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High Court of Fiji |
IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION
CIVIL ACTION HBC 164 OF 2009
BETWEEN:
RESORT IN PARK AND GARDEN LIMITED
Plaintiff
AND:
RICHARD NAIDU, FLORENCE FENTON,
JON APTED and NICK BARNES
First Defendants
AND:
COURTESY BENCH COMPANY INCORPORATED
Second Defendant
Mr J Savou for the Plaintiff
Mr M A Gilbert with Mr N Barnes for the Defendants
JUDGMENT
By originating summons dated 17 June 2009 the Plaintiff sought the following relief:
In support of its application the Plaintiff filed an affidavit sworn by Kim Woo Sik on 10 June 2009. The application was opposed by the Defendants. An answering affidavit sworn by Florence Tuirewa Fenton on 2 May 2011 was filed on behalf of all Defendants. An affidavit sworn by Kevin Raymond Chester on 2 May 2011 was filed on behalf of the Second Defendant. The deponent confirmed that to the best of his knowledge, information and belief the affidavit of Florence Tuirewa Fenton accurately stated the relevant details of the transactions that are the subject matter of the present proceedings. A reply affidavit sworn by Edmund Kim on 9 May 2011 was filed on behalf of the Plaintiff. In an earlier affidavit sworn on 11 June 2009 the same deponent deposed that he had personally read and then explained in the Korean language to Kim Woo Sik the contents of the affidavit sworn by the said Kim Woo Sik on 10 June 2009. A substantial amount of the material in the affidavits does not comply with Order 41 of the High Court Rules. I have limited myself to the facts and evidence disclosed in the affidavits.
From the affidavit material the following facts appear not to be in dispute. The Plaintiff is a company incorporated under the Companies Act Cap 247 as a limited liability company. It is, for the purposes of the Land Sales Act Cap 137 (the Act) a non-resident in the sense that the controlling interest in the Plaintiff is held by a non-resident. The Second Defendant is a foreign company registered in Fiji and is also a non-resident for the purposes of the Act. The First Defendants are partners in the Suva Law firm of Munro Leys. At all material times Munro Leys acted as the legal representative of the Second Defendant. Messrs Cromptons were acting for the Plaintiff at the relevant time.
Heads of Agreement
Initially the Plaintiff (the purchaser) and the Second Defendant (the vendor) (together referred to as the parties) signed on 29 November 2007 a Heads of Agreement document for the sale and purchase of about 11 000 acres of freehold land in the Province of Bua on the Island of Vanua Levu (the land). For reasons that are not directly relevant to these proceedings the arrangement did not proceed and there are no outstanding issues arising from that arrangement which is now defunct.
It is, however, relevant to the present proceedings to refer briefly to the correspondence passing between the parties that preceded the signing of the Heads of Agreement document on 29 November 2007.
In a hard copy of an email dated 27 November 2007 from Edmund Kim, who described himself in his second affidavit as the alternative company secretary of the Plaintiff company, to Kevin Chester, a director of the Second Defendant, it is stated:
"We are also ready to proceed with the agreement and upon satisfaction of all the government requirements; we will promptly make the full payments."
In a reply email of the same date Kevin Chester stated to Edmund Kim, amongst other matters, that:
"We are prepared to arrange _ _ _ a draft agreement very promptly. It is expected that the only condition will be the satisfaction of Government requirements.
What period of time do you consider is needed for execution of an agreement, satisfaction of Government matters and settlement?"
By letter dated 28 November 2007 addressed to Messrs Munro Leys, Messrs Cromptons stated in the fourth paragraph:
"The principals of the Company are aware that any sale contract would be conditional on the consent of the Minister of Lands to a sale, and of the steps required to be taken prior to obtaining that consent."
Notwithstanding the defunct first agreement, the parties continued negotiations with a view to finalizing a formal agreement. In an email dated 2 March 2008 addressed to Kevin Chester with a cc copy to the Plaintiff's Solicitors (Cromptons) Edmund Kim set out the key terms of the proposed arrangement. It would appear that agreement was reached between the parties and as a result Munro Leys drafted a written agreement which was signed by the parties and dated 22 April 2008 (the agreement). At the outset it should be noted that this was an agreement made between the Plaintiff as proposed purchaser and the Second Defendant as proposed vendor. Nether the First Defendants nor the firm of Munro Leys were a party to the contract.
The Agreement
The proposed purchase price for the land was to be US$11,500,000 plus any VAT payable in respect of the transaction. It was proposed that the purchase price would be paid by treating the two payments which were being held in the trust account of Munro Leys as part payment with the balance to be paid on the settlement date. The first payment of US$499,777.93 had been paid into the trust account on 7 March 2007. The second payment of US$650,250.00 had been paid into the trust account on 13 March 2008. The total of these two payments was US$1,150,027.93. The balance that was due to be paid on settlement day was US$10,349,992.07. The amount was calculated pursuant to clause 1.1(c) which stated:
"Upon satisfaction of all conditions in clause 2 below, the two payments made in (a) and (b) above "Deposit" shall be converted to part payment of the Purchase price."
Pending the Minister's consent the money held in the trust account of the First Defendants was described as a deposit. The use of that word in the context of the agreement will be considered later in this judgment.
It was not disputed before me that the proposed contract to purchase was caught by sections 6 and 7 of the Act. Section 6, so far as is relevant, states:
"(1) No non-resident or any person acting as an agent shall without the prior consent in writing of the Minister responsible for land matters make any contract to purchase any land:
[the proviso exempts transactions where the total land held by a non-resident will not exceed one acre]
(2) The Minister responsible for land matters may require any application for his consent _ _ _ to be in the appropriate form and may _ _ _ specify terms _ _ _ upon which such consent is conditional
(3) and (4) _ _ _."
Section 7 of the Act contains a similar requirement in respect of a non-resident vendor.
No doubt with these provisions in mind, clause 2 of the agreement was drafted and is directly relevant to the issues raised in these proceedings. Clause 2 is headed "Conditions" and then there appears a sub heading "Condition precedent – Land Sales Act." There is only one clause in this part of the agreement and so far as is relevant states:
"2.1 This agreement shall neither be nor become a contract for either the acquisition or disposition of land under the Fiji Land Sales Act (Cap 137) unless and until it has the consent in writing of the Minister for Lands subject to the usual conditions applying to such consents, as are set out in Schedule 3 (Minister's Consent). The parties further agree that:
(a) an application for Minister's Consent shall be lodged immediately by the Purchaser upon execution of this Agreement and the parties shall co-operate with each other in all respects using their best endeavours to secure the Minister's Consent
(b) _ _ _
(c) _ _ _
(d) the securing of the Minister's consent shall be obtained by 30 June 2008. If, before the expiry of this date either party, by written notice to the other, gives written notice to the other, this period shall be extended initially by a month if however consent is not received within that extended time two further months extensions may be given however this date will not be extended beyond 30 September 2008."
Clause 3 of the agreement then makes provision in the event that the condition precedent is not satisfied in the following terms:
"3.1 If
(a) the Minister's consent is not obtained by 30 June 2008 (or if extended in terms of that clause 2.1 (c) to a date no later then 30 September 2008
Then unless otherwise agreed between the parties;
(b) this Agreement shall terminate, and
(c) the Vendor shall be entitled to retain the agreed sum of US$500,000 as per clause 1.3 and 1.4
(d) the remaining balance amount paid to the Vendor as Deposit is to be refunded to the Purchaser forthwith,
(e) neither party shall have any further right or claim against the other under this Agreement."
It should be noted that the reference in clause 3.1 (a) above to clause 2.1 (c) is no doubt a typing error and should in fact be read as clause 2.1 (d). It is now necessary to refer to clauses 1.3 and 1.4 which state:
"1.3 If the Minister's Consent is not obtained, a sum of US$500,000.00 shall be retained by the vendor and balance of funds comprising the Deposit shall be refunded to the Purchaser by paying those amounts to the trust account of the Purchaser's lawyers.
1.4 For the avoidance of doubt, it is agreed that the sum of US$500,000.00 shall not be refundable to the Purchaser if the approval required by clause 2 is not secured within the time frame allowed."
Clause 4 of the agreement deals with the date of settlement. Clause 4.1 makes provision for settlement to take place and states:
"4.1 Settlement under this Agreement shall occur on that day which is 21 working days from the date on which it becomes unconditional, or any other date mutually agreed to in writing between the parties ("Settlement Date")".
Clause 4.2 sets out what shall take place on the settlement date. Clause 4.3 deals with interest payable for late settlement. Then follow a number of clauses dealing with the obligations of the parties under the proposed sale and purchase contract.
The remaining clause of the proposed sale and purchase contract that is relevant to these proceedings is clause 16 which deals with "Notice to complete and remedies on default." Clause 16.1 states:
"If the sale is not settled on the Settlement Date either party may at any time thereafter serve on the other party notice (Settlement Notice) to settle in accordance with this clause but the notice shall be effective only if the party serving it is at the time of service either in all material respects ready able and willing to proceed to settle in accordance with the Settlement Notice or is not so ready able and willing to settle only by reason of the default or omission of the other party."
Pursuant to clause 16.2 the party on whom the notice has been served is required to settle on or before 12 working days from the date of service of the Settlement Notice. Under clause 16.2 time is expressly stated to be of the essence but without prejudice to any intermediate right of cancellation by either party.
Clause 16.3 then makes provision for the remedies available to the vendor (here the Second Defendant) in the event that the purchaser (the Plaintiff) does not comply with the terms of the Settlement Notice. For the purposes of the present proceedings it is necessary to examine in detail those provisions:
"(1) without prejudice to any other rights or remedies available to the Vendor at law or in equity the Vendor may:
(a) sue the Purchaser for specific performance; or
(b) cancel this agreement by written notice and pursue either or both of the following remedies namely
(i) forfeit and retain for the Vendor's own benefit the Deposit and any other moneys at the date paid by the Purchaser (but not exceeding 10% of the Purchase Price); and/or
(ii) sue the Purchaser for damages."
Schedule 3 to the agreement sets out what are described as the usual conditions applying to Minister for Land's consent. They were listed as:
"I hereby approve the transaction subject to:
1. That the transfer of the said property be completed within three (3) months from the date this consent is given.
2. That the funds for the project be brought from offshore.
3. That the developments on the said property be completed within two (2) years from the date of transfer.
4. That clearance be obtained from the Commissioner of Inland Revenue and the Governor, Reserve Bank of Fiji."
The Minister's consent
Pursuant to the agreement, by letter dated 24 April 2008 the Solicitors for the Plaintiff wrote to the Minister of Lands seeking approval pursuant to section 6 of the Act. The first paragraph started with the following words:
"The Company proposes purchasing the above-referenced land _ _ _."
Amongst the many attachments to that letter was the Ministry's application form duly completed and a cheque for $675.00 being the fee for the application. The Minister's approval was not forthcoming as at 30 June 2008. A series of agreements between the parties extended the time by which the Minister's consent was to be given eventually to 12 December 2008. The Minister's consent was given by letter dated 24 November 2008. The time taken to obtain the Minister's consent was, it appears, in no way due to default on the part of either party. The date of 12 December 2008 had been agreed by the parties pursuant to clause 3.1 (a) of the agreement.
In the Minister's correspondence one further condition was added to the four conditions set out in Schedule 3 to the agreement. The fifth condition was "that FTIB approval be obtained if the said property will involve any commercial/business activity."
At this stage it is appropriate to note that so far as was possible some of the conditions specified in the Minister's letter had already been addressed, if not satisfied, as was apparent from the contents of the letter dated 24 April 2008 from Cromptons to the Minister. However the conditions were not obligations that arose directly under the proposed sale and purchase agreement. They were conditions imposed by the Minister. Some of those conditions could only have been satisfied some time after performance of the contract.
Settlement Date
As a result of the Minister's consent, settlement was due on about 21 December 2008 (being 21 working days after the date of the Minister's consent letter). By email dated 17 December 2008 the Solicitors for the Purchaser (the Plaintiff) requested an extension of time for performance to 31 January 2009. In other words the Purchaser wanted an extension of the Settlement Date to 31 January 2009. It would appear that the Second Defendant did not agree to the Plaintiff's request to postpone the Settlement date to 31 January 2008.
Settlement Notice
By letter dated 24 December 2008 the Solicitors for the Vendor (the Second Defendant) served a Settlement Notice on the Plaintiff in accordance with clause 16.2 of the agreement. The Notice indicated that the Purchaser was required to settle within 12 working days from the date of service of the Settlement Notice, time being of the essence.
It would appear that the Plaintiff did not respond to the Settlement Notice. As a result by letter dated 29 January 2009 the Solicitors for the Second Defendant informed the Plaintiff as follows:
"We refer to our settlement notice of 24 December 2008. Resort in Park and Garden Limited has failed to settle the sale and purchase within the time specified in the settlement notice.
CBCI accordingly cancels this Agreement as provided for under clause 16.3 (1)(b) (1) of the Agreement. The Deposit is now forfeited. Cancellation is without prejudice to all of CBCI's other rights and remedies under the Agreement _ _ _."
Now the Plaintiff seeks to recover the full amount of the money retained in the trust account of the First Defendants pursuant to the agreement. The purpose of the declarations and orders sought by the Plaintiff would appear to be the recovery of the amount of $1,150,000.00. It claims that amount on the basis that the agreement dated 22 April 2008 was a contract made to purchase land without the prior written consent of the Minister. It was therefore, claims the Plaintiff, contrary to section 6 and as a result unlawful, void and unenforceable.
The relief claimed by the Plaintiff raises two issues. The first is whether the agreement dated 22 April 2008 breached section 6 and section 7 of the Act. The second issue concerns the right, if any, of the Plaintiff to recover all or any of the money paid into the First Defendant's Trust Account.
In determining the first issue it is convenient to consider the question under section 6 of the Act. It cannot be disputed that when the Minister's consent was obtained it was consent for the purposes of both section 6 and section 7 of the Act.
Does the agreement breach the Act?
The Plaintiff's submissions on the first issue may be summarised in the following manner. Under section 6 of the Act a non-resident shall not make any contact to purchase land in excess of one acre without the prior written consent of the Minister. The obtaining of that consent is precedent to contract formation, not its performance. As a result a contract the effect of which is to make performance subject to obtaining Ministerial consent but subsequent to formation (being "a condition precedent to performance contract" or "a condition subsequent contract") is in breach of section 6 of the Act and illegal.
The Plaintiff acknowledges that an appropriately worded contract binding the parties to try to obtain Ministerial consent to a proposed sale or lease, and if obtained, to sell on pre-defined terms does not breach section 6. A contract, the formation of which is subject to Ministerial consent ("a condition precedent to formation" contract) is not caught by section 6 of the Act.
The Plaintiff submits that in a conditional contract which does not become binding pending the fulfillment of a condition precedent, the parties are not bound and may withdraw from the transaction at any time before the condition is fulfilled. The Plaintiff submits that this type of conditional agreement does not breach section 6. For that proposition the Plaintiff relies on the decision of the Fiji Court of Appeal in Port Denarau Marina Ltd v Tokomaru Ltd (unreported civil appeal No. 26 of 2005 delivered 6 December 2006).
The Plaintiff then submits that where a contract is binding but the performance of which is suspended pending fulfillment of a condition subsequent to formation the parties are bound from the outset and cannot withdraw pending fulfillment of the condition. This type of contract will breach section 6. The Plaintiff relies on Hunter v Apgar (1989) 35 FLR 180 and Gonzales v Akhta (unreported Supreme Court Appeal No. 11 of 2002 delivered 21 May 2004) in support of this proposition.
The Plaintiff submits that the agreement in the present case was a formed and binding contract, performance of which was subject to the obtaining of Ministerial consent under clause 2. Although expressed to be conditional on the fulfillment of the clause 2 condition (Ministerial consent), neither party was at liberty to withdraw at will from the agreement since it could only be terminated under clause 3. The agreement was binding on the Plaintiff from the outset.
In summary the Plaintiff submits that the agreement was binding on the parties from the outset in the sense that neither party could willingly withdraw from the contract once executed. The agreement was formed and its performance conditional on the obtaining of Ministerial consent. The parties were obliged to proceed to completion once the condition precedent to performance had been met. The agreement was illegal from formation as it had been made without prior Ministerial consent. As a result the agreement was unenforceable because it was void. Any consent purported to have been given after the contract was made was ultra vires and of no effect.
The Defendants submit that the parties are in agreement as to the meaning and purpose of section 6 of the Act. The Defendants accept the Plaintiff's submissions on the law relating to section 6 of the Act. Furthermore, the Defendants agree with the statements of the principles of law relating to the categories of contracts involving the Land Sales Act. Where the Defendants part company with the Plaintiff is in the Plaintiff's application of those principles to the agreement. The Defendants submit that the agreement contains a proposed sale and purchase contract subject to a true condition precedent and is as a result a legal agreement that does not infringe section 6. In support of its submissions, the Defendants also refer to the High Court decision in Hunter (supra) and the more recent decision of the Court of Appeal in Port Denarau Marine Limited (supra).
The Defendants submit that in order to avoid infringing section 6 the agreement must be able to be classified as a proposed sale and purchase contract subject to a condition precedent, that is a condition precedent to the formation of a contract for the sale and purchase of land. It is submitted that the agreement in this case is the type of agreement discussed by the Court of Appeal in the Port Denarau decision (supra). To that end it is claimed that the meaning and effect of the agreement was to create a binding agreement to try to obtain consent and in the event consent was obtained to sell on predefined contractual terms. It is submitted that upon a careful reading of the agreement as a whole this is the only construction that can reasonably be given to what was intended to be the effect of the agreement.
The Defendants submit that clause 2 of the agreement ensures compliance with section 6 and by giving the words their plain and ordinary meaning states that there is no contract for sale and purchase until the Minister has given his written consent. There is an agreement however, between the parties to seek the necessary consent and if it is obtained to proceed to a sale on the predefined terms.
The Defendants also submitted that the reference to "deposit" in clause 1.1 (c) in the agreement meant that the parties recognised and accepted that until the consent required by clause 2 had been obtained, no part of the proposed purchase price would be paid. It is claimed that until consent was obtained the money was held merely as a deposit for the obtaining of consent and not part of the purchase price.
It is further submitted that clauses 1. 3 and 1.4 of the agreement re-enforce the submission concerning the construction of the agreement as being initially an agreement to obtain consent only. If consent was not obtained then $500,000.00 was to be retained by the Second Defendant. The Defendants argue that this is inconsistent with the Plaintiff's submission that the agreement was an immediately binding contract for sale of land.
Furthermore, the termination clause (clause 3), it was submitted, was acceptance by the parties that there was an agreement to co-operate in obtaining consent. If consent was not obtained. The proposed sale and purchase agreement did not come to fruition.
It was open to the parties in forming their agreement to stipulate on what basis termination will occur. The relevant test, according to the Defendants, is whether the Minister is provided with an opportunity before a binding contract for sale of land has been made, to consider whether to consent or refuse consent or impose conditions. In support of this proposition the Defendants relied on the decision of the High Court in Hunter (supra).
The Defendants also submitted that the Plaintiff did not obtain any interest in the land at the time the agreement was executed and nor could it have obtained an order for specific performance. The effect of the agreement went no further than a promise not to lease or encumber the land while both parties co-operated in seeking Ministerial consent to a sale on terms that had been defined.
The Defendants then submitted that the time for obtaining consent was extended by agreement between the parties beyond the original contractual deadlines pursuant to clause 3.1. Once consent had been obtained the Plaintiff as purchaser had an enforceable right to purchase the land and could have lodged a caveat for registration. Similarly the second Defendant as vendor could, after consent had been obtained, seek to enforce the sale and seek remedies from the Plaintiff in the event that it was unable or unwilling to complete the purchase.
Finally, the Defendants submit that as settlement did not take place on the Settlement Date, a Settlement Notice was served on the Plaintiff. As settlement was not effected in accordance with the Settlement Notice the agreement was cancelled on 29 January 2009. Upon cancellation the second Defendant was entitled to retain the deposit money provided that it did not exceed 10% of the purchase price pursuant to clause 16.3 of the agreement. In this case the amount forfeited did not exceed 10% of the purchase price.
The Defendants submit that the Plaintiff has not only misconstrued the agreement but also has in its submissions wrongly stated and applied the effect of the decision in the Port Denarau Marine Limited decision (supra).
The Plaintiff filed an extensive reply submission. The Plaintiff submitted that the agreement was binding as a sale and purchase contract from the date of execution and therefore illegal and unenforceable on account of the absence of prior Ministerial consent. It was submitted that the money paid as deposit by the Plaintiff into the First Defendants' trust account was paid as an earnest for the performance of a binding contract for the purchase of land. It was claimed that at common law only a deposit paid under a binding contract as earnest for the performance of that binding contract may be lawfully forfeited. Therefore it is only if the agreement was binding from its execution that the Second Defendant may seek to retain the US$500,000 under clause 1.3. For these propositions the Plaintiff relies on the decision of the Judicial Committee of the Privy Council in Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd (1993) 2 W.L.R. 702. The Plaintiff submitted that on a proper construction of the agreement clause 2.1 did not modify clause 1 of the agreement. The provision that "this agreement shall neither be nor become a contract for either the acquisition or disposition of land under the Fiji Land Sales Act Cap 137 unless and until it has the consent in writing from the Minister for Lands" must be read with the requirement to make a binding deposit as earnest for the performance of the contract rendering it a binding contract for the acquisition and disposition of land prior to obtaining Ministerial consent. The Plaintiff was unable to withdraw from the contract once it was executed since, under clause 3, it would only be terminated if consent was not obtained and was subject to an imposed penalty under clause 1.3 of the agreement.
The Plaintiff also submitted that, even if the agreement was not in breach of section 6, the Minister's consent was conditional. That since at least two of those conditions were unfulfilled the contract was unenforceable. As a result the Settlement Notice and the subsequent forfeiture of the deposit was improper. In support of this proposition the Plaintiff relied on the minority concurring decision of Smellie JA in Akhtar v Gonzales (unreported Court of Appeal No. 63 of 1998 delivered in 30 August 2002).
In his oral submissions Counsel for the Defendants relied on the decision of the Court of Appeal in Port Denarau Marine Ltd (supra) for his assertion that clause 2 was not in contravention of section 6 of the Act.
As for the conditions attached to Minister's consent, Counsel submitted that they were the standard conditions. Some of the conditions were applicable to requirements post performance of the contract and others were only advisory in the sense that they reminded the parties of their obligations under legislation.
The legal issues
There can be no doubt that since the decision of the Supreme Court in Gonzales (supra) a contract for the sale and purchase of land made between parties at least one of whom is a non-resident in breach of either
section 6(i) or section 7(i) of the Act is illegal, void and unenforceable.
The central issue in this action is whether the agreement dated 22 April 2008 between the Plaintiff and the Second Defendant is illegal and void ab initio.
Both the Plaintiff and the Second Defendant were at the material time non-residents. The consent in writing of the Minister was required. Furthermore that consent was required in writing prior to the making of a contract to purchase and/or to sell land. The Minister's consent was given by letter dated 24 November 2008. An agreement had been made by the parties on 22 April 2008. In the event that the agreement made on 22 April 2008 was a binding contract to purchase land, then it was made before the Minister had given his consent and was as a result illegal and void ab initio.
To the critical question whether the agreement made on 22 April 2008 was a binding contract to purchase and to sell land, the Plaintiff says yes it was. The Second Defendant says no it was not. It says that there was a condition precedent to the formation of the contract to purchase. It says that the parties had first agreed that they would co-operate and both use their best endeavours to obtain the Minister's consent for a proposed sale and purchase contract the terms of which the parties had predefined.
To determine whether it is the submission of the Plaintiff or the submission of the Second Defendant that prevails, it is first necessary to examine some legal principles that are relevant to the issue in dispute.
It is clear that the consent of the Minister must be obtained before the contract to purchase is made. In other words under the Act the required consent is a condition precedent to formation of the contract to purchase. What that means is that the Minister's consent must be obtained before either party has incurred any obligations or acquired rights of any description in respect of the sale and purchase of land, whether conditionally or absolutely. The point was succinctly stated by Starke J in George v Greater Adelaide Land Development Company Ltd [1929] HCA 40; 43 CLR 91 at page 103.
"Selling, in the case of land includes the making of agreements for its conveyance in consideration of the price in money; and this is so whether the agreement be absolute or conditional, for a conditional agreement for the sale of land is none the less a sale of land, and therefore a selling of it. Once this point is reached the case becomes clear, for the Act prohibits the mere making of the agreement, and making the agreement "subject to the provisions" of the Act "being complied with" cannot save it.
It was not really disputed by the parties that a condition subsequent to formation, as was the situation to which Starke J referred in the George decision (supra) would be in breach of the Act and hence illegal and unenforceable. In Hunter v Apgarn (supra) Palmer J at page 190 stated:
"It will be remembered that in the present case a condition clause in the Agreement provides that the same is 'conditional upon the consent of the Minister of Lands to the transfer of the property" On the basis of the authority just referred to such a condition _ _ _ is not in my view appropriate to save the day in a section 6 situation, since it is the making of the contract not the transfer which is prohibited"
If an agreement, which makes the Minister's consent a condition subsequent to formation or precedent to performance, is in breach of section 6 then the question that arises is how can the Minister's consent be obtained?
In Hunter's case (supra) Palmer J at page 193 discussed one possible approach for a potential non-resident purchaser:
"The consent is required prior to the making of the contract. What this envisages in my view and I see no difficulty with it – is that if a non-resident minded to purchase a property in Fiji is made an offer by a potential vendor or estate agent he can then apply to the Minister for consent to enter into that transaction and upon such consent being received he may then sign the contract. Or if a non-resident were looking for a property to purchase in Fiji and let this be known, upon receiving a reply or offer which he would be minded to accept, again he may apply to the Minister advising him of the necessary details and that he is minded to accept the offer if the consent is forthcoming. At that stage there would be no agreement. 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''
Although Palmer J then made reference to an alternative approach, he relied on his earlier views and declined to consider the matter any further.
However the Court of Appeal in Port Denarau Marina Limited v Tokomaru Limited (supra) did go on to consider an alternative approach and noted at page 12 of the unreported decision (para 31) that:
"Nothing in Gonzalez prevents a finding that section 6 (i) will not be breached by an appropriately worded contract binding the parties to try to obtain Ministerial consent to a proposed sale or lease and, if obtained, to sell or lease on predefined terms."
That observation goes only part of the way to determining the fate of the agreement in the present case. In my view the Court of Appeal then went on to consider a situation which is analogous to the position in the present case. At paragraph 38 on page 14 the court stated:
"Section 6 (i) does not prohibit the making of a contract to seek the Minister's consent to a specified transaction. Otherwise to what is the Minister to consent? And it cannot make any difference whether the proposed transaction is described in general terms, or whether it is specified in the form of a proposed agreement of sale and purchase _ _ _ annexed to the contract. Is it fatal that in a single document, the agreement goes on to provide that in the event the Minister consents, the parties are bound to enter into a transaction in that form? This seems a critical feature. It would not be conducive to business development or investment if the only way to obtain the Minister's consent was for the parties to agree to seek consent in a form that allowed either party to withdraw even if consent was obtained _ _ _ In the absence of clearer language courts should not ascribe such a legislative intent to a statute. "
It is, in my judgment, beyond question that the requirement to obtain prior Ministerial consent is a condition precedent to the making of a binding contract to purchase. Whether the present agreement complies with that requirement is answered by ascertaining the true construction of the agreement.
As the Court of Appeal said in the Port Denarau decision (supra) it is sufficient if there is an appropriately worded agreement that binds the parties (1) to try to obtain Ministerial consent to a proposed sale and (2) if obtained to purchase on predefined contractual terms. The appropriately worded document may achieve two objectives. First, it binds the parties to try to obtain Ministerial consent to a proposed sale. Secondly, if that consent is obtained, the same appropriately worded document then also binds the parties to a sale and purchase contract on predefined terms.
In the same decision the Court of Appeal stated that it cannot make any difference whether the predefined terms are described in general terms or whether they are specified in the form of a proposed contract of sale and purchase annexed to the contract. The point that is made by the Court of Appeal is that it is permissible for the parties, in the one document, to bind themselves to obtaining the consent of the Minister and upon that consent being obtained to set out the binding terms and conditions of the proposed sale and purchase contract. If that can be effected by stating general terms or by an annexed copy of the proposed formal contract, I see no reason why the predefined detailed terms and conditions cannot be included in the body of the one document. Surely the issue does not depend upon the number of documents but rather whether on a true construction of the one document the Minister's consent is a condition precedent to the formation or making of a contract to purchase land.
Turning now to the meaning and legal effect of the agreement. In the process of constructing an agreement the Court must ascertain the meaning to be given to the language used by the parties in the express terms of their agreement. The purpose of this process is to discover from the terms of the agreement what was the intention of the parties. The task of ascertaining intention of the parties must be approached objectively. What the Court must determine is the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the agreement. This approach to the construction of an agreement was adopted by the Fiji Court of Appeal in Hassan Din and Another –v- Westpac Banking Corporation (unreported civil appeal No.66 of 2003 delivered 26 November 2004).
In clause 2 the parties have expressed their intention that there is no binding contract to purchase land unless and until the Minister's consent has been secured. At the time of execution the parties' intention is to postpone establishing the legal relationship necessary for there to be a contract to purchase land until the Minister has consented. The terms that will form the basis of the proposed contract are set in clause 1 and from clause 4 of the document. In the meantime, in order to secure the Minister's consent the parties have agreed to co-operate with each other and to use their best endeavours to secure that consent. Applying the objective test to the document in respect of this arrangement I find that the parties intended these obligations to have contractual force. Alternatively, as was submitted by the Defendants, I am satisfied that the obtaining of the Minister's consent was a condition precedent to the formation or making of the proposed contract.
I am satisfied that upon signing the document the Plaintiff was under an obligation to co-operate with the Second Defendant and to use its best endeavours to obtain Ministerial consent. The Plaintiff did not acquire any interest whatsoever in the land that formed part of the predefined terms of the proposed contract to purchase.
In the event that the Minister refused to give his consent the proposed contract would not eventuate. There would be no contract made to purchase land. The parties agreed that in such an event, the deposit paid would be returned minus US$500,000.00 which would be retained by the Second Defendant. This aspect of the arrangement had nothing to do with any breach of the agreement to co-operate and to use best endeavours. It was certainly not part of the proposed contract to purchase the land. However, in the event that the Minister's consent had been refused because of some failure by the Plaintiff to co-operate or use its best endeavours it may be argued that the retention of the US$500,000.00 constituted a penalty rather than special damages based on an estimate of the loss to the Second Defendant. Since there was no suggestion that the Plaintiff had not co-operated or used its best endeavours that scenario need not be considered any further.
However, this issue was raised indirectly as a result of one aspect of the arrangement upon which Counsel for the Plaintiff placed considerable emphasis. It was submitted that the Plaintiff was not able to walk away at any time after the document had been executed. To some extent that was true. The Plaintiff had agreed to co-operate with the Second Defendant and to use its best endeavours to secure the Minister's consent. If the Plaintiff had breached that agreement with the Second Defendant and as a result the Minister refused consent, then that was the end of the matter. Hypothetically, the Plaintiff could have indicated to the Minister that it did not wish to proceed. The Minister's consent would not have been forthcoming. Whether the breach by the Plaintiff resulted in financial consequences would depend upon how clauses 1.3 and 1.4 were applied.
Once the Minister's consent was forthcoming the Plaintiff had agreed with the Second Defendant that it would enter into a contract to purchase the land on the predefined terms set out in the document. That it could not walk away from the agreement at that point in time when the Minister had consented to the proposed purchase is of no consequence as it had expressly agreed to enter into a binding sale and purchase agreement on predefined terms. The Court of Appeal in its Port Denarau decision (supra) appeared to approve of such an arrangement.
In conclusion on this point I am satisfied that the parties agreed to co-operate and use their best endeavours to obtain the Minister's consent. I am satisfied that the parties agreed that in the event that the Minister's consent was forthcoming a contract to purchase land on predefined terms would be made or formed and that until such consent was given there was no binding contract to purchase land in existence.
The conditional consent
The next issue that arises from the submissions relates to the conditions attached to the Minister's consent. There was no reference to this issue in the Plaintiff's written submissions filed on 22 July 2011. Furthermore the issue was not included in the issues in dispute that were identified by the Plaintiff. In addition the question of compliance with the Ministers conditions and the enforceability of the agreement was not covered in any of the declarations or orders sought by the Plaintiff in its Originating Summons.
The first occasion on which this issue was raised by the Plaintiff was in its reply submissions filed on 15 September 2011. The Plaintiff submits that even if the Minister's consent validated the agreement, the consent was conditional and those conditions were not satisfied. The Plaintiff points to two conditions as being unfulfilled. The Plaintiff is presumably referring to condition (iv) which appeared on the reverse side of a document enclosed with the Minister's letter dated 24 November 2008.
The Minister's letter stated:
"This is to advise that the Minister has granted consent to the above land dealing subject to the conditions on the rear of the consent form."
Condition (iv) states:
"I hereby approve the transaction subject to:
(i) – (iii) _ _ _
(iv) that clearance be obtained from the Commissioner of Inland Revenue and the Governor Reserve Bank of Fiji
(v) _ _ _".
The consent application form completed by the parties stated that the nature of the proposed dealing was sale and the purpose of the purchase was a large scale resort development and sub-division.
Was the agreement unenforceable?
The Plaintiff submits that as the two components of condition (iv) have not been satisfied, the agreement was unenforceable. The Plaintiff
then submits that the Second Defendant could not enforce the agreement by serving a Settlement Notice because the agreement was unenforceable.
In support of its submission the Plaintiff relied on the decision of Smellie J who delivered a minority concurring judgment in the decision of the Court of Appeal in Akhta v Gonzales (civil appeal No.63 of 1998 delivered on 30 August 2002). In paragraph 7 of his judgment the Judge stated:
"In this case the Minister's consent (albeit obtained some 5 years after the contract was entered into) is contained on page 608 of the record (reverse side) which is the application made pursuant to section 6 of the (Act). His consent is recorded as follows:
"I hereby approve the transaction subject to:
The vendor to obtain clearance from the Commissioner of Inland Revenue who will ensure the necessary clearance is also received from the Governor of the Reserve Bank."
At paragraphs 9 and 10 Smellie J noted:
"9. No evidence was called at trial to show that the clearances from the Commissioner of Inland Revenue and The Reserve Bank were ever obtained _ _ _. So the consent remains to this day conditional. The consequence of that is that the Plaintiff has never been in a position to enforce the contract and therefore has not now, and never has had, a registrable interest that could be defeated by fraud under the provisions of the Land Transfer Act Cap 131.
10. Once that is appreciated it becomes immediately obvious that on the claim pleaded and argued by the Plaintiff both at trial and on appeal there is no foundation upon which either specific performance or damages in the alternative can be justified as against the 3rd defendant."
As I indicated earlier the Second Defendant had not had the opportunity to make a written submission on this matter. The point had not been raised in the Plaintiff's principal submissions and it could not reasonably have been anticipated by the Defendants since it was neither expressly nor impliedly raised by the Plaintiff in its Originating Summons.
Counsel for the Defendants submitted at the hearing that pursuant to clause 2.1 of the agreement, the contract to purchase was to be made or to come into existence upon the receipt of the Minister's consent with its usual conditions which were set out in Schedule 3 to the agreement. His submission was that once the consent with its conditions was received a valid contract to purchase the land was formed or made.
Counsel also referred the Court to an email dated 12 March 2008 from a Deepa Kapadia of Ernest and Young addressed to Cromptons, the Solicitors acting for the Plaintiff at the time. It stated:
"We received the RBF approval to the transfer of US$650,250 to the USD account of Munro Leys this afternoon, subject to the condition that RBF is provided with an original tax clearance certificate and Minister of Lands consent upon settlement. The transfer to the USD account of Munro Leys has been done this afternoon."
Counsel submitted that in the context of the five conditions listed by the Minister, condition (iv) should be regarded as a reminder to the parties that there are other matters that they need to attend to. They should be treated as advisory conditions which did not affect the consent given by the Minister.
Starting with the decision of Smellie J in Gonzales (supra) I would make the following observations. First, the condition that attached to the Minister's consent in Gonzales was expressly directed to the vendor. Gonzales was the purchaser and for purposes of section 6 of the Act, the non-resident purchaser. In the present case both the purchaser and the vendor were non-residents and the conditions imposed by the Minister would appear to have been directed to both parties.
Secondly, it is not clear from the judgments of the Court of Appeal in Gonzales (supra) whether the condition to which Smellie J made reference was the only condition or one of a number of conditions. In the present case, there were five conditions and it is appropriate at this stage to briefly consider each in turn. The first condition was a requirement that the transfer of the property be completed within three months from the date the consent is given. The Second Defendant attempted to comply with this condition but the Plaintiff refused to do so. Technically the condition has not been complied with. No doubt it may be possible in appropriate cases to seek an extension of that time limit from the Minister. But what is the result when the transfer does not take place within three months. It is reasonable to imply into the condition the proviso that if there is to be a transfer it is to take place within three months from the date of the Minister's consent. If the agreement is terminated the Minister's consent in respect of that agreement lapses from the date of termination. If the transfer of the property is not completed within the three month period and there is no extension of time, the Minister's consent lapses.
Condition 2 required the funds for the project be brought from offshore. That is clearly a condition directed to the non-resident purchaser, the Plaintiff in this case.
Condition 3 required the proposed development on the property to be completed within two (2) years from the date of transfer. This, once again, is a requirement directed to the purchaser and only becomes operative if a transfer takes place.
Neither condition 2 nor condition 3 were satisfied. Condition 2 did not apply because the balance of the purchase price was never paid and the project did not proceed. It would appear that there is no dispute that the deposit/part payment made by the Purchaser did comply with the condition. The conditions could not be satisfied because the agreement was terminated. The conditions lapsed.
Condition 5 required that FTIB approval be obtained if the said property involved commercial/business activity. This condition applied to the purchaser and of course lapsed because the agreement was terminated.
Because both parties were non-residents it may reasonably be concluded that condition 4 requiring clearances from the Commissioner of Inland Revenue and the Reserve Bank applied equally to the Plaintiff under section 6 and to the Second Defendant under section 7 of the Act. Furthermore, there is no indication in the Minister's letter as to what specific clearances were required to be obtained or by what date.
Counsel for the Plaintiff submitted that the clearances to which the Minister was referring in condition (iv) were the approvals required under sections 7 and 31 of the Exchange Control Act Cap 211.
The Plaintiff's submission is, that the money paid into the trust account of the First Defendants has been forfeited by the First Defendants in favour of the Second Defendant which is a "resident outside Fiji". It claims that this arrangement is caught by section 7.
There appeared to be some confusion as to the effect of this section and in particular the reference to person. Both Counsel referred to the email that indicated that approval had been given for the transfer of funds to the trust account of the First Defendants. It was submitted by Counsel for the Defendants that the First Defendant required approval to hold foreign exchange funds. It was also submitted that the Minister's permission under section 7 of the Exchange Control Act was only required after settlement for the remission of funds to the Second Defendant.
Unfortunately this aspect of the case was not as well prepared as may have been expected. The Court was not assisted by Counsels' submissions. The section does not specify when the consent of the Minister is required. I am not able to determine whether there has been non-compliance at the time when the contract was terminated nor the effect, if any, of non-compliance on the contract. In any event, in view of my conclusions, I find it unnecessary to consider the issue further.
So far as section 31 is concerned, there are two issues arising from the words used in the section. First, the prohibition, without the Minister's consent, applies to a person resident in Fiji settling property on a person resident outside Fiji. As both the Plaintiff and the Second Defendant are both accepted as being resident outside Fiji, the prohibition may not apply. Whether the prohibition applies in respect of the First Defendants acting as agents for the Second Defendant is a different matter and raises separate issues. Secondly, the use of the word "settle" raises a technical issue as to the nature of the transaction to be caught by the section . The word "settle" is not defined in section 2 of the Exchange Control Act. In the Oxford Dictionary of Law a settlement is defined as:
"A disposition of land or other property made by deed, will or _ _ _ under which trusts are created by the settlor designating the beneficiaries and the terms on which they are to take the property."
In my judgment the word "settle" as used in section 31 does not apply to a settlement when used to indicate the day on which title and transfer documents are exchanged for payment of the purchase price. When the section is read as a whole it is clear that the word "settle" is used to refer to the disposition of property in the context of a trust.
There is one further matter that arises from the decision of Smellie J. At paragraph 10 the judge states that "on the claim pleaded and argued by the Plaintiff _ _ _ there is no foundation upon which either specific performance or damages can be justified". The reason for this conclusion according to Smellie J is that because the Plaintiff was never in a position to enforce the contract because the Minister's consent to the transaction remained conditional.
It is unclear whether by using the words "never in a position to enforce the contract" the Judge was indicating that the contract was unenforceable as being illegal because the consent remained conditional or whether the contract was unenforceable in the sense that although valid one or both parties cannot be sued on the contract. Was the judge indicating that like a contract of guarantee of which there is no note or memorandum in writing the agreement was unenforceable by the parties?
In Halbury's Laws of England (Fourth Edition Volume 9 at paragraph 207) an unenforceable contract is stated to be a contract:
"which the law will not enforce by direct legal proceedings, but is nevertheless recognised by the law as valid so that it may be indirectly enforceable. A contractual promise may be unenforceable by any of the parties to it, or simply by some of them; and the unenforceability may be perpetual or temporary."
Footnote 17 to that paragraph points out that:
"An unenforceable contract is binding; it is not void because, if the defect is cured, it will become directly enforceable; and it is not voidable, as no party has the powers of avoidance."
As a result I have concluded that even if there has been a failure to comply with one of the Minister's conditions and even if such failure renders the contract to purchase unenforceable the result is that the Second Defendant was still entitled to insist that the Plaintiff fulfill its obligation under the agreement. The sale and purchase agreement was formed and became binding on the parties when the Minister gave his conditional consent. It the consent remained conditional merely rendering the sale and purchase agreement unenforceable the agreement still remained a valid binding contract. The only consequence was that neither party could enforce the agreement by direct legal proceedings. However, this did not mean that the Second Defendant could not proceed to exercise its rights under the contract and serve a Settlement Notice. I reject the Plaintiff's submission on unenforceability.
Deposit/Part Payment
It is now necessary to consider the nature of the payments made by the Plaintiff to the First Defendants' trust account. The amount of US$1,500,000.00 (approximately) was paid into the trust account by two installments both of which were made prior to the execution of the agreement. The amount paid is described by the parties as a deposit. It is however, not a deposit paid by the Plaintiff as purchaser pursuant to a binding sale and purchase contract. Prior to Ministerial consent, the money was paid as a guarantee that the Plaintiff would comply with its obligation to co-operate and use its best endeavours to secure the consent of the Minister. The manner in which the agreement provides for its dispersion in the event that the Minister did not consent indicates that it was not intended by the parties to be a deposit for a binding sale and purchase contract which until the Minister consented, was not made or formed; it did not exist.
Once the Minister's consent was obtained, the sale and purchase agreement was formed or made and the previously paid money became part payment of the purchase price. It could then be properly regarded as a deposit or earnest in respect of the contract made to purchase land. Although described by the parties as a part payment, it did not constitute a substantial prepayment of the purchase price. It was 10% of the total purchase price under the formed contract and therefore from the date of Ministerial consent and only from that date could the payment of US$1,500,000 be regarded as a deposit or earnest. Its purpose from that point in time was to guarantee that the Plaintiff would carry out the terms of the contract to purchase the land.
The Plaintiff submitted that if the prepayment of US$1,500,000.00 was recoverable by the Second Defendant then it was because it was paid as earnest and it was paid as earnest from the date of execution of the agreement. I do not agree.
For the reasons stated above I have concluded that the payment of US$1,500,000 should be regarded as earnest only from the date of the Minister's consent being the date upon which the parties agreed to form, make or enter into a contract to purchase land on predefined terms.
The position was clearly stated by Lord Brown – Wilkinson in Workers Trust and Merchant Bank Ltd –v- Dojap Investments Limited (supra) at page 705:
"In general a contractual provision which requires one party in the event of his breach of the contract to pay or forfeit a sum of money to the other party is unlawful as being a penalty, unless such provision can be justified as being a payment of liquidated damages being a genuine pre-estimate of the loss which the innocent party will incur by reason of his breach."
I had earlier in this decision indicated that if the Minister's consent had not been forthcoming due to a failure by the Plaintiff to co-operate or use its best endeavours, the right of the Second Defendant to retain US$500,000 may have been challenged by the Plaintiff on the basis that it constituted a penalty. However that situation is not under consideration in this case.
Lord Browne – Wilkinson in the same paragraph goes on to state:
"One exception to this general rule is the provision for the payment of a deposit by the purchaser on a contract for the sale of land. Ancient law has established that the forfeiture of such a deposit (customarily 10% of the contract price) does not fall within the general rule and can be validly forfeited even though the amount of the deposit bears no reference to the anticipated loss to the vendor flowing from the breach of contract.
_ _ _. The special treatment afforded to such a deposit derives from the ancient custom of providing an earnest for the performance of a contract in the form of giving either some physical token of earnest or earnest money _ _ _. Even in the absence of express contractual provision it is an earnest for the performance of the contract. In the event of completion of the contract the deposit is applicable towards payment of the purchase price and in the event of the purchaser's failure to complete in accordance with the terms of the contract, the deposit is forfeit, equity having no power to relieve against such forfeiture. _ _ _
It is not possible for the parties to attach the incidents of a deposit to the payment of a sum of money unless such sum is reasonable as earnest money."
I have already concluded that the payment of US$1,500,000.00 became a payment to guarantee the performance by the Plaintiff of its obligations under the contract made to purchase land upon the obtaining of the Minister's consent and also at the same time a payment on account. I am satisfied that this conclusion is the only construction that can be placed on the document as a whole and therefore represents the contractual intention of the parties.
There can be no doubt that since the sum of US$1,500,000.00 represented 10% of the purchase price it was a reasonable sum as earnest money.
I therefore find that the Second Defendant was entitled to forfeit the sum paid by the Plaintiff as earnest under the contract made to purchase the land following Ministerial consent.
As a result of the above conclusions if is not necessary for me to consider the Plaintiff's application for orders concerning the return of money paid to the First Defendants.
The declarations and orders sought by the Plaintiff are refused and the action commenced by Originating Summons is dismissed. The Defendants are entitled to costs which are fixed summarily in the sum of $2000.00 for professional costs plus disbursements. There is a stay of 28 days in respect of the order for costs and disbursements.
W D Calanchini
JUDGE
24 February 2012
At Suva
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