Kisombo v Apore [2020] PGNC 414; N8683 (7 December 2020)

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CONTRACTS – alleged breach of contract for sale of land – whether defendants breached contract – whether the contract was frustrated, rescinded or terminated.

REMEDY – specific performance – equitable and discretionary remedy – plaintiff not guilty of laches – damages not appropriate remedy.

Kora Gene v Motor Vehicles Insurance (PNG) Trust [1995] PNGLR 344
Negiso Investments Limited v. PNGBC Limited (2003) N2439
Dr. Florian Gubon Trading as Gubon Lawyers v. Pacific Mobile Communication Limited (2006) N3104
Rage Augerea v The Bank South Pacific Ltd (2007) SC869
PK Investments Ltd v Mobil Oil New Guinea Ltd (2015) SC1456
Derwent Ltd v Pakena [2020] N8294
PNG Aviation Services Pty Ltd v Geob Karri, To'oro Aihi, Michael Nali, Lindsay Gideon and The State [1995] PNGLR 103

Ferguson v Wilson (1866) LR 2 Ch 77
Fibrosa Spolka Akcyina v. Fairbairn Lawson Combe Barbour Ltd [1942] UKHL 4; [1942] 2 All E.R 122
J. Lauritzen A.S. v Wijsmuller B.V (The Super Servant Two) [1990] 1 Lloyd’s Report 1

RP Meager et al, Equity, Doctrines & Remedy, Butterworths, 1984
Roebuck, Srivastava & Nongorr, Pacific Contract Law, UPNG Press, 1987
Chitty on Contracts, Vol 1 (General Principles), 27^th Edition, London, Sweet & Maxwell, 1994

1. DAVID, J: INTRODUCTION: This is a decision on a trial for alleged breach of contract. The plaintiff, Carlos Kisombo claims that on 2 August 2019, he entered into an agreement with the defendants, Peterson Apore and Daisy Apore for the purchase of their property described as Allotment 4 Section 24 Boroko (Kevau Place), National Capital District and contained in State Lease Volume 1 Folio 116 (the Property) for K2 million (the First Contract). He claims that the defendants have breached the First Contract by failing to complete the sale of the Property although he has always been ready and willing to perform his part of the First Contract.

2. On 27 November 2019, by writ of summons endorsed with a statement of claim, the plaintiff brought an action in breach of contract claiming, among others, the equitable remedy of specific performance of the First Contract and alternatively, damages for breach of contract.

3. On 28 November 2019, the Court granted interim orders restraining the defendants, their servants and agents from selling, negotiating for the sale of, disposing of, parting with possession or otherwise dealing with the Property until further order of the Court. The interim orders were made permanent on 12 February 2020.

4. On 10 December 2019, the defendants gave their notice of intention to defend the action.

5. On 10 January 2020, the defendants filed their defence. In their defence, the defendants admit that the parties executed the First Contract, but deny liability entirely because, among other things,:

6. The plaintiff joined issue with the defendants on their defence even though he has not filed a reply to the defence by virtue of Order 8 Rule 22(1) of the National Court Rules which provides that if there is no reply to a defence, there shall be an implied joinder of issue on that defence.

7. Trial was conducted by affidavit evidence. No cross-examination was conducted.

10. The chronology of events and the main undisputed facts or facts that have been proven by the plaintiff on the balance of probabilities are tabulated below.

Item	EVENTS/FACTS
1.	The defendants are the registered proprietors of the Property as joint tenants.
2.	The Property is the subject of a registered mortgage made in favour of the Bank (Journal No.S.82149. Produced 04/07/18 Entered 09/07/18).
3.	In August 2019, Sales Agent, Robert Young was engaged by the defendants to sell the property.
4.	In August 2019, the plaintiff expressed his interest to Robert Young to purchase the Property for K2 million after an inspection.
5.	Robert Young informed the defendants about the plaintiff’s offer to purchase the Property for K2 million which they accepted.
6.	Moses Saka of M Saka Lawyers acted for the parties in the conveyance.
7.	On 2 August 2019, the plaintiff and the defendants entered into the First Contract when it was agreed that the defendants who were joint registered proprietors of the Property would sell the Property to the plaintiff and the plaintiff agreed to purchase from the defendants the Property for K2 million
8.	After the First Contract and an Instrument of Transfer were executed, the plaintiff lodged them for stamping at the Stamp Duties Office, Internal Revenue Commission and paid Internal Revenue Commission the sum of K100,010.00 being stamp duty assessed on the First Contract for a consideration of K2 million.
9.	The First Contract and Instrument of Transfer were duly stamped by the Stamp Duties Office and returned to M Saka Lawyers on 7 August 2019.
10.	The First Contract was a permitted dealing and therefore was not subject to Ministerial approval pursuant to Section 128 of the Land Act 1996.
11.	On the advice of his Loans Officer with the Bank, the plaintiff organised valuation of the Property and took out insurance cover over the Property.
12.	Settlement/Completion of the sale of the Property was proposed to take place on 29 August 2019 at 2:30 pm at the Bank’s Waigani Branch upon parties agreeing to and signing the Settlement Statement, but was aborted.
13.	At all material times, the plaintiff has been ready and willing to settle/complete the First Contract, but the defendants have withheld completion due mainly to the defendants’ disagreement with the Bank as to the amount to be paid to the Bank.
14.	On 2 September 2019, M Saka Lawyers gave the defendants a notice to complete the sale by close of business on Tuesday, 10 September 2019, but the sale was not completed within the time given.
15.	On 10 September 2020, Furigi Lawyers wrote to the Registrar of Titles regarding orders made by the Court on 18 November 2019 and 12 February 2020 restraining the defendants, their servants and agents from selling, negotiating for the sale of, disposing of, parting with possession of or dealing with the Property and also about registration of a further caveat.
16.	By a letter to the defendants under the letterhead of Kiso Holdings Limited dated 12 September 2019, in a bid to expedite settlement, it was proposed on behalf of the plaintiff that the plaintiff was prepared to pay an extra K55,156.00 to settle rates owing by the defendants to Eda Ranu and National Capital District Commission.
17.	On or about 26 September 2019, the plaintiff claiming an estate or interest in the Property lodged a caveat with the Registrar of Titles to forbid registration of instruments affecting that estate or interest.
18.	By a letter to the defendants under the letterhead of Kiso Holdings Limited dated 2 October 2019, again in a bid to expedite settlement, it was proposed on behalf of the plaintiff that the plaintiff was prepared to pay all outstanding bills totalling K101,734.45 owing by the defendants to the National Capital District Commissions (K42,023.74), Eda Ranu (K13,134.04), Department of Lands & Physical Planning (K23,650.00) and Vendors’ bond fee (K22,926.67). The defendants were given up to 11 October 2019 to respond in writing, failing which the offer to help with the payment of the bills would be withdrawn and legal advice would be sought on the failure to complete the sale and purchase of the Property.
19.	The plaintiff obtained a Residential Property Investment Loan of a credit limit of K2 million from the Bank of South Pacific Limited to assist with the purchase of the Property at an interest rate of 9.75% per annum to be repaid over a term of 15 years at K21,187.25 monthly commencing the first month after drawdown.
20.	A commitment fee of 2.5% per annum would be charged quarterly by the Bank on the undrawn balance of the credit limit from 8 September 2019 if the loan were not drawn by 8 November 2019 and there was a risk of possible cancellation of the loan.
21.	On 14 October 2019, the defendants entered into another contract for sale of land with another purchaser namely, BK Limited to sell the Property to it for K2.5 million (the Second Contract)
22.	Stamp duty assessed on the Second Contract under the Stamp Duties Act has been paid and the Second Contract has been stamped.
23.	The plaintiff engaged the services of Furigi Lawyers who on 7 November 2019 wrote to the Bank seeking to extend the time to draw the loan from 8 November 2019 to 8 February 2020 pending settlement including obtaining an order for specific performance of the First Contract.
24.	On 7 November 2019, the plaintiff received a letter from the defendants informing him that; the Bank disagreed with the settlement statement as it required all proceeds from the sale to be paid into their loan account leaving them with nothing to take home money and that was the reason for non-completion of the sale; they would not proceed with the sale in the circumstances and pay him compensation in the sum of K40,000.00; and requested the plaintiff to withdraw the caveat registered against the title to the Property.
25.	By a letter dated 11 November 2019, the defendants’ agent, Robert Young advised the plaintiff that the defendants had accepted an offer from another buyer to purchase the Property for K2,400,000.00 and the defendants would abandon the First Contract and not complete it.
26.	By a letter dated 12 November 2019, Furigi Lawyers, on behalf of the plaintiff, put the defendant’s on notice that without offering any reasonable explanation for their refusal to settle, the plaintiff refused the defendants’ offer of K40,000.00 and counter-claimed K415,936.66 with details provided to be settled by close of business on 14 November 2019, failing which legal proceedings would be issued to enforce the First Contract.
27.	By a letter to the plaintiff under the letterhead of PDA Investment Limited dated 19 November 2019, the defendants advised that the First Contract was terminated. The subject matter of the letter was “Termination of Contract of Land at Section 24 Allotment 4 Boroko (Kevau Place), Port Moresby, NCD.” The letter was received by a person whose details are not given on 20 November 2019.
28.	By a letter to the plaintiff dated 19 November 2019 signed by Peterson Apore, the plaintiff was advised that despite the existence of the First Contract, the Bank did not approve it for failing to meet its requirements and therefore the First Contract was terminated. The plaintiff was also informed that if he were still interested in purchasing the Property, the purchase price would be K2.5 million. The subject matter of the letter was “Termination of Contracts of Sale of Land Section 23 Allotment 4 Boroko (Kevau Place), Boroko.”
29.	On 24 January 2020, Furigi Lawyers wrote to the defendants’ lawyers, Korerua & Associates, proposing settlement to take place by 12 February 2020.
30.	On 10 February 2020, the defendants’ lawyers, Korerua & Associates wrote to the plaintiff’s lawyers advising that the defendants’ instructions were that the First Contract was lawfully terminated.

13. The plaintiff submits that the defendants breached the First Contract when they failed to settle and continued to withhold settlement as:

14. The defendants contend that the First Contract is no longer valid and is unenforceable as:

15. There is no dispute that the parties entered into the First Contract on 2 August 2019 for the sale of the Property by the defendants to the plaintiff for a consideration of K2 million. The First Contract and Instrument of Transfer were duly stamped by the Stamp Duties Office upon payment of K100,010.00 and returned to Moses Saka of M Saka Lawyers, who acted for the opposing parties in the conveyance, on 7 August 2019. By Clause 16 of the First Contract, as the First Contract was a permitted dealing, it was not subject to Ministerial approval under Section 128 of the Land Act. Upon completion of that process, completion of the First Contract was required to take place pursuant to Clause 4 of the Contract which states:

“(a) Where this Contract is a permitted dealing pursuant to Section 128 of the Land Act 1996, completion shall take place after the date that the Vendors’ Lawyers or the Vendors notify the Purchaser that the contract has been stamped at the Stamp Duties Office, and immediately after the Purchaser’s loan application with his financiers has been approved and funds available for drawdown (also the “Completion Date”).

(i) the Purchaser shall pay to the Vendors the full purchase price in bank cheque or cash;

(ii) the Vendors will deliver to the Purchaser the State Lease in respect of the Property and a duly executed transfer of the Property and the Contract for Sale and Purchase both of which documents shall be properly stamped under the Stamp Duties Act (Chapter 117) and endorsed with Ministerial approval under Section 128 of the Land Act 1996 and a Statutory Declaration to accompany documents lodged for registration required by the Registrar of Titles.

(c) If this Contract is not completed by the time stipulation in Clause 4(a), the Vendor shall be entitled:

(i) to issue a Notice to Complete fixing a time for completion which time shall be of the essence of this agreement.

(d) Any notice purporting to make time of the essence of this agreement shall be deemed to be sufficient as to time if a period of not less than seven (7) days from and including the date of the notice is allowed for the performance of any act (including but not limited to signing of any document).

16. Under Clause 10 of the First Contract, no deposit was paid hence full payment of the purchase price was required at settlement on the completion date.

17. As I have found as a fact earlier, completion/settlement of the sale of the Property was proposed to take place on 29 August 2019 at 2:30 pm at the Bank’s Waigani Branch upon parties agreeing to and signing the Settlement Statement, but was aborted.

18. I have found as a fact earlier that at all material times, the plaintiff has been ready and willing to complete/settle the First Contract, but the defendants have withheld completion, as they say, due mainly to the defendants’ disagreement with the Bank as to the amount to be paid to the Bank.

19. I have also found as a fact earlier that on 2 September 2019, M Saka Lawyers gave the defendants a notice to complete the sale by close of business on Tuesday, 10 September 2019, but the sale was not completed within the time given. Clause 4(c) of the First Contract provided that if the First Contract were not completed by the time stipulation in Clause 4(a), the defendants as vendors were entitled to issue a notice to complete. Here, the defendants’ reluctance to complete/settle the First Contract prompted M Saka Lawyers to issue a notice to complete to the defendants.

20. The defendants contend that the First Contract was frustrated by the Bank refusing to agree with the Settlement Statement that proposed that a payment of K1.8 million be made to the Bank when the Bank required more or all settlement proceeds to be paid to it and that brought the First Contract to an end.

21. The doctrine of frustration of contract is a common law principle of contract, which we have adopted as part of the Underlying Law under Schedule 2.3 of the Constitution. It states that an event can result in the termination of the contract by operation of law: PNG Aviation Services Pty Ltd v Geob Karri, To'oro Aihi, Michael Nali, Lindsay Gideon and The State [1995] PNGLR 103, PK Investments Ltd v Mobil Oil New Guinea Ltd (2015) SC1456. It is not dependent on the fault of either party, but must be an event that significantly alters the nature and obligations of the parties: PNG Aviation Services Pty Ltd v Geob Karri, To'oro Aihi, Michael Nali, Lindsay Gideon and The State [1995] PNGLR 103, PK Investments Ltd v Mobil Oil New Guinea Ltd (2015) SC1456. It is not necessary that it must be a foreseeable event because to accept this proposition would mean foreseeable events do not give rise to frustration of the contract: PK Investments Ltd v Mobil Oil New Guinea Ltd (2015) SC1456.

22. The learned authors of Chitty on Contracts, Vol 1 (General Principles), 27 Edition, London, Sweet & Maxwell 1994 at 23.001 define frustration as follows:

“A contract may be discharged on the ground of frustration when something occurs after the formation of the contract which renders it physically or commercially impossible to fulfil the contract or transforms the obligation to perform into a radically different obligation from that undertaken at the moment of entry into the contract.... frustration is solely concerned with events which occur after the date of formation of the contract.”

23. The learned authors of Chitty on Contracts, Vol 1 (General Principles), 27 Edition, London, Sweet & Maxwell 1994 at 23.005 also set out the test for frustration which was propounded by Bingham LJ in J. Lauritzen A.S. v Wijsmuller B.V (The Super Servant Two) [1990] 1 Lloyd’s Report 1 and these are:

“1. The doctrine of frustration has evolved “to mitigate the rigour of the common law’s insistence on literal performance of absolute promises” and that its object was “to give effect to the demands of justice, to achieve a just and reasonable result, to do what is reasonable and fair, as an expedient to escape from injustice where such would result from enforcement of a contract in its literal terms after a significant change in circumstances.

24. Thus, the contract is terminated as to the future only. Unlike one vitiated by mistake, it is not void ab initio. It starts life as a valid contract, but comes to an abrupt and automatic end the moment the common adventure is frustrated. As Lord Wright held in Fibrosa Spolka Akcyina v. Fairbairn Lawson Combe Barbour Ltd [1942] UKHL 4; [1942] 2 All E.R 122 at 140:

“Each party must fulfill his contractual obligations so far as they have fallen due before the frustrating event, but he is excused from performing those that fall due later.”

25. Was the First Contract frustrated due to the disagreement between the defendants and the Bank as to the payout to the Bank? Applying the above principles of frustration, no. The disagreement between the defendants and their bank was as to the amount required to be paid to the bank. It had nothing to do with the plaintiff. The defendants were not “without blame or fault” to rely on frustration. The prerequisite to the consideration of frustration, "without default of either party " does not exist.

26. The evidence shows that the defendants secured another purchaser namely, BK Limited to buy the Property for K2.5 million and they entered into the Second Contract on 14 October 2019. Stamp duty assessed under the Stamp Duties Act was paid and the Second Contract was stamped.

27. Coincidently, the plaintiff’s financier is the same bank. There is no cogent and compelling evidence to demonstrate that the Bank through its loans officers or other officers facilitating the loan for the plaintiff and those facilitating settlement arrangements for the defendants’ existing loan with the Bank took any issue about the purchase price payable under the First Contract for the Property.

28. The Property was sold free of encumbrances of any nature whatsoever except for covenants, conditions and reservations noted upon the title to the Property or those stipulated under the Land Registration Act, Chapter 191 or the Land Act 1996. Under Clause 4 of the First Contract, at settlement, among other things, the plaintiff was required to pay the defendants the full purchase price in bank cheque or cash and the defendants were required to deliver to the plaintiff the title to the Property in exchange for the payment. It is also a practice in conveyancing that at settlement, where a property is under a mortgage, relevant discharge documents are also released to the purchaser or the purchaser’s financiers. This could not have been achieved if the Bank did not receive the moneys required to discharge the mortgage it has taken over the Property.

29. The Settlement Statement shows that one of the cheques required to be drawn and delivered at settlement was a cheque in favour of the Bank for K1.8 million. The evidence adduced by the defendants shows that they owed the Bank about or in excess of K1.95 million and so the Bank wanted all the sale proceeds to be paid to it. Another cheque required was one drawn in favour of PDA Investment Limited for K64,765.60 and from the evidence, that appears to be the defendants’ company or nominated receiver of the cheque. No direct evidence was received from the Bank that it frustrated completion of the First Contract. In any event, there is no term of the Contract either as a special condition or otherwise that the Contract was subject to the approval of the Bank.

30. The alleged notices of rescission or termination in fact were given well after the Second Contract was executed on 14 October 2019 in total breach and disregard of the defendants’ contractual obligations under the First Contract.

31. I therefore reject the defendants’ contention that the First Contract was ended by frustration allegedly as a result of the conduct of the Bank in refusing to settle on the basis of the Settlement Statement agreed to and provided by the parties. The defendants’ argument that the First Contract has been frustrated must fail.

32. As to whether or not the First Contract was lawfully rescinded, I start with Clause 15 which deals with rescission. It states:

“If this contract is rescinded (as distinct from terminated) pursuant to any express right to rescind (as distinct from a right to terminate) conferred by this contract, the rescission shall be deemed to be rescission ab initio, and:-

(a) all money paid by the Purchaser hereunder shall be refunded to the Purchaser;

(b) neither party shall be liable to pay any sum for damages costs or expenses (other than for any antecedent breach of this contract);

(c) if the Purchaser has been permitted into occupation of the Property the Purchaser shall forthwith give up possession of the Property to the Vendors; and

(d) if the Purchaser is or has been in occupation or in receipt of the rents or profits of the Property the Purchaser shall account for or pay to the Vendors the net rents and profits received or a fair occupation rent for the Property (whichever is the greater) until the date of rescission but;

The Vendors shall give the Purchaser credit for any interest paid by the Purchaser and any resulting balance payable by the Purchaser may be deducted by the Vendors from monies before returning the same to the Purchaser.”

33. In Derwent Ltd v Pakena [2020] N8294 at paragraphs 55 and 56, I discussed the law on rescission and I cite the relevant paragraphs below:

“An agreement which is executory may be discharged by agreement between the parties that it shall no longer bind them. This is commonly referred to as a rescission of the contract: Beatson et al, Anson’s Law of Contract, 29^th Edition, Oxford University Press p.462. Even if the original agreement is one which is required by law to be made in writing as in the case of an agreement for the sale of land or other disposition of an interest in land, there is no need for a written discharge; an oral agreement is sufficient: Beatson et al, Anson’s Law of Contract, 29^th Edition, Oxford University Press p.462.

A statement on the law of rescission of contracts in Papua New Guinea was made by the Supreme Court recently in Dominic Tiri v Alison Eka (2017) SC1586. There, at paragraphs 11-12, of the judgment, the Supreme Court stated:

11. Treitel in AN OUTLINE OF THE LAW OF CONTRACT (6th ed. Oxford) at page 343 succinctly states the law: The effects of rescission...The injured party is released from future obligations under the contract...The party who has failed to perform is also released from future (but not from accrued) obligations to perform. Halsbury's Laws of England (4th ed.) volume 9 paragraph 551 refers to pre-Independence cases and summarises the law regarding rescission as follows: "a serious breach has the effect of giving the innocent party the right to elect whether he will treat the contract as at an end or as still on foot."

12. And on the point of how this election is made, at paragraph 556 Halsbury's comments: "The question whether or not a party has elected to rescind is one of fact. An election to rescind must involve an unequivocal assertion by the innocent party that he regards himself as no longer bound by the contract as a result of the breach."

34. There is no evidence to demonstrate that the parties mutually agreed to rescind the First Contract.

35. The general equitable maxims that; he who comes to equity must come with clean hands; and that he who seeks equity must do equity applies to a suit for specific performance. On the evidence, these equitable maxims are considered in favour of the plaintiff.

36. A plaintiff may fail in a suit for specific performance by reason of his own breaches of the contract or by reason of his lack of readiness and willingness, at the time of commencement of the suit, to perform his own obligations under the contract: RP Meager et al, Equity, Doctrines & Remedy, Butterworths, 1984, 2023.

37. The plaintiff’s conduct shows clearly that at all material times, he was not in default of his contractual obligations under the First Contract. He was ready and willing to complete and settle the First Contract. There is evidence demonstrating that the plaintiff offered twice to pay bills owing by the defendants to certain authorities in order to expedite settlement. He even instructed M Saka Lawyers to give a notice to complete. His lawyers, Furigi Lawyers also wrote to the defendants’ lawyers on 24 January 2020 to settle before 12 February 2020 and settlement did not eventuate as the defendants maintained that the First Contract had ended. The plaintiff has also lodged a caveat against the title to the Property to forbid registration of any instrument affecting his interest. All in all, there was no default on the part of the plaintiff to warrant rescission of the First Contract. No valid or reasonable reasons have been given by the defendants for their refusal to settle whether it was the Bank’s alleged refusal to settle due to a disagreement with the defendants as to the amount of the payout to the Bank or the defendants’ take-home monies from the residue of the sale proceeds.

38. It seems to me that the defendants in total disregard of their contractual obligations under the First Contract have decided to deal with a third party under the Second Contract because of a higher purchase price offered. That seems to be the only logical conclusion one can draw in the circumstances. The blame placed on the Bank for allegedly refusing or frustrating settlement is a typical and out of the ordinary when the plaintiff’s financier is the same bank.

39. As to termination, a party cannot unilaterally terminate a contract by breaking it: Roebuck, Srivastava & Nongorr, Pacific Contract Law, UPNG Press, 1987, 709. It is the acceptance of that breach by the other party as repudiation and as a termination of the contract which puts an end to the contract: Roebuck, Srivastava & Nongorr, Pacific Contract Law, UPNG Press, 1987, 709. Hence, until the injured party accepts the repudiation and termination, the contract is not ended and remains valid and enforceable. The evidence shows that the plaintiff has always been ready and willing to perform his obligations under the First Contract, ie, complete the contract and settle.

40. There is some uncertainty surrounding the service of a letter of termination of the First Contract as well. There is one letter under the letterhead of PDA Investment Limited dated 19 November 2019 addressed to the plaintiff signed by each of the defendants advising him of the termination of the First Contract. There is another letter dated 19 November 2019 addressed to the plaintiff signed by Peterson Apore advising him of the termination of the First Contract. The description of the Property in both notices are not the same. Be that as it may, the plaintiff has not accepted the purported termination of the First Contract. In addition, the plaintiff has rejected the defendants’ offer to pay him compensation allegedly for terminating the First Contract and has counter-claimed by proposing that the defendants settle with a substantial amount which they have rejected outright. The plaintiff’s conduct in that regard, in my view, does not amount to acceptance of a repudiation and termination of the First Contract. Hence, the defendants’ argument that the First Contract was terminated must fail.

41. In their defence, the defendants averred that the plaintiff failed to give them time to consult and obtain advice from their bank and lawyers of their choice about the conveyance through the First Contract so the contract was not genuinely mutual or was manifestly unfair to them within the meaning of Section 5 of the Fairness of Transaction Act 1993. The defendants appear to have abandoned this defence as they have not raised it in their written and oral submissions and the defence is treated as unsubstantiated.

42. In any event, there is evidence that the parties engaged one firm of lawyers namely, M Saka Lawyers to act for them in the conveyance. That is not an unusual arrangement in this jurisdiction for one firm of lawyers to act for the vendor and purchaser in a conveyance provided the engagement is mutual and there is no conflict of interest: see Rule 10(5) and (7) of the Professional Conduct Rules 1989. The defendants have provided no evidence to demonstrate that the engagement of M Saka Lawyers to act for both of them and the plaintiff initially was not mutual. That arrangement usually comes to an end when a conflict arises later in connection with the conveyance and the firm of lawyers usually decides not to act for any of the parties in the conveyance anymore: Rule 10(5) and (7) of the Professional Conduct Rules 1989. There is no strong and cogent evidence to demonstrate that M Saka Lawyers were engaged in conduct that was unprofessional or were not diligent in discharging their duties to the defendants in connection with the conveyance.

43. Section 5 of the Fairness of Transaction Act 1993 allows a review of transactions which are not genuinely mutual or are manifestly considered unfair on application of any party to the transaction: Kora Gene v Motor Vehicles Insurance (PNG) Trust [1995] PNGLR 344, Negiso Investments Limited v PNGBC Limited (2003) N2439, Dr. Florian Gubon Trading as Gubon Lawyers v Pacific Mobile Communication Limited (2006) N3104, Rage Augerea v The Bank South Pacific Ltd (2007) SC869. The Courts have struck down agreements that have been considered to be unfair because of inequality in the bargaining powers of the parties: Kora Gene v. Motor Vehicles Insurance (PNG) Trust [1995] PNGLR 344, Negiso Investments Limited v PNGBC Limited (2003) N2439, Dr. Florian Gubon Trading as Gubon Lawyers v Pacific Mobile Communication Limited (2006) N3104, Rage Augerea v The Bank South Pacific Ltd (2007) SC869.

44. The conduct of the defendants does not demonstrate that the First Contract was unfair and there is actually no application to the Court by the defendants to review the First Contract alleging that it was not genuinely mutual or was manifestly unfair to them. They have treated the First Contract as valid and have tried to bring the First Contract to an end by alleging frustration by the Bank, rescission and or termination. Hence, the defendants’ defence that the entire transaction manifested by the First Contract was unfair within the meaning of Section 5 of the Fairness of Transactions Act is on the available evidence before me unsubstantiated and is dismissed.

45. The First Contract remains valid, it is executory, it has not been frustrated by the Bank or rescinded or terminated and is enforceable and ought to be specifically performed. It was breached when the defendants failed to settle. It has been further breached when the defendants have sought to sell the Property to a third party for a higher price by way of the Second Contract. The defendants’ conduct with respect to the completion of the First Contract clearly has not been genuine.

46. I will now decide what relief I should grant amongst those sought by the plaintiff in this action.

47. The plaintiff contends that it is entitled to an order for specific performance of the First Contract or in the alternative, damages under the various heads of damages sought.

48. On the other hand, the defendants argue that in the exercise of the Court’s discretion, it should not make an order for specific performance, but damages to be assessed was the appropriate remedy.

49. In Derwent Ltd v Pakena [2020] N8294 at paragraphs 92, 93, 94 and 95, I discussed the law on specific performance and I cite the relevant paragraphs below:

“92. An order for specific performance compels a person to carry out the obligations that have been accepted under an executory contract: Peter W. Young et al, On Equity, Lawbook Co. 2009 p.1086 para 16.860. Specific performance is only ordered when damages are inadequate to meet the justice of the case: Peter W. Young et al, On Equity, Lawbook Co. 2009 p.1089 para 16.900. It is not available where; the plaintiff is guilty of laches; there is no contract to be specifically performed; the contract is unenforceable because of non-compliance with statute of frauds legislation (Frauds and Limitations Act); there is lack of mutuality; and the subject matter of the contract no longer exists: Price v Strange [1978]1 Ch 337; Peter W. Young et al, On Equity, Lawbook Co. 2009 p.1094 para 16.940.

93. As specific performance is an equitable remedy, it is discretionary: Peter W. Young et al, On Equity, Lawbook Co. 2009 p.940 para 14.60.

94. In Papua New Guinea, specific performance and damages in a contract for sale of land are available as alternate remedies, but not both: Mondo Merchants Pty Ltd v Melpa Properties and Koang No.47 Ltd (1999) N1863, Augwi Ltd v Xun Xin Xin (2014) SC1616.

95. A statement of the law on specific performance of a contract that applies in Papua New Guinea was made by the Supreme Court in Augwi Ltd v Xun Xin Xin (2014) SC1616 where at para 17, it was held:

[A]s a general rule, a finding by the Court that a valid and enforceable contract for the sale of land is, at law, a precondition to the grant of the equitable remedy of specific performance: McCoster & King v Kusher [1967- 68] PNGLR 182, Daba Hisjunes Pty Ltd v Turner and Davey Electrical Pty Ltd [1974]164, Kiddie v Pavey (2004) N2513, PNGBC v Barra Amevo and Bari Investments trading as Kanantu Pharmacy, Lennie Aparima and Orito Aparima [1998] PNGLR 240. Specific performance, of a contract of sale of land, as an equitable remedy, must follow as a matter of course except where the circumstances of the case falls under any of the recognized exceptions to this rule. Exceptions to the rules include a case where the plaintiff is guilty of laches in bringing an action for specific performance: Fred Angoram v Independent Public Business Corporation of Papua New Guinea (2011) N4363, Mehemet v Benson [1965] HCA 18; (1965) 113 CLR 295, Lamshed v Lamshed (1963) 109 CLR 140; or the subject matter of the contract no longer exists: Price v Strange [1978]1 Ch 337. As much as specific performance in a contract for sale of land is a right of the vendor against a defaulting purchaser, it is a right of the purchaser against a defaulting vendor: Dougan v Ley [1946] HCA 3; (1946) 71 CLR 142, Turner v Bladin and others [1910] CLR 463. A valid contract for sale of land, enforceable by specific performance, exists irrespective of grant of statutory approval of the contract under the Land Act: McCoster & King v Kusher [1967-68] PNGLR 182, Daba Hisjunes Pty Ltd v Turner and Davey Electrical Pty Ltd [1974]164; Phillip Taudevin v Charles Theseira and Theresa Theresa [1995] PNGLR 56, Wal Wine v Bill Giglmai [1990] PNGLR 462; Arnold Ningiga v Peter Lore Koavea [1988-89] PNGLR 312, Jacobs v Kwaindu [1991] PNGLR 366.”

50. In the present case, I have found that the First Contract is valid and was neither frustrated nor rescinded or terminated. So, should an order for specific performance follow as a matter of course? Are there circumstances of the case that fall under any of the recognized exceptions to this rule?

51. There is no cogent and credible evidence before the Court to demonstrate that the defendants have the financial capacity to meet any award for damages to meet the justice of the case. Damages is not the appropriate remedy in the circumstances of this case.

53. Is performance of the First Contract impossible? Equity will not specifically enforce what cannot be done: Ferguson v Wilson (1866) LR 2 Ch 77.

54. The subject matter of the First Contract exists. As I have found earlier, on 14 October 2019, the defendants entered into the Second Contract with BK Limited to sell the Property to it for K2.5 million. Stamp duty assessed on the Second Contract under the Stamp Duties Act has been paid and the Second Contract has been stamped. That was in total breach and disregard of the defendants’ contractual obligations under the First Contract.

55. The Second Contract appears to be a controlled dealing that requires Ministerial approval pursuant to Section 128 of the Land Act 1996. Clause 11.1 of the Second Contract is a special condition of the Second Contract and it states:

“If this document constitutes a controlled dealing as defined in Section 128 of the Land Act then this Agreement is subject to the approval of the Minister under the Land Act but in all other respects the obligations of the Purchaser hereunder (including but not limited to all personal covenants) are and remain enforceable from the date hereof notwithstanding that such approval has not been given or is refused.”

56. There is no evidence before the Court to demonstrate that the Second Contract has been granted Ministerial approval pursuant to Section 128 of the Land Act 1996.

57. Even if the Second Contract were not a controlled dealing, but a permitted dealing, the First Contract being the first in time prevails subject to a bona fide purchaser of a legal estate for value without notice. The purchaser in the Second Contract namely, BK Limited has neither been joined as a party to these proceedings nor provided evidence to assist the Court in this regard.

58. As I have alluded to already, on a about 26 September 2019, the plaintiff claiming an estate or interest in the Property lodged a caveat with the Registrar of Titles to forbid registration of instruments affecting that estate or interest. A further caveat was lodged on 4 February 2020. A further application for a caveat to be registered was made on 10 September 2020.

59. As I have also alluded to earlier, on 28 November 2019, the Court granted interim orders restraining the defendants, their servants and agents from selling, negotiating for the sale of, disposing of, parting with possession or otherwise dealing with the Property until further order of the Court. The interim orders were made permanent on 12 February 2010.

60. Given these and in the exercise of my discretion, I will grant an order against the defendants requiring specific performance of the First Contract whereby the defendants agreed to sell to the plaintiff and the plaintiff agreed to purchase from the defendants the Property for a price of K2 million.

61. Should the defendants be ordered to meet any commitment fee payable on the undrawn Residential Property Investment Loan at the rate of 2.5% per annum to the Bank? I have considered doing that as a consequential order, but have decided against it. One of the reasons for taking that position is that as I have referred to earlier, in Papua New Guinea, specific performance and damages in a contract for sale of land are available as alternate remedies, but not both. In any event, the plaintiff has not produced evidence to demonstrate that he has actually been charged commitment fee.

62. The question of costs is a discretionary matter. There are no special circumstances in the present case that warrant departure from the general rule that costs follow the event, ie, the successful party has its costs paid for by the losing party on a party-to-party basis.

Judgment and orders accordingly.
_______________________________________________________________
Furigi Lawyers: Lawyers for the Plaintiff
Korerua & Associates: Lawyers for the Defendants

Item	EVENTS/FACTS
1.	The defendants breached the First Contract by failing to settle.
2.	The First Contract was frustrated by the defendants’ bank or was properly and lawfully rescinded or terminated by the defendants.

National Court of Papua New Guinea

Kisombo v Apore [2020] PGNC 414; N8683 (7 December 2020)