Unreported National Court Decisions
N913
PAPUA NEW GUINEA
[NATIONAL COURT OF JUSTICE]
WS NO. 1446 OF 1989
ROLAND & ANGELA CHANG TRADING AS RED ROSE RESTAURANT
PLAINTIFFS
AND
AVIAT SOCIAL AND SPORTING CLUB (LAE) INCORPORATED
DEFENDANT
Waigani
Hinchliffe J
22 August 1990
REAL PROPERTY - Agreement for lease - Terms of lease agreement in dispute - Lawyers drafted lease without instructions from client - Whether client bound thereby.
The plaintiffs are the proprietors of an eating house named the Red Rose Restaurant. The restaurant premises were leased by the defendant to the plaintiffs in 1985. The original lease was for a period of two years from the 10th of August with an option to renew for a further two years. As the terms of the original lease were due to expire, in late 1988 the parties including their Lawyers became involved in negotiations for a new lease. On the 15th June 1989, the parties met to try and reach an agreement on the terms and conditions of the new lease. The plaintiff alleged that on the same day an agreement was reached and soon after a letter was written to that effect to the defendant listing the points agreed upon. A copy of that letter was also given to the plaintiffs lawyers who then wrote to the defendant’s lawyers. The defendant’s lawyers drafted the lease containing the terms of the agreement. The lease was subsequently signed by the plaintiffs and legal costs and stamp duty paid. On the 29th October 1989, some dispute arose between the parties which led the defendant to denying that a lease existed between them. It claimed that its lawyers acted without its instructions in drafting the lease and delivering it to the plaintiff to sign.
Held:
That the lawyers for the defendant acted within their apparent authority and therefore the lease in its final form bound their client to the agreement when the document was signed by the plaintiff and returned with payments of Lawyers fees and stamp duty.
Cases Cited:
The following cases are cited in the judgment:
Strauss v. Francis (1866) L.R. 1 Q.B. 379.
Re Newen [1903] 1 ch. 812
Little v. Spreadbury [1910] 2 K.B. 658.
Welsh v. Roe (1918) L.J.K.B. 520.
Statement of claim
These were proceedings in which tenants of leased premises sought a court ruling that there was a lease with agreed terms and conditions in existence which bound the parties.
Counsel:
Simon Lupalrea, for the plaintiffs.
Karo Gamoga, for the defendant.
Cur adv vult
22 August 1990
HINCHLIFFE J:  The plaintiffs are the proprietors of a well known eating-house in Lae named the Red Rose Restaurant. The premises where the restaurant is situated are owned by the defendant (hereinafter referred to as “the Aviat Club”) and in fact the restaurant and the Aviat Club are in the same building. The Aviat Club, in 1985, leased the restaurant premises to the plaintiffs and to this day the restaurant is still operating in the same place. The original lease was for a period of two years from the 10th August, 1985 with an option to renew for a further two years. At sometime in 1988 the Aviat Club committee members started talking amongst themselves about a new lease for the restaurant because the current lease was to expire on the 10th August, 1989. In late 1988 the plaintiffs became involved in the negotiations for a new lease as did the defendant’s lawyers, Warner Shand and eventually the plaintiffs lawyers, Henao Cunningham Priestly. It seems that in the first half of 1989 the negotiations were proceeding along normal lines and then on June 15th, 1989 Mr. Roland Chang met the members of the Aviat Club committee at the Aviat Club to try and reach an agreement on the terms and conditions for the new lease. At that time relations between the plaintiffs and the defendant seemed satisfactory and it appears that a new lease was expected once an agreement was reached.
As far as Mr. Chang was concerned an agreement was reached on the 15th June, 1989 and he wrote a letter dated the 21st June, 1989 (Exhibit 5) to the Secretary of the Aviat Club listing the points that had been agreed on. He delivered that letter to the manageress of the Aviat Club, Mrs Butters, on or about the 22nd or 23rd June and he also delivered a copy to his said lawyers who wrote to Warner Shand on the 29th June, 1989 listing those same points. Warner Shand drafted a lease and forwarded the lease to the plaintiffs lawyers on the 5th July, 1989 for signature and return. The plaintiffs were also to send a cheque for Warner Shand’s costs and the stamp duty fees. The lease was signed by the plaintiffs and the said monies paid sometime late in September 1989 and on doing that the plaintiffs were of the view that they had done everything they had to do and that they had a lease until the 10th August, 1990 with a further option for one year.
On the 29th October, 1989 Mr. Chang refused to allow the Aviat Club to use the restaurant toilets and a dispute arose between the parties. The defendant then denied that a lease existed between them and it gave notice to the plaintiffs that there would be no further negotiations regarding a new lease and that it would advertise the restaurant premises for tender. Subsequently the plaintiffs were served with a Notice to Quit.
The Aviat Club claims that some of the terms and conditions of the new draft lease were not what was agreed to at the said meeting on the 15th June, 1989 and that not only had it not seen the document prior to the Changs signing it but its lawyers, Warner Shand acted without its instructions. The defendant says that there was never an agreement reached and that as the 10th August, 1989 had now passed the plaintiffs were merely monthly tenants and they therefore should quit the premises.
That in a nutshell is what this case is all about. Both parties have strongly contended that they are correct in law and have presented their cases with some determination.
Paragraph 12 of the Statement of Claim reads as follows:
“On the 15th June, 1989 a meeting was held between the committee of the Defendant and Mr. Chang at the Defendant’s premises, and the following matters were agreed upon:-
(a)      Rent - K700 per month for the Restaurant.
(b)      Rent - K550 per month for the house.
(c)      Term of Lease - One (1) year with option for another year.
(d)      Maintenance of the roof - responsibility of the Defendant.
(e)      Insurance - Defendant to insure the building and the Plaintiffs to insure their contents.
(f)      Security Costs - Plaintiff and Defendant meet 50% each.
(g)      Toilets - Exclusive use by the Plaintiffs however by mutual consent the Defendants will have access only on functions of non-commercial nature.
(h)      Rent review - To be in line with Consumer Price Index Increases.”
A number of documents were filed prior to trial and these included the Writ of Summons, Amended Defence and Cross Claim, Reply and Defence to Cross Claim. I must say it came as somewhat of a surprise to me at the commencement of the trial on the 16th July, 1990 when I was told that the only matters in dispute were the rent of K700 per month for the restaurant (12(a)) and the term of the lease - one (1) year with an option for another year (12(c)). I say that because it seemed from perusing the file that a number of other matters were disputed in particular the toilets (12(g)).
It also became quite clear after hearing the witnesses that in fact 12(c) was not in dispute at all and it was only 12(a) (the restaurant rent) that was disputed. Even though the defence witnesses said that there was still a dispute over the toilets, I propose to ignore that because I was told clearly by both the lawyers at the commencement that only 12(a) and 12(c) were in dispute. I am taking it that there is no dispute regarding the toilets (12(g)) and that the Aviat Club agrees that what was in the new lease regarding the toilets is correct.
I will not say anymore about the term of the lease (12(c)) because even Mr. Gamoga, the lawyer for the defendant, said in his final address that, “it seems agreed that the lease was to be one year by one year and that it was agreed earlier than the 15th June.” Therefore all that remains is whether or not agreement was reached on the rental for the restaurant at K700 per month. The defendant says that agreement was reached but the figure was K750 per month.
Before I go into the evidence I should mention the new lease and in particular, clause 3(O). Even though it was not touched on in the trial it would seem to me that even if I was to grant specific performance the plaintiffs would have needed to indicate at least one month prior to the 10th August, 1990 that they wished to exercise the option and remain on the premises for a further twelve months. I suspect that that notice was not given and therefore this whole exercise may be purely academic as effectively the new lease may well have expired on the 10th August, 1990. But as I am not certain whether such notice was given or not I shall proceed.
Mr. Roland Chang was the first of two witnesses for the plaintiffs. Mr. Chang is not in good health and is aged in his late sixties. He presented as an honest person and had a calm and pleasant nature about him. I am of the view that he believed what he said was correct.
He gave a history of the Red Rose Restaurant and how it had been in operation since 1978 and on its present site since 1985. The witness said that a meeting was arranged for the 15th June, 1989 to discuss the lease with the Aviat Club committee because he would not be able to pay the rent that was being asked for under the proposed new lease. It was an increase of about 100% on the present rental. Mr. Chang attended the meeting and said that he handed out copies of a letter (Exhibit 4) to the committee explaining his present situation. That is denied by those defence witnesses who were present at the meeting. Quite frankly I accept the evidence of Mr. Chang. He was given adequate notice of the meeting and the letter was prepared by his son Xavier Chang. It certainly reads like a letter written in anticipation of the meeting and to my mind it was a sensible thing to do. Here was an elderly man presenting his case to a committee. Naturally he would not wish to forget anything and by having the letter typed he was presenting his case in a proper and businesslike manner. I believe him and I do not believe the defendant. There were a number of matters in the defence evidence that I found most unsatisfactory and I shall refer to those later in my judgment, The evidence of Mr. Fletcher, in particular, was unconvincing.
Mr. Chang went on to say that they haggled about the rent on the restaurant. He went up to K700 per month and that Mr. Butters, the President came down to K700 from K1100. The Aviat Club agrees that there was haggling over the rent but it was eventually agreed at K750 per month. I am quite satisfied from the evidence that the bargaining was fast and the pressure was being put on Mr. Chang. I am satisfied that he genuinely believed that the rental of K700 was agreed to by the committee.
On the other hand the defendant produced in court a copy of its Minutes of the meeting on the 15th June, 1989 and it is stated clearly therein that the figure was K750. I will touch on those Minutes later.
Mr. Chang asked his son Xavier to draft a letter addressed to the Secretary of the Aviat Club listing the matters agreed to on the 15th June. The letter was dated 21st June, 1989 and marked exhibit 5. He said he delivered a copy to Mrs. Butters, the manageress of the Aviat Club on the 22nd or 23rd June and a copy to his lawyers. Mrs. Butters denies any knowledge of receiving the letter. I don’t believe her. I am satisfied that the Aviat Club did receive a copy of the letter and I am also satisfied that they forwarded that letter to Warner Shand. I say that because Bernard Avery, a senior partner of Warner Shand saw the letter on the file. He was not in charge of the matter so he could not say how the letter came to be on the file. The plaintiffs lawyers sent a letter to Warner Shand on the 29th June, 1989 which is exhibit 16 containing the information in Mr. Chang’s said letter of the 21st June, 1989. The said letter of the 29th June did not enclose the said letter of the 21st June and the only way it could get onto the Warner Shand file would be through the Aviat Club. It is understandable that Mr. Fletcher, the Secretary of the Aviat Club did not see the letter of the 21st June because he was on holidays at least by the 20th June. I say that because in one part of his evidence he said he went on holidays on the 15th June, 1989 and then afterwards he said it was the 20th June. I am satisfied that the “Lease to lawyers” mentioned in the “correspondence out” section of the Aviat Club Minutes of the 20th July, 1989 (exhibit 15) is in fact the said letter of the 21st June. It was sent by someone whilst Mr. Fletcher was on leave. Mr. Fletcher said the “Lease to the lawyers” was in fact the Minutes of the meeting of the 15th June. I don’t accept that because the defence evidence in relation to those Minutes being forwarded to Warner Shand is most unconvincing. I am satisfied that Mr. Fletcher has not been honest with the court when giving evidence on that point. He said that he gave the Minutes to Mrs. Butters to take to Warner Shand and for her to give instructions to draft the lease. It is clear that on the 15th June the said committee decided that Mr. Fletcher should write to Warner Shand but Mr. Fletcher said that sometime soon after he and the President decided instead to send the Minutes instead of writing. Mr. Fletcher also said that in early July when he returned from vacation Mrs. Butters confirmed that she had delivered the Minutes to Warner Shand and she also confirmed it again at the said meeting on the 20th July. Interestingly enough Mrs. Butters in her affidavit of the 26th February, 1990 (exhibit 18) effectively denies it. She said that she was of the understanding that the Secretary was to write a letter to Warner Shand after a meeting of the 15th June advising of the agreements regarding the lease. She said that she had not been in touch with Warner Shand since about April 1989. Mr. Fletcher said that all instructions to Warner Shand were to be in writing but then he said that Mrs. Butters was to deliver the Minutes to Warner Shand without any accompanying letter and to give verbal instructions. I am of the view that Mr. Fletcher, probably in his haste to go on vacation, failed to write to Warner Shand after the 15th June and he is covering this up with an unconvincing story that Mrs. Butters was to deliver the Minutes in lieu of the letter. That is the reason why Warner Shand never knew about the K750 rental. All that Firm ever received from its clients was the said letter of the 21st June, 1989 that listed the rental at K700 per month. Members of the committee would have thought that Warner Shand already had Mr. Fletcher’s letter regarding the meeting of the 15th June stating that the rent was to be K750. Mr. Fletcher, I believe failed in his duty to write to Warner Shand.
Warner Shand were therefore in a position to draft a final lease because on their file was a letter from the plaintiffs lawyers with the particulars to be included in the lease and they also had the letter of the 21st June forwarded to them by the Aviat Club. It seems that Warner Shand went ahead and drafted the lease without any further consultation with the Aviat Club. If there had been consultation then Warner Shand would have been told by the defendant that it never agreed that the rental was to be K700 per month for the restaurant.
On the 5th July, 1989 there is no dispute that Warner Shand sent a letter (exhibit 6) to the plaintiffs lawyers enclosing the amended lease for execution by the plaintiffs. It was in the same terms as set out in the said letter of the 29th June. In the final paragraph of the said letter of the 5th July, 1989, it reads as follows:
“We trust that the Lease is now in order and look forward to its return with a cheque for our costs and a bank cheque for stamp duty at K129.80 as soon as possible.”
Late in September the plaintiffs signed the lease and at about the same time paid the stamp duty and Warner Shand’s costs. The plaintiffs had reason to believe that all was finalised and even more so after receiving a letter from their lawyers on the 9th October, 1989 (exhibit 7). It went as follows:
“We write to advise that on the 28th of September 1989 we forwarded the various documentation together with the copies of Policies and cheque to Warner Shand. They will now attend to having the Lease Agreement executed by the Aviat Club and then will lodge the same for stamping and ministerial approval.
We will arrange for the Lease Agreement to be returned to you once received from Warner Shand.
In the meantime, we take this opportunity to thank you for your instructions and enclose a note of our costs.”
Therefore there was a situation where the defendant’s lawyers had sent a lease in its final form to the plaintiffs lawyers for execution if approved by the Changs. The Changs knew that Warner Shand acted for the defendant, they had negotiated fairly regularly over the previous four years. Lawyers or laymen would think that the lease sent on the 5th July was in its final form and approved by the defendant. After all Warner Shand asked for its costs and the stamp duty. Hardly a request that would be made if the terms of the lease had not been agreed. It seems that the plaintiffs had done all that was required of them. They thought that they had a lease as did their own lawyers. One could say that the lease was settled.
To my mind this situation falls into the category of cases where the lawyer if acting within his apparent authority and if the other party has no notice of any limitation on it, the client will be bound thereby: see Strauss v. Francis (1866) L.R. 1 Q.B. 379; Re Newen [1903] 1 Ch. 812; Little v. Spreadbury [1910] 2 K.B. 658; Welsh v. Roe (1918) L.J.K.B. 520.
I have no doubt that the plaintiffs were under the apprehension that Warner Shand was acting within its apparent authority. After all it would be the norm in a transaction of this kind for the lessor’s lawyer to forward documents and make certain requests as did Warner Shand in its letter of the 5th July, 1989. The plaintiffs were not to know that Warner Shand had not complied with its clients instructions. The plaintiffs were not notified or aware of any limitations on Warner Shand’s apparent authority.
I am therefore of the view that the lease in its final form and the tone of Warner Shand’s said letter bound its client to the agreement when the document was signed by the plaintiffs and returned with payment of lawyer’s fees and stamp duty.
I would have thought that if the defendant had suffered damage by its lawyers actions then it would have joined them as a Third Party in these proceedings. Needless to say that was not done and I make no further comment.
I am of the view that this case is appropriate for an order of specific performance although as I stated previously it may be academic because I am not certain whether the plaintiffs indicated their desire to take up the option for a further year from the 10th August, 1990. That would have needed to be done at least a month prior to the 10th August, 1990 in order to comply with the lease.
Damages would not be appropriate as they would be far too difficult to prove. Combined with that is, in this case, loss of trade because of the curfew in Lae last year and also the law and order problem generally. To separate the curfew and law and order problem from a “Tender” advertisement in the newspaper for example would be almost impossible.
I also am of the view that damages would not be appropriate as I am not convinced that the defendant is in a position to pay them.
Despite all that, as from the 10th August, 1990, there may be no damages anyway. It may well be that the plaintiffs are now monthly tenants.
I make the following orders:-
1.       That there be judgment for the plaintiffs.
2.       The cross-claim is dismissed.
3.       That the defendant does specifically perform the agreement referred to in paragraphs 12, 13 & 14 of the statement of claim.
4.       That all the necessary steps are taken forthwith by both parties to ensure that s 69 of the Land Act, Ch 185 is complied with.
5.       Order that all trust monies being held for rental by the Registrar of the National Court be released to the defendant’s lawyers forthwith.
6.       That the defendant pays the plaintiffs costs to be agreed and if not agreed to be taxed.
7.       Liberty to apply.
Orders accordingly.
Lawyer for the Plaintiffs: Simon Lupalrea & Co.
Lawyer for the Defendant: Warner Shand.