1"); and

2. Affidavit of Unaba Daera sworn on 09th September 2005 and filed on 23rd September 2005 (Exhibit "D2").

10. From these affidavits, the undisputed facts are these: the plaintiff and the defendant entered into an agreement for sale of the property in the sum of K165,000.00 following the plaintiff's successful application by public tender. On 17th March 1998, the plaintiff paid the total purchase price of K165,000.00, however, the actual execution of the agreement did not take place until 29th August 1999. At the time they executed the agreement, there were two un-discharged mortgages registered on the title, the first one in favour of the defendant and the second, in favour of one John Esana Leahy. One of the terms of the agreement was for the plaintiff to take early possession of the property. Prior to March 1998, the plaintiff took early possession of the property, and carried out improvements on it. However, the sale could not be completed as the defendant was not able to obtain a discharge on the second mortgage. The agreement was later rescinded and the defendant refunded the total purchase price of K165,000.00 to the plaintiff.

11. The disputed facts are first, the defendant denies allowing or authorizing the plaintiff to take early possession of the property as it did not give its consent or authority to the plaintiff to take early possession. Secondly, the defendant denies that the plaintiff incurred expenses of K732,205.00 for putting up improvements on the property.

12. The pleadings and facts of the case present the following issues for determination:

1. Whether the defendant authorized or approved the plaintiff's early possession of the property before the completion of the sale.

2. If so, whether the defendant is liable to compensate the plaintiff for the expenses incurred in improving the property.

3. Whether the plaintiff's failure to comply with the provisions of the IP Act rendered the agreement between it and the defendant void and unenforceable.

4. If liability is established against the defendant, has the plaintiff proven its losses in terms of the expenses incurred in improving the property?

13. The first issue is whether the defendant authorized or approved the plaintiff's early possession or occupation of the property prior to completion of the sale. This is a question of fact as it will be decided on the evidence of the witnesses. As far as the plaintiff is concerned, its evidence on the authority or approval for early possession of the property is found in the affidavit of Luke Yaluma, (Exhibit "P2").

14. At paragraphs 12 and 13 of this affidavit, Mr Yaluma states that on 19th March 1998, the late Trapura Yaluma wrote a letter to the defendant seeking its assistance to remove illegal occupants on the property and advised it that, it wanted to take possession of the plantation and carry out improvements to rehabilitate it. Annexed and marked "K" to the affidavit is a copy of the said letter, which states:

"We have already moved onto the plantation and started improving the plantation.

There are some so called Landowners still illegally residing on and around the plantation.

Would the bank make arrangement to remove the illegal occupants and give Paradise Farm Ltd the legal documents such as title and contract of sale to be executed urgently?"

15. On 27th March 1998, the defendant wrote to the plaintiff advising that its proposal for early possession and improvement of the plantation was accepted. Annexed and marked "L" to the affidavit is a copy of the said letter. The relevant parts of the letter states:

"We received your fax letter of 19th March 1998 in regard to eviction of illegal occupants.

While we are in the process of executing the Contract of Sale and Transfer Instruments are being drawn, we accept and allow you to improve the plantation as you have requested prior to settlement. " (Emphasis added).

16. It is noted that the defendant does not deny or dispute the existence of the two letters, especially, the letter it sent to the plaintiff dated 27th March 1998, nor does it challenge its authenticity. However, it contents that first, the plaintiff had moved on or entered the property without its approval or authority and when the plaintiff was on the property, the plaintiff sought its approval or authorization to enter and improve the property. This shows that the entry or possession of the property by the plaintiff was unauthorized or without its approval, hence it cannot be liable for the plaintiff's expenses incurred in improving the property.

17. It further contends that when terms of an agreement are contained in writing, it is not permissible to allow any evidence to add to, subtract from, vary or qualify it. It refers to the Supreme Court decision of Curtain Brothers (PNG) Limited & Anor -v- The State [1993] PNGLR 285 to support its contention and submits that the letters of 19th March 1998 and 27th March 1998 should not be added to the terms of the agreement between the parties so as to read that the defendant did give approval or authority to the plaintiff to take early possession of the property.

18. With respect, I reject this contention because it runs counter to the contents of the letters of 19th March 1998 and 27th March 1998 that were exchanged between the parties. The defendant's letter to the plaintiff dated 27th March 1998 which states that, "........we accept and allow you to improve the plantation as you have requested prior to settlement", is in my view unequivocal expression of the defendant's acceptance to the plaintiff's request for early possession. And I do not believe that because the plaintiff had moved onto or entered the property prior to obtaining approval from the defendant does change the position of the parties in relation to the authority or approval for early possession.

The fact is, the defendant subsequently gave approval or its authorization to the plaintiff, and in my view, that is what matters most here. I also do not believe that the early entry or possession without prior authority or approval of the defendant raises any impropriety on the plaintiff's part, sufficient to invalidate the subsequent authority or approval of the defendant to the plaintiff to take early possession of the property.

19. On the other hand, I find that the contents of the two letters which I have re-cited above speak for themselves and there is nothing to add. This means that, there is clear and unequivocal acceptance of the plaintiff's request for early possession of the property by the defendant, hence the defendant did authorize or approve the plaintiff's early possession of the property prior to completion of sale. And may I add that, what the defendant has done when it authorized or approved the plaintiff's request to take early possession of the property, was merely fulfilling and complying with the parties' expressed agreement under clause 4 of the agreement, which states:

"If before the transfer of title, the Purchaser is given the benefit of possession of the Property then until transfer of title:

(a) he shall not let or part with possession of or make any structural alteration or addition to the Property;

(c) If the Purchaser shall make default in the performance of its obligations under this Clause, the Vendor may without notice make good the default and without prejudice to his rights may recover from the Purchaser as a debt the cost of so doing with interest thereon at the rate of fifteen per cent (15%) per annum until repayment and such amount and interest shall if unpaid after completion remain a charge on the Property until repayment.

(d) Entry into the possession by the Purchaser under this clause shall not constitute or give rise to or a relationship of landlord and tenant as between the parties.

(e) If the Purchaser shall default under the provisions of this Agreement, then the Purchaser shall immediately yield up possession of the Property to the Vendor." (Emphasis added).

20. Hence, how can the defendant claim that the plaintiff's early possession of the property was without its authority or approval? There is, therefore, no doubt in my mind as I find on the evidence before me that the defendant did authorize or approve the plaintiff's request for early possession of the property prior to completion of sale.

21. Secondly, and as an extension to its first contention, the defendant contends that no-one gave evidence on both the plaintiff and the defendant's side why parties did not conduct a title search to ascertain if there was any other mortgage or caveat when the plaintiff and the defendant agreed to purchase and to sell the property and before they signed the agreement. If that was done, it contends that, surely, parties would have discovered the second mortgage and would have called off the sale or taken steps to discharge it. It was only after the defendant discovered it on 25th January 2000 that it rescinded the agreement.

It further contends that, given this situation, the plaintiff should have immediately commenced legal action against it to seek an injunction to prevent the agreement from been rescinded and for specific performance of the agreement. As the plaintiff did not do so and went ahead to take early possession of the property and made improvements, it acted to its own detriment, as such, no damages would flow from rescission of the agreement.

22. There are two problems with this contention. First, it is an attempt to side track from the main issue of whether or not the defendant did authorize or approve the plaintiff's request for early possession of the property. In my view, it is not for the defendant to dictate to the plaintiff as to how best it may seek redress to remedy the loss it has suffered, neither is the plaintiff obliged to seek an order for specific performance when it is impossible to complete the sale due to the outstanding second mortgage.

23. The second problem is, the defendant is "passing the buck" if I may use that expression to emphasize here that the contention is another attempt by the defendant to avoid its obligations under the agreement with the plaintiff. There is no doubt in my mind as the defendant is legally bound and of course a matter of due diligence to conduct a search of the title of the property to ascertain if the property is free of any encumbrances such as "mortgages" and "caveats" before putting the property up for sale. Of course, that does not mean that the plaintiff is excused from that obligation and I think the plaintiff should have also played its part by conducting its own searches on the title of the property before venturing into the deal. But at the end of the day, it is my respectful opinion that the primary responsibility is on the defendant and it must take full responsibility for failing to do that, hence its failure to disclose the second mortgage to the plaintiff at the beginning of the agreement.

In my view, its failure to ascertain the true and correct position of the title of the property has landed both parties in this predicament and it cannot turn around now and blame the plaintiff for not checking things out before entering into the agreement so as to avoid its obligations under the agreement. For these reasons, the defendant's second contention must also fail and this means that, there is nothing before me to persuade me to find that the defendant did not authorize or approve the plaintiff's request for early possession of the property. And so, I must find in favour of the plaintiff.

24. As I have found that the defendant had authorized or approved the plaintiff's early possession of the property, the next issue I have to determine is whether or not the defendant is liable to pay compensation to the plaintiff for the expenses incurred in improving the property. This is a question of mixed fact and law as it would require a determination of the intention of the parties at the relevant time when the plaintiff took early possession of the property and also the interpretation of the provisions of the agreement.

25. In other words, it does not automatically follow that because the defendant authorized or approved the plaintiff's early possession of the property, it also means that the defendant approved or authorized the plaintiff to carry out improvements on the property, hence it agreed to pay for any expenses incurred by the plaintiff in improving the property in the event that the sale is not completed. In my view, this is a separate issue which I have to determine here.

26. Recapping the important facts of this case, first, there is no dispute that the plaintiff took early possession of the property. The defendant denied authorizing or approving the plaintiff's request for early possession of the property, but I have found that it had in fact authorized or approved the plaintiff's request for early possession of the property. Secondly, whilst in possession of the property, it made improvements, however the agreement was rescinded because the defendant was unable to discharge the second mortgage. Thirdly, it refunded the total purchase price of K165,000.00 to the plaintiff and refused to pay the plaintiff's expenses incurred in improving the property.

27. Given these factual circumstances, it is important to ascertain from the agreement what it says about the rights and obligations of the parties in cases where a party takes early possession of the property and the sale is not completed. The relevant agreement may be found at annexure "N" to the affidavit of Luke Yaluma (Exhibit "P2").

"In the event that the Vendor is restrained or prevented from completing the within sale on the expiration of the period referred to in Clause 1(e) because of an injunction, caveat, or other restraint, the Vendor may at its option, by notice in writing given to the Purchaser prior to or on the expiration of such period either:

(a) rescind this Agreement, in which event the Deposit and any interest (if any) which has accrued thereon will be refunded to the Purchaser but without costs or damages and the same shall be accepted by the Purchaser in full and final satisfaction of all claims; or

(b) extend the date for completion for a further period of thirty (30) days for the purpose of removing such injunction, caveat, or other restraint in order that the Vendor may give to the Purchaser clear and unencumbered title in accordance with the terms of this Agreement. In such event, the provisions of paragraph (a) of this clause will be available to the Vendor if the injunction, caveat or other restraint is not removed at the expiration of such period of thirty (30) days." (Emphasis added).

29. In the present case, the defendant discovered that there was a second mortgage in favour of John Esana Leahy and could not obtain a discharge on it, so it rescinded the agreement. Rescission of an agreement is different from termination. When an agreement is rescinded, no damages are payable to the other party as opposed to termination, where damages are payable to either party. That is why clause 9 of the agreement provides that no damages are payable to the purchaser (plaintiff), by the vendor (defendant) if before completion there is an injunction, caveat or "other restraint".

30. In my view, clause 9 of the agreement is unequivocal. It states that, in the event that the agreement is rescinded, the defendant shall refund the deposit price and any interest to the plaintiff. It is not obliged to pay any costs and damages incurred by the plaintiff. There can be no argument about this as this is what the parties have agreed to be bound by when they entered into the agreement. There nothing to add to or subtract from clause 9 of the agreement if we apply the extrinsic rules of evidence in Curtain Brother's case (supra).

31. And this is what the defendant has done in this case although it is noted that instead of refunding the deposit price, it refunded the total purchase price of K165,000.00 to the plaintiff as this was the amount the plaintiff paid to the defendant at the beginning of the agreement. The agreement was rescinded because there was a second mortgage, a restraint on the property which prevented completion of the sale. It follows that, under the doctrine of rescission of agreements, there can be no damages payable to the plaintiff for expenses incurred in improving the property. Further, if there is any uncertainty as to the parties' rights and obligations upon rescission of the agreement, it is laid to rest by clause 5 (General) of the agreement, in particular, clause 5(c) which states that:

(c) If this Agreement is rescinded (as distinct from terminated) pursuant to any express right to rescind (as distinct from a right to terminate) conferred by this Agreement shall be at an end from the date of rescission and:

(i) the Deposit and any interest which has accrued thereon and all other money paid by the Purchaser hereunder shall be refunded to him.

(ii) neither party shall be liable to pay the other any sum for damages, costs or expenses (other then for any antecedent breach of this Agreement);

(iii) if the Purchaser has been permitted into possession of the Property, he shall forthwith give up the Property to the Vendor; and

(iv) if the Purchaser is or has been in possession or in receipt of the rents or profits of the Property, he shall account for and pay to the Vendor the net rents and profits received or a fair occupation fee for the Property (whichever is the greater) until the date of rescission but the Vendor shall give the Purchaser credit for any interest paid by the Purchaser.

Any resulting balance payable by the Purchaser may be deducted by the Vendor from the Deposit and other moneys before returning the same to the Purchaser." (Emphasis added).

32. It is, therefore, clear from clauses 5 and 9 of the agreement that the defendant is not liable for any expenses incurred by the plaintiff in improving the property. However, there is evidence in the letter of the defendant to the plaintiff dated 27th March 1998, annexed and marked "L" to the affidavit of Luke Yaluma (Exhibit "P2"), which also states that, "........we accept and allow you to improve the plantation as you have requested prior to settlement". This letter was written in response to the plaintiff's letter of 19th March 1998 which states that, "[w]e have already moved on to the plantation and started improving the plantation." (Emphasis added).

33. Upon perusal of these two letters, it appears that not only has the plaintiff requested approval for early possession of the property but also to make improvements on the property. And it is apparent that the defendant gave its approval to both requests. Given this scenario, the question I ask is; have the parties varied the terms of the agreement by opting to include improvement of the property prior to completion of the sale?

34. In my view, clause 9 of the agreement should be read in conjunction with clause 4 (Possession prior to completion) cited above, to get the true intention of the parties when they entered into the agreement. From my reading of clause 4(a), if the plaintiff is given early possession of the property, it is not allowed to let, part, or make any structural alteration or addition to the property. This is a prohibitive clause as it prohibits the plaintiff as the purchaser from doing any work on the property pending the completion of the sale if it takes early possession of the property. Hence, it is clear that where the plaintiff is given early possession of the property, it is also prohibited from improving the property until the completion of sale.

35. This is quite understandable because anything may happen between the time of early possession and completion of sale and I think clause 4(a) is intended to protect both parties from any costs and damages that may arise in the intervening period if the sale is not completed. But as I have noted above, this case is slightly different as it appears from the letters of 19th March 1998 and 27th March 1998 cited above that the defendant has also authorized or approved the plaintiff's request to improve the property when the plaintiff took early possession of the property.

36. Again, the defendant denies giving the approval or authorization to the plaintiff to improve the property. However, as I have found in respect of the plaintiff's request for early possession of the property, the defendant's letter to the plaintiff dated 27th March 1998 which states, "......we accept and allow you to improve the plantation as you have requested prior to settlement" is also in my view, an unequivocal expression of the defendant's acceptance of the plaintiff's request to improve the property pending completion of the sale. There is nothing more to add to or subtract from that statement. It has allowed the plaintiff to improve the property and that is it.

37. Furthermore, the defendant's said letter goes on to state that, "[i]n the meantime Mr Nanuk of this office will write to the Provincial Police Commander in Mount Hagen to evict the illegal occupants." This statement was made in response to the plaintiff's request in its letter to the defendant dated 19th March 1998 which states that, "[t]here are some so called Landowners still illegally residing in and around the plantation. Would the bank make arrangement to remove the illegal occupants......." This request was implemented by the defendant when Mr Nanuk of the defendant wrote to the Provincial Police Commander of the Western Highlands Province on 14th April 1998 requesting the police to evict the illegal occupants from the property. This letter is marked as annexure "M" to the affidavit of Luke Yaluma (Exhibit "P2").

38. What this means is that, the defendant not only approved or authorized the plaintiff to improve the property but also assisted the plaintiff to have vacant possession of the property as it appears that there were illegal occupants on the property at that time. This was to ensure that the plaintiff carried out the improvements on the property without disturbances or hindrances. That being the case, I find that both parties by their conduct and in writing ( the said letters of 19th March and 27th March 1998) had agreed to vary clause 4(a) of the agreement by doing away with the prohibition against the plaintiff and allowing the plaintiff to improve the property. Surely, improving the property would include making "structural alteration or addition to the property."

39. In the end, I find that the defendant did authorize or approve the plaintiff's request to improve the property prior to completion of the sale. It follows that it has waived clause 4(a) of the agreement and would by necessary implication be responsible for the plaintiff's costs or damages incurred in improving the property. For this reason, I find the defendant liable for the plaintiff's expenses incurred in improving the property prior to the completion of the sale.

40. As an extension to the second issue is the issue of, whether the plaintiff is barred from claiming expenses incurred in improving the property because the plaintiff did not have any legal or equitable interest in the property. This issue arises from the defendant's defence that the plaintiff has no legal or equitable interest in the property. In support of this defence, counsel for the defendant submits that the letter from the defendant to the plaintiff dated 27th March 1998 cited above, did not entitle the plaintiff to do what it did. It simply says that the plaintiff may move onto the property and improve it. The description of activities the plaintiff undertook shows that they were substantial capital expenditure which had not been approved by the defendant. And if the plaintiff seeks to enforce its right to recover the expenses incurred in improving the property in equity, it must come to Court with clean hands or must not be guilty of inequity.

41. Counsel refers the Court to the evidence of Mr Serowa in the statement of profit and loss for year ended 31st December 1998 marked as annexure "A" to the affidavit of Mr Serowa (Exhibit "P1"), which discloses that the plaintiff earned K22,042.00 in coffee sales during that period, and submits that, this earning was not disclosed to the defendant. This is in breach of the constructive trust relationship between the plaintiff and the defendant and shows that the plaintiff has not come to Court with clean hands, hence not entitled to the reliefs it seeks. Counsel refers to the case of Maip Pty Limited -v- Ambra Coffee Estates Pty Limited [1995] PNGLR 25 to support this submission.

42. The plaintiff's counsel submits that notwithstanding clauses 5 and 9 of the agreement, the defendant has held itself out or represented to the plaintiff that it could have early possession of the property. This is evident in the letter from the defendant to the plaintiff dated 27th March 1998 cited above. The plaintiff assumed that the defendant allowed it to improve the property and acted to its detriment when it was subsequently discovered that the sale could not be completed.

43. In equity, it would be unfair to the plaintiff and gross injustice would occur if the Court were to accept the defendant's defence under clauses 5 and 9 of the agreement, and not order the defendant to compensate the plaintiff for the expenses incurred in improving the property. Further, if the Court accepts that the plaintiff did not have any legal or equitable interest in the property in order to claim these expenses, it would be unfair and unjust to the plaintiff after all the hard work, time and money put into developing the property.

44. These arguments raise the question of what is fair and equitable in the circumstances of the case under consideration. The principles of common law and equity of England in force prior to Papua New Guinea's independence on 16th September 1975 form part of the Underlying law of Papua New Guinea and are applied by the Courts so long as they are not inconsistent with the Constitution and other laws of Papua New Guinea: see schedule 2.2 of the Constitution.

45. For whilst I accept that there is an agreement between the parties and they are bound by its terms under the law of contract, there is this principle of equity that says, "equity follows the law". In this case, the agreement was rescinded by the parties after it was discovered that the defendant could not discharge the second mortgage. The rescission came a little too late as the plaintiff claims, it had spent money in improving the property. So where is the fairness and justice of this transaction? In my view, this case calls for the application of the principles of equity under schedule 2.2 of the Constitution and I propose to do that here in order to decide whether I should grant the reliefs sought by the plaintiff in equity.

46. It should be noted at this juncture and must be emphasized that, there is no suggestion that the defendant had misrepresented or fraudulently sold the property to the plaintiff at that time, hence there is no issue with respect to misrepresentation and fraud in this case. In other words, the plaintiff is not claiming damages based on rescission of the agreement because of misrepresentation or fraud.

47. This is where the case of Brown -v- Smitt [1924] HCA 11; (1924) 34 CLR 160 can be distinguished from the present case on its facts, although the principles of law are relevant. In that case, the purchaser, Mr Brown took possession of a property prior to completion of the sale and after discovery of fraudulent misrepresentation by the vendor, Mr Smitt, sued Mr Smitt to rescind the contract and for compensation for improvements and expenses incurred in improving the property including business losses. The High Court of Australia held that the case being one of rescission should be ordered, and that, Mr Brown as the purchaser should be entitled to compensation for costs necessary incurred for repairs done to the property excluding business losses as such losses were incurred when carrying business on the land. In dismissing the claim for business losses, the High Court said at p 167:

"A party, in case of rescission, cannot ask the Court to award him compensation for all collateral losses which he may have sustained by reason of the fact that he entered into the contract, such as losses incurred in carrying on business, (Newbigging -v- Adam (1); Whittington -v- Seale Hayne (2), but only such compensation as will restore the status quo ante in relation to the subject matter of the contract. "

48. In the present case, as noted above, there are no allegations of fraud or misrepresentation against the defendant nor has the plaintiff proven fraud or misrepresentation against the defendant. Further, the plaintiff is not suing the defendant to rescind the agreement based on fraud or misrepresentation. As such, there is no basis for the plaintiff in this case to claim expenses incurred in improving the property prior to completion of sale based on fraud or misrepresentation.

49. On the other hand, the plaintiff is arguing that the defendant is estopped from denying that it approved or authorized the plaintiff to improve the property and to pay for the expenses incurred by the plaintiff in improving the property. I am of the view that, the defendant has acted in such a way that the plaintiff assumed that it has given its approval or authority to improve the property. First, it is evident from the letter it wrote to the plaintiff dated 27th March 1998 cited above, that it gave its approval or authority to improve the property and secondly, by conduct when it sought assistance from the police to evict illegal occupants from the property following the plaintiff's request for police assistance.

50. Because of these acts, the plaintiff went ahead and improved the property. Surely injustice has occurred in this case because the actions of the defendant have caused the plaintiff to incur expenses in improving the property. In my view, in equity, it would be unjust and unfair for the defendant to walk away from the agreement after rescinding it without compensating the plaintiff for the expenses incurred in improving the property.

51. After all, the defendant would have benefited from the improvements left behind by the plaintiff following the incomplete sale. In my view, this is an exemplary case of unjust enrichment, and this Court exercising its equitable jurisdiction under schedule 2.2 of the Constitution will not allow that to occur. This is where the doctrine of promissory estoppel becomes relevant. Lord Denning M.R in Crabb -v- Arun District Council [1976] Ch 179 at 187 said, "[e]quity comes in, true to form, to mitigate the rigours of strict law". This statement was quoted by the High Court of Australia in Waltons Stores (Interstate) Limited -v- Maher (1988) 164 CLR 387, per Mason, CJ where the learned Chief Justice expounded it in the context of the doctrine of estoppel in this way:

"True it is that in the orthodox case of promissory estoppel, where the promisor promises that he will not exercise or enforce an existing right, the elements of reliance and detriment attract equitable intervention on the basis that it is unconscionable for the promisor to depart from his promise, if to do so will result in detriment to the promisee."

52. In that case, there had been discussions between the parties for a sale of land such that, a draft lease had been prepared and forwarded for execution, and there was an assumption that the necessary exchange was a formality and the defendant knew that the plaintiff was undergoing costly work on the site. One of the issues in the appeal before the High Court was whether, in the light of the facts, the appellant (defendant) is estopped from denying the existence of a binding contract that it would take a lease of the respondent's premises at Nowra. The High Court dismissed the appeal because it was clear that, the appellant failed to inform the respondent within a reasonable time that it did not intend to complete the sale and as a result, the respondent assumed that the appellant was going to complete the sale and went ahead and developed the land with the full knowledge of the appellant.

53. In reaching that decision, Mason, CJ with whom Wilson, J agreed, said at p 404: ".....equity will come to the relief of the plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it". In my view, this is where, in equity, the defendant in this case must be stopped from denying that it did not approve or authorize the plaintiff to improve the property and would not be liable for the expenses incurred by the plaintiff.

54. I also consider that, the case of Maip (supra) which counsel for the defendant has referred in his submissions, is slightly different on its facts but the principles of law, is relevant. In that case, the registered proprietor of the property mortgaged it to a bank to secure a loan. It defaulted in repaying the loan and the bank advertised the property for sale by public tender. The plaintiff was the successful applicant and was required by the bank to act within 14 days and meeting a number of requirements including payment of deposit, supplying the name in which the purchase was to proceed, etc.

55. It was also proved that the mortgagor may redeem the property up to the date of execution of the contract of sale. The plaintiff paid the deposit and arranged funding of the balance. The plaintiff also went into possession but was however subsequently advised that the mortgagor had exercised its right of redemption and the tender was therefore withdrawn. The Court held that the plaintiff could not be accorded equitable rights based on its occupation and improvement of the property as there was no agreement between the plaintiff and the defendant providing for early possession. In reaching that decision, the Court observed that:

"The plaintiff claims that the defendant would be subject to unjust enrichment. However, it is the plaintiff who has been illegally in occupation of the property, and anyway, the plaintiff has itself received benefits from this occupation. The cases on unjust enrichment are cases where partners were cohabitating and so conducting themselves that they encouraged the other to assist in the improvement and development of the asset or property. In this case, there was no encouragement or agreement for the plaintiff to occupy and improve the property. "

56. In present case, parties have executed an agreement although it was after the plaintiff had moved onto the property. The agreement provided for early possession. The defendant acted in a way that the plaintiff assumed that it had agreed to allow the plaintiff to improve the property prior to completion of sale when it took early possession of the property. In so doing, the plaintiff assumed that the defendant would not enforce the prohibitive clause under clause 4(a) of the agreement. As a result, it acted to its detriment. Further, it assumed that the defendant would pay for the expenses incurred in the event that the sale is not completed. And so, I am satisfied that in equity, the defendant is estopped from denying the plaintiff's claim.

57. However, before the Court may exercise its equitable jurisdiction in favour of the plaintiff, and grant the relief the plaintiff seeks, it must be satisfied that the plaintiff has come to Court with clean hands or is not guilty of inequity. For it is said that, "he who seeks equity must do equity". In this respect, it is noted that the plaintiff earned K22,042.00 from sale of coffee during the period it took early possession of the property and did not disclose the earning to the defendant.

58. The evidence of the plaintiff's earning of K22,042.00 is found in the statement of profit and loss for year ended 31st December 1998 marked as annexure "A" to the affidavit of Mr Serowa (Exhibit "P1") and also confirmed by Mr Serowa when asked by counsel for the defendant in cross examination. His evidence is reproduced below:

Q: Look at net operating loss, there is a figure of K22,042.00 sales, is it from sale of coffee?

59. Based on the evidence of Mr Serowa, I find that the plaintiff earned K22,042.00 from the sale of coffee during the period ended 31st December 1998. I also find that it benefited from the early possession of the property. But I reject the defendant's contention that the failure by the plaintiff to disclose this earning should stop the plaintiff from claiming expenses incurred in improving the property.

60. In my view, this is not a sufficient reason to disqualify the plaintiff from recovering the expenses incurred in improving the property. In my view, if the defendant believes that the plaintiff should repay K22,042.00, it is entitled and should have sued the plaintiff to recover that amount either in a separate action or by way of a cross claim in this action. However, I note it has not done so here. This right was available to the defendant under clause 5(c)(iv) of the agreement cited above, at the time the agreement was rescinded. Hence, it cannot complain that the plaintiff did not come to Court with clean hands or is guilty of inequity.

61. For the foregoing reasons, I am not satisfied that the defendant has established this defence. It follows, in equity, I must find in favour of the plaintiff, in that, the defendant is liable for the plaintiff's expenses incurred in improving the property.

62. As I have found the defendant liable, it is not necessary to consider the submissions of the plaintiff in relation to specific performance of the agreement suffice to say that, the submissions and the cases of Kwila Insurance Corporation Limited -v- Kwantun Pty Limited [1992] PNGLR 200; Jacobs -v- Kwaindu [1991] PNGLR 366; Ningiga -v- Koavea [1988-89] PNGLR 312; Mondo Merchants Limited -v- Melpa Properties Pty Limited & Koang No 47 Pty Limited: OS No 11 of 1999 (Unnumbered & Unreported Judgment of 10th March 1999) and Koang No 47 Pty Limited -v- Mondo Merchants Limited & Melpa Properties Pty Limited (2001) SC675 referred by plaintiff's counsel are not relevant to the issue under consideration.

63. I turn to the third issue of whether or not the plaintiff's action is not maintainable against the defendant because the plaintiff is a foreign owned company and not certified to carry on business in Papua New Guinea pursuant to section 3 of the IP Act. Section 3 states:

(a) making application for any permit, licence, lease or authority issued for commercial purposes by the State or by a State body; or

(b) administering, renting, managing or otherwise dealing with property as an owner, agent, legal personal representative or trustee whether by a servant or agent or otherwise; or

(c) maintaining an agent, employee or officer for the purpose of soliciting or procuring or entering into orders, arrangements, agreements or contracts (whether conditional or not) whether or not the agent, employee or officer is continuously resident in the country; or

(d) maintaining an office, agency or branch (however described) whether or not the office, agency or branch is also used for one of those purposes by another enterprise; or

(e) undertaking a building, construction or assembly project or an activity numbered 8324 and 8329 in the ISIC that will not be completed within six months; or

64. This issue arises from the defendant's defence that the plaintiff is a foreign company and not certified to carry on business in Papua New Guinea. In support of this defence, it submits that it is an offence for a foreign company not certified to carry on business in Papua New Guinea to carry on business in the country. Section 41 of the IP Act states:

(1) A foreign enterprise and an officer or owner (however described) of a foreign enterprise which or who -

(a) carries on business without a certificate under Part IV or Part IVA; or

(c) carries on business in an activity that is reserved for a national enterprise; or

(d) subject to Section 36G, acquires or holds a relevant interest in a citizen enterprise or in a national enterprise without a certificate under Part IV or under Part IVA; or

(e) fails to comply with the terms or conditions of a certificate issued under either Part IV or Part IVA, is guilty of an offence.

65. It relies on the affidavit of Ivan Pomaleu (Exhibit "D1"), the Registrar of Companies and the affidavit of Unaba Daera (Exhibit "D2"), the legal search clerk of AC Fox & Associates to establish that, the plaintiff is a foreign-owned company. The company search report of the plaintiff reveals that late Trapura Yaluma, a Papua New Guinean national held 10 ordinary shares, a Mr Harvey Nii, a Papua New Guinean national held 10 ordinary shares and a Mr Won Bae Dahn, a South Korean national held 80 ordinary shares. In addition to that, the plaintiff is not certified to carry on business in the country as it did not obtain or lodge an application for approval with the Investment Promotion Authority to conduct business in the country.

66. The plaintiff concedes that it is largely owned by a foreigner in terms of its shareholding and that as a foreign owned company, it has not obtained approval from the Investment Promotion Authority to conduct business in the country in accordance with sections 3 and 25 of the IP Act. Be that as it may, it argues that why should the failure to comply with the provisions of the IP Act render void a valid agreement entered into between it and the defendant for the sale of property? In my respectful opinion, the application of the provisions of the IP Act to the present case have been taken out of context and misapplied. This means, the submissions based on the above provisions of the IP Act are misconceived.

67. First, I consider that the provision relied upon by the defendant, namely, section 41 is a penal provision. It creates an offence and is invoked by the Investment Promotion Authority to prosecute any foreign company inter-alia, for carrying on business in the country without being certified under section 25 of the IP Act and the Court is empowered to convict and impose monetary penalties against such foreign companies. In my respectful opinion, this provision is inapplicable to the present case, because the plaintiff has not been charged and prosecuted by the Investment Promotion Authority in this action for illegally carrying on business in the country under section 41 of the IP Act.

68. This is where I find the case of Investment Promotion Authority -v- Niugini Scrap Corporation Pty Ltd (2001) N2104, which the defendant relies upon to support its contention that because of non compliance with the provisions of the IP Act, the agreement entered into between the parties is void and unenforceable, irrelevant and of no assistance. In that case, the plaintiff prosecuted the defendant for alleged breaches of the IP Act under section 41. It claimed that the defendant was a foreign owned company and not certified to carry on business in Papua New Guinea. The Court found the defendant guilty of an offence under section 41 of the IP Act and imposed inter-alia, monetary fine of K70,000.00 against it.

69. In this case, as I said above, first, the Investment Promotion Authority is not prosecuting the plaintiff for alleged breaches of the IP Act. Secondly, the Court in that case was not asked to decide whether any business dealings such as contracts the defendant entered into with third parties were void because of non compliance with the provisions of the IP Act. For this reason, I find that case of no relevance and assistance. Secondly, I reject the defendant's submissions that the agreement entered into between the parties is void and unenforceable because the plaintiff is a foreign company and not certified to carry on business in the country contrary to sections 3 and 41A of the IP Act. Section 41A states:

Where a contract, agreement or understanding is entered into between a foreign enterprise and another enterprise and -

(a) that foreign enterprise had not been issued a certificate at the time at which the contract, agreement or understanding was entered into; or

(b) the subject matter of the contract relates to business activities outside of the nature of the activities for which the foreign enterprise is certified to carry on business,

the court may, on the application of that other enterprise or of the Authority, declare the contract unlawful and void." (Emphasis added).

70. With respect, section 41A is also inapplicable in this case because neither the defendant nor the Investment Promotion Authority is applying or bringing an "application" to declare the agreement between the plaintiff and the defendant "unlawful and void". Further, there is no cross claim by the defendant in this proceeding to declare the agreement "unlawful and void". Hence, section 41A is of no assistance to the defendant: see also Lay, J's discussions on the subject in New Ireland Development Corporation Limited -v- Arrow Trading Limited (2007) N3240.

71. The case of Spirit Haus Limited -v- Robert Marshall & Ors (2004) N2630, which the defendant also relies is of no assistance although, the principles of law discussed in that case are relevant. It is accepted that Kandakasi, J found a lease between the plaintiff/cross defendant and one of the defendants/cross claimants in that case illegal and unenforceable because the defendant/cross claimant was not a citizen of this country, hence not authorized to carry on business in the country by virtue of sections 3 and 25 of the IP Act. However, I am of the view that it was not or never contended by the defendant/cross claimant that the plaintiff/cross defendant would unjustly enrich itself or benefit from the lease under the principles of equity in that case. Hence, his Honour did not have the benefit of that argument to weigh up before reaching the decision to find the lease void and unenforceable against the plaintiff under the provisions of the IP Act.

72. In the present case, the argument of unjust enrichment or conversely the unfairness and injustice caused by the defendant according to the principles of equity has been raised by the plaintiff to support its contention that the defendant should be liable for the expenses incurred in improving the property prior to completion of sale. Hence, I must consider it and that is the distinction between this case and the case of Spirit Haus (supra) which makes that case of no assistance to the defendant.

73. On the other hand, I consider that the observation by Manuhu, J in the case of Soroi Eoe as Director of PNG National Museum & Art Gallery & Ors -v- Steamships Limited & Ors (2005) N3013, relevant and applicable to the present case. In that case, his Honour was deciding a dispute between the parties over the extraction and removal of war relics out of the jurisdiction, and it was contended by the plaintiffs that the agreement they entered into with the defendants was void and unenforceable because one of the defendants, being a foreign entity was not certified to carry on business in the country under the provisions of the IP Act. His Honour observed at p 9 that:

"It has secondly, been argued that 75th Squadron is not registered to operate in Papua New Guinea. If that is the case, the Director must take full responsibility for his oversight in engaging a foreign business interest which he claims was operating illegally. If he was serious about good governance and accountability, the Director is accountable for the oversight he now relies upon to undermine a perfectly legal and enforceable agreement. 75th Squadron may be dealt with under the relevant business or corporations law but the agreement it has entered into, especially when money has been expended, is binding and enforceable. "

74. In my view, the observation by his Honour sums up the situation in the present case. The defendant is estopped from raising breaches of the provisions of the IP Act when it has failed in the first place to ascertain whether the plaintiff is properly registered to do business in the country before going on to enter into the agreement with it. It cannot turn around now and argue that the agreement is void because the plaintiff is not registered to do business in the country and avoid its obligations under the agreement. For, to do so would amount to unjust enrichment on the part of the defendant and conversely, injustice to the plaintiff. For these reasons, I reject the defendant's defence based on breaches of the provisions of the IP Act and find the defendant liable for the plaintiff's expenses incurred in improving the property prior to completion of sale.

75. Having found the defendant liable for the plaintiff's expenses incurred in improving the property prior to completion of sale, the final issue for determination is the measure of damages. Has the plaintiff proven its expenses incurred in improving the property?

76. The general principle in assessment of damages was stated by Lord Blackburn in Livingstone -v- Rawyards Coal (1880) 5 App Case 25 at 39 where he said:

"Where any injury is to be compensated by damages, in settling the sum of money to be given for....... Damages you should as nearly as possible, get at that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been if he had not sustained the wrong for which he's now getting compensation."

77. The evidence of the plaintiff in relation to establishing its expenses are found in three affidavits. They are:

Mr Serowa is a self employed accountant. He obtained his accountancy degree from the Divine Word University and has been practicing in the firm of T Serowa & Co since 1997. His area of specialty is in financial statements and tax returns. He prepared the financial statements of the plaintiff after been asked by the Managing Director of the plaintiff. Given his experience and knowledge, I have no reason to doubt his evidence. However, there are certain aspects of his evidence that are lacking which I will elaborate on when I consider each of the claims below.

Mr Yaluma is the Assistant Manager of the plaintiff. He is also an accountant by profession, having attended Lae Technical College from 1980-1984 and thereafter, University of Technology where he obtained a diploma in accountancy. He is also the younger brother of the General Manager of the plaintiff, late Trapura Yaluma who died in October 2007. Generally, his evidence is good but, again, there are certain aspects of his evidence that are either lacking or inconsistent which I will elaborate on later.

Mr Kana is a registered valuer with Moody Real Estate. He graduated from the University of Technology in 1973 and has been practicing as a valuer since. During his practice, he valued buildings, coffee plantations and crops and residential property. He also attended a 6 months course in Australia where he traveled from Brisbane to Sydney and Melbourne. Generally, his evidence is also good but again, there are certain aspects which are lacking and I will return to elaborate on later.

78. The defendant did not put any evidence before the Court to refute or dispute the evidence of the plaintiff in relation to the assessment of damages. Nonetheless, that does not mean that the Court should accept the evidence of the plaintiff's witnesses in their entirety and award damages as a matter of course. Rather, the plaintiff still bears the onus of establishing the losses on the balance of probabilities and the Court must be satisfied that the plaintiff has discharged the onus before awarding damages to it. Proceeding on this premise, it is the evidence of Mr Yaluma at paragraph 27 of his affidavit (Exhibit "P2"), that the plaintiff incurred the following expenses:

1. Settlement of landowners' claims	K 45,579.00
2. Wet coffee factory	K 83,336.00
3. Water dam, fence, pruning & drainage	K150,550.00
4. Building of labourers' houses	K 54,069.00
5. Building of general manager's houses	K 74,462.00
6. Purchase of 3x vehicles	K 47,174.00
7. Wages	K197,766.00
8. Chemical costs, lawyers & accountants	K100,269.00
Total	K753,205.00

79. In my view, the above break up of expenses can be divided into two categories. This is because there is a distinction between these expenses. The first group is those that are incurred in improving the property. They constitute the value of improvements, while the second group is operational costs. Value of improvements is the cost of putting up improvements on the property and refers to the actual value of the improvements as opposed to operational costs of the property which are costs incurred in operating or running the business. The Oxford Advanced Learner's Dictionary, Oxford University Press, (7th ed 2005), at p 751 defines the word "improvement" as, "the act of making something better; the process of something becoming better; change in something that makes it better; something this is better than it was before."

80. From the above definition, it is my view that expenses incurred by the plaintiff must directly relate to making the property better or changing the property to make it better. So what kind of expenses would constitute "expenses incurred in improving the property"?
I consider each of the claims below:

81. In my view, money spent on settling landowners' claims is not an expense directly incurred in improving the property. It is payment to settle landowners' claims which is an operational cost and a liability incurred by anyone like the plaintiff in this case, in acquiring property. It is therefore, not recoverable against the defendant. For this reason, I dismiss the claim.

82. Even if I am wrong to conclude that this expense is not recoverable against the defendant because it is not an expense directly incurred in improving the property, I would still reject it because I am not satisfied that the plaintiff has proven this claim. There is simply no evidence of how and when this expense was incurred, especially when it is a substantial amount. The Court is entitled to and is entitled to have evidence of receipts of payments and the source of payments, eg, if monies were withdrawn from the bank to pay the landowners. In my view, it is not sufficient to say that this is the amount the plaintiff has paid the landowners and expect the Court to award it: see Botham Carter -v- Hyden Park Hotel [1948] 64 TLR 177 at 178, per Lord Goddard, CJ.

83. In that respect, I am not persuaded that the evidence of Mr Serowa establishes this claim. Mr Serowa did not state in his affidavit if he had seen receipts of payments of the landowners' claims when he prepared the plaintiff's statement of expenditures for year ended 31st December 1998. He only states in his brief oral evidence in chief that, "[i]n preparing the financial statement, the information relied upon were basic accounting records like cash books, bank statements and any other supporting records." In my view, his evidence is not only insufficient but also vague. But when he was cross examined by counsel for the defendant, he admitted that there were no records of payments before him. His evidence is reproduced below:

"Q: See Statement of Expenditure, did you find expenses for payment for landowners' claims?

Q: Do you agree with me that, that information was not provided to you for the expenses incurred?

Ans: According to the records, there were no evidence of such expenses." (Emphasis added).

84. To my mind, Mr Serowa's answers confirms that there were no receipts of payments placed before him when he prepared the plaintiff's statement of expenditures for year ended 31st December 1998 to establish that the plaintiff incurred K45,759.00 as settlement of landowners' claims. I am therefore, not satisfied that the plaintiff has proven this claim and I dismiss it.

85. In relation to the claim for expenses incurred in improving the wet coffee factory, I am of the view that they are directly related to improving the property. This is because the wet coffee factory would assist the plaintiff's business operations. But when they are considered with the evidence presented thus far, it is uncertain if the plaintiff has proven them. For example, there appears to be inconsistencies in the figures. According to Mr Yaluma, the plaintiff spent K83,336.00 to improve the wet coffee factory. How did he arrive at this figure? Is there evidence to establish K83,336.00? According to Mr Kana, the initial cost of building the wet coffee factory is K10,000.00. This is the amount he gave when he was asked in cross examination by counsel for the defendant:

86. As for Mr Serowa, he did not say if the plaintiff incurred these expenses. Even the statement of expenditures for year ended 31st December 1998 marked as annexure "A" to his affidavit (Exhibit "P1") has no record of expenses for improving the wet coffee factory.

87. What this means is that, the wet coffee factory may have been built prior to the plaintiff taking early possession of the property and I think that is the case because Mr Kana states at p 3 of his valuation report marked as annexure "A" to his affidavit (Exhibit "P3"), that, "[c]onstruction is of concrete floor, composite steel truss and timber framed, corrugated iron roof. Floor area of 86.25 square meters."

88. He goes on to state at p 4 of the same report that, "[t]he wet factory (d) is not a new building with steel truss and concrete floor only. The improvements carried out were timber framing and the used roofing iron." (Emphasis added). However, he did not state in the report the actual value of the improvement of the wet coffee factory. That is, the expenses incurred in putting up the timber framing and used roofing iron. I reject the figure of K10,000.00 because that figure is the value of the building when it was built and not for the improvements and I find no other evidence to establish that the timbers and old roofing irons were worth K83,336.00.

89. But the statement of expenditure for year ended 31st December 1998 marked as annexure "A" to the affidavit of Mr Serowa (Exhibit "P1") records "Repairs and maintenance - plant and equipment" at K4,400.00 and that seems to be the only evidence establishing the expenses incurred in improving the wet coffee factory because in my view, a wet coffee factory may be categorized as a "plant". I also accept that the plaintiff did some work on the wet coffee factory by putting up timber framing and used ironing roof. Therefore, I award K4,400.00 under this head of claim.

90. In relation to this claim, I am of the view that expenses incurred in building a water dam, fence, pruning and drainage are directly related to improving the property. According to Mr Yaluma, the plaintiff spent K150,550.00 to put up the water dam, fence, pruning and drainage. Is there independent evidence verifying Mr Yaluma's claim of K150,550.00? Mr Kana gives a global figure of K343,600.00 for costs of putting up other improvements including the water dam, fence, pruning and drainage. This means, he did not give a specific value or cost for the water dam, fencing, pruning and drainage, although he states at the bottom of p 3 and also at p 4 of his valuation report marked as annexure "A" to his affidavit (Exhibit "P3"), that, "..... 6 steel fermenting vats with control valves and associated PVC piping and fittings; security fencing of pig wire and barb wire around the boundary and also around the residential area; water pump shelter; concrete block retaining walls at the dam and associated PVC piping from dam to wet factory."

91. Even cross examination by counsel for the defendant is of no assistance as he did not give a figure for cost of building the dam, fence, pruning and drainage, although he says that he saw people working in the coffee plantation when he inspected the property. In my view, his evidence is vague. In my view, there is no reason for him to give this kind of evidence, given his wealth of experience and knowledge in the area of valuation of property. I would have expected him to assess a value for this claim but he did not do so, therefore, I reject his evidence.

92. As for Mr Serowa, he records in the statement of expenditures for year ended 31st December 1998 marked as annexure "A" to his affidavit (Exhibit "P1"), the following expenses incurred by the plaintiff:

93. Adding these figures up gives a total sum of K65,160.00. Whilst I am not satisfied that the plaintiff incurred K150,550.00 for building a dam, putting up fences, pruning and drainage, I am satisfied based on the evidence of Mr Serowa that the plaintiff spent K65,160.00 under this head of claim and I award this amount to the plaintiff.

94. In relation to this claim, I am of the view that expenses incurred in building labourers' houses are directly related to improving the property. This is because labourers' houses are built to accommodate the labourers to work on the coffee plantation which adds value to the property. Is there evidence establishing the claim of K54,069.00? According to Mr Yaluma, the plaintiff spent K54,069.00 to build labourers' houses. Again, Mr Kana did not give a figure for the cost of building the labourers' houses although, he gives a global figure of K343,600.00 at p 4 of the valuation report marked as annexure "A" to his affidavit (Exhibit "P3"). In my view, the global figure of K343,600.00 is not only unhelpful but also vague in terms of ascertaining the actual expenses incurred by the plaintiff in building the labourers' houses. Even when asked in cross examination by counsel for the defendant as to the value of the improvements of the labourers' houses, Mr Kana's answers are of no assistance as can be seen below:

95. Given his experience and knowledge on valuation of property, I would have expected him to prepare a valuation report that would have contained values or costs for each of the items based on his inspection of the property. He did not hence there is little information upon which I can use to assess an appropriate amount for expenses incurred under this head of claim. I find the evidence of Mr Kana in relation to the labourers' houses vague and reject it. As for Mr Serowa, he states in the statement of expenditures for year ended 31st December 1998 marked as annexure "A" to his affidavit (Exhibit "P1") that "Plantation workers - compound houses" cost K17,833.00. I accept Mr Serowa's evidence of K17,833.00 and award this amount under this head of claim.

96. In relation to this claim, I am of the view that expenses incurred in building the general manager's house are directly related to improving the property. Again, this is because it would accommodate the general manager in order to make the business operations of the plaintiff run smoothly. It would also add value to the property. But, again, when they are considered with the evidence presented thus far, it becomes uncertain if the plaintiff has proven this claim. For example, according to Mr Yaluma, the plaintiff spent K74,462.00 to build the general manager's house. However, when asked in cross examination by counsel for the defendant as to how much the plaintiff spent to build the general manager's house and other improvements, he was unable to give an amount. These were his answers in cross examination:

Ans: The plantation was run down so company bought fertilizers, dug drains, cleared bushes; plantation was run down really.

Ans: Build new house for managing director, bought 3 cars and put water tanks.

97. Again, Mr Kana did not state how much was spent by the plaintiff to build the general manager's house, although he states in the valuation report a global figure of K343,600.00 as the total costs of improving the property. As for Mr Serowa, he did not say if the plaintiff incurred these expenses. Even the statement of expenditures for year ended 31st December 1998 marked as annexure "A" to his affidavit (Exhibit "P1") has no records of expenses incurred in building the general manager's house. Further still, his answers to questions by counsel for the defendant in cross examination are of no assistance. They are reproduced below:

"Q: Expenses; you able to confirm this from the record if company was building a house for its General Manager?

Ans: I don't know if they were building a house, but there is record of building fixed assets.

98. From these answers, it appears, these expenses were incurred in maintaining the general manager's house. This means that, the general manager's house may have been built prior to the plaintiff taking early possession of the property and I think that is the case because Mr Kana states at p 1 of his valuation report marked as annexure "A" to his affidavit (Exhibit "P3"), that, "[c]onstruction is of reinforced floor, vinyl mat covered throughout, concrete block and tilux external walls, tilux lined and ceilinged, partially ply lined near the fireplace, alu-framed sliding glass windows, mesh wire and steel bared, colour bond roofings, gutters and down pipes to 1x200 gallon water tank connected."

99. He goes on to state at p 2 of the same report that, "[c]ontains a 3 bedroom, master bedroom with ensuite, ceramic tiled fitted with hand basin, plunge bath, overhead shower, toilet to septic, dinning, large lounge with fire place, kitchen fitted with stainless steel sink, adequate cupboards, bathroom/toilet ceramic tiled fitted with lunge bath, overhead shower, hand basin, toilet, attached to one end of the residence is a storage area concrete floor, concrete block walls, iron roof, floor area of 33.11 square metres excluding storage area.

100. By the same token, Mr Serowa and Mr Kana's evidence in relation to the maintenance of the general manager's house is inconsistent with the evidence of Mr Yaluma where he says that the plaintiff built it. I prefer the evidence of Mr Serowa and Mr Kana as they corroborate each other as far as the claim for maintaining the general manager's house is concerned. Further, Mr Kana inspected the property and has seen the house in person, hence is in a better position to verify the correct position as an independent witness.

101. I, therefore, find that the house was built prior to the plaintiff's early possession of the property. In terms of the costs of maintaining the house, Mr Serowa records a figure of K2,832.00 for "repairs and maintenance - building" in the statement of expenditures for year ended 31st December 1998 marked as annexure "A" to his affidavit (Exhibit "P1"). In my view, this would include maintaining of the general manager's house. In the circumstances, I am not satisfied that the plaintiff incurred K74,462.00 for building the general manager's house. On the other hand, I accept Mr Serowa's evidence and award K2,832.00 as expenses for maintaining the house.

102. This is another of those expenses which in my view, is not directly incurred in improving the property. These motor vehicles are fixed assets of the plaintiff and the payment of K47,174.00 is to secure them for the plaintiff to conduct its business. That means, if the sale is not completed, the plaintiff will still benefit from the vehicles because as the owner, it would continue to use them or perhaps sell them to recoup the purchase price. This position is confirmed by Mr Serowa in cross examination when he was asked by counsel for the defendant to state if the motor vehicles were fixed assets of the plaintiff as follows:

"Q: Also on expenses column, you will find evidence of acquisition of 3 motor vehicles?

Ans: Motor vehicles are fixed assets - K37,000.00 on the fixed assets notes.

Ans: I am not sure; it is fixed assets so could be for more than one vehicle but not sure."

103. So can the plaintiff say that this expense was incurred in improving the property? In my view, this expense is not directly incurred in improving the property and therefore, not recoverable against the defendant. I reject it.

104. Even if I am wrong to conclude that this expense is not recoverable against the defendant because it is not directly incurred in improving the property, I would still reject it because I am not satisfied that the plaintiff has proven it. I repeat what I said above and that is, there is simply no evidence of how and when this expense was incurred, especially when it is a substantial amount. The Court is entitled and is entitled to have evidence of receipts of payments and the source of the payments, eg, if monies were withdrawn from the bank to pay for the motor vehicles. In my view, it is not sufficient to say that this is the amount the plaintiff has paid for the three motor vehicles and expect the Court to award it.

105. In that respect, I am not persuaded that the evidence of Mr Serowa establishes this claim. Mr Serowa did not state in his affidavit if he sighted receipts of payments of the three motor vehicles and the source of funding, eg. if money was withdrawn from the bank by way of cheques or cash to pay for them. Further, as noted from his answers to questions in cross examination by counsel for the defendant, he is not sure if the plaintiff purchased more than one vehicle. In my view, his evidence is vague and I reject it. For these reasons, I am not satisfied that the plaintiff has established this claim and I dismiss it.

106. In my view, wages are not recoverable under "value of improvements" because they are expenses associated with the actual running of the coffee plantation. They are operational expenses of the plaintiff. As the plaintiff was given early possession of the property, and that it carried on business in producing coffee for sale, surely, in order for it to trade, it had to employ people to work in the plantation, office etc. Hence, it would have incurred expenses in terms of wages. In my view, wages are part and partial of computing the plaintiff business profits or losses in any given period. Therefore, they are not recoverable according to the decision in Brown's case (supra) and I dismiss this claim.

107. If I am wrong in reaching this conclusion, I would still reject it because the figure of K197,766.00 is inconsistent with the figure given by Mr Serowa in the statement of expenditures for period ended 31st December 1998 marked as annexure "A" to his affidavit (Exhibit "P1") where he gives a figure of K66,643.00. So what is the correct figure? Neither Mr Serowa nor Mr Yaluma gave evidence of the actual expenses incurred in terms of wages for those workers employed to make improvements on the property prior to the completion of sale. This is a crucial piece of evidence.

108. In my view, its omission is fatal to the plaintiff's claim as this evidence would separate wages paid to workers employed to improve the property from those employed to ensure that the plaintiff is trading. In the absence of this evidence, I am left to conclude that the figure of K66,643.00 may be for wages incurred in improving the property or for the entire business operations of the plaintiff. The evidence is either lacking or vague and for these reasons, I am not satisfied that the plaintiff has established this claim on the balance of probabilities and I dismiss it.

109. In my view, the expenses claimed under this head can be further broken down into two categories. Chemical costs can be categorized as expenses incurred in improving the property, namely the coffee plantation's rehabilitation and the lawyers and accountants' costs as operational costs because they form part of the plaintiff's normal business expenses and go towards determining the plaintiff's profits or losses in any given period. Such expenses are not recoverable according to the decision in Brown's case (supra).

110. Proceeding on this premise, Mr Serowa says that the plaintiff spent K37,198.00 on chemicals, weedicides, pesticides and fertilizers in the statement of expenditures marked as annexure "A" to his affidavit (Exhibit "P1"). I accept this amount and award K37,198.00 to the plaintiff for this claim. As for the expenses for the lawyers and accountants, as they are operational expenses in conducting its business as a coffee producer, they are not recoverable and I dismiss them.

111. There is a claim which I wish to mention here. This is the claim for trade store which the plaintiff claims it built on the property worth K70,000.00. Mr Kana gave this figure when asked in cross examination by counsel for the defendant. While there is evidence to establish this claim, the problem I have with it is that, the plaintiff did not plead it at paragraph 13 of the statement of claim. (Particulars of expenses incurred in connection with the properties). Therefore, there is no foundation in the pleadings upon which the plaintiff may lead evidence to establish this claim at the trial. There are many case authorities standing for this principle and I need not refer to all of them except to mention the cases of Madiu Andrew -v- Mineral Resources Development Company Limited (2007) N2601 and Jack Topo -v- Kelly Kaman & The State (2009) N3773. For this reason, I dismiss this claim.

111. There are three other claims which I wish to also mention here. These are expenses incurred for building an office, a reservoir and a main switch shelter. The plaintiff claims it built them on the property and spent K4,000.00 for the office and K10,000.00 for the main switch shelter based on the evidence of Mr Kana during cross examination by counsel for the defendant. However, he did not say how much was spent by the plaintiff to build the reservoir. While there is evidence establishing these claims, again, the problem I have with them is that, the plaintiff did not plead them at paragraph 13 of the statement of claim (Particulars of expenses incurred in connection with the properties). Therefore, there is no foundation in the pleadings upon which the plaintiff may lead evidence to establish them at the trial: see the cases of Madiu Andrew (supra) and Jack Topo (supra). For this reason, I dismiss these claims.

112. The plaintiff also claims interest at 8% pursuant to the Judicial Proceedings (Interest on Debts & Damages) Act. Neither parties made submissions in relation to this claim, but I am inclined to award interest at 8% from the date of issue of the writ of summons to the date of judgment which shall be calculated and settled by the parties for payment. I do so because the plaintiff has missed out on the money, since the action was commenced on 28th May 2001, almost 9 years ago, hence, it is only fair that it be compensated by an award of interest.

113. To sum up, there are other claims set out by Mr Serowa in the statement of expenditures for year ended 31st December 1998 marked as annexure "A" to his affidavit (Exhibit "P1") which I wish to mention briefly here. These expenses are allegedly incurred in advertising, depreciation & amortization, freight & transport, medical, hire of motor vehicles and so forth.

114. I have not considered them because the plaintiff did not plead them at paragraph 13 of the statement of claim (Particulars of expenses incurred in connection with the properties), hence no foundation in the pleadings to support them: see cases of Andrew Madiu (supra) and Jack Topo (supra).

1. Settlement of landowner's claims	K nil
2. Wet coffee factory	K 4,400.00
3. Water dam, fence, pruning & drainage	K 65,169.00
4. Building of Labourers' houses	K 17,833.00
5. Maintenance of general manager's house	K 2,832.00
6. Purchase of 3 x vehicles	K nil
7. Wages	K nil
8. Chemical costs	K 37,198.00
9. Lawyers & Accountants costs	K nil
10. Building of trade store	K nil
11. Building of office, reservoir & main switch shelter.	K nil
Total	K127,432.00

___________________________________________
Kunai & Co Lawyers: Lawyers for the Plaintiff
Warner Shand Lawyers: Lawyers for the Defendant

National Court of Papua New Guinea

Paradise Farms Ltd v Bank South Pacific Ltd [2010] PGNC 191; N3825 (8 January 2010)