PNG Aviation Services Pty Ltd v Karri, Aihi, Nali, Gideon and The State [1995] PGNC 146; [1995] PNGLR 103 (4 August 1995)

PNG Law Reports 1995

[1995] PNGLR 103 - PNG Aviation Services Pty Ltd v Geob Karri, To'oro Aihi, Michael Nali, Lindsay Gideon and The State 

[1995] PNGLR 103

N1372

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

PNG AVIATION SERVICES PTY LTD

V

GEOB KARRI;

TO’ORO AIHI;

MICHAEL NALI;

LINDSAY GIDEON; AND

THE STATE

Waigani

Brown J

20 July 1995

1 August 1995

2 August 1995

3 August 1995

4 August 1995

CONTRACT - Lease - The State as lessor seeking possession of airport lease property - Offer to lessee of alternative hanger site at airport - Sufficiency of offer - State alleging sufficiency - State alleging sufficiency as justification for recovery of possession of original lease property - Aerodrome (Business Concessions) Act Ch 354.

LAND LORD AND TENANT - Lease - Breach - Claim of transaction - Doctrine of.

Facts

The plaintiff held a lease from the state over a site at Jackson’s Airport. The lease was for a period of 3 years with options to renew every 3 years thereafter to a maximum period of 26 years. There the plaintiff carried on business as a small aircraft maintenance engineering company. The State gave the occupiers of that part of the aerodrome, including the plaintiff, notice to vacate because of the need to give possession of the area to a construction company in accordance with the Port Moresby redevelopment programme. The State then offered the plaintiff an alternate site on which it had erected a new hanger, a bare building which the latter claimed to be unsuitable for its purposes for various reasons. They then sought allowances from the State for relocation expenses, the cost of putting the building into a fit state for its business and the cost of having the building comply with minimum building standards applicable to hangers. The State then withdrew its offer of an alternate site and pleaded “frustration of contract”.

Held

N1>1.       The State has breached the term of the lease for quiet enjoyment and consequently breached the contract of lease giving rise to a claim by the plaintiff in damages.

N1>2.       There are no sufficient terms agreed upon by the parties whereby the Court could find an agreement between the parties which could be enforced by an order for specific performance.

N1>3.       The facts do not amount to “frustration of contract” as understood by the doctrine, and the State’s defence of “frustration” must fail.

N1>4.       Because of the State’s wish for early possession of the site, in the circumstances, the State should pay moneys for removal expenses of the plaintiff pending assessment of damages for breach of contract.

Cases cited

De Beers Consolidated Mines Ltd v British South Africa Co [1911] UKLawRpAC 68; (1912) AC 52.

National Carriers Ltd v Panalpina (Northern) Ltd [1980] UKHL 8; (1981) AC 675.

Counsel

J. L. Shepherd, for the plaintiff.

S. Alberic and I. Mesulam, for all defendants.

4 August 1995

BROWN J: These proceedings were initially by way of originating summons seeking declarations in respect of lease No.005 registered in the Register of Aerodrome (Business Concessions) Leases as Lease Volume 1 Folio 28, that the purported termination was null and void, that the lease is currently valid and enforceable by the plaintiff and consequently the plaintiff, as lessee, is entitled to further renewals of such lease, to extend to 12 March 2021. More importantly the plaintiff sought a declaration that on voluntary surrender, it would be entitled to a lease of an alternate site for the plaintiff’s business at Jacksons Airport on similar terms and conditions to the subsisting lease, paying to the plaintiff fair and reasonable compensation for the expenses to be incurred in relocating.

As a result of argument following the hearing of this cause on the 20 July, I make orders that the proceedings should continue by pleadings, for the nature of the cause did not effectively enable the defendants to plead nor the Court to make findings on facts necessary for an effective resolution of the dispute.

The plaintiff company carries on business at a site on the N.W. part of the Jacksons Aerodrome described as part of Portion 97, Port Moresby. That business is small aircraft maintenance and repairs and is run by its managing director Mr York Andrew Mendoza, a licensed aircraft maintenance engineer. He holds qualifications in associated fields necessary for his business and has been occupying the current premises for the company’s business purposes since 1975 (and for a couple of years before then whilst in partnership).

The State, as part of the Port Moresby Airport Redevelopment programme has given notice to all occupiers about the plaintiff’s business premises, (which comprises a large hanger (building No.1) with associated workshops including engine overhaul; machine shop; engine tear down; electrical overhaul; sheet metal; welding; bulk stock store; cable maintenance), that these businesses must move from their present location, for possession of the site needs to be given to a contractor engaged to do the redevelopment.

In an endeavour to provide an alternative site for various airline operators and the plaintiff’s business, the State through DCA, arranged for the construction and erection of various hangers at the South East end of the airport apron. One of these hangers described as section 143 allotment 13, new general aviation apron, Jacksons Airport) has been offered to the plaintiff.

These proceedings have arisen, for the plaintiff says that the hanger offered is not reasonably suitable for its purposes, that such alternative site and a lease offered are not on terms which are comparable to those enjoyed by it presently, and that agreement cannot be reached about a reasonable sum for relocation expenses offered by the 1^st defendant.

The plaintiff has, by its substituted statement of claim pleaded these matters fully, including what it claimed to be a breach of the defendant’s undertakings to offer a suitable alternative site by virtue of the Minister’s letter of the 21 July 1995 where he notified it that he no longer intended to grant a new lease for the alternative site.

The defendants by its statement of defence joined issue with the plaintiff in relation to many of the matters pleaded. The latter claimed that the lease 005 is subsisting and consequently a declaration that it is entitled as lessee to further consecutive renewals, the next such renewal to commence on the 13 March 1996 and the final such renewal to expire on 12 March 2011. Further a declaration that it is not lawfully required to surrender the lease, until such time as the State has completed the construction of a suitable replacement aviation maintenance facility for the company, the design and construction of such facility to be in consultation with it and shall provide as closely as possible the same amenities including car parking and aircraft approaches and aircraft parking bays as are located at its existing facility. The plaintiff further seeks a declaration that on voluntary surrender, it shall be offered a new lease for the alternate hanger site with provisions similar in all material effects to those in the existing lease and in particular the plaintiff spelt out express provisions.

As a consequence of the second declaration it says that the State (through DCA the responsible authority) shall be liable (for the alternative site) to it for the internal out fitting; installation of a room for electrical generating; installation of a storm water drainage system; hanger insulation; interior hanger ventilation; gutters and down pipes; adequate lighting (required by the nature of the plaintiff’s work in instrument fitting for instance); security fences; perimeter fences; upgrading electrical reticulation; air conditioner ducting; roll a door vehicular access and for the upgrading of the hanger structure to higher wind strength standards from the existing 28m to 31m (as required by DCA standards). As well the plaintiff seeks reasonable compensation for relocating expenses.

In the alternative the plaintiff seeks damages, including exemplary or punitive, and such other orders as the Court thinks fit. This latter claim goes, as the plaintiff argues, to the breach of contract of the existing lease committed by the defendants.

The defendants deny the plaintiff’s claim for declarations 1 & 2. They say that the old lease should have been surrendered in 1991. The defendants say that any fresh lease of the new hanger facility is a separate issue to the surrender of the old and is entirely within the discretion of the Minister.

The defendants say, in so far as the second declaration is concerned, that the plaintiff must first relinquish or surrender the first lease so that the new lease may be effected. Financial constraints are such that the State can only offer the plaintiff K100,000 to relocate. The defendants deny that assertion of the plaintiff that it can dictate how the new hanger should be built. So far as the third declaration (the terms of the new lease) and the fourth (the State liability to construct and out fit the new hanger in particular ways), the defendants take issue on the basis that a new lease has been offered and refused. Finally and most importantly from the Court’s point of view, the defendant Minister has withdrawn the offer of a new lease and that discretion of the Minister under s 4 of the Aerodrome (Business Concessions) Act is unfettered. So far as the claim for damages for breach of contract is concerned, the defendant says, “in so far as the existing lease is concerned, any loss is as the result of “frustration of lease”.

The problem which the parties face now is the State’s insistence that the plaintiff vacate by the 18 August when it says it will face substantial damages under its contract with the redevelopment contractor, if the State cannot give possession of the plaintiff’s present site. In an endeavour to resolve this issue, which will indirectly impinge on the plaintiff’s claim (if only by making resolution even more difficult) I said that I would give short reasons for decision as quickly as possible so that steps could practically be taken to either assure the plaintiff of a viable alternate site or enable the defendants to proceed with the airport redevelopment without undue delay. I should say that the Court cannot be blamed for any consequent delay in either providing an alternate site for the plaintiff’s business or for the cost to the State of any inability to give possession to the contractor, for the existence of these problems were known to the State, especially when it entered into its redevelopment contracts and account should then have been taken, not an implied reliance on this Court, for favourable orders which would suit its purposes. Nevertheless, as I go on to say, the State’s actions do go some way to precluding any reasonable alternative to my orders. I now propose to deal with the plaintiff’s claims.

The first declaration goes to the existence of a lease which was tendered from proper custody (a certified copy under the seal of the Registrar of Titles) This lease No. 005 recited the agreement between the then Minister responsible under the Act and the plaintiff company for a lease of the land and premises delineated by a plan (part portion 97) for the purposes of aircraft maintenance and sales with access over land under the control of the State. That lease document recited a term of “3 years initially commencing from 13 March 1981 with an option for renewal every three years thereafter but not to exceed a total of twenty seven years, at a yearly rental of K6,281.10 payable in advance, subject to the covenants, terms and conditions contained in the third schedule”.

Paragraph 4 of the third schedule provided for an option for renewal by the lease for further terms of 3 years from the expiration of the initial term by notice in writing to the lessor, “if at the date of giving of such notice ... there shall be no subsisting breaches of the covenants and agreements by or on behalf of the lessee herein contained (and) the lessor shall grant ...”. That grant (of a further 3 year term) shall include the option for further renewal and I am satisfied that the lease has been validly renewed to the 12 March 1996, and further that there has been no breach of the terms and conditions. The plaintiff has given evidence of the notice of intention to renew and of the rent paid, while the defendants have argued that the plaintiff was in breach at the time of the renewal, the defendant’s evidence on that point was vague and unsubstantiated in that it relied on statements of Mr Veneik and an endorsement on a letter of request by Mr Mendoza for a hire of a container and a building erected by the plaintiff to “Wantok Aviation” which apparently was operating to the knowledge of DCA, adjacent to the plaintiff’s premises. These operations have apparently subsisted for some years, expressly known to DCA and while the defendants now complain, I have no evidence of any notice to the plaintiff to desist from its assistance, nor can I find any actual breach of the lease by reason of the hire only, in the circumstances given by the plaintiff that settled grants, as it were, of areas adjacent to the apron were not possible for DCA had expressly refused any such, while the airport redevelopment plans, conceived in 1981, were in a state of flux. I am further satisfied that DCA had impliedly acquiesced in the state of affairs created by Wantok Aviation (whoever it is) and is estopped from now complaining. Acceptance of the rent, in full knowledge of the state of affairs at that time, would in any event, preclude the State from now asserting a breach of covenant by the plaintiff to use the premises solely for its own purposes.

The lease, does, however, create some little anomaly, for in the latter part of para 4, third schedule, it says, when stating the renewal terms “that the total of all renewed terms shall not exceed 40 years from the date of commencement of ther term hereby granted”. Now 40 years has a certain significance for it is the maximum term allowed under the Act for a lease at the airport. I am satisfied that its use, in this content, relates to the restriction in the Act.

The plaintiff contends that it affects the term in the first page for the lease is “subject to the covenants, terms and conditions in the third schedule”. I do not consider that there is any anomaly. The lease is expressed to be for a term of three years, and periodically three years thereafter, to a total period of thirty years, (including the initial term). The term of the lease is not thirty years or forty years but three years, with options for renewal. The reference to 40 years in the third schedule does not, in my view, extend the period of the options beyond the 27 years stated, but is primarily related to the wording of the Act and must be read down by the principal wording of the lease. The plaintiff’s contention depends upon a lease term but the tenor of the lease and the third schedule is for three years with various options at the instigation of the lessee. The lease with options then, expires on the 12 March 2011. This presumes that the lessee would exercise such options and there is evidence from Mr Mendoza that was his present intention. (Of course, on a question of damages, exigencies must be taken into account).

I am accordingly prepared to make a declaration in terms of para 1 (b) of the statement of claim with the variation that corresponds to the conditional provisos in the third schedule.

N2>2.       The plaintiff’s secondly claims a declaration that it is not lawfully required to surrender the lease until the State has provided it with a suitable replacement facility. This claim is based on the whole series of meetings and negotiations between the various third level airline operators and the plaintiff, likely to be affected by the redevelopment proposal and the Secretary and Management of DCA (and more latterly, the airport redevelopment authority).

The plaintiff expressed it thus.

“In the premises and by reason of the matters aforesaid representatives of DCA on behalf of the 5^th defendant expressly or impliedly represented to the plaintiff in respect of that alternative site, such site and lease would be made available to the plaintiff on reasonable terms and or on such terms which were comparable to those enjoyed by the plaintiff at the demised premises and under the existing lease”.

There were express representations, details of which are to be found in the correspondence and minutes of meetings tendered into evidence by the plaintiff and his witness Mr West. The implied representation is as argued by the plaintiff, that such hanger facility expressly offered by the State through DCA would be “reasonably suitable” for the purposes of the plaintiff in its business. To that end the plaintiff has a 13 point list in (4) of its statement of claim, based on professional engineer advice from Mr West. The plaintiff points to those thirteen matters as necessary to make the hanger facility offered by the State “reasonably suitable” for the plaintiff’s purposes.

That 13 point list was averred to by Mr West, Mr Neil Whiting, Mr Mendoza and to a lesser extent, Mr Jeffrey Dunn (who deposed to the prevalence of assaults and robberies). I do not propose to make findings on the individual points which the plaintiff says the defendants are liable to do, for it is unnecessary to do so in the circumstances of the order. Sufficient to say, on the expert evidence of Mr West, particularly in relation to drainage, ventilation, roof insulation and the feasibility of obtaining DCA and NCDC building approval for the erection of workshops and bays in the hanger taking account of fire risk, I am not satisfied, on the evidence of the defense’s main witness, Mr Veneik, that the hanger and surrounds is “reasonably fit” for the plaintiff’s purposes in its present state. While Mr Veneik is a qualified and experienced electrical engineer, and the project manager for the new General Aviation Apron redevelopment, his evidence on the structural nature of the building and the civil engineering aspects of the external drainage as they affect the need to comply with particular wind loading, and the likelihood of uninterrupted use or damage to the wall cladding in heavy winds or wet weather, left me with the impression that any such problems were unlikely, for he relied upon the expertise of the contract builders and the civil engineers who designed the drainage systems. He did not allay the legitimate concerns raised by Mr West. I should say, however, that the supply of electricity in a three phase 250 amperes supply box, whilst likely to be necessary, was not that originally proposed by Mr Mendoza and I accept Mr Veniek’s evidence on that point.

N2>3.       The plaintiff’s statement of claim, (3) seeks a declaration that, in the event of the plaintiff voluntarily surrendering the existing lease, “then the provisions of the new lease must accord as closely as possible with the provisions contained in the existing lease 005 ...”. This is clearly also a sticking point for the new hanger facility is an entirely different class of hanger than that presently occupied by the plaintiff. The defendants say that the plaintiff cannot insist on particular conditions in the lease. The defendants rely on the Minister’s “unfettered discretion” found in s 4 of the Aerodrome (Business Concessions) Act, to offer a lease. Clearly the parties have reached a sticking point, both as to the work necessary to make the new hanger “reasonably suitable” for the plaintiff’s business (for it is offered in substitution for the existing site), and as to the terms of the new lease. The plaintiff in effect says that the Court should decide on the terms of the agreement, for it would be inequitable if the defendants were to avoid the consequences of their undertakings to provide reasonably suitable alternate hanger space.

Where the parties are so far apart, the Court should not embark upon an exercise for which it has no mandate. I rely on the succinct principle by Lord Atkinson (when dealing with that legal maxim “equity looks on that as done which ought to be done”) in De Beers Consolidated Mines Ltd v. British South Africa Co [1911] UKLawRpAC 68; [1912] AC 52 at 65-6.

“The doctrine cannot in its application to contracts ... be permitted to turn the conditional into the absolute, the optional into the obligatory, or to make for the parties contracts different from those then have made for themselves. What a party to a contract ought to do, within the true meaning of the doctrine, is what he has contracted to do, and nothing more and nothing less is to be taken in equity to be done”.

The Minister’s letter of the 21 July 1995 to Mr Mendoza, as managing director of the plaintiff, has put paid to any chance of an amicable resolution of the express representations by Department of Civil Aviation for a fresh lease and site. The Minister said, in part -

“I hereby intimate that I no longer intend to grant your company a new lease in respect of the new hanger and site at the new General Aviation Apron at Jacksons Airport, Port Moresby that was allocated to your company previously”.

and further -

“... as Minister specifically empowered under the Aerodrome (Business Concessions) Act Ch 354 to grant such leases, I do not now intend to entertain your company’s interest (if any) for a new lease at the new General Aviation Apron.

Yours faithfully

Honourable Michael Nali, MP

Minister for Civil Aviation and Tourism”.

That refusal is within the Minister’s power and prerogative. No fresh lease has been entered into by the plaintiff. The parties are so far apart, as I have shown, that no argument can arise that the Minister is estopped, for instance from denying the existence of a fresh lease.

Consequently the plaintiff must fall back on its contractual rights under the first lease, and the consequences which flow from the series of events leading up to and including the Minister’s letter.

I refuse a declaration in terms of (3) and shall not make orders in terms of (4). I come back then to (2) of the statement of claim. It seeks a declaration that “the plaintiff is not lawfully required to surrender the lease 005 until such time as the State has completed the construction of a suitable replacement aviation maintenance facility etc”.

The defendants say that the first lease, or contract has been frustrated by the supervising need to give possession of the plaintiff’s land to the Aerodrome Redevelopment Contractor. Mr Alberick relies on Halsbury’s Laws of England, 5^th Edition 27(1) para 499, as supporting his argument that the defendant can plead the doctrine of frustration in instances of leasehold (not only contract simpliciter) and that the State cannot be accountable for the plaintiff’s predicament.

The note to the paragraph says “The doctrine of frustration is a doctrine of law applicable to contracts generally. Frustration of a contract takes place when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances; in such case the law declares both parties to be discharged from further performance”.

NATIONAL CARRIERS LTD V PANALPINA (NORTHERN) LTD [1980] UKHL 8; [1981] AC 675 @ 700.

It is not necessary to decide whether the doctrine of frustration need apply in this case, for the prerequisite to its consideration, “without default of either party “does not exist. The State has, subsequent to its lease 005 registered 13 May 1983, entered into arrangements which certainly will result in frustration, in the commonly accepted sense, to the plaintiff if it is forced out, but which cannot be categorised as frustration as understood by the doctrine. Certainly the lease 005 makes no provision for an event such as this redevelopment but the State has gone ahead with that redevelopment scheme in full knowledge of the existence of this lease. It had hoped that a commercial resolution would result in the vacation of the whole site, but that has not happened in the plaintiff’s case. The defendants argument that the contract has been “frustrated” must fail.

I am satisfied, by reason of all of the foregoing that the defendants, (excepting the 4^th defendant) have breached the covenant for “quiet enjoyment” found in para 2, 2^nd Schedule, and that by virtue of the express directions and acts of the defendants in seeking possession of the subject premises (including the purported termination given the plaintiff by letter dated 11 August 1992) and the Minister’s letter of the 21 July 1995, the defendants have unlawfully sought to dispossess the plaintiff of its demised premises. In these circumstances the defendants are deemed to have breached their agreement for lease. Whilst the plaintiff remains in possession yet, it does so by virtue of an interlocutory order of this Court, so that if necessary I am prepared to find anticipatory breach, sufficient for the plaintiff to ground its action in damages for breach of contract. It follows that the plaintiff is not lawfully required to surrender the lease 005. Nevertheless by virtue of the overriding interest of the State to a redevelopment of the Jacksons Airport site, the plaintiff must vacate but shall be entitled to damages for breach of contract.

The defendants seek possession before the 14 August. It should also be remembered that the most that the State offered by way of relocation expenses was some K100,000. The plaintiff’s estimate, which the State did not dispute to any real extent, exceeded K600,000. The old existing lease was initially for a yearly rental of K6,281.10. That rent was adjusted to follow a consumer price index. The new lease offered but withdrawn, recited an annual rental of K67,659.40 based, it seems on some valuations of the Valuer General which I could not make sense of. Nevertheless, Mr Alberick says the State is anxious to offer the lease on the open market, and is just as anxious to obtain possession of the plaintiff’s site to avoid a penalty written into, it seems, the contract with the developer. Whilst I am not interested in those arrangements, it is clear that the State is anxious to obtain possession of the site which lawfully it has leased the plaintiff, and that by so obtaining possession, it will gain a benefit that it otherwise would not have. I also have regard to the fact that the State has stated the reason for the relocation expenses of K100,000 is that such amount is the sum budgeted for and consequently bears no relation to the actual anticipated relocation costs. If the State expects to be saved the penalty and to be free to re-advertise the new hanger at K67,059 rent, it must partly offset the plaintiff’s costs of dismantling its offices, and removing its fittings and machinery by a cash payment which it had already earmarked for relocation expenses.

To afford the plaintiff a reasonable opportunity to arrange a removal I propose to extend the existing injunction for a further short period.

My orders follow.

ORDERS

N1>1.       A declaration in respect of lease No.005 registered volume 1 folio 29 in the Register of Aerodrome (Business Concessions) Leases that the plaintiff as lessee is entitled to 5 further consecutive renewals of the three year term as provided for by para 4, sched.3, the next such renewal to commence on 13 March 1996 and the last such renewal to commence on 13 March 2008 and to expire on 12 March 2011, at such rent as is therein provided.

N1>2.       A declaration that the plaintiff is not lawfully required to surrender the subject lease but that by virtue of the breach of such agreement by the 3^rd defendant and his servants and agents the 1^st & 2^nd defendants, the plaintiff’s rights under the lease shall be grounded in damages, general, special and exemplary, upon vacation of the premises as hereinafter provided.

N1>3.       That the terms of the interlocutory injunction originally granted on the 11 September 1992 be extended in force for a further seven days or until the plaintiff shall have delivered up possession, whichever shall first occur, provided that the defendants shall not take steps for, and is not entitled to, possession, until the State has paid the plaintiff an amount of K100,000 to facilitate the plaintiff’s vacation. Such amount shall be taken into account on the assessment of damages but payment shall not await such assessment. Either party shall have liberty to apply for further directions or orders in relation to the carrying into effect of this order.

N1>4.       Subject to satisfactory payment of the said K100,000 the plaintiff shall hand over to the State a duly executed surrender of lease at the time of giving up of possession - such surrender to be prepared by and at the cost of the State.

N1>5.       The plaintiff shall file and serve particulars of damages, whether general, special or exemplary within 28 days of this date. Any request for further and better particulars shall comply with the National Court Rules otherwise the plaintiff is entitled to have the assessment set down for trial before me as a special fixture.

N1>6.       Liberty to apply generally.

N1>7.       Time is abridged.

Dated this the 10^th day of August 1995.

Lawyer for the plaintiff: Shepherds Lawyers.

Lawyer for the defendant: State Solicitors.