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National Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
WS(COMM) NO. 390 OF 2018
BETWEEN:
PNG BOTTLE INDUSTRIES LIMITED
Plaintiff
V
SMITHBRIDGE PNG LIMITED
Defendant
Waigani: Anis J
2022: 3rd & 9th March
CONTRACT LAW – Claim for breach of contract – whether there was a valid contract – application of s. 4 of the Frauds and Limitations Act 1988 – whether acceptance subject to conditions – whether there was consideration given - effects – whether there was an agreement to agree – whether liability has been established and whether the matter should progress to hearing on assessment or whether it should be dismissed – considerations and decision
Cases cited:
NKW Holdings Ltd v. Paladin Solutions PNG Ltd (2020) N8339
Keam Investments Ltd v. Toyota Tsusho (PNG) Ltd (2019) N7859
Hargy Oil Palm Ltd v. Ewase Landowners Association (2013) N5441
Steven Naki v. AGC (Pacific) Ltd (2005) N2782
Jacobs v. Kiwaidu (1991) N1051
John Kitchepak v. Raymond Imanaui (2014) N5678
National Housing Commission v. Queensland Insurance PNG Ltd [1988-89] PNGLR 474
Ning’s Trading Pty Ltd v. ANZ Banking Group (PNG) Ltd (1998) N1700
Gago Teine v. The University of Goroka (2019) N1881
Steven Turik v Mathew Gubag (2013) N5132
Counsel:
A Benny, for the Plaintiff
B Sinen, for the Defendant
JUDGMENT
9th March, 2022
1. ANIS J: This was a hearing on liability. The claims relate to breach of contract for a sale of land and the equitable doctrine of quantum meruit. The plaintiff claimed it had entered into this contract with the defendant to purchase a land that belonged to the defendant. The defendant denied that such a contract existed and claimed that the parties had only negotiated the terms with the intention to later enter into a formal contract before it was cancelled and before the land was sold to a 3rd party. I heard submissions from the parties on 3 March 2022 and reserved my ruling to a date to be advised.
2. This is my ruling.
BACKGROUND
3. The plaintiff expressed its intention to purchase the defendant’s land which was located at 7 mile in 2017. The land is described as Portion 3234, Granville, 7 Mile, Port Moresby, NCD (the Land). In or around May of 2017, the plaintiff entered into negotiations with the defendant (the parties), that is, for the defendant to sell the Land to it. On 2 June 2017, the plaintiff made a verbal offer of K7.5 million to purchase the Land. On 6 June 2017, the defendant, by letter, notified the plaintiff that he accepted the offer but subject to various conditions which were stated therein (Acceptance Letter).
4. The plaintiff sought loan from its bank Westpac Bank PNG Limited after that. Its loan was approved in August of 2017. On 8 August 2017, the plaintiff notified the defendant of the said approval. On 5 September 2017, the defendant notified the plaintiff that it had cancelled the arrangement and had sold the Land to a 3rd party.
5. The plaintiff was aggrieved by that and files this proceeding. It claims damages for breach of contract and misrepresentation. It also claims in the alternative damages based on the equitable doctrine, quantum meruit.
EVIDENCE
6. Affidavit evidence were tendered by both parties at the trial and were marked as exhibits. The parties agreed not to cross-examine their witnesses, so the matter proceeded to submissions on the same day. Written submissions were tendered and presented to the Court by both counsel.
COMMON GROUND
7. At the start of the proceeding, the plaintiff decided against pursing its claim for misrepresentation.
8. It became apparent at the hearing that the factors offer and an intention to create legal relations, which are 2 of the elements of a legally binding contract, were not in issue. The main contests for the first claim relate to or concern the elements acceptance and consideration. See basic elements of a valid contract in cases: NKW Holdings Ltd v. Paladin Solutions PNG Ltd (2020) N8339, Keam Investments Ltd v. Toyota Tsusho (PNG) Ltd (2019) N7859; Hargy Oil Palm Ltd v. Ewase Landowners Association (2013) N5441 and Steven Naki v. AGC (Pacific) Ltd (2005) N2782.
9. It was also conceded at the hearing in regard to the issue of whether the contract was in writing as per the requirement under s. 4 of the Frauds and Limitations Act 1988 (F&LA). Section 4 states:
No action shall be brought upon a contract for the sale or other disposition of land or an interest in land unless the contract, or some note or memorandum of the contract, upon which the action is brought is in writing signed—
(a) by the person against whom the action is brought; or
(b) by an agent of that person lawfully authorized in writing for the purpose.
(Underlining mine)
10. The defendant conceded that its Acceptance Letter, which had been adduced in evidence by the parties, may qualify as some note within the meaning of the s. 4 thus resolving the issue. Mr Sinen referred to his affidavit which was tendered in evidence as Exhibit D4. There, he attaches a transcript of proceeding, that is, concerning an earlier application to dismiss the proceeding and an ex-tempore ruling by Hartshorn J where His Honour heard and dismissed the application. His Honour, in his said ruling, addressed s. 4 of the F&LA. His Honour found the Acceptance Letter to constitute or that it may be regarded as “some note or memorandum of the contract”. But His Honour also made it clear that such a finding did not in any way mean or can be used to establish or conclude that there was a valid or binding contract. His Honour ruled that such a determination (i.e., whether there existed a valid contract) would be left to the trial Court to determine. His Honour’s decision is located at Exhibit D4, annexure A, page 15 at paragraph 89. In passing, I also acknowledge the case law on point submitted to by counsel for the plaintiff Mr Benny, which is the case of Jacobs v. Kwaidu (1991) N1051. In the matter, Los J held a letter, which was written, signed, and sent by the defendant to the bank, as sufficient to constitute or to be treated or regarded as a note or memorandum within the exception under s. 4 of the F&LA.
11. Therefore, and for clarity purposes, the issue of whether there was a valid contract for sale of the Land, remains contested.
ISSUES
12. The main issues, in my view, are, (i), whether the Acceptance Letter was conditional and, if so, whether the plaintiff met the stated conditions, (ii), whether there was consideration given by the plaintiff, (iii), if the Court finds no valid contract, whether the plaintiff is entitled to recover its costs based on the equitable principle, quantum meruit.
CONDITIONAL ACCEPTANCE
13. The fact that the Acceptance Letter or that the acceptance by the defendant was conditional is not contested by the plaintiff or the parties. These are shown in the plaintiff’s own various evidence that had been adduced as well as in its written submission. But the plaintiff’s argument or contention is this. It submits that it had met all the terms of the Acceptance Letter but that it was the defendant that had failed on its part or who had breached the terms of the agreement, that is, by cancelling the agreement and selling the Land to a 3rd party.
14. The plaintiff, in making out its case, expressly relies on the Acceptance Letter. A copy of the Acceptance Letter is annexed to exhibits P1 and D2. It reads in part, and I quote:
Thank you for your verbal offer of PNG Kina 7.5mil (subject to your bank approval of the finance) made at our meeting in my office last Friday 2 June 2017 for the purchase of the above mentioned property at 7 mile Port Moresby.
I confirm my acceptance of your offer but subject to your acceptance of the following details:-
......
Please advise as soon as possible if you would like to proceed with the purchase on the basis of the details above. Please feel free to propose any suggested changes to the details to suit your requirements. Please note that we need a response within a week as we have other pending offers which require our urgent response.
......
15. The plaintiff, through its Managing Director, Michael Yai-Pupu deposes at paragraph 6 of his affidavit, which is marked as Exhibit P3, that he called Mr Albert Smith of the defendant soon after he received the Acceptance Letter and informed the defendant that the plaintiff had accepted the terms and conditions set out in the Acceptance Letter.
16. Evidence deposed to at paragraphs 10, 11 and 12 to Mr Yai-Pupu’s affidavit are relevant for this purpose. They read:
(Underlining mine)
17. I wish to pause here and follow the line of argument by the plaintiff together with its evidence and submissions. So, the plaintiff deposes evidence to say that it had accepted the Acceptance Letter of the defendant together with its express or stated conditions. And the plaintiff’s fundamental argument is that the Acceptance Letter was the foundation of the contract in that it contained the terms of the agreement between the parties for the sale and purchase of the Land. The defendant, save its argument that that was an agreement to agree, does not, in my view, contest the said line of argument by the plaintiff, that is, that the terms and conditions of the agreement were premised on the Acceptance Letter. And in that regard, the defendant contends that because the plaintiff had failed to meet the set conditions in the Acceptance Letter, that its conditional acceptance to the plaintiff’s verbal offer became a nullity, or the effect was that there was no longer an acceptance to the verbal offer that had been made by the plaintiff to purchase the Land. Consequently, it submits that there was no valid or binding agreement.
18. The defendant’s argument also applies to its argument on want of consideration given by the plaintiff. Consideration, as of the essential elements for a legally binding contract, see cases: John Kitchepak v. Raymond Imanaui (2014) N5678 and National Housing Commission v, Queensland Insurance PNG Ltd [1988-89] PNGLR 474. Under condition 2 in the Acceptance Letter, the plaintiff was required to confirm its available finance before or by 16 June 2017. Upon confirmation of its available finance to purchase the Land on 16 June 2017, the parties would arrange for the plaintiff to pay a non-refundable deposit of 10% (PGK750,000.00) to the defendant’s nominated account.... And condition 3 states that the parties were to then organize settlement on a date after 30 September 2017. It is not disputed in the evidence adduced by the parties that the plaintiff’s bank conveyed approval of the plaintiff’s loan to the defendant on 13 July 2017 or formally by 8 August 2017. It is therefore clear, as adduced by this evidence, that the fundamental condition precedents, namely, terms 1, 2 and 3 had not been complied with primarily by the plaintiff within the set deadline.
19. Thus, basing on the plaintiff’s fundamental claim which is based on the Acceptance Letter or the letter dated 6 June 2017, there is undisputed evidence that the condition precedents to the conditional acceptance by the defendant, were in fact breached. As such, it meant that the defendant’s conditional acceptance ceased or became void after 16 June 2017. According to conditions 1, 2 and 3, the plaintiff was to have by 16 June 2017 inform the defendant that it had secured finance or the purchase price. Had that been done, it would have also then triggered the consideration requirement which would enable the parties to organize payment of the 10% deposit or the sum of K750,000. That latter term or consideration was dependent upon compliance by the plaintiff to terms 1 and 2 thus also fell through or was not provided.
20. Given the absence of 2 of the elements of a legally binding contract, namely, acceptance and consideration, I therefore find the plaintiff’s fundamental arguments to be baseless and without merit. The action must therefore fail, that is, subject to my other consideration re Quantum Meruit.
AGREEMENT TO AGREE
21. Given my above finding, it is not necessary to address whether this was an agreement to agree or consider the counter-arguments of the defendant on other matters including its submissions concerning the proposed 3 term sheets.
22. However, I would say and find as follows. Assuming there was a valid contract premised on the Acceptance Letter, I would nevertheless uphold the defendant’s argument that the agreement would have constituted an agreement to agree. References made by counsel to Woods J’s decision in Ning’s Trading Pty Ltd v. ANZ Banking Group (PNG) Ltd (1998) N1700, in my view, is relevant and on point. Wood’s J stated:
In the case Masters v Cameron [1954] HCA 72; [1954] 91 CLR 353 the High Court considered the relevant authorities on agreements to sell subject to contract and said:
Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any one of three classes. (1) It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but no different in effect. Here there is a contract binding the parties to perform the agreed terms whether the formal document does or does not come into existence and also binding them to join in settling and signing the formal document. (2) One in which the parties have finally agreed upon all the terms of the bargain and intend no departure from or addition thereto, but yet have made performance of one or more of the terms conditional upon the execution of a formal document. Here there is a contract which binds the parties to join in bringing the formal contract into existence and then carry it into execution. (3) One in which the parties do not intend to make a concluded bargain at all unless and until they execute a formal contract. Here there is no enforceable contract. What has been agreed on must be regarded merely as the intended basis for a future contract and not as constituting a contract.
23. The defendant submitted in the alternative that the parties had agreed to agree to sign a formal agreement at a later date, and therefore their agreement, which consisted of the Acceptance Letter, would have fitted into the 3rd class or category as held in Ning’s Trading. This is where the parties do not intend to make a concluded bargain at all unless and until they execute a formal contract. Evidence which appears or tends to support this line of argument include, further negotiations between the parties after 16 June 2017 and their various attempts to prepare and settle on a term sheet after the Acceptance Letter.
24. The plaintiff did not make any submissions on this issue. Rather and as stated above, its arguments were premised on the Acceptance Letter, which it argued, constituted a legally binding agreement between the parties. I note that I have already made a determination on that above in my judgment.
25. So, in summary I would have upheld the defendant’s argument herein, that is, even if I were to determine that there was an agreement to agree. That is to say that if I were to the accept that there was an agreement to agree, I would have found it to fall under the 3rd class or type of an agreement to agree. Once I reach this conclusion and given that no formal agreement had ever been signed thereafter, there would be no binding agreement in existence, and the outcome would be same which is that no agreement to sell the Land existed between the parties at the material time.
CLAIM IN QUANTUM MERUIT
26. I now turn to this next issue, namely, the plaintiff’s alternative claim for compensation based on the equitable doctrine of quantum meruit.
27. Despite the Court’s findings thus far, whether the plaintiff has established its case under this equitable doctrine and whether the Court should make an order in its favour, is a separate matter, and I will now consider it.
28. I note the submissions of the parties on this matter.
29. Generally speaking, quantum meruit is a Latin phrase which means “what one has earned”. Let me illustrate this with an example. In a given commercial dealing between two parties, one may say, “Hey, despite the fact that our agreement is void or illegal, I did this work or provided this service to or for you as requested, so pay me.” In contract law, one may interpret quantum meruit to mean reasonable value of services or a reasonable sum of money to be paid. This may be for services rendered or work performed in a situation where the amount due or work performed is not stated under a valid/legally binding contract or a contract that may be regarded or deemed as illegal.
30. The Supreme Court in Gago Teine v. The University of Goroka (2019) SC1881 adopted the elements of quantum meruit set out by Cannings J in Steven Turik v Mathew Gubag (2013) N5132, which were as follows:
· A has done something of benefit for B;
· the thing done by A relates to an arrangement of some sort with B (the arrangement might be but is not necessarily a contract, and might be an illegal contract);
· it would be unjust to allow B to retain the benefit without some remuneration or reward for A.
31. Therefore, and to succeed, the plaintiff herein must prove that (i), there was a request made to render a service, (ii), part of or all the work required had been carried out, (iii), and the defendant received benefits from the service or work, (iv), and it would be unjust for the defendant to gain or retain the benefit without recompensing the plaintiff.
32. The nature of the intended dealing between the parties was for the sale and purchase of the Land. As such, the nature of the transaction itself is the first hurdle which makes the claim untenable as a start. The transaction then fell through the negotiation process as determined by this Court. No obligations were therefore bestowed upon the parties in regard to the intended land sale, except assorted costs which each party inevitably had to personally incur to prepare themselves for the intended deal. It seems quite clear to me that none of the elements of quantum meruit exist or could be established in the present matter. The defendant retained its title over the land and has since sold it to a third party. I must also say that it appears quite legitimate that the plaintiff did incur costs from its bank for the loan it had obtained in relation to the intended sale and purchase agreement which included associated costs. However, that loan arrangement was a private arrangement between the plaintiff and its banker. And its costs, including the related costs, in my view, were not matters that were carried out by the plaintiff which in the end benefitted the defendant in any way. These were private costs incurred by the plaintiff in anticipating or in preparing itself for the intended agreement. The title to the property continued to remain with the defendant until it was disposed off to a third party. I understand that counsel for the plaintiff went to great lengths to point to the fact that the defendant knew of the intended loan application by the plaintiff. The defendant does not dispute this fact. In fact, it is expressly stated in the Acceptance Letter. The defendant wrote, Thank you for your verbal offer of PNG Kina 7.5mil (subject to your bank approval of the finance). However, this was an acknowledgment by the defendant that the plaintiff was going to apply for a loan to finance purchase of the Land. But regardless, the plaintiff, as per conditions 1, 2 and 3 of the Acceptance Letter, had until 16 June 2017 to confirm its finance and organize payment of the 10% deposit after that, all of which did not occur.
33. There was also a purported task which the plaintiff is basing its claim on which I think requires attention. The plaintiff claims that it had also incurred costs for purportedly facilitating the transfer of title of the Land which at that time was under the name of a previous owner. The plaintiff claims that it had to spend K15,000 with the Department of Lands or those responsible, to facilitate the title transfer for the defendant. The defendant, however, denies this claim. When this Court inquired with counsel for the plaintiff to show particulars of this claim or allegation, little or no assistance was received from counsel. The plaintiff’s counsel admitted that no particulars were provided for this claim. Counsel also conceded that there was no evidence disclosed or adduced that could assist the Court or substantiate the claim. In my view, this may or could have amounted to a reasonable argument under the claim for quantum meruit had it been conceded to by the defendant or had it been proven by the plaintiff with the relevant supporting evidence. However, this is not the case here. I also uphold the submission by the defendant that the claim is baseless because such an obligation to deliver title to the plaintiff, under the said deal had it gone ahead, would have been the obligation of the defendant as the title holder and not the plaintiff.
34. The plaintiff, in summary, has failed to demonstrate how all its costs or efforts as pleaded in its Amended Statement of Claim, (i), had been incurred for the benefit of the defendant, (ii), or were incurred at the request or consent of the defendant, (iii), where the defendant benefitted from the actions of the plaintiff where these costs had been incurred, (iv), and it would be unjust for the defendant not to recompense the plaintiff for these actions.
SUMMARY
35. The plaintiff, in my view, has failed to establish its claims. The claims will be dismissed accordingly.
COST
36. An award of cost in this matter is discretionary.
37. The defendant submits that it had given warning to the plaintiff to withdraw the proceeding on the basis that the cause of action was without merit. It has adduced evidence in that regard. It submits therefore that costs should be ordered on an indemnity basis against the plaintiff if this proceeding is dismissed. The plaintiff makes no submission in that regard. I will assume for this purpose that the plaintiff’s position would be for this Court to order costs to follow the standard costs scale.
38. This is a claim where I see that the plaintiff had wanted to purchase the Land in question. However, time was of essence and the plaintiff failed to meet the deadline. But despite that, it was able to get its loan approved within a month or so, to complete the transaction with a substantial loan sum of K7.5 million. The issues also appear somewhat twisted and complicated which is why the plaintiff I believe has come to the Court to seek clarity or a closer look at the matter.
39. For these reasons, I will not award cost on a solicitor/client or indemnity basis, but rather, on a party/party basis which may be taxed if not agreed by the parties.
ORDERS OF THE COURT
40. I make the following orders:
The Court orders accordingly
________________________________________________________________
Niuage Lawyers: Lawyers for the Plaintiff
Leahy Lewin Lowing Sullivan Lawyers: Lawyers for the Defendant
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