N8812

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS(COMM) NO. 771 OF 2017

BETWEEN:
IDUTU KOIARI DEVELOPMENT COMPANY LIMITED
Plaintiff

V:

TRIBAL INVESTMENTS LIMITED
Defendant

Waigani: Anis J
2021: 20th April & 18th May

CONTRACT LAW – contract for sale of land - whether contract was terminated based on default or whether contract was unlawfully terminated – interpretations of the terms and conditions of the contract – whether the vendor was obliged to rescind the contract as its first or only option – or whether the vendor had other options including the option to give Notice to Complete – whether material facts existed that warranted termination of the contract, and if so, whether termination was effected consistent with terms and conditions of the contract - or whether the contract was unlawfully terminated – where the vendor was entitled under the contract to forfeit the 10% deposit – or whether the 10% deposit was unlawfully forfeited or was forfeited in breach of the contract and whether it should be refunded with other damages including interest and costs

Cases Cited:

Nil

Counsel:

Mr A Kuria, for the Plaintiff
Mr R J Lains, for the Defendant

JUDGMENT

18th May, 2021

1.	ANIS J:	This matter was heard on 20 April 2021.  The plaintiff sought to enforce material terms of a contract for sale of land against the defendant.  As the purchaser, it alleged that the contract was unlawfully terminated, and as such, sought, amongst others, orders to recover a 10% deposit which it had deposited under the contract plus other related relief.  The defendant contested the claim.  I heard the matter and reserved my decision to a date to be advised.

2.	Parties have been notified so I rule on it now.

BACKGROUND

3.	The contract for sale of land concerned was signed by the parties on 8 December 2015 (the contract).  The plaintiff offered to purchase the defendant’s land for a total purchase price of K6,850,000 (which included K350,000 as commission fee).  The land is described as Allotment 9, Section 23, Granville, National Capital District (the property).  On 1 December 2015, the plaintiff deposited K685,000 (10% deposit) into the trust account of a nominated sales agent, Vada No. 10 Ltd (agent).

4.	Soon after that, the plaintiff applied for a loan with Westpac Bank-PNG Ltd (Westpac or bank) to assist pay-off the property.  About 5 months later, on 9 May 2016, the Defendant issued a Notice to Complete to the plaintiff.  The defendant requested the plaintiff to settle the remainder of the purchase price before or by 23 May 2016.  Then on 10 June 2016, the defendant issued a Notice of Termination purportedly terminating the contract.  The defendant’s reason, amongst others, was that the plaintiff had defaulted which was why it terminated the contract and forfeited the 10% deposit. 

5.	The plaintiff was aggrieved by these actions of the defendant and files this proceeding.  It argues, amongst others, that the contract was not lawfully terminated.  It seeks the following main relief: 

1.	A declaration that the termination of the Agreement by the Defendant on 10 June 2016 is null and void.
2.	Against the defendant an order for repayment to the Plaintiff of the amount of K685,000.00.
3.	Further or alternatively, against the defendant and the Stakeholder an order for repayment to the Plaintiff of the amount of K685,000.00 as follows:
(a)	Repayment by the Defendant of K300,000.00, and
(b)	Repayment by the Stakeholder of K350,000.00.
4.	Further or alternatively, interest in the principal amount and/or on damages pursuant to the Judicial Proceedings (Interest on Debts and Damages) Act (Chapter No. 52) at commercial rates or at such rate(s) and from such date(s) as the Court considers proper.
……

EVIDENCE

6.	The trial was conducted by tendering of evidence and presentation of submissions without the need for cross-examination.  This was agreed to by the parties.  At the trial, only the plaintiff tendered its evidence, that is, a total of 2 affidavits which were marked as Exhibit P1 and Exhibit P2.  

7.	The defendant did not tender any evidence.  Instead, it made submissions based on the undisputed facts and law, and in regard to the latter, submissions concerning proper interpretations of the disputed clauses of the contract.

ISSUES

8.	The main issues concern interpretations of the relevant clauses of the contract based on much of the undisputed facts.  They are (i), whether the defendant’s actions in issuing the Notice to Complete and the Notice of Termination, and its action in forfeiting the 10% deposit, were lawful, and (ii), subject to the first issue, whether the defendant should refund the plaintiff’s 10% deposit, and if so, (iii), how much of the 10% deposit should the Court order the defendant to pay back to the plaintiff?

RELEVANT CLAUSES

9.	A copy of the contract was adduced into evidence, that is, at annexure A to Exhibit P1 (i.e., the affidavit of Tyson Boboro filed on 30 August 2019).  It is also attached as annexure B to Exhibit P2 (i.e., the affidavit of Peter Inara filed on 29 August 2019).  

10.	Clauses 5.1, 7.1, 7.2, 9, 10 and 17 are relevant.  They read:

5.  COMPLETION

5.1	Date of Completion

Completion shall take place within 14 days from the date of the Vendor or the Vendor’s lawyer notifying the Purchaser or the Purchaser’s lawyer that Statutory Approval of this Agreement and the Instrument of Transfer have been received.  The Vendor and the Purchaser or their lawyers shall fix a date for Completion within the said fourteen-day period.
……

7.  NOTICE TO COMPLETE

7.1	If the Agreement is not completed in accordance with the Clause 5.1 the Vendor shall be entitled to issue a Notice to Complete fixing a date for completion of which time shall be of essence of this Agreement.

7.2	Any such notice purporting to make time of the essence of this Agreement is deemed to be sufficient as to time if a period of not less than fourteen (14) days from the date of the notice is allowed for the performance of any act (including but not limited to the signing of any document) required to complete this Agreement.
……

9.  DEFAULT

9.1  Forfeiture of Deposits

If the Purchaser defaults in the observance or performance of any obligation imposed on it under or by virtue of this Agreement the Deposit paid by it except so much of it as exceeds (10%) of the Purchase Price, shall be forfeited to the Vendor who shall be entitled to terminate this Agreement and thereafter either sue the Purchaser for breach of Contract or resell the Property as owner and the deficiency (if any) arising on such resale and all expenses of and incidental to such resale or attempted resale and the Purchaser’s default shall be recoverable by the Vendor from the Purchaser as liquidated damages provided that any proceedings for the recovery thereof be commenced within twelve (12) months of the termination of this Agreement.

9.2  Retention of Monies

The Vendor may retain any money paid by the Purchase on account of the Purchase Price other than the deposit money forfeited under Clause 9.1 as security for any deficiency arising on a resale or for any damages or compensation (including any allowance by way of occupation fee from a Purchaser who has been in possession of the Property) which has accrued due and owing to it for the Purchaser’s default.

10.  RESCISSION

10.1	If this Agreement is rescinded (as distinct from terminated) pursuant to an 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 – 

10.1.1	the deposit and all other money paid by the Purchaser hereunder shall be refunded to it;
10.1.2	neither party shall be liable to pay the other any sums for damages costs or expenses (other than for any antecedent breach of this Agreement);
10.1.3	If the Purchaser has been permitted into possession of the Property it shall forthwith given by the Property to the Vendor;

10.2	Any right to rescind under this Clause 10.2 shall be exercised by notice in writing to the other party on or before the earlier of Completion of this Agreement or the expiration of forty-two (42) days from the date of this Agreement.
…..

17.  Subject to Finance

17.2.1	This Agreement and the obligations of the parties hereto (apart from the special conditions) are subject to and conditional upon the Purchaser obtaining approval to borrow sufficient funds from a financial institution licensed under Bank & Financial Institutions Act, (2000) to lend money in Papua New Guinea to enable the Purchaser to complete this agreement.

17.2.2	If the conditions set out in sub-clause 17.2.1 shall not be fulfilled (or waived by the Purchaser giving notice to the Vendor within 21 days from the date of this Agreement or such other date as the parties may agree in writing), then either party shall be entitled at any time thereafter by notice in writing to the other to rescind this Agreement whereupon the provisions of Clause 10 hereof shall apply.

17.2.3	The Purchaser shall use in its best endeavours to satisfy the conditions referred to in sub-clause 17.2.1 and shall keep the Vendor regularly informed of its efforts to obtain the funds required to complete this Agreement.
……

RESCISSION OR TERMINATION?

11.	The material facts which the plaintiff relies on in its pleadings to make the assertion that the contract required rescission rather than termination is this, and I will paraphrase.  The contract was signed on 8 December 2015.  The plaintiff says that between December of 2015 and May of 2016, it was still negotiating with its bank for a loan to complete the contract when the defendant issued a Notice to Complete on 9 May 2016.  By so doing, the defendant forfeited the 10% deposit and terminated the contract.  These actions, the plaintiff submits, were unlawful or were in breach of the contract.  The plaintiff submits the correct process should have been for the defendant to give formal notice to rescind the contract under clause 17.2.2.  Had that been done, the plaintiff submits, clause 10 would have applied and the 10% deposit would have been refunded to it.  The plaintiff therefore submits that the contract has not been terminated, and it seeks the relief as are pleaded in its Amended Writ of Summons (filed on 21 November 2017) (Statement of Claim).

12.	I make these observations.  Firstly, clause 17 falls under the main sub-clause SPECIAL CONDITIONS which begins at clause 16.  Clause 17.2.1 appears as a superior clause of the contract.  It applies generally and it expressly states that the contract and the obligations of the parties under it, are subject to the plaintiff’s success with its loan application.

13.	The next crucial clause, in my view, is clause 17.2.2.  It states that if clause 17.2.1 cannot be fulfilled or is waived by the plaintiff, and I quote, then either party shall be entitled at any time thereafter to rescind the contract.  The wording is critical, and in this case, the use of the word “entitled” in my view means or gives a party the option to rescind or cancel the contract, as an entitlement rather than imposing an obligation upon a party to perform an act.  If the wording of clause 17.2.2 is framed differently, or like this, either party shall or must as its first option at any time thereafter by notice in writing to the other to rescind the contract…, that would, in my view, make it mandatory or obligatory for the parties to follow on from or after clause 17.2.1, which shall be the only choice or option.  However, this is not so in the present case.  As explained herein, clause 17.2.2, by its wording and interpretation, did not exclusively restrict the parties from applying the other options that were available.  But looking at clause 17, the only way where the option to rescind under 17.2.2 and the other options in the contract may be applied fully is if the superior or shielding clause, namely, 17.2.1 was lifted or neutralised.  And the only way that could have occurred (i.e., to lift or neutralize clause 17.2.1) was if the plaintiff were unable to fulfill its loan application or secure funding to fulfill its obligations, under the contract.  This is expressly stated under both clauses 17.2.1 and 17.2.2.  

14.	So, the question I ask is this.  Did the plaintiff fail to fulfill its obligation in securing the loan at the material time?  Let me begin by stating this fact.  In the Statement of Claim, the plaintiff expressly pleads at paragraph 15(a) and I quote, the Plaintiff was unable to borrow sufficient funds.  The plaintiff relies on this fact to make the argument in the pleadings that given this situation (i.e., its inability to secure funding) which had existed at the material time, clause 17.2.2 was operational and the defendant was obliged to but had failed to give notice to the plaintiff to rescind the contract.  So, by the plaintiff’s own pleadings, it admits it was unable to borrow or secure sufficient funds at the material time to fulfill the contract.

15.	The plaintiff’s admission meant that the general restrictions that had been imposed by clause 17.2.1 would have been de-activated or would have ceased to apply at the material time, and the defendant would have been cleared to apply the full provisions of the contract to its benefit.  I also find these to be the case in this instant.  The defendant then would have had various options available to it, and one of which would have been the option to rescind the contract under clause 17.2.2 which it was entitled to take as an option.  The defendant instead applied other options that were also available to it under the terms of the contract, namely, clauses 7.1 and 9.1, as shown in its Notice of Termination which is in evidence before this Court.

16.	So, once it became clear to the defendant or the parties, that the loan application was not achievable or fulfillable given the long delay, and which was admitted by the plaintiff, clause 17.2.2 plus other terms and conditions of the whole contract became operational.  And clause 17.2.1, which was the superior clause, became ineffective, ceased, or was negated.  The defendant then, in my view, was cleared to issue the Notice to Complete and take steps to terminate the contract.  There is no issue in terms of compliances by the defendant in issuing the Notice to Complete and Notice of Termination.  Evidence adduced by the plaintiff shows, amongst others, a copy of the instrument of title for the property, and approval that had been received from the Department of Lands which was evident in the contract.  The copy of the instrument is attached as annexure B to Exhibit P1 and is dated 8 December 2015.  That would have shown compliance on its part with clause 5.1, that is, furnishing the transfer instrument and obtaining approvals from the Department of Lands.  The contract therefore would have required settlement within 14 days from 8 December 2015.  The clause appeared to have been breached by the plaintiff because no settlement occurred then, and the plaintiff does not deny that it had failed to settle within the stated period.  The defendant was therefore entitled to issue the Notice to Complete.  A period of 14 days was given in the notice to the plaintiff to settle.  I note that the time limit given was consistent with clause 7.2.  There is no issue that the contract was not completed within the stated 14-day period.  So, the said failure plus other failures (which had occurred, but which had been postponed due to the application of clause 17.2.1 but which had ceased as explained above) would have entitled the defendant to invoke the default clause under clause 9.  

SUMMARY

17.	In summary, I find the claim to be without merit.  That is, I find that the terms of the contract had been duly complied with by the defendant when it gave Notice to Complete and later when it terminated the contract and forfeited the 10% deposit of the plaintiff.  I find nothing unlawful in the actions of the defendant.  There appears to be various breaches that had existed that had been committed by the plaintiff.  The obvious one being that upon receipt of the instrument of title to the property and approval from the Department of Lands, the plaintiff or the parties did not settle.  Instead, and given clause 17.2.1, the defendant or the parties, it seemed, had allowed time for the plaintiff to organize finance.  The extended delay then meant that the plaintiff was unable to fulfill its obligations as required under clause 17.  And the plaintiff has also expressly admitted its inability to secure funding at the material time, in its pleadings.  That then had the effect of nullifying the superior or protective clause (i.e., clause 17.2.1) where it had permitted the defendant to issue the Notice to Complete, forfeit the 10% deposit and terminate the contract.  As stated above in my decision, I have found these to be the facts and reasons that have led to the actions of the defendant.

REMARK

18.	I feel that it is necessary to make this remark.  The plaintiff had all the opportunities under clauses 10 and 17.2.2, together with the benefit of the general protective clause, namely, 17.2.1, to properly consider its options and where necessary, take immediate steps to rescind the contract or secure its deposit.  The contractual terms mostly favoured the plaintiff’s interest in the matter, and in particular, the security of its 10% deposit.  Yet, it did nothing on its part and had delayed the matter with little or no communications with its bank and the defendant, as revealed in its evidence that is before this Court.  And this.  Even at the time when the defendant issued the Notice to Complete to the plaintiff, clause 10.2 permits the plaintiff, if it had wanted to, to give notice to the defendant of its intention to rescind the contract, that is, before the completion date of the contract as specified in the Notice to Complete.  Again, the plaintiff did nothing or did not appear interested in seizing that opportunity.

COST

19.	An award of cost in this instance is discretionary.  I do not see any reason why cost should not follow the event.  As such, I will order the plaintiff to pay the defendant’s cost of this proceeding, that is, on a party/party basis which may be taxed if not agreed.

ORDERS OF THE COURT:

20.	I make the following orders:

1.	The proceeding is dismissed in its entirety.

2.	The plaintiff shall pay the defendant’s cost on a party/party basis which may be taxed if not agreed.

3.	Time for entry of these orders is abridged to the date and time of settlement by the Registrar which shall take place forthwith.

The Court orders accordingly.

________________________________________________________________
Kuria:	Lawyers for the Plaintiff
Hardy & Stocks:	Lawyers for the Defendant