Estate Management Services Ltd v Kaisha [1994] FJHC 154; Hbc0336j.94s (21 October 1994)

IN THE HIGH COURT OF FIJI
At Suva
Civil Jurisdiction

CIVIL ACTION NO. 336 OF 1994

Between:

ESTATE MANAGEMENT SERVICES LIMITED
(formerly known as 'Pacific Harbour
Hotels and Development Limited')
Plaintiff

- and -

MINAMI TAIHEYO KAIHATSU KABUSHIKI KAISHA
1st Defendant
SYDNEY JAMES LEE and JACQUELINE ROSEMARIE LEE
2nd Defendants

Ms. V. Narayan for Plaintiff
Mr. M. Narsey for first Defendant
Mr. G. Keil for second Defendants

JUDGMENT

The application before the Court is an inter partes motion issued by the plaintiff seeking to restrain the second defendants:

"... until further order of this Court from instituting any legal proceedings, in particular any insolvency proceedings, against the plaintiff as a result of any failure to complete any covenants and conditions under the Sale and Purchase Agreement entered into between the Plaintiff and the Second Defendants on 22nd June, 1982."

It is not entirely clear what is meant by the term "insolvency proceedings" in the summons but the very able and helpful submissions of counsels makes it clear that it concerns winding-up proceedings.

The brief background facts are not in dispute and are conveniently summarised in the written submissions of learned counsel for the plaintiff as follows:

"The Plaintiff Company is a Real Estate Developer which until February, 1991 was known as Pacific Hotels and Developments Limited (PHDL). On 22 June, 1982 PHDL entered into a Sale and Purchase Agreement with the Second Defendants (Mr. & Mrs. Lee) for the sale of Lot 1250 of undeveloped Section 'F' of PHDL's Pacific Harbour International Resort Development. Pursuant to this Agreement, PHDL was to develop Section 'F' and deliver a Certificate of Title to Lot 1250 to Mr. & Mrs. Lee."

I interpose here to observe that under the 'Sale and Purchase Agreement', Clause 6(a) required PHDL to undertake a survey of the land and carry out various construction and installation works on the land with a view to the provision of essential services to the lots.

More particularly, for present purposes, Clause 6(b) provides:

"(b) The said survey construction and installation works shall be carried out with all reasonable speed having regard to all relevant factors provided however that the Vendor shall not be in any way liable to the Purchaser for compensation damages or otherwise in respect of any delay which may arise from any cause whatsoever in the completion of such survey construction and installation works other than as a result of wilful delay on the part of the Vendor."

and possession by the purchasers was also deferred until "... such time as a survey plan containing the said lot has been registered in the Titles Registry ..." (See: Clause 7).

The agreement however is entirely silent as to a 'completion date' and it is common ground that none of the development work contracted by the PHDL has as yet begun.

The correspondence on the other hand between PHDL and the 2nd defendants at a time prior to their entering into the 'Sale and Purchase Agreement' contains the following relevant representation on the part of a director of PHDL where he wrote in a letter of 2 March 1982:

"The development of Section F is part of a five year development programme commenced 1 January 1981. This is to confirm that Section 7 which comprises Pacific Harbour Lot 1250 will be developed on or before the expiry of five-year development programme and the provision of all services supplied to the lot."

To continue then with counsel's summary of the facts:

"In June, 1988 PHDL sold its major assets, including undeveloped Section F, to the First Defendant, Minami Taiheyo Kaihatsu Kabushiki Kaisha (MTKKK). By Deed of settlement dated 20 March, 1990 MTKKK was required to develop Section 'F' and deliver seperate Certificates of Title to respective purchasers. MTKKK also indemnified PHDL against any and all claims of any nature arising out of MTKKK's failure to complete any one of PHDL's covenants or obligations under original Sale and Purchase Agreements with individual Purchasers. As to date, MTKKK has not supplied any individual Certificate of Title to Mr. & Mrs. Lee. In November 1992, the Plaintiff informed Mr. & Mrs. Lee to pursue their claim for a Certificate of Title with MTKKK. However, on 22 June, 1994 the Plaintiff was served with a notice under Section 221 of the Companies Act, Cap. 247 (the Act) issued by Messrs. Mitchell Keil and Associates on behalf of the Second Defendants."

It is no part of the Court's function at this stage to attempt any definitive interpretation of the 'Deed of Settlement' between the PHDL and the 1st defendant (which is the subject matter of the substantive action), save to observe that the parties to the Deed appear to differ as to their respective rights, duties and liabilities thereunder.

Needless to say the 2nd defendants seek to dissociate themselves from the 'Deed of Settlement' between PHDL and MTKK which was entered into without their prior knowledge or approval and some time after the 2nd defendants had paid in full the purchase price for their lot.

The 2nd defendants claim, quite simply, is that having paid the purchase price under the 'Sale and Purchase Agreement' entered into with PHDL and, the period having now lapsed when the 'development programme' was supposed to have been completed on the vendor's own account, and, a further 5 years having elapsed since the full purchase price was paid, they, as purchasers now require the vendor, PHDL, to complete its part of the 'Sale and Purchase Agreement' and provide them with a Certificate of Title to Lot 1250 in Section F.

However, the land in question having, since the 'Sale and Purchase Agreement', been sold to a third party, counsel firmly submits:

"The Plaintiff, on its own admission therefore is unable on its part to complete the Sale and Purchase Agreement as the subject matter of the agreement namely Lot 1250 is not owned by the Plaintiff any more."

That a party who has contracted to perform a certain act on a future date commits a breach of contract and may be sued for damages where he has put it out of his power to perform it albeit before that future date has arrived has been settled law since Hochster v. De La Tour (1853) 95 R.R. 747 in which it was:

"Held: that a party to an executory agreement may, before the time for executing it, break the contract either by disabling himself from fulfilling it or by renouncing the contract; and that an action will lie for such a breach before the time for the fulfilment of the agreement."

Learned counsel further argues that the 'Sale and Purchase Agreement' being silent as to the rights of the purchasers in the event of a default or breach by the vendor, and the 2nd defendants, as purchasers, having effectively been denied their remedy of 'specific performance', are therefore entitled to treat the transfer by PHDL as a repudiation and to rescind the agreement and recover the full purchase price paid for the Lot together with interest thereon "... from the date of acknowledgement of payment of the purchase price until the date of the demand."

In support of this latter submission learned defence counsel referred to selected passages from "The Law relating to the SALE OF LAND in Victoria" by Voumard at pp. 279, 408 and 409. The passages however are based on a clear "... breach committed by the vendor" (which is vigorously denied) and the 'exceptional rule' affirmed in Bain v. Fothergill (1874) 7 L.R.H.L. 158:

"... that upon a contract for the purchase of a real estate, if the vendor, without fraud, is incapable of making a good title, the intended purchaser is not entitled to any compensation for the loss of his bargain." (per Lord Chelmsford at p.201)

I am satisfied however that the circumstances of this case falls outside that 'exceptional rule'. In Ross v. Robinson [1886] VicLawRp 125; (1886) 12 V.L.R. 764 in which the facts are very similar to the present case the headnote reads:

"A vendor of real estate has no right without the consent of his vendee to resell the estate, even expressly subject to the rights of the original purchaser. If such a resale is made, the vendor or his representative is liable to the original purchaser either for specific performance of the contract or for damages for the breach of it."

Webb J. in rejecting the submission that the measure of damages in that case was restricted by the rule in Bain v. Fothergill (op.cit) said at p.773:

"The rule ... is limited to those cases where the breach arises from the inability of the vendor to make a good title and does not apply where the breach arises from some other source than want of title."

Earlier in his judgment Webb J. in rejecting the 'conditional transfer' of the land to a third party said at p.772:

"To that contention the proper answer is that the defendant had no power or authority, without the plaintiffs concurrence, to transfer the obligations of the contract from himself, as executor of the vendor, to any other person whatever, and that the plaintiff is not bound to look to any other person than the defendant, either for performance of the contract or for damages for the breach of it."

(See also: the decision of Eve J. in Goffin v. Houlder (1921) 90 L.J.Ch. 488 at 490 and the discussion of the rule in McGregor on Damages (15 edn.) at paras. 873-900).

Furthermore in Synge v. Synge [1894] UKLawRpKQB 10; (1894) 1 Q.B. 466 where land was conveyed by a husband to a third party in breach of his promise to leave it to his wife it was:

"Held: ... that as the defendant had put it out of his power to perform the contract there had been a breach, in respect of which the plaintiff had an immediate right of action to recover damages ..."

The 2nd defendants however have not come by way of an action claiming damages instead they, through their solicitors, issued a 'demand notice' pursuant to Section 221 of the Companies Act 1983 which provides (so far as relevant for present purposes):

"A company shall be deemed unable to pay its debts -

(a) If a creditor, ..., to whom the company is indebted in a sum exceeding on hundred dollars then due has served on the company, by leaving at the registered office of the company, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum ..."

There is some suggestion that the 2nd defendants are not 'creditors' within the meaning of Section 221(a) and therefore have no locus standi to issue the statutory demand notice. I am satisfied however in the absence of a definition of the term in the Companies Act that, for the purposes of a 'statutory demand' under Section 221(a), the term ought to be given a broad meaning consistent with the meaning envisaged by the provisions of Section 222 so as to include "any contingent or prospective creditor".

Needless to say both Sections occur under the same part of the Companies Act and it would in my view be incongruous if for the purposes of a preliminary 'statutory demand' a creditor's status had to be affirmatively established yet not so, if he was actually presenting a winding-up petition.

I receive some support for this view in the judgment of Megarry J. in In re Harvest Lane Motor Bodies Ltd. (1968) 3 W.L.R. 220 where the claim of a widow against a company in an action for damages for the death of her husband in a road accident was upheld.

Megarry J. in discussing the meaning of the term said in words which I would respectfully adopt at p.224:

"I doubt very much whether in using the word 'creditor' simplicitor the legislature can have been intending thereby to differentiate between those creditors whose debts are fixed and ascertained and those whose debts are contingent or prospective providing redress for the grievances of the former but ignoring the grievances of the latter. In short I think it would be wrong to construe the word 'creditor' narrowly;" [See also: Holt Southey Ltd. v. Catnic Components (1978) 1 W.L.R. 630]

Be that as it may it is this particular form of procedure adopted by the 2nd defendants that the plaintiff strenuously opposes as being not only inappropriate but 'an abuse of process'.

Support for this submission may be found in Re a Company (No. 0012209 of 1991) (1992) 2 ALL E.R. 797 in which the decision of Hoffmann J. is summarised in the headnote as follows:

"It is an abuse of process to present a winding up petition against a solvent company as a means of putting pressure on it to pay money which is bona fide disputed instead of applying for summary judgment under RSC Order 14, and the Court will in those circumstances issue an injunction restraining presentation of the petition and may penalise the petitioner in costs."

Furthermore in In re A Company (No.003729 of 1982) Mervyn Davies J. in dismissing the winding-up petition in that case:

"Held: that, since the company in good faith and on substantial grounds disputed the amount of the debt, a petition for the winding up of the company was not a legitimate means of seeking to enforce payment; that, since the company could not know the sum due but was willing to pay a lesser amount (albeit exceeding the statutory figure), its omission or failure to pay either the statutory demand or the lesser amount within 21 days did not constitute 'neglect' within the meaning of Section 223(a) [the English equivalent of our Section 221(a)]; that accordingly, the petitioner, being unable to rely on a debt of a specified sum which could not be seriously questioned as to quantum, was not a liberty to present a petition based on Section 223(a)."

More particularly Mervyn Davies J. in discussing the meaning of "neglected to pay" in the Section said at p.1094:

"Section 223(a) does not speak of an omission or failure to pay, but of neglect to pay, so that there is no neglect to pay when the sum demanded is disputed. This contention is supported by authority. In re London and Paris Banking Corporation (1874) [1874] UKLawRpEq 171; L.R. 19 Eq. 444."

and later at p.1095, he said in relation to the nature of the requisite claim under the Section:

"Section 223(a) contemplates a creditor being able to point to a debt of a specified sum that cannot be seriously questioned either as to existence or quantum. It follows that the petitioner was not at liberty to make use of Section 223(a). The position is no doubt otherwise where the petitioner can, without serious argument."

In this latter regard learned counsel for the plaintiff company submits:

"There is not, at this time, any debt due to be paid by the Plaintiffs to the second defendants. The Sale and Purchase Agreement between the Plaintiff and the 2nd defendants provides for the Plaintiff to develop Section F and deliver an individual Certificate of Title to the 2nd defendants. It does not however, state that this must be done by a certain date or time limit, at the expiry of which the 2nd defendants money shall be refunded to them. There is no such default clause which could make any money payable to the Plaintiffs due and owing now."

With that submission I entirely agree and would only add that the mere fact that the 2nd defendants are able or willing to limit their claim to a liquidated amount does not conclude the issue.

Needless to say whilst I can sympathise with the 2nd defendants I am constrained to hold that their claim properly lies in an action for damages for breach of contract and the issuance of a 'statutory demand notice' under Section 221(a) of the Companies Act is a clumsy attempt at invoking the Court's winding-up jurisdiction in a case wholly unsuited for such a procedure.

The plaintiff's application must be granted but the terms of the injunction sought are far too wide and accordingly in the exercise of the Court's discretion I order that the 2nd defendants be restrained until further order of this Court from instituting winding-up proceedings and that service of this order upon the 2nd defendant's solicitors shall be sufficient service and notice thereof to the 2nd defendants.

The plaintiff shall receive the costs of this application to be taxed if not agreed.

(D.V. Fatiaki)
JUDGE

At Suva,
21st October, 1994.

HBC0336J.94S