Derwent Ltd v Pakena [2020] PGNC 77; N8294 (21 April 2020)

N8294

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO.1144 OF 2013

BETWEEN:
DERWENT LIMITED (formerly known as Telemu No.9 Limited
Plaintiff/Cross-Defendant

AND:
ANTON PAKENA
First Defendant/First Cross-Claimant

AND:
NIYA LIMITED
Second Defendant/Second Cross-Claimant

Waigani: David, J
2019: 9^th & 10^th July
2020: 21^st April

REAL PROPERTY – claim for declaration that contract for sale of land entered into between the plaintiff/cross-defendant and second defendant/second cross-claimant not rescinded therefore binding and can be specifically performed – alternative claims against defendants/cross-claimants for restitution of funds expended by plaintiff/cross-defendant and damages – cross-claims by defendants/cross-claimants seeking relief opposite to those claimed by plaintiff/cross-defendant.

Cases Cited:
Papua New Guinea Cases

AGC (Pacific) Ltd v Woo International Pty Ltd (1992) PNGLR 100
Mondo Merchants Pty Ltd v Melpa Properties and Koang No.47 Ltd (1999) N1863
Augwi Ltd v Xun Xin Xin (2014) SC1616
Dominic Tiri v Alison Eka (2017) SC1586

Overseas Cases

Price v Strange [1978]1 Ch 337

Treatises cited:

Chitty on Contracts, General Principles, Volume 1, Twenty Seventh Edition, London, Sweet & Maxwell
Beatson et al, Anson’s Law of Contract, 29^th Edition, Oxford University Press
I.C.F. Spry, The Principles of Equitable Remedies, Seventh Edition
Peter W. Young et al, On Equity, Lawbook Co. 2009
Stephen Graw, An Introduction to the Law of Contract, Seventh Edition, Lawbook Co., 2012

Counsel:

Soa Gor, for the Plaintiff/Cross-Defendant
Moses Phillip, for the First Defendant/First Cross-Claimant
Ian Molloy with Herman Leahy, for the Second Defendant/Second Cross-Claimant

JUDGMENT

21^st April, 2020

1. DAVID, J: INTRODUCTION: This is the Court’s decision on a contested trial on liability. The dispute is about the purported sale of what was initially an Urban Development Lease (UDL) issued over the land described as Allotment 3 Section 375 (Ensisi Valley) Hohola, National Capital District (the Land) by the second defendant/second cross-claimant, Niya Limited (Niya), whose Managing Director was the first defendant/first cross-claimant, Anton Pakena (Mr. Pakena), as vendor to the plaintiff/cross-defendant, Derwent Limited formerly known as Telemu No.9 Limited (Derwent) as purchaser pursuant to a contract for sale of land dated 28 August 2007 for a consideration of K1,950,000.00 (the Contract).
   
2. By writ of summons endorsed with a statement of claim filed on 11 October 2013 and which was subsequently amended by the amended statement of claim filed on 16 May 2017, Derwent seeks the following main relief:
   
   1. A declaration that the Contract entered into between the plaintiff and the second defendant on 28 August 2007 was not rescinded and specific performance of the Contract;
   2. Alternatively:
      • (a) Restitution of all funds in the sum of K602,972.27 with interest expended by Derwent against the first defendant, Mr. Anton Pakena (Mr. Pakena) and Niya jointly and severally; and
      • (b) General damages against Mr. Pakena and Niya jointly and severally.
        

3. Both Mr. Pakena and Niya filed separate cross-claims against Derwent.

4. Mr. Pakena filed his defence to the amended statement of claim and cross-claim on 5 June 2017.
   

5. Niya filed its amended defence to the amended statement of claim and cross-claim on 23 March 2018.

6. In the respective cross-claims filed by Mr. Pakena and Niya, they essentially claim:

1. A declaratory order that the Contract is illegal, null and void and therefore is unenforceable.
2. Alternatively, a declaration that the Contract was validly rescinded.
   

Niya also claims, in the alternative, a declaratory order that the Contract was terminated or expressly or impliedly abandoned by the parties.

7. Trial was conducted by affidavits. The parties’ affidavits were generally tendered and admitted into evidence without objection. No cross-examination was conducted.

EVIDENCE

8. Derwent relies on the following affidavits:

1. Affidavit of Dr. Michael Reynolds sworn on 17 September 2014 and filed on 18 September 2014 (Exhibit A);
2. Affidavit of Dr. Michael Reynolds sworn and filed on 17 October 2014 (Exhibit B);
3. Affidavit of Dr. Michael Reynolds sworn and filed on 17 October 2014 (Exhibit C);
4. Affidavit of Dr. Michael Reynolds sworn on 29 October 2014 and filed on 31 October 2014 (Exhibit D);
5. Affidavit of Dr. Michael Reynolds sworn on 21 January 2015 and filed on 23 January 2015 (Exhibit E);
6. Affidavit of Dr. Michael Reynolds sworn on 31 March 2015 and filed on 1 April 2015 (Exhibit F); and
7. Affidavit of Dr. Michael Reynolds sworn and filed on 6 June 2016 (Exhibit G).
   

9. Mr. Pakena relies on the following affidavits:

1. Affidavit of Anton Pakena sworn and filed on 13 August 2014 (Exhibit 1);
2. Affidavit of Andy Sim Boh sworn and filed on 17 October 2014 (Exhibit 2);
3. Affidavit in Reply of Anton Pakena sworn and filed on 27 March 2015 (Exhibit 3);
4. Affidavit of Anton Pakena sworn on 29 September 2016 and filed on 30 September 2016 (Exhibit 4); and
5. Affidavit of Anton Pakena sworn and filed on 9 July 2019 (Exhibit 5).

10. Niya relies on the following affidavits:

1. Affidavit in Reply of Andy Boh How Sim sworn on 10 March 2015 and filed on 11 March 2015 (Exhibit 1A);
2. Affidavit of Andy Boh How Sim sworn on 30 July 2016 and filed on 1 August 2016 (Exhibit 2B);
3. Affidavit of Angeline Sariman sworn on 17 August 2016 and filed on 19 August 2016 (Exhibit 3C);
4. Affidavit of Andy Boh How Sim sworn on 2 May 2017 and filed on 4 May 2017 (Exhibit 4D);
5. Affidavit of Philip Liskia sworn on 2 May 2017 and filed on 4 May 2017 (Exhibit 5E);
6. Affidavit of Dorothy Misitom sworn on 1 May 2017 and filed on 4 May 2017 (Exhibit 6F);
7. Affidavit of Anton Pakena sworn on 5 May 2017 and filed on 8 May 2017 (Exhibit 7G).
   

FACTS AGREED TO BY THE PARTIES

11. In the Statement of Agreed & Disputed Facts & Legal Issues filed on 5 July 2019 (Statement of Facts & Issues), the parties state that the following facts are not disputed:

1. Derwent formerly known as Telemu No.9 Limited was incorporated under the Companies Act 1997 on 28 June 2007.
2. Niya was incorporated under the Companies Act 1997 on 9 September 1992.
3. Mr. Pakena is an adult male and at all material times was the former Managing Director of Niya.
4. Niya was the registered proprietor of the UDL issued over the Land.
5. The UDL was granted to Niya on 24 January 2006 and was for a term of five years and expired on 23 January 2011.
6. In or about March 2007, the Department of Lands and Physical Planning (Lands Department) converted the UDL into a Residential (High Covenant) Lease (RHCL).
7. On 29 March 2007, the Lands Department tendered the RHCL in a closed tender published in Tender Notice No.019/2007. The tender was only open to Niya as it was a renewal of the previous UDL.
8. Niya lodged its application with the Lands Department for the grant of the RHCL.
9. In or about July 2007, the Lands Department issued the RHCL to Niya in accordance with the terms of the Tender Notice.
10. Under the Contract, Niya agreed to sell the Land to Derwent for a consideration of K1,950,000.00.
11. After receiving the RHCL in July 2007, Niya and Derwent agreed to and undertook a sub-division of the Land.
12. The sub-division was to create individual allotments to be registered as individual State Leases.
13. On or about 27 July 2010, Niya surrendered the RHCL in exchange for the newly registered State Leases.
14. (i) The deposit payable under the Contract was K195,000.00.

(ii) On signing the Contract, Derwent did not pay the cash deposit.

(iii) The Contract made no express provision for the payment of the deposit payable under the Contract by way of a bank guarantee.

(iv) A small part of the transcript of the conversation that took place on 5 August 2011 between Dr. Michael Rowland Reynolds (Dr. Reynolds) and Mr. Pakena was voluntarily disclosed to Mr. Pakena and Niya in the affidavit of Dr. Reynolds sworn and filed on 17 October 2014 (Doc.35).

(v) No audio or transcript of the conversation that took place between Dr. Reynolds and Mr. Pakena on 8 August 2011 has ever been provided to Niya or its lawyers and neither has any explanation been provided as to its absence or whereabouts.

(vi) On 9 August 2011, four days after the meeting between Mr. Pakena and Dr. Reynolds, Niya’s then lawyers, Stevens Lawyers wrote a letter of the same date to Derwent’s lawyer, Mr. Rio Fiocco.

(vii) Stevens Lawyers’ letter dated 9 August 2011 purportedly rescinded the Contract.

(viii) Stevens Lawyers’ letter dated 9 August 2011 included a Maybank bank cheque for the sum of K227,339.25 made payable to Tasman Building Company Limited (Tasman Building).

(ix) Tasman Building banked the money (K227,339.25).

(x) On 16 August 2011 and in response to Stevens Lawyers’ letter dated 9 August 2011, Derwent’s Lawyer, Mr. Rio Fiocco wrote two letters (both dated 16 August 2011) to Stevens Lawyers.

(xi) The letter from Mr. Rio Fiocco to Steven’s Lawyers (16 August 2011) that contained the privilege, “Without Prejudice” agreed with Steven’s Lawyers’ letter dated 9 August 2011 that the Contract was rescinded.

(xii) There is no express provision in the Land Act 1996 approving of the outright sale of an urban development lease.

15. On or about 9 August 2011, by a letter of its then lawyers, Stevens Lawyers dated the same date, Niya gave notice purporting to rescind the Contract and reimburse funds expended by Derwent and Tasman Building.
16. By a letter dated 17 June 2014, Niya’s lawyers wrote to Derwent’s lawyers, Manase and Company Lawyers and made an offer (Without Prejudice) to settle the National Court proceedings out of Court with a payment of Two Hundred and Eighty Six Thousand Two Hundred and Fifty Seven Kina and Twenty toea (K286,257.20).
17. Derwent refused the offer of settlement.
18. By a letter dated 18 May 2016, Niya’s lawyers wrote to Fiocco & Nutley Lawyers and made an offer (Without Prejudice) to settle the National Court proceedings out of Court. Niya’s offer contained three proposals for an out of Court settlement.
19. Derwent refused to settle on any of the alternative proposals for settlement put up by Niya.
    

FACTS AGREED TO BY DERWENT AND NIYA, BUT DISPUTED BY MR. PAKENA

12. The facts agreed to by Derwent and Niya, but disputed by Mr. Pakena are in the Statement of Facts & Issues and these are:

1. The subdivision of the Land, although not provided for in the Contract, was important to meet the terms of the Contract and Niya and Derwent cooperated to undertake the subdivision.
2. The subdivision of the Land was incidental to the Contract.
3. The initial survey plan for the subdivision of the Land showed that 65 allotments would be created. At the conclusion of the subdivision, about 85 allotments were created.
4. On or about 23 July 2010, the subdivision was completed and new State Leases for each of the allotments were approved and registered by the Lands Departments.
5. Derwent and Niya agreed that Derwent would pay all the necessary Lands Department fees including but not limited to land rentals to enable the issuing of the State Leases for the 65 State Leases.
6. At the time and by agreement with Derwent, Niya did not expend any funds at all for the subdivision of the Land. At the time, Niya did not show evidence of having a bank account.
7. It was agreed between Niya and Derwent that Derwent would pay for all the expenses and costs related to the subdivision and development of the Land into State Leases.
8. Tasman Building contracted with Bank South Pacific Limited for the issue to Niya of a bank guarantee dated 28 September 2007 (the Bank Guarantee) for the sum of K195,000.00.
9. The Bank Guarantee expired on 31 March 2008.
10. The Bank Guarantee was never renewed during the currency of the Contract or at any time after 31 March 2008.
11. On 5 August 2011, Derwent’s Dr. Reynolds met in person with Mr. Pakena at the offices of Tasman Building at Section 52 Allotment 55 Gordon’s, National Capital District.
12. At that meeting, Mr. Pakena did not notify Dr. Reynolds that he had already resigned as a director of Niya on 23 June 2011. Mr. Pakena also did not produce any evidence at all to Dr. Reynolds that he had the consent or authority of Niya to act on its behalf.
13. On 5 August 2011, the conversation that took place between Dr. Reynolds and Mr. Pakena was recorded on tape.
14. The recording of the conversation that took place on 5 August 2011 between Dr. Reynolds and Mr. Pakena was done without the knowledge and consent of Mr. Pakena.
15. The subject of the conversation that was recorded between Dr. Reynolds and Mr. Pakena was rescission of the Contract.
16. On 22 October 2014, the Court made an order in which Derwent was ordered to supply a full typed transcript of the conversation that took place between Dr. Reynolds and Mr. Pakena on 5 August 2011 and 8 August 2011.
17. An audio of transcript of 5 August 2011 conversation was sent to the lawyers for Niya for transcribing.
18. A transcribed transcript of the conversation that took place between Dr. Reynolds and Mr. Pakena appears is annexure “C” to Exhibit 7G: see also annexure “A” to Exhibit 6F.
19. The content of the transcribed conversation that took place between Dr. Reynolds and Mr. Pakena on 5 August 2011 is not disputed in any way whatsoever.
20. Both Dr. Reynolds and Mr. Pakena agree unreservedly that the transcript is a true and accurate recording of their conversation that took place on 5 August 2011.
21. In the conversation between Dr. Reynolds and Mr. Pakena held on 5 August 2011, Dr. Reynolds threatens Mr. Pakena by speaking to him in these terms (page 10 of the transcript at line 43) Reynolds: “I’m not gonna walk away from this that easy, alright? And I will make it so difficult for you that you won’t be able to sell that land for ten years mate.”
22. In the conversation between Dr. Reynolds and Mr. Pakena held on 5 August 2011, Dr. Reynolds swears and ridicules Mr. Pakena by calling him a “wanker” (page 16 of the transcript at line 50) Reynolds: “You’re a fucking wanker, you’re a wanker.”
23. In the conversation between Dr. Reynolds and Mr. Pakena held on 5 August 2011, Dr. Reynolds agreed with Mr. Pakena by stating that the cost of a mutual termination of the Contract would cost Mr. Pakena and Niya Four Hundred Thousand Kina (400,000.00) (page 17 of the transcript at line 20) Reynolds: “Well, I’ve already told you, it was Four Hundred grand, that’s it, that’s it now.”
24. Linked to that fact, but in the next part of the conversation between Dr. Reynolds and Mr. Pakena held on 5 August 2011, Mr. Pakena asks Dr. Reynolds for a break up (of the amount of K400,000.00) and Dr. Reynolds agrees (page 17 of the transcript at lines 20-30) Reynolds: Yeah right-o, I’ll do that.”
25. Of the two letters that Mr. Rio Fiocco wrote to Stevens Lawyers, both were dated and delivered the same day (16 August 2011). One of the letters was marked “Without Prejudice” while the other letter did not contain the privilege.
26. In 2007 and before the parties signed the Contract, 65 blank instruments of transfer were signed by Mr. Pakena.
27. Section 129 of the Land Act makes it an offence to enter into a contract or agreement to dispose of land the subject of a State Lease unless the improvement and other covenants and conditions in the State Lease have been fulfilled.
28. The improvements and other covenants and conditions in the UDL were not fulfilled when Niya and Derwent entered into the Contract.
29. In August 2007 and before the parties signed the Contract, 65 blank instruments of transfer (in respect of the subdivision) were signed by Mr. Pakena.
30. On or about 1 August 2012, Derwent tendered the Contract and the signed blank instruments of transfer (in respect of the subdivision) with the Lands Department for Ministerial approval under Section 128 of the Land Act.
31. Derwent’s tendering of the Contract for Ministerial approval on 1 August 2012 was done without the knowledge, approval and authority of Niya.
32. On 9 August 2012, the Contract received Ministerial approval under Section 128 of the Land Act.
33. When the Contract and instruments of transfer (in respect of the subdivision) received Ministerial approval under Section 128 of the Land Act on 9 August 2012, Mr. Pakena was no longer a director and shareholder of Niya.
34. A Maybank cheque in the sum of K227,339.25 enclosed and sent with a letter made payable to Tasman Building was neither drawn by Mr Pakena nor Niya, but by Investco Enterprises Limited.
35. Wangelo 1 Limited is a company.
36. Wangelo 1 Limited was incorporated in PNG on 16 January 2017.
37. The directors of Wangelo 1 Limited are Mr. Pakena and Londari Luke Pakena.
38. The issued share capital in Wangelo 1 Limited is 100 shares.
39. The shareholders of Wangelo 1 Limited are Mr. Pakena who holds 60 shares and Londari Luke Pakena who holds 40 shares.
40. By District Court proceedings (DC No.852 of 2017), Wangelo 1 Limited sued Tay Kian Chuan (the District Court proceedings).
41. Tay Kian Chuan is a director and shareholder of Niya.
42. Tay Kian Chuan holds 45 shares in the share capital (100 shares) of Niya.
43. In the District Court proceedings, Wangelo 1 Limited claimed that Tay Kian Chuan was illegally occupying the property originally known as Allotment 51 Section 375 Hohola, National Capital District.
44. The properties that Wangelo 1 Limited claimed were being illegally occupied by Tay Kian Chuan were as follows:
    
    • (i) Section 540 - Allotments 1 to 21 inclusive; and
    • (ii) Section 542 - Allotments 1 to 19 inclusive; and
    • (iii) Section 543 - Allotments 1 to 7 inclusive; and
    • (iv) Section 544 – Allotments 11 to 23 inclusive; and
    • (v) Section 375 Allotments 51 to 65 inclusive (the Properties).
45. On 7 March 2018, Wangelo 1 Limited obtained an order in the District Court proceedings to evict the tenants, they claimed were in illegal occupation of the Properties.
46. On 22 June 2018, Tay Kian Chuan obtained a stay of the District Court proceedings.
47. On 27 June 2018, Niya’s lawyers wrote a letter to the Assistant Commissioner of Police, Mr. Daniel Yamasombi and requested the police to help with the removal of Wangelo 1 Limited’s illegal occupation of the Properties.
48. Wangelo 1 Limited remains in adverse occupation of the Properties.
49. Wangelo 1 Limited is in possession of the original titles to State Leases Volume 40 Folios 228 to 241 for Allotments 51 to 65 inclusive Section 375 (Ensisi Valley) Hohola, National Capital District.
50. On 2 July 2018, Wangelo 1 Limited was served with a summons for the delivering up of the original certificates of title to State Leases Volume 40 Folios 228 to 241 for Allotments 51 to 65 inclusive Section 375 (Ensisi Valley) Hohola, national Capital District.
51. The summons to Wangelo 1 Limited came from the Office of the Registrar of Titles and called on Wangelo 1 Limited to show cause why the certificates of title and the entries that were made in respect of each of the State Leases to Volumes 40 Folios 228 to 241 for Allotments 51 to 65 inclusive Section 375 (Ensisi Valley) Hohola, National Capital District should not be cancelled.
52. On 9 July 2018, Wangelo 1 Limited and Mr. Pakena made a written response to the summons that was received from the Office of the Registrar of Titles.
53. On 18 July 2018, Niya received a letter dated the same date from the Office of the Registrar of Titles in which it was informed that the titles and entries on those titles held by Wangelo 1 Limited would not be cancelled by the Office of Registrar of Titles mainly because the certificates of title in the possession of Niya were scanned copies.
54. Wangelo 1 Limited and Mr. Pakena hold all the original title documents to State Leases Volume 40 Folios 228 to 241 for Allotments 51 to 65 inclusive Section 375 (Ensisi Valley) Hohola, National Capital District.
55. Mr. Pakena committed a fraud on Niya by pretending to handover the original titles to the Properties owned by Niya (State Leases 40 Folios 228 to 241 for Allotments 51 to 65 inclusive Section 375 (Ensisi Valley) Hohola, National Capital District) to the new directors and shareholders of Niya when in reality, those titles were fake scanned copies of the original titles that Mr. Pakena passed off as originals thus defrauding Niya. On 6 August 2018, Niya’s lawyers, Pacific Legal Group Lawyers wrote a letter to Derwent’s lawyers, Fiocco & Nutley Lawyers and wholly informed them of the facts surrounding Mr. Pakena’s fraud on Niya.
    

FACTS DISPUTED BY THE PARTIES

13. All other facts are disputed.

LEGAL ISSUES

14. The main legal issues for trial identified by the parties in the Statement of Facts and Issues are:

1. Whether or not the UDL can be sold by Niya?
2. Whether the Contract is void?
3. Whether or not Niya breached the terms of the Contract?
4. If the answer to the above is in the affirmative, whether or not Derwent is entitled to damages?
5. Whether or not the Contract was rescinded by Niya and Derwent?
6. If the answer to the above is in the affirmative, whether or not Mr. Pakena had lawful authority to rescind the Contract on behalf of Niya?
7. If the answer to the above is in the affirmative, whether or not Derwent is entitled to damages?
8. Whether on the balance of probabilities, the intention of the parties as evidenced by their meeting on 5 August 2011 followed by the exchange of letters between their respective lawyers on 9 August 2011 and 16 August 2011, is sufficient to draw the conclusion that the parties intended to and did in fact rescind the Contract?
   

15. These main legal issues can be summarised or crystalized into four main legal issues and these are:

1. Whether or not the Contract was illegal and therefore null and void?
2. If the answer to the first issue is in the negative, whether or not the Contract was rescinded?
3. If the answer to the second issue is in the negative, whether or not Niya breached the Contract?
4. If the answer to the third issue is in the affirmative, whether or not Derwent is entitled to any relief claimed including specific performance, restitution and reimbursement of funds expended pursuant to the Contract, and general damages?
   

ANALYSIS OF ISSUES AND EVIDENCE

ILLEGALITY
Derwent’s submissions

16. Mr. Gor for the plaintiff contended that the Contract is not illegal, but lawful and valid as:

1. Disposition of an urban development lease is permitted by Section 128(1) of the Land Act 1996;
2. While the Minister has powers under Section 129 of the Land Act 1996 to withhold approval in certain cases under Section 128 for any reason specified under Section 129(1), the Contract was approved by the Minister pursuant to Section 128(2) of the Land Act 1996;
3. The Minister’s decision to approve the Contract has not been challenged; and
4. The conduct of Mr. Pakena and Niya, for all intents and purposes, demonstrated that the Contract was valid and this was evident when notice was given to purportedly rescind the Contract.
5. Dr. Reynolds had the full authority and permission of Derwent to execute the Contract on behalf of Derwent if not as a director or Managing Director as Manager of Derwent.
6. The issue as to whether Dr. Reynold had authority or not to sign the Contract on behalf of Derwent was an internal matter not raised by Derwent itself.
   

Mr. Pakena’s submissions

17. Mr. Phillip for Mr. Pakena argued that as the Contract was approved by the Minister under Section 28 of the Land Act 1996 notwithstanding the powers he had to refuse approval under Section 129, the Contract could be considered as valid.

18. He however submitted that the Contract was null and void as:

1. the directors who negotiated and executed the Contract on 28 August 2007 did not have authority to do so because they were appointed as directors and became shareholders on 25 September 2007 about a month after the execution of the Contract;
2. Even if the directors of Niya had authority, the sale of the Land was a major transaction which required the approval of Niya by a special resolution under Section 110(1) of the Companies Act 1997 so in the absence of evidence demonstrating that such a special resolution was passed, the Contract was void ab initio.
   

Niya’s submissions

19. The question of illegality of the Contract or that the Contract was void ab initio were not pressed by Niya.

Reasons for decision

20. At common law, six types of contract are deemed to be illegal on grounds of public policy and are unenforceable. These are; contracts to commit crimes, torts or fraud; contracts promoting sexual immorality; contracts promoting corruption in public life; contracts prejudicial to the administration of justice; contracts prejudicial to the public safety; and contracts to defraud the revenue: Stephen Graw, An Introduction to the Law of Contract, Seventh Edition, Lawbook Co., 2012 at 437 to 441.
    
21. A contract entered into in light of statutory prohibition, whether expressly or impliedly prohibited, is illegal: Stephen Graw, An Introduction to the Law of Contract, Seventh Edition, Lawbook Co., 2012 at 442; Chitty on Contracts, General Principles, Volume 1, Twenty Seventh Edition, London, Sweet & Maxwell p.853 para 16-122. Illegal contracts will be totally void and the parties cannot sue on them. The maxim, ex turpi causa non oritur actio (an action does not arise from a base cause) will apply.
    
22. However, a contract may, by statute, be void without being illegal, the only penalty being that a contract made in contravention of the statute is entirely ineffective to create rights: Chitty on Contracts, General Principles, Volume 1, Twenty Seventh Edition, London, Sweet & Maxwell p.854 para 16-124.
    
23. In order to ensure that adequate notice is given to the opposing party of what is alleged against him and to prevent him from being taken by surprise, Order 8 Rule 14 of the National Court Rules requires that certain matters, if they are to be relied on at the trial such as fraud or any fact showing illegality, must be pleaded specifically. That rule states:
    

14. Matters for specific pleading. (15/13)

In a defence or subsequent pleading the party pleading shall plead specifically any matter, for example, performance, release, any statute of limitation, fraud, or any fact showing illegality —

(a) which he alleges makes any claim, defence or other case of the opposite party not maintainable; or

(b) which, if not pleaded specifically, may take the opposite party by surprise; or

(c) which raises matters of fact not arising out of the preceding pleadings.

24. In the defence and amended defence filed by Mr Pakena and Niya respectively, they do not plead specifically illegality. So the argument on illegality is without any foundation.
    

25. The argument on requiring a special resolution under Section 110(1) of the Companies Act 1997 is also rejected for the same reason.

26. In any event, the Contract does not fall under any of the types of contract that are deemed illegal under the common law.

27. Is the Contract illegal under the Land Act 1996?

28. Section 128(2) of the Land Act 1996 states that a controlled dealing is void and of no effect unless it has been approved by the Minister.

29. The term “controlled dealing” is defined under Section 128(1) and it means:

[A] disposition of or a contract or agreement to dispose of a leasehold estate but does not include a transmission or a permitted dealing.

30. The term “leasehold estate” is defined under Section 128(1) and it means:

(a) an urban development lease; or

(b) a lease or sublease the term or remaining term of which exceeds 5 years; or

(c) a lease or sublease for a term of 5 years or less which contains an option to renew for a further term which, together with the original term would exceed 5 years;

31. It is abundantly clear that the disposition of an urban development lease by way of a contract or agreement is permitted by Section 128(1) of the Land Act 1996. There is no doubt in my mind that the Contract was a controlled dealing that required ministerial approval under Section 128(2).

32. In fact, by Clause 19 (Statutory Approval) of the Contract, the Contract was expressed to be subject to approval of the Minister under Section 128 of the Land Act 1996.

33. On 9 August 2012, the Contract received Ministerial approval under Section 128 of the Land Act 1996.

34. A reading of Sections 128 and 129 together shows that the Minister’s power is discretionary.

35. Section 129 states:

129. Withholding of approval in certain cases.

(1) Without otherwise limiting in any way the discretion of the Minister, the approval of the Minister under Section 128 shall be withheld in the case of land the subject of a State lease unless—

(a) the rent has been paid to date and the improvement conditions (if any) specified in the lease have been performed; or

(b) special grounds of an urgent or exceptional character are shown to the satisfaction of the Minister by the respective applicants concerned in the transaction.

(2) Unless the Minister has given his prior approval under Subsection (1)(b), a lessee shall not dispose of or enter into a contract or agreement to dispose of land the subject of a State lease unless the improvement and other covenants and conditions in the State lease have been fulfilled.

Penalty: A fine not exceeding K10,000.00.

(3) Unless the Minister has given his prior approval under Subsection (1)(b), the owner of shares in a company, a major asset of which is an urban development lease, shall not dispose of or enter into a contract or agreement to dispose of or otherwise deal with those shares unless the improvement and other covenants and conditions in the lease have been fulfilled.

Penalty: A fine not exceeding K50,000.00.

(4) A disposition or contract or agreement to dispose of or otherwise deal with shares, contrary to the requirements of Subsection (3), is void and of no effect.

(5) For the purposes of Subsection (3), a disposition does not include a transmission.

36. It is abundantly clear that it is an offence under Section 129(2) of the Land Act 1996 to enter into a contract or agreement to dispose of land the subject of a State Lease unless the improvement and other covenants and conditions in the State Lease have been fulfilled. However, it is my respectful view that Section 129(2) will not be deemed to be contravened where the Minister has given his prior approval under Section 129(1)(b) and subsequent approval is given under Section 128.

37. The improvement covenant and other covenants and conditions in the UDL were not fulfilled when Niya and Derwent entered into the Contract.
    
38. By a letter addressed to the Secretary of the Lands Department dated 9 November 2011, the stamped Contract and sixty-five Instruments of Transfer were lodged at the Department of Lands by Derwent’s lawyer, Mr. Rio Fiocco for approval under Section 128 of the Land Act 1996. A copy of the letter is part of annexure G to Exhibit A. In that letter, the Secretary was informed that the Land had been sub-divided into allotments represented by the sixty-five Instruments of Transfer lodged.
    
39. On 9 August 2012, the Contract received Ministerial approval under Section 128 of the Land Act 1996. By the grant of Ministerial approval, it would be assumed that there were special grounds of an urgent or exceptional character which were shown to the satisfaction of the Minister for him not to withhold approval under Section 129, but grant approval under Section 128. The grant of Ministerial approval to my mind regularised and validated the Contract to dispose of the Land to Derwent. In addition, as the Contract was expressed to be subject to approval of the Minister under Section 128 of the Land Act 1996, it was valid.
    
40. Mr Pakena states that the Contract and Instruments of Transfer were stamped and lodged for approval under Section 128 without his consent, but there is no evidence to show that the Minister’s decision to approve those documents under Section 128 was challenged, so it stands.
    
41. The arguments on the UDL may be irrelevant because it was converted to a RHCL in 2007. It is an undisputed fact that in or about March 2007, the Lands Department converted the UDL into a RHCL and in or about July 2007, the Lands Department issued the RHCL to Niya. Nonetheless, the application of Section 128 and 129 would be the same irrespective of whether the Contract was for the disposition of the Land under the UDL or RHCL.
    
42. Mr. Pakena raises at paragraphs 5 and 6 of his defence that, at the time of executing the Contract and ventilated at the trial in his submissions, those who executed the Contract on behalf of Derwent were not directors or shareholders. Hence, the argument that the Contract was null and void ab initio as it was executed by persons who had no authority to do so.
    

43. A company is a legal entity in its own right separate from its shareholders and continues in existence until removed from the Register of Companies by the Registrar of Companies: Section 16, Companies Act 1997. A company can only act through natural persons or human beings: AGC (Pacific) Ltd v Woo International Pty Ltd (1992) PNGLR 100.

44. It is an undisputed fact that Derwent formerly known as Telemu No.9 Limited was incorporated under the Companies Act 1997 on 28 June 2007. On 25 September 2007, Telemu No.9 Limited changed its name to Derwent Limited: annexure B, Exhibit A. It is also an undisputed fact that the Contract was executed on 28 August 2007. Evidence before the Court shows that Dr. Reynolds and his brother Christopher Reynolds were appointed as directors and became shareholders on 25 September 2007. A stamped and approved copy of the Contract is annexure D to Exhibit A. The execution clause shows that the Contract was executed by Christopher Reynolds (and not Dr. Reynolds) on behalf of Derwent witnessed by a person called Jacklyn Lition. Christopher Reynold’s name and Jacklyn Lition’s name are both handwritten in capital letters.

45. The Contract was executed by Christopher Reynolds before his appointment as a director of Derwent.

46. There is no evidence to show that Mr. Christopher Reynolds lacked express or implied actual or ostensible authority to execute the Contract for and on behalf of Derwent. The same would have applied if Dr. Reynolds executed the Contract on behalf of Derwent.

47. Section 155 of the Companies Act 1997 allows a person to enter into a contract on behalf of a company under the company’s express or implied authority. It demonstrates that a person need not be a director or shareholder to bind a company. Section 155 states:

155. Method of contracting.

(1) A contract or other enforceable obligation may be entered into by a company as follows—

(a) an obligation which, if entered into by a natural person, would, by law, be required to be by deed, may be entered into on behalf of the company in writing signed under the common seal of the company; or

(b) an obligation which, if entered into by a natural person, is, by law, required to be in writing, may be entered into on behalf of the company in writing by a person acting under the company's express or implied authority; or

(c) an obligation which, if entered into by a natural person, is not, by law, required to be in writing, may be entered into on behalf of the company in writing or orally by a person acting under the company's express or implied authority.
(2) Subsection (1) applies to a contract or other obligation—

(a) whether or not that contract or obligation was entered into in the country; and

(b) whether or not the law governing the contract or obligation is the law of Papua New Guinea.

(3) A company may, if its constitution so authorises, have for use in any place outside the country an official seal, which shall be a facsimile of the common seal of the company with the addition on its face of the name of every place where it is to be used, and the person affixing any such official seal shall certify on the instrument to which it is affixed the date on which and the place at which it is affixed.

48. When entering into the Contract, Niya did not question the authority of those signing on behalf of Derwent. The issue as to whether Mr. Christopher Reynolds had authority or not to sign the Contract on behalf of Derwent was an internal matter not raised by Derwent itself. It is a general rule that the onus is on the party who alleges and not on the party who denies it. That onus has not been discharged by Mr. Pakena nor Niya on the balance of probabilities in my view. I will therefore reject the argument that Mr. Christopher Reynolds who signed the Contract on behalf of Niya had no authority to execute the Contract.

49. The argument on requiring a special resolution under Section 110(1) of the Companies Act 1997 is also rejected for the same reason. It was an internal matter for Derwent.

50. I concur with Mr. Gor’s contention that the conduct of Mr. Pakena and Niya for all intents and purposes demonstrated that the Contract was valid and this was evident when a notice was given purporting to rescind the Contract. In the absence of any evidence to the contrary, I find that Mr. Christopher Reynolds had full authority to execute the Contract on behalf of Derwent if not as a director of officer of Derwent at the material time then as an agent or a person authorised by Derwent to sign the Contract.

51. For these reasons, I find that the Contract is neither illegal nor null or void ab initio. The Contract is valid.

RESCISSION
Derwent’s submissions

52. Mr. Gor contends that Derwent never agreed to rescind the Contract on 5 August 2011 as suggested by Mr. Pakena and Niya as Mr Pakena had no authority to represent Niya and to make representations to Derwent that Niya wished to rescind the Contract. The reasons advanced are:

1. On 23 June 2011, about six weeks before 5 August 2011, under a Contract of Sale and Purchase of Shares, Mr. Pakena sold all his shares in Niya to one Mr. Tay Kian Chuan and he resigned as a director of Niya.
2. On 5 August 2011, Mr. Pakena did not disclose to Dr. Reynolds that; he sold his shares in Niya to another person; he resigned as a director of Niya; and he had authority to represent Niya and bind Niya to any agreement reached at the meeting.
3. Any subsequent representations by Mr Pakena and or Niya that Mr. Pakena had authority were afterthoughts and should be rejected.
   

Mr. Pakena’s submissions

53. It was submitted by Mr. Phillip for Mr. Pakena that if the Court found that the Contract was valid, it was rescinded pursuant to Clause 18 of the Contract after a heated negotiation between the parties as evidenced by the secret recording which resulted in the parties agreeing to settle at K400,000.00. Counsel stated that Dr. Reynolds provided an invoice for K227,239.25 made up to costs incurred up to 2009 and it was up to Derwent to produce evidence of other expenses incurred in connection with the Contract.

Niya’s submissions

54. Mr. Molloy of counsel for Niya contended that the Contract was rescinded by oral agreement made between Dr. Reynolds on behalf of Derwent and Mr. Pakena on behalf of Niya on 5 August 2011. Counsel said the conversation was recorded by Dr. Reynold without Mr. Pakena’s knowledge and consent and was subsequently transcribed on behalf of Niya. Counsel argued that the transcript plainly records an agreement between Dr. Reynolds on behalf of Derwent and Mr. Pakena on behalf of Niya to rescind the Contract on terms that Niya as vendor would pay to Derwent as purchaser the amount it had expended said by Dr. Reynolds to be K400,000.00. Dr. Reynolds was the Managing Director of Derwent and obviously had authority to bind the company. It was submitted that the Court was concerned with the objective intention of the parties (not their subjective or hidden intentions or beliefs).

Reasons for decision

55. 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.

56. 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 as 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."
    
56. I adopt these observations as a correct statement of the law of rescission of contracts in Papua New Guinea and apply them here.
    
57. In the Contract, Niya and Derwent mutually agreed to rescind the Contract on the occurrence of certain events specified in the Contract. Clause 18 of the Contract specifically deals with rescission. It states:
    

If this Agreement is rescinded (as distinct from terminated) under any express right to rescind (as distinct from a right to terminate) conferred by this Agreement the rescission shall be taken to be a rescission ab initio, and:

(i) the Deposit and all other money paid by the Purchaser shall be refunded to him;

(j) neither party shall be liable to pay the other any sum for damages, costs or expenses (other than for any antecedent breach of this Agreement);

(k) if the Purchaser has been permitted into occupation of the Property the Purchaser shall immediately give up possession of the Property to the Vendor; and

(l) 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 Vendor 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 Vendor 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 Vendor from the Deposit and other moneys before returning those moneys to the Purchaser.

58. Under Clause 27 of the Contract, the Contract was subject to the Special Conditions contained in Part 10 of the Schedule to the Contract.
    
59. Special Condition No.1 was that completion of the Contract would take place upon the issue of a Residential (High Covenant) lease over the Land in accordance with the terms set out in Tender Notice No.019/2007 as published in National Gazette No.48 dated 28 March 2007.
    
60. Special Condition No.2 was that the Contract was subject to finance. That Special Condition states:
    
    • (i) This Agreement and the obligations of the parties hereto (apart from this special condition) are subject to and conditional upon the Purchaser obtaining approval to borrow sufficient funds from a financial institution licensed under the Banks and Financial Institutions Act to lend money in Papua New Guinea to enable the Purchaser to complete this Agreement.
    • (ii) If the conditions set out in sub-clause 2(i) above shall not be fulfilled or waived by the Purchaser giving notice to the Vendor within thirty (30) days from the date of this Agreement (or such other date as the parties may agree in writing), then either party shall be entitled at any time thereafter by notice in writing to the other to rescind this Agreement whereupon the provisions of Clause 18 shall apply.
    • (iii) The Purchaser shall use its best endeavours to satisfy the conditions referred to in sub-clause 2 (i) and shall keep the Vendor regularly informed of its efforts to obtain the funds required to complete the Agreement.
      
61. Clause 19 (Statutory Approval) of the Contract also states that if Ministerial approval under Section 128 were not obtained within three months from the date of the Contract, either party was entitled to rescind the Contract by notice in writing to the other party after which the provisions of Clause 18 would apply.
    

63. According to Clause 5 (Completion) of the Contract, completion was subject to the Special Conditions. In addition, under Clause 5(a), completion of the Contract was to take place on a date agreed to by the parties’ lawyers within 14 days of Niya’s lawyers notifying Derwent’s lawyers about the grant of Ministerial approval of the Contract under Section 128 of the Land Act 1996.

64. It is an undisputed fact that under the Contract, Niya agreed to sell the Land to Derwent for a consideration of K1,950,000.00. Clause 2 (Sale and Purchase) of the Contract is as clear as crystal. The Land is ‘ALL THAT piece of parcel of land described in Part 3 of the Schedule together with improvements erected on it.’ The Land referred to in Part 3 of the Schedule is ‘Allotment 3 Section 375 Hohola being the whole of the land contained in State Lease Volume 31 Folio 121.

65. Evidence before the Court and agreed to by Derwent and Niya, but disputed by Mr. Pakena is that the issue of rescission was first raised in a meeting held between Dr. Reynolds and Mr. Pakena on 5 August 2011. The facts are repeated below.

1. On 5 August 2011, the conversation that took place between Dr. Reynolds and Mr. Pakena was recorded on tape.
2. The recording of the conversation that took place on 5 August 2011 between Dr. Reynolds and Mr. Pakena was done without the knowledge and consent of Mr. Pakena.
3. The subject of the conversation that was recorded between Dr. Reynolds and Mr. Pakena was rescission of the Contract.
4. On 22 October 2014, the Court made an order in which Derwent was ordered to supply a full typed transcript of the conversation that took place between Dr. Reynolds and Mr. Pakena on 5 August 2011 and 8 August 2011.
5. An audio of transcript of 5 August 2011 conversation was sent to the lawyers for Niya for transcribing.
6. A transcribed transcript of the conversation that took place between Dr. Reynolds and Mr. Pakena appears in the affidavit of Mr. Paken sworn on 5 May 2017 and filed on 8 May 2017 (annexure “C”) [document number 89 on the Court file].
7. The content of the transcribed conversation that took place between Dr. Reynolds and Mr. Pakena on 5 August 2011 is not disputed in any way whatsoever.
8. Both Dr. Reynolds and Mr. Pakena agree unreservedly that the transcript (annexure “C” to the affidavit of Mr. Pakena sworn on 5 May 2017 and filed on 8 May 2017) is a true and accurate recording of their conversation that took place on 5 August 2011.
9. In the conversation between Dr. Reynolds and Mr. Pakena held on 5 August 2011, Dr. Reynolds threatens Mr. Pakena by speaking to him in these terms (page 10 of the transcript at line 43) Reynolds: “I’m not gonna walk away from this that easy, alright? And I will make it so difficult for you that you won’t be able to sell that land for ten years mate.”
10. In the conversation between Dr. Reynolds and Mr. Pakena held on 5 August 2011, Dr. Reynolds swears and ridicules Mr. Pakena by calling him a “wanker” (page 16 of the transcript at line 50) Reynolds: “You’re a fucking wanker, you’re a wanker.”
11. In the conversation between Dr. Reynolds and Mr. Pakena held on 5 August 2011, Dr. Reynolds agreed with Mr. Pakena by stating that the cost of a mutual termination of the Contract would cost Mr. Pakena and Niya Four Hundred Thousand Kina (400,000.00) (page 17 of the transcript at line 20) Reynolds: “Well, I’ve already told you, it was Four Hundred grand, that’s it, that’s it now.”
12. Linked to that fact (xx), but in the next part of the conversation between Dr. Reynolds and Mr. Pakena held on 5 August 2011, Mr. Pakena asks Dr. Reynolds for a break up (of the amount of K400,000.00) and Dr. Reynolds agrees (page 17 of the transcript at lines 20-30) Reynolds: Yeah right-o, I’ll do that.”
    

66. The heated conversation with a stream of expletives flowing from Dr. Reynolds and resulting in a purported agreement to rescind the Contract cannot be said to be mutual.

67. The issue of rescission of the contract was raised by Mr. Pakena because of the lengthy delay in the completion of the Contract: see transcript of 5 August 2011, Exhibit 1 paragraph 4, Exhibit A paragraphs 7 and 8.

68. It is an undisputed fact that on or about 9 August 2011, four days after the meeting between Mr. Pakena and Dr. Reynolds, Niya’s then lawyers, Stevens Lawyers wrote a letter to Rio Fiocco, Lawyer giving notice purporting to rescind the Contract: annexure B of Exhibit 5E. It is an undisputed fact that a Maybank cheque for the sum of K227,339.25 made payable to Tasman Building was forwarded with Stevens’ letter. The cheque was bank cheque number 027915 dated 4 August 2011: annexure B to Exhibit 5E. It is also an undisputed fact that Tasman Building banked the cheque.

69. From the evidence available before the Court, it would appear that Tasman Building was an associated company of Derwent. It was incorporated under the Companies Act 1997 on 8 January 2001. A copy of the Certificate of Incorporation is annexure C to Exhibit A.

70. There is evidence demonstrating that two letters were written by Mr. Rio Fiocco to Stevens Lawyers, both dated 16 August 2011 and delivered the same day on 16 August 2011, in response to the purported notice of rescission conveyed to Mr. Rio Fiocco in Stevens’ letter of 9 August 2011. One of the letters was marked “Without Prejudice” while the other letter did not contain the privilege. A copy of the letter without privilege is annexure B to Exhibit 5E. In that letter, Mr. Fiocco advised that his client’s instruction was that it did not agree to rescind the Contract. He also advised that the bank cheque delivered with Stevens’ letter was for payment of their client, Tasman Building’s Invoice No.40099 given to Niya, a copy of which he furnished. A copy of Tasman Building’s Invoice No.40099 dated 13 October 2009 is part of annexure C to Exhibit 5E.

71. Dr. Reynolds emailed his lawyer, Rio Fiocco on 12 August 2011 advising that Derwent did not agree to rescind the Contract. A copy of the email is annexure C to Exhibit C.

72. The items claimed in Invoice No.40099 appear to be for reimbursement of funds expended by Tasman Building on behalf of Derwent in connection with the purchase of the Land from Niya. The first item entered on the invoice is dated 31 January 2008 and it relates to part deposit paid by bank cheque of K50,000.00 which replaced the Bank Guarantee. Other things claimed in the invoice, among others, include payments to; Lands Department for rental arrears (K89,500.00); Nagamani Surveyor’s fees (15,000.00) and Arman Larmer Surveyor’s fees (K20,000.00), materials for a kai shop/shed on site (K27,872.10); materials for the fence on site (K5,234.00) and a number of payments made to Niya by cheque and cash.

73. While the Contract could have been rescinded by written or oral agreement, I reject the submissions by Mr. Pakena and Niya that the Contract was rescinded by oral agreement between Dr. Reynolds and Mr. Pakena after a heated negotiation on 5 August 2011 which was evidenced by the secret recording of their conversation and later transcribed. A copy of the transcript is annexure A to Exhibit 6F. My reasons for arriving at that conclusion are these.

74. On 23 June 2011 about 6 weeks prior to 5 August 2011, Mr. Pakena sold all his shares in Niya to a person called Tay Kian Chuan pursuant to a Contract for Sale & Purchase of Shares dated 23 June 2011 for a consideration of K1,550,000.00 (Contract & Purchase of Sale of Shares). A copy of the Contract & Purchase of Sale of Shares and copies of two relevant Instruments of Transfer of Shares both dated 23 June 2011 are annexure I to Exhibit B. Mr. Pakena resigned as a director of Niya on 23 June 2011. A copy of the notice of resignation dated 23 June 2011 is annexure J to Exhibit B. Tay Kian Chuan was appointed a director on 23 June 2011. Two new directors were appointed on 16 August 2011 and they are Eii Sing Hii and Gerald Khee Hock Seah. A copy of Form 16, Notice of Change of Directors and Particulars of Director dated 16 August 2011 and lodged with the Office of the Registrar of Companies on 13 September 2011 is annexure A to Exhibit C. Two other directors of Niya were appointed on 1 January 2013 and they are Stephen King Yie Hii and Bob How Sim: see copy of Company Extract of Niya issued on 1 May 2017, annexure A to Exhibit 4D. The shareholders of Niya as at 12 October 2011 were Tay Kian Chuan (45 shares), Gerald Khee Hock Seah (10 shares) and Investco Enterprises Limited (45 shares): see copy of Company Extract of Niya issued on 1 May 2017, annexure A to Exhibit 4D.

75. It was a condition of the Contract & Purchase of Sale of Shares specified at Clause 2(c) for Tay Kian Chuan and Niya to transfer to Mr. Pakena titles to six completed two storey executive houses to be built on the Land as per the design attached to the Contract & Purchase of Sale of Shares within 18 months from the date of the Contract & Purchase of Sale of Shares.

76. There is no evidence to show that at the meeting with Dr. Reynolds on 5 August 2011, Mr. Pakena specifically informed Dr. Reynolds that Niya’s structure had changed materially in that; he sold all his shares in Niya to another person with a condition that would possibly affect the completion of the Contract in a material way; and that he had resigned as a director of Niya and a new director appointed.

77. It is a reasonable assumption to draw that, it was on that basis, and the position taken by Derwent that the purported rescission was unlawful, and that Niya was dragging its feet and withholding lodgement of the Contract and Instruments of Transfer for stamping and approval under Section 128, that Derwent took upon itself to firstly attend to stamping of the Contract and Instruments of Transfer at the Stamp Duties Office, Internal Revenue Commission and secondly lodgement of the documents at the Lands Department for approval under Section 128: see copies of correspondence from Derwent and its lawyers to Niya and its lawyers - annexures A to D to Exhibit F. It must be noted that under Clause 19 of the Contract, Niya was responsible for applying for approval and pursuing the approval while Derwent was to assist with the process by paying fees and doing other things to ensure success of the application.

78. Since Mr. Pakena’s disassociation from Niya as a shareholder and director on 23 June 2011, there is no credible evidence to show that at the time of his meeting with Dr. Reynolds on 5 August 2011, he had authority to make representations on behalf of Niya. I concur with Mr. Gor’s submission that any subsequent representations by Mr Pakena and or Niya that Mr. Pakena had authority were afterthoughts and should be rejected. This is because both of them were parties to the Contract & Purchase of Sale of Shares which occurred after the formation of the Contract and had a vested interest to discharge the Contract by rescission or otherwise: see Exhibit 1A paragraph 3(2).

79. When the Contract and Instruments of Transfer received Ministerial approval under Section 128 of the Land Act on 9 August 2012, Mr. Pakena was no longer a director and shareholder of Niya.

80. The conduct of Mr. Pakena and Niya with regard to the performance of their respective obligations under the Contract including the subdivision of the land contributed to the delay in the completion of the Contract: see Exhibit G. Under the Contract, it was Niya’s responsibility to pay all governmental rental, rates, taxes and outgoings in respect of the Land which were to be apportioned upon completion. Derwent paid the government rental for approval under Section 128 to be processed. Derwent and Niya agree that; although subdivision of the land was not provided for in the Contract, it was important to meet the terms of the Contract and they cooperated to undertake the subdivision; and that the subdivision of the Land was incidental to the Contract. I find that as a fact. Hence, I am of the view that delay could not be used as a basis for the purported rescission in the circumstances.

81. Given these, I find that the Contract was not validly rescinded. The Contract was valid and binding.

BREACH OF CONTRACT
Derwent’s submissions

82. Mr. Gor contended that evidence shows that Niya through Mr. Pakena breached various terms and conditions of the Contract as pleaded in the amended statement of claim and they include:

1. Despite Derwent complying with Clause 7 of the Contract as to preparation of 65 Instruments of Transfer at its expense, Derwent failed to lodge the Contract and the Instruments of Transfer for stamping with the Stamp Duties Office, Internal Revenue Commission despite several requests by Derwent to Niya to have them lodged contrary to Clause 7 of the Contract.
2. Failure by Niya to lodge the stamped Contract and 65 Instruments of Transfer for Ministerial approval under Section 128 of the Land Act 1996 contrary to Clause 19 of the Contract.
3. Failure to give notice of completion after Ministerial approval was granted in order to proceed to completion of the Contract contrary to Clause 5 of the Contract.
   

Mr. Pakena’s submissions

83. Mr. Phillip argued that there was no breach of the terms of the Contract as it was illegal and void ab initio.

Niya’s submissions

84. Mr. Molloy contended that there was no breach as the Contract was rescinded.

Reasons for decision.

85. I have addressed the arguments on illegality and rescission in favour of Derwent already.

86. It follows that there is no contest to Derwent’s submissions. I am satisfied that the evidence before the Court support’s the submissions on the balance of probabilities that the Contract was breached as alleged.

87. I also find that the actions of Mr. Pakena in entering into the Contract & Purchase of Sale of Shares rendered it physically or commercially impossible for Derwent and Niya to fulfil and complete the Contract in the terms originally agreed.

SPECIFIC PERFORMANCE
Derwent’s submissions

88. Mr. Gor contended that Derwent was entitled to an order for specific performance of the Contract in circumstances where the contract was valid as it was not illegal or void and it was not rescinded.

Mr. Pakena’s submissions

89. It was submitted by Mr. Phillip that Derwent was not entitled to an order for specific performance of the Contract as the Contract was void from the beginning, but if the Court found that the Contract was valid, then it was properly rescinded.

Diya’s submissions

90. Mr. Molloy contended that if Derwent were to succeed on its claim, there should not be an order for specific performance of the Contract. This was because the Land was no longer capable of being transferred by Niya as the shares in Niya were sold by Mr. Pakena. The result was that through fraud on the part of Mr.Pakena, Niya does not have title to the properties constituting the Land which were the subject of the Contract. Consequently, it was not possible for Diya to transfer the Land to Derwent.

91. Counsel said a court will not require a party to do what cannot be done and referred the Court to I.C.F. Spry, The Principles of Equitable Remedies, Seventh Edition at p.128 to support the proposition. He urged the Court to withhold an order for specific performance with which Niya could not comply.

Reasons for decision.

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.

96. In the present case, I have found that the Contract is valid and was not rescinded. 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? I am satisfied that Derwent is not guilty of laches. As I have alluded to earlier, the actions of Mr. Pakena in entering into the Contract & Purchase of Sale of Shares rendered it physically or commercially impossible for Derwent and Niya to fulfil and complete the Contract in the terms originally agreed, ie, Niya does not have title to all the properties constituting the Land which was the subject of the Contract. In the circumstances, it can be deemed that the whole of the Land the subject matter of the Contract no longer exists.

97. Alternatively, I accept Mr. Molloy’s submissions and am persuaded to withhold an order for specific performance with which Niya cannot comply.

ALTERNATIVE RELIEF

98. Damages including restitution will be the appropriate remedy for Derwent. I will order a separate trial to assess Derwent’s claim for damages including restitution.

CROSS-CLAIMS

99. Given the favourable outcome for Derwent’s claim, it means that the cross-claims by Mr. Pakena and Niya fail and will be dismissed.

COSTS

100. Costs shall follow the event, i.e., Mr. Pakena and Niya shall pay Derwent’s costs of an incidental to these proceedings, if not agreed, to be taxed.

ORDER

101. The formal orders of the Court are:

1. Judgement on liability is entered in favour of Derwent Limited.
2. A declaration that the Contract for Sale of Land entered into between Derwent Limited (formerly known as Telemu No.9 Limited) dated 28 August 2007 is valid and was not rescinded.
3. The relief seeking a declaratory order for specific performance of the Contract for Sale of Land entered into between Derwent Limited (formerly known as Telemu No.9 Limited) dated 28 August 2007 is refused.
4. The matter shall proceed to trial for assessment of damages including restitution on a date to be fixed.
5. Costs shall follow the event, i.e., Anton Pakena and Niya Limited shall pay Derwent Limited’s costs of an incidental to these proceedings, if not agreed, to be taxed.
6. Time is abridged.
   

Judgment and orders accordingly.

___________________________________________________________
Fiocco & Nutley: Lawyers for the Plaintiff/Cross-Defendant
Korerua & Associates: Lawyers for First Defendant/First Cross-Claimant Pacific Legal Group: Lawyers for Second Defendant/Second Cross-Claimant :