Sakashita v Concave Investment Ltd [1999] FJHC 3; Hbc0121j.1998s (5 February 1999)

Fiji Islands - Sakashita v Concave Investment Ltd - Pacific Law Materials

IN THE HIGH COURT OF FIJI

AT SUVA

CIVIL JURISDICTION

CIVIL ACTION NO. 0121 OF 1998

BETWEEN:

:

KIKUO SAKASHITA
Plaintiff
AND:

CONCAVE INVESTMENT ED
Defendant

. K. Bulewa for the Plae Plaintiff
Mr. S. Lateef feef for the Defendant

JUDGMENT

The plaintiff Kikuo Sakashita is a Japanese businessman who was interested in investing in Fiji. He had plans to construct an exclusive health club/hotel complex to cater for the growing number of Asian visitors to Fiji. To that end he was shown a number of properties and also introduced to the managing director of the defendant company. He settled upon a vacant block of land just off Queens Road in the defendant company's subdivision at Namaka, Nadi.

On 15th May 1997 Kikuo the plaintiff entered into a Memorandum of Agreement ('the Agreement') to purchase the said land for $295,000.00 payable in three (3) instalments - an initial deposit of $29,500.00 'on signing', a further $29,500.00 within 30 days thereafter and the balance of $236,000.00 on production of the Title Deed to the land. It is common ground that pursuant to 'the Agreement', the plaintiff has 'made two payments of $29,500 each as deposit'.

'The Agreement' was made subject to three (3) 'conditions precedent' of which, for present purposes it is only necessary to refer to the following:

'(i) The vendor arranging for all government approvals (including zoning) of Purchasers proposed motel/tourist apartments development on the said lot ...; and

(iii) The Purchaser and/or his nominee company obtaining the necessary approval from the Minister of Lands for this purchase and also the approval from FTIB and the RBF';

As to condition (i), by letter dated 3rd November 1997 addressed to the plaintiff's solicitor, the managing director of the defendant company advised:

'All necessary approvals has been received and Deposit Plan No. 8003 has been registered.'

This is confirmed in the affidavit of a principal in the firm of Wood & Jepsen, which acted as consultants to the subdivision, where he deposed:

'... the Director of Town and Country Planning which is the ultimate authority in monitoring and approving developments in the country has approved the said land for Tourist development.'

As to condition (iii) above, and in response to the plaintiff's solicitor's letter of 9th October 1997 to the Minister of Lands seeking his approval to 'the Agreement', the managing director of the defendant company wrote to the plaintiff's solicitor advising 'that Minister of Lands has already consent to the dealing and photocopy of the consent is attached herewith.'

The relevant application form with the Minister of Land's consent endorsed on it is dated 17.6.97 and is signed by the defendant company as the 'Vendor', and purports to be signed by the plaintiff as the 'Purchaser'. I say 'purports' because in the body of the form, Clause 6(a), the purchaser is identified as: 'Ryo-Zan-Pak (Fiji) Limited' a company registered in Fiji.

Furthermore in an earlier letter of the plaintiff's solicitor to the defendant company dated 6th October 1997, in which it was suggested '... that the agreement be mutually cancelled or terminated and that both parties be restored to their respective position prior to 15th May 1997', doubt was raised as to the validity of 'the consent from the Minister of Lands to Ryo-Zan-Pak (Fiji) Ltd'.

Be that as it may and after failing to get the defendant company's agreement to cancel 'the Agreement', the plaintiff issued an Originating Summons on 19th February 1998 seeking various declarations, including, a declaration that 'the Agreement is in breach of Section 6(1) of the Land Sales Act Cap. 137 and is therefore null and void'.

After answering affidavits were filed it was agreed by counsels that the case should proceed on the following preliminary legal issues:

(1) Whether 'the Agreement' dated 15th May 1997 is in breach of Section 6(1) of the Land Sales Act (Cap. 137); and/or

(2) Whether or not the Minister of Lands consent dated 28.8.97 is sufficient for the purposes of Section 6(1) of the Land Sales Act? and

(3) What are the consequences in the event of either question being answered in the affirmative?

Written submissions were ordered on the preliminary issues and these were eventually filed by the plaintiff's solicitor on 29th September 1998 and by the defendants solicitor on 13th October 1998. I am grateful to counsels for their assistance.

It is clear from the submissions that counsels differ fundamentally on the meaning and purpose of section 6(1) of the Lands Sales Act (Cap. 137). In this regard plaintiff's Counsel writes:

"The phrase '... prior consent in writing of the Minister responsible for land matter make any contract ...' used in Section 6(1) of the Act in its plain and ordinary meaning clearly require such a consent be obtained in writing before any contract to purchase land is made. The Section makes no exception to all kinds of contract."

and counsel relies on the unreported judgment of Palmer J. in 'the leading case' of Hunter v. Apgar Suva Civil Action No. 928 of 1986 delivered on 15th September, 1989.

In that case Palmer J. said of the purpose of the Act at p.8:

"The Land Sales Act, as already noticed, aims directly at the non-resident. It provides a mechanism to ensure that a non-resident cannot obtain any enforceable right in relation to land until, right at the outset, the Minister has had the opportunity of prohibiting any such transaction or imposing terms and conditions for his consent to the same."

and later at p.19 his lordship said:

"The whole purpose of the legislation is to ensure that no contract is made without first giving the Minister the opportunity of permitting or prohibiting it and in the former case of imposing conditions upon it."

Defence counsel for his part, and equally forcefully, submits that:

'Section 6(1) is directory or regulatory in nature and not prohibitory. Hence it does not render a contract void and unenforceable if consent of the Minister responsible is not obtained prior to the making of an agreement.'

and, Counsel states that 'the Act':

'by setting out the (penal) consequences of (any) contravention of Section 6(1) gives the strong impression that the contract could be enforced along with the offender being penalised for that right to enforcement.'

Furthermore:

'it would be impractical for a Minister to give his consent to a dealing in land if he is unaware as to what he is giving his consent to. It is important for a Minister to know in some detail what dealing is made between the parties regarding a piece of land in order to ascertain whether to give consent and this could only be possible if some form of agreement is put before the Minister.'

and finally, after referring to Clauses 12 & 13 of the application form, Counsel writes:

'... the form used (by its wordings) ... suggests that some agreement is indeed necessary and was so intended before application for consent is made to the Minister.'

In support of these various submissions defence counsel cites 'the much publicised case' of Jennyne Gonzalez and Anor v. Haroon Khan and Anor Lautoka Civil Action No. HBC 0073 of 1992 (per Lyons J.) delivered in July last year.

In his judgment Lyons J. said of the nature of Section 6(1) of the Land Sales Act at p.23:

'On taking a broad approach, and reading the whole of the Act, including the preamble, Section 6 cannot be said to be prohibitory. Clearly there is no intention in the legislators to prohibit non-residents from purchasing land in Fiji. Indeed Section 15, (and I would add Section 7) for example, envisages non-residents owning land. ... If looked at in broad terms then by definition ..., as the statute itself is not prohibitory, Section 6 must be considered not to vitiate a contract by a non-resident for purchase or lease of land if not complied with. Section 6 must thus be declaratory or regulatory only.'

and later his lordship identifies the purpose of 'the Act' when he says at p.24:

'The design of the Act, from a stand point of public policy, is to prevent speculative profiteering by non-residents. This public policy is met, not by expressly prohibiting speculation (indeed how can it?) but by discouraging such activity by specific provisions to tax profits. Thus the Act itself is clearly revenue collecting and so provides for the public interest.'

It is clear from the above-quoted extracts that even amongst judges of the High Court there exists a difference of opinion as to the nature and purpose of Section 6(1) of the Land Sales Act and I am reluctant to add a third and different view if it can be avoided.

I turn then to consider Section 6(1) of the Land Sales Act Cap. 137 ('the Act') which reads (subject to an inapplicable proviso):

'No non-resident or any person acting as his agent shall without the prior consent in writing of the Minister responsible for land matters make any contract to purchase or to take on lease any land.'

In interpreting this provision I am first and foremost guided by the oft-cited observations of Lord Russell of Killowen C.J. when he said in Attorney-General v. Carlton Bruce (1988) 2 Q.B. 158 at p.164:

'The duty of the Court is, in my opinion, in all cases the same, whether the Act to be construed relates to taxation or to any other subject viz. to give effect to the intention of the Legislature, as that intention is to be gathered from the language employed, having regard to the context in connection with which it is employed (and once ascertained) ... It is not open to the court to narrow and whittle down the operation of the Act by consideration of hardship or business convenience, or the like.'

In the context of the present case, I am also mindful of the 'rule of law' enunciated by Baron Parke when he said in Cope v. Rowlands (1836) 46 R.R. 532 at p.539/540:

'It is perfectly settled, that where the contract which the plaintiff seeks to enforce, be it express or implied, is expressly or by implication forbidden by the common or statute law, no Court will lend its assistance to give it effect. It is equally clear that a contract is void if prohibited by statute, though the statute inflicts a penalty only, because such a penalty implies a prohibition and it may be safely laid down, notwithstanding some dicta apparently to the contrary, that if the contract be rendered illegal, it can make no difference, in point of law, whether the statute which makes it so has in view the protection of the revenue, or any other object. The sole question is, whether the statute means to prohibit the contract?'

At the outset, and as already noticed by Palmer J. Section 6(1) 'aims directly at the non-resident', and I would add 'purchaser'. This is not to say however that a resident vendor cannot be a party to a contravention of its provisions. Plainly he can. Similarly with a contravention of the provisions of Section 7(1) of 'the Act' which deals with a 'non-resident' vendor. In neither instance however can the primacy of a 'non-resident' be ignored.

Secondly, both Sections in clear terms require, not just the consent of the Minister responsible for land matters to the making of a contract to purchase or lease any land or for its disposition, but his 'prior consent in writing'. 'Prior' to what? one may ask - to any discussion, proposal or oral agreement? Common sense dictates that none of these preparatory steps are within the contemplation of the Sections.

In my view therefore and bearing in mind the evidential requirements of Section 59(d) of the Indemnity Guarantee and Bailment Act (Cap. 232), the answer to the above question must be, prior to the execution by a 'non-resident' of a written memorandum or note evidencing such purchase, lease or disposition of land.

As for the revenue collecting purpose of 'the Act' it is noteworthy that Section 3, the charging provision of 'the Act', other than imposing a land sales tax 'on any profits' makes no distinction between a 'resident' or 'non-resident' seller or buyer. The Section does however impose the liability 'on the seller of the land'.

In other words, in so far as 'the Act' has a revenue-collecting purpose, the residency of the parties is considered irrelevant, and, if that were its sole purpose, then there would in my view, have been no need for 'the Act' to expressly proscribe sales or purchases by 'non-residents'.

The fact that such dealings are singled out and made subject to the 'prior consent in writing of the Minister responsible for land matters' suggests to my mind, that 'the Act' also has a discernible protective or public policy purpose, namely, the prevention in the public interest, of the uncontrolled alienation of land in Fiji, to and by 'non-residents'.

Furthermore the fact that it is the 'Minister responsible for land matters' who must give his 'prior consent' reflects the concern of the Legislature that consideration and consent or refusal be given and taken at the highest executive level, to each and every land dealing by a 'non-resident' whether in person or through an agent.

Needless to say I prefer the approach of Palmer J. to the interpretation of Section 6(1) of 'the Act'. It is not only consistent with the clear protective purpose of 'the Act' but in addition, gives effect to the plain and ordinary meaning of the words of the Section.

Lyon J's approach on the other hand ignores altogether the existence of the word 'prior' in relation to the consent of the Minister and unduly stresses the revenue-collecting purpose of 'the Act' at the expense of its other equally important protective purpose.

This latter approach is also problematic in that it may entail an otherwise valid and binding contract which may have been partly-performed (as occurred in this case) being unilaterally altered or rendered illegal and unenforceable by the Minister's subsequent conditional approval or refusal of consent ex post facto. Such a result would be at the very least inconvenient, and could, in some instances, give rise to unreasonable and unjust consequences.

Money may have changed hands and the personal and business affairs of the 'non-resident' buyer or seller may have been rearranged as a result of the contract, which may have to be refunded and dismantled not as a result of anything done by the parties but because of the subsequent decision of the Minister.

Given the above construction of Section 6 I am constrained to answer the first question earlier posed at page 4 in the affirmative and the second question negatively. In this latter regard I respectfully agree with and adopt the words of Palmer J. when he said at p.17 (op. cit.):

'The Minister's purported consent given on the (28th of August 1997) can be of no effect. He derives his powers in the matter from Section 6 of the Act and those powers are to consent or refuse consent prior to the making of the contract. Any consent he purports to give after that is in my view ultra vires and of no effect.'

The plaintiff must be and is accordingly granted the first declaration sought in the Originating Summons.

What then is to be done about the 'deposit' already paid to the defendant company pursuant to 'the Agreement'? This, I confess is the more difficult of the questions earlier posed to the Court. Here too there is no agreement by counsels.

Plaintiff's counsel submits that 'the Agreement' 'being unlawful of effect (sic) and unenforceable, no legal or equitable interest can therefore pass under it' and counsel simplistically submits 'the Plaintiff is entitled to a refund of all money paid under the Agreement.' On what legal basis or principle is undisclosed.

Defence counsel for his part, whilst disputing the amount paid by way of 'deposit', submits that:

'The Sale and Purchase Agreement is valid and enforceable.' (a submission which can no longer be sustained given the court's construction of Section 6)

and Counsel submits:

'The deposit paid by the Plaintiff to the Defendant towards the purchase price is not refundable.'

In this latter regard it is noteworthy that Clause 13 of 'the Agreement' between the parties expressly provides that: 'all monies ... paid or ... applied in reduction of the purchase price shall be refunded to the Purchaser without deduction ...' in the event that the Vendor, for 14 days, defaults in the performance or observance of any of his contractual duties.

The Clause is highlighted not because the defendant company as Vendor has breached its contractual obligations under 'the Agreement' (upon which no finding has been made) but rather, to underscore the fact that a refund of the deposit monies was within the contemplation and agreed to by the parties when the terms of 'the Agreement' was settled between them.

Indeed Clause 16(iii) of 'the Agreement' (earlier set out at p.2) clearly places the contractual duty of '... obtaining the necessary approval from the Minister of Lands ...' on 'the Purchaser and/or his nominee company' and defence counsel submits that if there was any breach of this clause then 'it is the plaintiff's fault!

That is not to suggest however that the defendant company committed any breach in applying for and obtaining the Minister's consent under the Lands Sales Act. Plainly it did not, but I have digressed somewhat.

Returning then to the 'deposit' and mindful of the Court's construction of Section 6(1) of 'the Act', I am constrained to hold that 'the Agreement' is a contract implicitly prohibited by 'the Act' and is rendered illegal in its making.

'In such a case' the learned authors of Cheshire and Fifoot's Law of Contract (9th edn.) write at p.323:

'(the contract) is void ab initio. It is a complete nullity under which neither party can acquire rights whether there is an intention to breach the law or not.'

As to the consequences of such a contract the learned authors say (ibid.) at p.345:

'The general principle, founded on public policy, is that any transaction that is tainted by illegality in which both parties are equally involved is beyond the pale of the law. No person can claim any right or remedy whatsoever under an illegal transaction in which he has participated. Ex turpi causa non oritur actio.'

and later, in dealing with the application of the 'general principle' to monies paid under such a contract and in recognising an 'exception' to the 'general principle', the learned authors write at p.349/350:

'Neither party can recover what he has given to the other under an illegal contract if in order to substantiate his claim he is driven to disclose the illegality. The maxim in pari delicto potior est conditio defendentis applies and the defendant may keep what he has been given.'

Quite clearly then the matter is not as simply addressed as plaintiff's counsel has submitted nor is it necessarily a question of the court restoring the parties to their respective positions prior to their entering into the illegal contract. Rather, the Court is obliged to consider whether in seeking to recover the 'deposit' paid to the defendant company, the plaintiff is 'driven to disclose the illegality'.

This 'exception' to the general rule was applied in the judgment of the Privy Council in Amar Singh v. Kulubya (1964) A.C. 142 which concerned a Ugandan statutory ordinance which prohibited the sale or lease of 'Mailo' land by a non-African except with the written consent of the Governor and where despite the absence of any written consent rendering a lease illegal, the respondent a native African, succeeded in recovering possession of the land before the illegal lease had expired.

Lord Morris of Borth-Y-Gest in delivering the judgment of the Privy Council and in approving the dictum of Du Parq L.J. in Bowmakers Ltd. v. Barnet Instruments Ltd. (1945) K.B. 65 at p.70, and of Lindley L.J. in Scott v. Brown Doering, McNab & Co. [1892] UKLawRpKQB 170; (1892) 2 Q.B. 724 at p.728, said at p.153:

'... their Lordships consider that the plaintiff was neither obliged to found his claim on the illegal agreements into which he entered nor, in order to support his claim, to plead or to depend upon the agreements.'

In that case the Privy Council said at p.151:

'(the respondent) required no aid from the illegal transactions to establish his case; it was sufficient for him to show that he was the registered proprietor of the lands and that the appellant, a non-African, was in occupation without the consent of the Governor, and accordingly had no right to occupy.'

More recently, in affirming this 'exception' in Tinsley v. Milligan [1993] UKHL 3; (1994) 1 A.C. 340, Lord Browne-Wilkinson delivering the leading majority judgment of the House of Lords said at p.376:

'In my judgment the time has come to decide clearly that the rule is the same whether a plaintiff founds himself on a legal or equitable title: he is entitled to recover if he is not forced to plead or rely on the illegality, even if it emerges that the title on which he relied was acquired in the course of carrying through an illegal transaction.'

and later at p.377 his lordship said:

'In my judgment the court is only entitled and bound to dismiss a claim on the basis that it is founded on an illegality in those cases where the illegality is of a kind which would have provided a good defence if raised by the defendant. In a case where the plaintiff is not seeking to enforce an unlawful contract but founds his case on collateral rights acquired under the contract (such as a right of property). The court is neither bound or entitled to reject the claim unless the illegality of necessity forms part of the plaintiff's case.'

In determining this question I am acutely aware that in the event that the 'deposit' is not returned the defendant company may be said to have been unjustly enriched in so far as it will be permitted to retain both the land and the 'deposit' which is a considerable sum of money.

Conversely, if the 'deposit' is refunded to the plaintiff then on one view, it might be said that the court was lending its assistance to a party to an illegal contract or in the language of equity, one who has not 'come to equity with clean hands' (See: Damodar & Ratanji Ltd. v. Redwood Investments Ltd. (1988) 34 F.L.R. 30 at p.36 and 37).

In similar vein Bingham L.J. said in Saunders v. Edwards (1987) 1 W.L.R. 1116 where the defence of 'ex turpi causa' was rejected, at p.1134:

'Where issues of illegality are raised, the courts have (as it seems to me) to steer a middle course between two unacceptable positions. On the one hand it is unacceptable that any court of law should aid or lend its authority to a party seeking to pursue or enforce an ... agreement which the law prohibits. On the other hand, it is unacceptable that the court should, on the first indication of unlawfulness affecting any aspect of a transaction, draw up its skirts and refuse all assistance to the plaintiff, no matter how serious his loss nor how disproportionate his loss to the unlawfulness of his conduct.'

(See also: the observations of Devlin J. in St. John Shipping Corporation v. Joseph Rank Ltd. 1 Q.B. 267 at pp. 288 & 289)

Neither is my decision made any easier by considering the conduct or relative moral culpability of the parties to 'the Agreement' since both were aware of the need to obtain the Minister's approval and both have acted on the basis that there was a valid and binding contract in existence.

In the final analysis I am content to categorise this aspect of the plaintiff's Originating Summons as being a claim for 'money had and received' or for restitution according to the principles discussed in the judgments of the House of Lords in the case of Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1942] UKHL 4; (1943) A.C. 32.

In particular I am satisfied that with little modification the words of Lord Roche in the Fibrosa case (ibid.) are directly applicable to the plaintiff's claim, where his lordship said at p.75:

'It is, I think, a well settled rule of English law that, subject always to special provisions in a contract, payments on account of a purchase price are recoverable if the consideration for which that price is being paid wholly fails: See: Ockenden v. Henley EB & E 485, 492. Looking at the terms of the contract in the case now under consideration, I cannot doubt that the sum sued for was of this provisional nature. It was part of a lump sum price, and when it was paid it was no more than a payment on account of the price. Its payment had advantages for the (defendant company) in affording some security that the (plaintiff) would implement their contract and take up (the transfer) and pay the balance of the price, and it may be that it had other advantages ... but if no ... document of title were delivered to (the plaintiff) ... (or, as in this case, the contract is declared illegal ab initio) then, in my opinion, the consideration for the price including the payment on account, wholly failed and the payments so made is recoverable. It was contended that unless there is found some default on the part of the recipient of such payment ... the consideration cannot be said to have wholly failed merely because the frustration of the contract produced a result which, had it been due to some default, would have amounted to a failure of consideration. I find no authority to support this contention, which seems appropriate to an action for damages, but foreign to the action for money had and received.'

In light of the foregoing and accepting the sworn concession of the managing director of the defendant company: '... that the purchaser made two payments of $29,500 each as deposit', I order that the defendant company repay to the plaintiff or his solicitors within 21 days the sum of $59,000 with costs to be taxed if not agreed.

D.V. Fatiaki
JUDGE

At Suva,
5th February, 1999.

Hbc0121j.98s