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National Court of Papua New Guinea |
N9465
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
WS NO. 1331 OF 2018
BETWEEN
YAGUDI LIMITED (IN LIQUIDATION)
Plaintiff
AND
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Defendant
Waigani: Makail, J
2021: 1st October
2022: 17th February
CONTRACT – Liability – Breach of lease agreement – Provision of use of office space – Failure to pay rental and outlays – Disagreement over unpaid rent – Disagreement settled according to terms of lease agreement – No variation to rental and outlay – Defaulting party bound by terms of lease agreement
CONTRACT – Privity of contract – Defence denied being privy to lease agreement – Lease agreement is explicitly clear – Defendant was privy to lease agreement – Liable for breach of lease agreement – Non-payment of rent and outlay
Cases cited:
Nil
Counsel:
Ms. D. Doiwa with Ms. E. Pora, for Plaintiff
Ms. B. Kulumbu, for Defendant
JUDGMENT
17th February, 2022
1. MAKAIL, J: This is an action for breach of a lease agreement between the plaintiff and the defendant dated 21st May 2004 for the use of an office building known as Mutual Rumana Building (“the premises”) by the defendant through the Office of Higher Education (“OHE”).
2. According to the writ of summons filed on 17th October 2018 the plaintiff seeks judgment in the sum of K1,243,556.44 with interest. This sum comprises of:
(1) Outstanding Charges to 18th December 2012 of K907,857.45,
(2) Additional Occupational Charges from 18th December 2012 to 4th March 2013 of K210,889.72.
(3) 2% Interest from 4th March 2013 to 30th September 2018 of K124,809.27.
3. In its defence, the defendant denied it is liable for the sum claimed because first, the defendant is being sued as a nominal defendant, second, the plaintiff failed to name the State agency involved in the alleged breach of contract and finally, the plaintiff failed to demonstrate a clear nexus between the alleged breach of contract and it.
4. In any case, the defendant does not deny owing rental money to the plaintiff for the use of the premises but disputes the sum of K1,243,556.44. It says that it only owes a sum of K485,767.89. However, it paid a bond fee prior to occupying the premises and the bond fee should have been used to pay the unpaid sum of K485,767.89. If that was done, the defendant would owe no rent to the plaintiff.
5. It is also the defence case that according to the Secretary for the Department of Finance Dr Ken Ngangan the total floor area of the premises is 5,069.40 sqm. The actual space occupied by the OHE is 3,902.40 sqm. The space occupied by other tenants is 1,167.00 sqm. The plaintiff had been charging rent and outlay based on floor area of 4,000 sqm. Because of that it has been charging the defendant an extra 97.6 sqm and the defendant had overpaid a sum of K312,320.00 as rental. This sum is arrived by multiplying 97.6 sqm by 9 years.
6. In terms of outlay, the plaintiff had been overcharging rental outlay since December 2011 by 97.6 sqm. If backdated, the overcharged outlay would be around K87,840.00. This sum is arrived by multiplying 97.6 sqm by 9 years.
7. According to the liquidator of the plaintiff Mr David Guinn, rent and outgoings and car park fee are paid quarterly each year. For that, the records of the plaintiff showed that up to 31st December 2011:
(a) the Base Rent, Outgoings and Car Park Fee had been paid by the defendant through the Department of Finance;
(b) the defendant was up to date with all payments; and
(c) the charges were reviewed in October each year.
8. The disagreement is in relation to the payment of:
(a) the extra amount payable for base rent following the October 2011 review for the quarters October 2011 and January 2012, being a total of K108,438.27; and
(b) the outgoings payable from January 2012 to 4th March 2013, when the premises was sold, being a total of K1,010,308.90.
9. According to the law of contract, where there is a disagreement between the parties in relation to the contract, parties must refer to the contract to settle the disagreement. In this case, parties entered into a lease agreement. It is in writing. It contains the rights and obligations of the parties as to how the lease agreement is to be performed.
10. We must then turn to the lease agreement to settle the disagreement. Turning to it, it will be observed that the lease agreement has various clauses and Items in a Schedule. These clauses and Items in the Schedule are relevant to settle the disagreement and will be referred to in the preceding paragraphs.
11. First, to respond to the defendant’s defence on privity of contract, that is, it is not a party to the lease agreement and if any, it is a nominal defendant and should not be held liable for the breach, it is abundantly clear that the parties to the lease agreement are the plaintiff and the defendant. For this finding, parties can be referred to the cover page of the lease agreement and will note that its bears the name of the defendant.
12. This finding is reinforced by Item 5 of the Schedule. Item 5 refers to the defendant as the lessee. It follows that the defendant is the principal contracting party and principal defendant in this litigation. It has been correctly identified and named as the alleged defaulting party in the proceeding.
13. Furthermore, it is wrong and contrary to the doctrine of privity of contract based on the lease agreement for Mr John Gohuse of the Department of Personal Management to contend in his email to the defendant dated 29th March 2012 that it is not the responsibility of the defendant to pay the outgoings and that it is the responsibility of the OHE. On the contrary, the defendant, as the lessee, is responsible for payment of rent and outgoings for the OHE and it must do that. It is a further finding of the Court that there is a clear nexus between the alleged breach and the defendant and if it did not pay its dues, it is in default and will be liable for breach of the lease agreement.
14. As to whether the defendant is in default of paying rent and outgoings, Item 10 of the Schedule provides for payment of rent as follows:
“Quarterly in advance in an amount of K430,000.00 payable on the 1st day of each quarter during the term of this Lease to:
..........
Payment of Outgoings And Car Park
Quarterly in advance in an amount of K100,000.00 payable on the 1st day of each quarter during the term of this Lease to:
............”.
15. Significantly, Item 8 of the Schedule provides for the rental sum, outgoing sum and car park sum as follows:
“Base Rent: K400.00 per sqm per month with a total of K1,600,000.00 pa.
Outgoings: K100.00 per sqm per annum
Car Park: K2,000 per car park per annum (undercover)”.
16. Furthermore, there is provision for review of the lease in clause 13 and at Item 9 of Schedule where rent payable shall be increased and will include CPI. In any case, rental increase shall be not less than 7.5%.
17. Mr Guinn explained that the extra amount payable as rent was for increase of 7.5% after October 2011 review in accordance with Item 9 of the Schedule of the lease agreement. The following is a break-up of the amounts:
(a) For base rent, increased amount – K574,251.72
(b) For base rent, invoiced amount – K534,187.65
(c) Outstanding amount – K 40,064.07
18. For outgoings:
(a) Increased amount – K178,342.26
(b) Invoiced amount – K165,899.77
(c) Outstanding amount – K 12,442.49
19. For car-park fee:
(a) Increased amount – K43,068.88
(b) Invoiced amount – K40,064.07
(c) Outstanding amount – K 3,004.80
20. The total outstanding amount (K40,064.07 + K12,442.49 + K3,004.80) inclusive of GST is K61,062.52
21. For the January 2012 quarter, the defendant was invoiced at the new correct amounts for rent but again, only paid the old amounts. The outstanding amount is K47,375.77. The total outstanding rent at end of February 2012 was K108,438.27.
22. As for outgoings, clause 3.5 and Item 10 of the Schedule provide for a charge which is another name for outgoings. According to Item 10, outgoings are calculated as follows:
“Payment of Outgoings And Car Park
Quarterly in advance in an amount of K100,000.00 payable on the 1st day of each quarter during the term of this Lease to:
............”.
23. By the lease agreement, parties agreed in writing to use the figure of 4,000 sqm to calculate both the rent and outgoings. The lease agreement does not provide that this figure is to be adjusted, irrespective of what the actual “net rentable area” may be. The explanation by Mr Guinn is accepted because the defendant did not refute Mr Guinn’s claim that he has had considerable dealings with similar commercial leases in the past where it is common to find in lease agreement that a fixed area is agreed for a lessee to pay.
24. Mr Guinn explained that this area is not the total area of the premises leased but is effectively the size of the area leased that is usable (or, in some cases, used by the tenant). For example the building may have a generator but the area occupied by the generator would not be included in the net rental area. In areas which the tenant has sole access to and use of, for example a kitchen, they would usually be included in the net rental area of that tenant.
25. What are known as “common areas” of a premises, that is areas to which all tenants have access to and use of, often are not taken into account in determining the next area of tenants but in some leases the size of these areas is apportioned between the tenants, with each tenants share being added to that tenants net rental area. Areas to which two of the tenants have access to and the use of, to the exclusion of other tenants, are often added to the net rental area of those two tenants who use those areas and not to the others.
26. Determining what areas are to be apportioned to each tenant can be difficult and the views of the parties may differ. In addition, if the exact size of an area to be included in a tenants net rental area, that requires a building survey to determine the exact size.
27. To avoid all these problems, it is common practice for the parties to a lease agreement to agree the net rental area of the tenant’s premises. Each of the parties determines what they consider to be the next rental area of the area to be leases, the parties negotiates the size of the area, a compromise is reached and the agreed area is inserted into the lease agreement.
28. Rent and outgoing are then determined by reference to the agreed area irrespective of what the actual size of the area might be.
29. Pursuant to the lease agreement, the next rental area for the area leased was agreed to by the parties at 4,000 sqm. There is no mention in the lease agreement of this figure being adjusted or open to variation by is a specified stated figure agreed by the parties.
30. The lease agreement does not provide for outgoings to be determined by reference to the “actual” outgoings incurred. The correct figure for outstanding outgoings is as claimed, namely the sum of K1,010,308.90 which comprised of:
(1) First quarter 2012 4,000sqm x K196.17 x ¼ = K196,176.48
(2) Second quarter 2012 4,000sqm x K196.17 x ¼ = K196,176.48
(3) Third quarter 2012 4,000sqm x K196.17 x ¼ = K196,176.48
(4) Fourth quarter 2012 4,000sqm x K210.88 x ¼ = K210,889.73
(5) First quarter 2013 4,000sqm x K210.88 x ¼ = K210,889.73
Total K1,010,308.90
31. The difference in the rate in fourth quarter 2012 and first quarter 2013 is due to the review increase.
32. On the other hand, the defence submission that it owes a sum of K485,767.89 and if the bond fee was used to set-off this sum, it will owe no rent to the plaintiff is contrary to the expressed agreement of the parties as outlined in Item 8, clause 13, Item, 9 and Item 10 above. In addition, while there is provision of payment of bond at Item 11 which is equivalent to one quarter’s rent, there is no proof that the defendant paid this sum in order to rely on it to set-off the sum claim. Its assertion that paid a bond is purely a speculation. For these reasons, the defendant’s defence must fail.
33. Finally, but not the least, the defendant objected to the Court exercising jurisdiction on the ground that the Court lacked jurisdiction to resolve this dispute because parties did not exhaust the remedy to appoint an expert to decide the dispute for them under clause 8 and Item 13 of the Schedule. This objection has no merit and is dismissed because while the defendant has put the blame squarely on the plaintiff for not making a move to invoke the clause 8 to settle the disagreement, it is equally guilty of same. It follows that by opting to institute this proceeding to recover the unpaid rent and associated costs, the plaintiff has waived its right to resolve the dispute under clause 8 of the lease agreement. For these reasons, this objection is dismissed.
34. There will be an order for costs of the proceedings in favour of the plaintiff, to be taxed, if not agreed.
35. The orders of the Court are:
(a) The review amount of K108,438.27 for the quarters of October 2011 and January 2012, and
(b) the outstanding outgoings amount of K1,010,308.90.
5. Time shall be abridged.
________________________________________________________________
Allens: Lawyers for Plaintiff
Solicitor General: Lawyers for Defendants
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URL: http://www.paclii.org/pg/cases/PGNC/2022/84.html