Shell Papua New Guinea Ltd v Speko Investment Ltd [2004] PGSC 16; SC767 (4 November 2004)

SC767

PAPUA NEW GUINEA

[IN THE SUPREME COURT OF JUSTICE]

SCA NO. 112 OF 2001

BETWEEN:

SHELL PAPUA NEW GUINEA LTD
-Appellant-

AND:

SPEKO INVESTMENT LIMITED
-First Respondent-

AND:

PEANDUI KOYATI
-Second Respondent-

WAIGANI: INJIA DCJ, GAVARA-NANU & DAVANI JJ
2004 : 1st April
: 2nd July
: 4th November

CONTRACT – Formal Standard Contract – Negotiations preceding signing of Formal Contract – Formal Contract not signed - Exchange of written correspondences and verbal discussions between parties – Whether binding contract concluded- Principles discussed.

Cases cited in the judgment:
Curtain Brothers (Qld) Pty Ltd & Kinhill Kramer Pty Ltd -v- The Independent State of Papua New Guinea [1993] PNGLR 283 referred to.
Master v Cameron (1954) 91 CLR 358 applied.

Counsel:
K. Kua for the Appellant
P. Parkop for the Respondents

27th October 2004

BY THE COURT: This is an appeal against the judgment of the National Court at Waigani given on 16 November 2001. As the grounds of appeal raise questions of law or mixed law and fact, the appeal is without leave.

In the National Court, the Court entered judgment in favour of the Respondent (Plaintiff) and ordered damages to be assessed. The Court found that the parties had entered into a valid contract for the construction of a service station. The Defendant offered to assist the Plaintiff in establishing a service station on a vacant block of land situated on Portion 2185, Milinch of Granville, National Capital District. On reliance upon the offer, the Plaintiff expended money and incurred costs to secure a registered title and carried out necessary groundwork for the project. The Defendant later breached the agreement by changing its mind and cancelled the deal. As a result the Plaintiff suffered loss. The court found that although that there was no formal contract signed between the parties, a binding Contract had been entered into based on various exchanges of correspondences and verbal discussions between the parties.

In the trial, evidence for the Plaintiff was given by Mr Peandui Koyati who was the Managing Director of the Plaintiff. Evidence for the Defendant was given by Mr Charles Amini, who is the Retail and Corporate Affair Manager of the Defendant. At the centre of the dispute in the Court below was eight (8) letters exchanged between 3rd June 1991 – 6th February 1995. Four (4) of the letters were from the Plaintiff and four (4) letters from the Defendant. These are marked Ex "D" – "L". The Court analyzed these correspondences together with other oral and documentary evidence and found that there was a binding enforceable contract concluded and that the Defendant had breached the contract.

The grounds of appeal challenge the Court’s conclusions based on findings of fact. The findings of fact per se are not challenged. The grounds of appeal are:

"1. Grounds of the Appeal:

(a) His Honour erred in law in finding there was a concluded agreement between the First Respondent and the Appellant. In particular His Honour erred in failing to identify where and how the First Respondent has accepted the Appellant’s offer contained in a letter dated the 2nd of February 1995.

(b) Alternatively His Honour erred in law in assuming or treating the First Respondent’s acceptance was contained in its letter dated the 6th of February 1995.

(c) His Honour erred in law and fact in failing to find First Respondent’s above letter did not contain the language of intend or acceptance and that the language of the letter is that of inquiry or expression of interest and there are no words of acceptance or agreement.

(d) His Honour erred in law in failing to find the First Respondent’s above said letter contains conditions precedent which must be satisfied before the First Respondent was willing to accept the Appellant’s offer.

(e) His Honour erred in law in failing to find First Respondent’s request (to quote) for "a formal comprehensive offer from Shell covering all aspects of the proposal including amongst other things"

• (1) a reseller agreement;
  
• (2) design and costing which separates those items and costs that Shell is responsible for those which Speko will meet;
  
• (3) Rebates of any"
  

Demonstrated that fundamental terms were yet to be agreed and satisfaction of such terms were:

(1) Pre-conditions to any concluded agreement;

(2) Demonstrated a lack of ad idem;

(3) Demonstrate there was no certainty as to fundamental terms and any purported contract was void for uncertainty;

(4) The First Respondent’s request constituted a counter offer."

There is no contest on the relevant principles on contracts applicable to the issues in this case. Some of the principles were alluded to by the Court. In summary, a contract may be entered into orally, in writing or by conduct of the parties or a mixture of these methods: Pacific Contract Law by Rohebruck, Sruatovo & Nonggorr, UPNG Press Pty Ltd. There must be a clear intention of the parties to enter into a legally binding contract, there must be an unambiguous offer, an unconditional or unqualified acceptance of the offer and there must be reciprocity of valuable consideration.

The letters exchanged between the parties made reference to a formal "Sales and Purchase Agreement: see Exhibit "E" - letter from Defendant to Plaintiff dated 11th September 1991; or "a formal lease agreement" to be prepared by the Defendant, to be signed at "a later date" by the parties: see Exhibit "I" - letter from Plaintiff to Defendant dated 16th April 1993. The Plaintiff in this letter referred to "a formal lease agreement" to be negotiated and signed at an earliest possible date: also see Mr Amini’s evidence on Appeal Book at page 72. We infer from these statements that there was a standard formal lease agreement in existence used by the Defendant incorporating the terms agreed to during the negotiations, which is then signed by the parties at the completion of negotiations. The written contract should exhaustively set out the terms and conditions agreed to and no extrinsic evidence is allowed to vary the terms of the written contract: Curtain Brothers (Qld) Pty Ltd & Kinhill Kramer Pty Ltd –v- The Independent State of Papua New Guinea [1993] PNGLR 283. The parties in the present case did not conclude the negotiations and enter into the formal contract.

Notwithstanding the absence of a formal written agreement, it is possible for a binding contract to be entered into either in writing, or oral, or by conduct, or a mixture of those methods. The question is whether it can be said that a binding contract was entered into in the circumstances of this case.

In determining this issue, the intention of the parties to enter into an enforceable contract is critical. The Court will have to infer from the conduct as would a reasonable person would do. The test is an objective one.

The common law principles applicable to this situation are as those set out by the High Court in Masters v Cameron (1954) 91CLR 358. The Court at p.360 - 362 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 of three classes. 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 not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.

"In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. Of these two cases the first is the more common. Throughout the decisions on this branch of the law the proposition is insisted upon which Lord [361] Blackburn expressed in Rossiter v Miller [1877] UKLawRpCh 168; (1878) 3 App. Cas. 1124, when he said that the mere fact that the parties have expressly stipulated that there shall afterwards be a formal agreement prepared, embodying the terms, which shall be signed by the parties does proceeded: ". . . as soon as the fact is established of the final mutual assent of the parties so that those who draw up the formal agreement have not the power to vary the terms already settled, I think the contract is completed" ((1878) 3 App., Cas. At p.1151): see also Sinclair, Scott & Co. Ltd. v Naughton [1929] HCA 34; (1929) 43 CLR 310 at p.317. A case of the second class came before this Court in Niesmann v Collingridge [1921] HCA 19; (1921) 29 CLR 177 where all the essential terms of a contract had been agreed upon, and the only reference to the execution of a further document was in the term as to price, which stipulated that payment should be made "on the signing of the contract". Rich and Starke JJ. observed ( (1921) 29 CLR at pp.184, 185) that this did not make the signing of a contract a condition of agreement, but made it a condition of the obligation to pay, and carried a necessary implication that each party would sign a contract in accordance with the terms of agreement. Their Honours, agreeing with Knox C.J., held that there was no difficulty in decreeing specific performance of the agreement, "and so compelling the performance of a stipulation of the agreement necessary to its carrying out and due completion" ((1921) 29 C.L.R. at p.185): see also O’Brien v Dawson [1942] HCA 8; (1942) 66 CLR 18 at p.31.

"Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own: Governor & c. of the Poor of Kingston-upon-Hull v Petch [1854] EngR 995; (1854) 10 Exch. 610; 156 E.R. 583. The parties may have so provided either because they have dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document, as in Summergreene v Parker [1950] HCA 13; (1950) 80 CLR 304 or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed. These possibilities were both referred to in Rossiter v Miller (supra). Lord O’Hagan said: "undoubtedly, if any prospective contract, involving the possibility of new terms, or the modification of those already discussed, remains to be adopted, matters must be taken to be still in a train of negotiation, and a dissatisfied party may refuse to proceed. But when an agreement [362] embracing all the particulars essential for finality and completeness, even though it may be desired to reduce it to shape by a solicitor, is such that those particulars must remain unchanged, it is not, in my mind, less coercive because of the technical formality which remains to be made: ((1878) 3 App. Cas. at p.1149). And Lord Blackburn said: "parties often do enter into a negotiation meaning that, when they have (or think they have) come to one mind, the result shall be put into formal shape, and then (if on seeing the result in that shape they find they are agreed) singed and made binding; but that each party is to reserve to himself the right to retire from the contract, if, on looking at the formal contract, he finds that though it may represent what he said, it does not represent what he meant to say. Whenever, on the true construction of the evidence, this appears to be the intention, I think that the parties ought not to be held bound till they have executed the formal agreement: ((1878) 3 App. Cas. At p.1152). So, as Parker J. said in Von Hatzfeldt-Wilden-burg v Alexander [1911] UKLawRpCh 90; (1912) 1 Ch. 284 at p.289, in such a case there is no enforceable contract, either because the condition is unfulfilled or because the law does not recognize a contract to enter into a contract.

"The question depends upon the intention disclosed by the language the parties have employed, and no special form of words is essential to be used in order that there shall be no contract binding upon the parties before the execution of their agreement in its ultimate shape: Farmer v Honan [1919] HCA 13; (1919) 26 CLR 183."

We adopt the above principles and apply them to this case.

In the Court below as well as before this Court, both parties have addressed us on the construction of terms used in these eight (8) letters as the principal basis for their respective cases. It is useful to describe the nature of these documents in brief.

Exhibit "D" - Letter from Defendant to Plaintiff dated 3rd June 1991. The Defendant referred to a meeting between Mr Koyati and one of their representatives and expressed their interest in the land. The pertinent part reads:

"We wish to confirm that we are very interested in the block and we will be pleased to discuss development details further, upon you seeing the block from the Department of Lands."

Exhibit "E" - Letter dated 11th September 1991 from Defendant to Plaintiff. The Defendant referred to various meetings between Mr Koyati and the Defendant and stated three (3) different options for Mr Koyati to consider. We quote the pertinent parts of this letter.

"1. DEALER OWNED AND OPERATED

Under this option, you spend the money yourself on the improvement and our only involvement would be in the provision of tanks, pumps, signage and possibly engineering design and supervision which would cost over K100,00. Your own investment on the service station would be nothing less than K250,000 excluding the mini-supermarket.

Shell will then have to sign a Sales and Purchase Agreement with yourself for a term dependant upon the length of time we are able to recover our costs, which would be about seven (7) years. To assist you with the financing of the project, we will negotiate a rebate to help recoup your expenditure on the basis that you are the dealer yourself.

2. SHELL COMPANY LEASE/CONTROL
   

Under this option, Shell takes out a long term lease on the block, normally twenty (20) years. The landlord ensures that proposed zoning and Town Planning approvals are obtained before Shell signs the lease. Shell puts up the improvement and pays the landlord a yearly lease rental. (Nil development cost contribution by the landlord). Shell appoints a dealer and the dealer pays Shell a monthly rental based on the yearly estimated volume and the facilities on site. This rental is adjusted yearly. Nil rebates paid to anyone on this option.

3. LANDLORD BUILDS AND LEASES OUT
   

On this option, the landlord builds the service station himself. He does not operate the site, but leases it out to Shell. Shell does not contribute towards the development cost except maybe engineering design. The landlord buys the pumps off Shell. A rebate is negotiated and Shell also pays a monthly lease rental to the landlord.

The above sets out the three options for your consideration should we decide to continue with the project. In the meantime, traffic surveys are to be carried out to ascertain an estimated throughput of the outlet once built. We are also still awaiting a report on the "Road Needs Study" of NCDC routes; plus of course the final plans and designs of the airport redevelopment.

Whilst waiting on the above, our engineers will put together an artistic impression of the development based on yours and our input."

Exhibit "F" - Letter from Plaintiff to Defendant dated 28th October 1991 responding to above letter. The Plaintiff advised the Defendant it would take the first option which is "Dealer owned and operated." The letter further states:

"We have spoken to our Bankers who have indicated their support for the proposal on the attached letter.

In addition to the terms of the first option, we are prepared to sign a sales and purchase agreement for a period of twenty (20) years which would be renewable.

We would also be prepared to negotiate a lease agreement with Shell, (after the repayment of the bank loan obtained for constructing the site) under which the site will be leased to Shell on a five (5) year basis or any other lease period suitable to Shell and which will also be renewable.

Meanwhile, could you please arrange a reply to this letter confirming your agreement to our acceptance of the first option as offered.

As the subject land has now been gazetted for tender, could you kindly prepare a site plan or an engineering design for the proposed development and compile any other information that you consider relevant to presented to the land board in a months time."

Exhibit "G" – Letter dated 24th February 1992 from Defendant to Plaintiff. The pertinent part reads:

"I refer to various discussions with yourself in relation to the development of the above block for a service station.

In the event that you obtain all necessary approvals, Shell will be interested on assisting you with the said improvement in terms or engineering design, provision of dispensing equipment and signage to the value of approximately K70,000."

Exhibit "I" – Letter from Plaintiff to Defendant dated 16th April 1993, replying to the above letter and advised of actions taken by the Plaintiff as follows:

"We are now pleased to inform you that the subject land has now been granted to our company. (Copy of title and Company Registration Certificate attached).

We now wish to proceed with the development plans for the land. We therefore wish to inform your company that the Directors of our company have chosen the 2nd option which is "Shell Company lease and Control."

Our only interest in the site operations will be to operate the tyre service and mini supermarket/hotfood bar which we could build at our own costs in accordance with Shell design and specifications, or which Shell could build and sell back to our company.

Meanwhile could you please arrange a reply to this letter and arrange for a formal lease agreement to be negotiated and signed at an earliest possible date."

Exhibit "J" – Letter from Plaintiff to Defendant dated 13th December 1994 responding to the Defendant’s letter of 24th February, 1992. The pertinent parts of the letter reads:

"I refer to your letter of 24th February, 1992. As you are aware your offer contained in the second paragraph has been accepted.

All necessary approval have been obtained. The cost of obtaining these approvals have been considerable. We now require Shell to assist with the improvement including provision of dispensing equipment, engineering design and signage to the value of approximately K70,000.00.

Kindly advise when Shell is likely to proceed on the basis of our acceptance of Shell’s terms or agreement."

Exhibit "L" – Letter from Defendant to Plaintiff dated 2nd February 1995. The full text of the letter states:

"As discussed we are not prepared to lease the block from you for a full scale service station development.

We will supply you the tanks and pumps as per our initial commitment to the value of K70,000 if you develop the site. We will assist you with the design and provide you appropriate signage. The installation of our equipment and its maintenance is at our cost.

I trust this explains our position."

Exhibit "K" – Letter from Plaintiff to Defendant dated 6th February 1995 responding to above letter. The full text of the letter states:

"What we need at this stage however is a formal comprehensive offer from

Shell covering all aspects of the proposal including among other things:

(a) A reseller agreement
(b) Design and costing which separates those items and costs that shell is responsible for from those which Speko will meet.
(c) Rebates if any.

Could you also indicate a possible time-table for this Project and the extent of assistance if any that Shell would offer when we apply for:

(a) Approvals from relevant Government Authorities.
(b) Bank Finance.

I await your reply."

The Plaintiff’s letter dated 6th February 1995 marked the end of further written correspondence on the subject. The reason for this as given by Mr Koyati was that he was told by Mr Richard Maru, the Defendant’s Retail Manager, on 24th March 1995 that the Defendant had "changed its policy. They were only interested in building big service stations and... the top management had decided to withdraw and forget about the project."

Mr Koyati said that on the basis of the offer, they had expended costs in securing the land and clearing the project site, and other associated design work and they were entitled to seek damages for breach of contract. Mr Amini’s evidence was that the correspondences and verbal discussions held amounted to negotiations which would have resulted in a formal lease agreement which never eventuated and therefore there was no agreement reached on any one of the options proposed in their first letter.

The trial judge’s findings of fact are set out on page 7 of the judgment, as follows:

"In this case it appears from the evidence that the following facts were not disputed:-

(1) That there were negotiations between the Defendant and the Plaintiffs to setup a service station at Portion 2185, Milinch of Granville (Erima/Moitaka).

(2) The defendant did express its willingness to help the Plaintiffs to set up a service station.

(3) The Defendant put three (3) options to the Plaintiff to choose from once the service station was established.

(4) The offer of assistance by the Defendants to the Plaintiff was on the basis that if the Plaintiff secured title to the land, the Defendant would be interested to assist him in terms of engineering design, provision of dispensing equipment and signage to the value of K70,000.

(5) The Plaintiffs did apply and were granted the State lease to the land.

(6) The Plaintiffs advised the Defendant of the acquisition of title to the property and advised of their acceptance of option one (1) put to them earlier by the Defendant.

(7) By letter dated 2nd February 1995 the Defendant was not prepared to lease the block from the Plaintiff for a full scale service station but that they would supply the tanks and pumps as per the Defendants initial commitment to the value of K70,000.00 if the Plaintiffs developed the site.

(8) The Defendant did not assist the Plaintiffs as promised.

(9) After the defendant failed to help, the Plaintiffs sought help from Mobil Oil who helped them set up the service station on a lesser scale.

(10) The service station set up of lesser capacity to the one the Plaintiff intended to build with the help of the Defendant."

The trial judge’s conclusion are set out on page 9 – 11 of the judgment as follows:

"The parties in this case were in agreement as to what they wanted and that was a fully operational service station. There was to be valuable consideration. There was legality of purpose. The only ingredient that was not clear was the sufficiency of the certainty of the terms. The Plaintiffs contend that there was sufficient certainty of the terms while the Defendant says there was no certainty of the terms. I have alluded to the evidence earlier. The Plaintiffs wanted to establish and operate a service station on the said land. The Defendant was interested in helping them if they had title to the land. The Plaintiffs obtained title to the land. The Defendant was still interested in helping to establish the service station even though it had taken almost two (2) years to obtain the title. The Defendant had given three (3) options to the Plaintiffs as to how the service station could be operated. The Plaintiffs opted for options one (1) and then later option two (2). Even in February of 1995, the Defendant was still committed to helping the Plaintiffs set up the service station although they were not prepared to lease the block for a full-scale service station development. Then all of a sudden in March 1995 the Defendant had a change of heart and told the Plaintiffs that it would not help because the land for the proposed service station was too small. The size of the land was never an issue until the 24th March 1995.

While these negotiations were going on the Plaintiff had expended a lot of money, time and effort in trying to bring into being the service station. They had obtained a loan of over K21,000 and were preparing with their bankers for another loan to develop the land. The evidence in this case shows that the representations by the Defendants affected the conduct of the Plaintiffs. The Defendant’s representations made the Plaintiffs to apply for title to the land and in so doing, they had to obtain a bank loan to finance the title application and the purchase of the title. The Plaintiffs obtained the land which is a valuable commodity in itself but the purpose for which it was obtained was not realized as planned.

In the end the Defendant frustrated its representations because the land was too small. The reason that the land was too small in my view simply put the integrity and the genuiness of the representations into question. I say this because initially there was no issue of the size of the land. The size of the land ought to have been a key factor with title to the land, yet while the title was a major concern at the outset size was not. The size and title of the land in my view, both ought to have been subjects of concern at the outset as they were pertinent matters.

The language used in the final letter from the Defendant to the Plaintiffs in my view is sufficient for me to conclude that there was an agreement by the Defendant to expend K70,000.00 for design, signage tanks, pumps and cost of installation and maintenance. That offer was accepted as the Plaintiffs were not going to make other financial arrangements to meet all other costs. While this was going on concern about the size of the land came into play and terminated all discussions and plans and effectively terminated the agreement.

I am satisfied that there was an offer by the Defendants to spend K70,000.00 on the project, which offer was accepted by the Plaintiffs. The K70,000.00 was never paid when the Defendant terminated the deal by coming up with another excuse.

The Plaintiffs in my view were genuine in their efforts to set up a service station. Those efforts were frustrated by the conduct of the Defendant.

Having found that there was an offer and acceptance I find there was a binding contract but that contract was frustrated by the Defendant. I therefore find the Defendant liable. I order that damages be assessed."

It seems to us that the trial judge placed emphasis on the Defendant’s letter of 24th February 1992, Plaintiff’s letter of 13th December 1994 and more significantly, the Defendant’s letter of 2nd February 1995, as evidence of an agreement reached for the Defendant to expend K70,000 on the project. It is submitted for the Appellant that the trial judge erred in concluding that an agreement was concluded as per the final letter by the Defendant dated 2nd February 1995, because this letter was a conditional offer, conditional upon the development of the site by the Defendant as shown from the use of the phrase "if you develop the site". As such the offer was a qualified one. Also, the Plaintiff’s letter of 6th February 1995 shows the Plaintiff was yet to apply for a bank loan and still not in a position to fully develop the site. He submits the trial judge failed to consider the clause "if you develop the site."

Mr Parkop for the Respondent submits the trial judge "meticulously" covered the evidence and correctly found that the Defendant instead of offering any of the three (3) options referred to, offered to assist the Plaintiff build the service station to the value of K70,000. This was accepted on 16th of April 1993 and subsequently "reaffirmed" by letter on 2nd February 1995. The terms of the offer and acceptance are clear and there was consensus ad idem on the K70,000. On the basis of their acceptance the Plaintiff expended money to develop the site. The Defendant breached the agreement by unilaterally cancelling the deal.

Mr Parkop also submits the grounds of appeal set out in the Notice of Appeal and arguments raised before us by the Appellant are new matters of fact and law which were either not pleaded in their defence or that no findings of fact were made by the trial judge. Those issues of fact and law were not raised before the trial judge and they should not be raised in this appeal.

The first issue for determination before the trial judge is the same issue before us. The main issue is whether the discussions held and correspondence exchanged and actions taken by the parties prior to 24th March 1994 amounted to mere negotiations or a binding contract was entered into. The next issue is, what, if any, was the agreement reached in terms of the three (3) different options proposed by the Defendant on 11th September 1991. The final issue is if there was no agreement on the three (3) options, was there a separate agreement reached on the expenditure of the K70,000 by the Defendant. The answer to these issues rests in a proper assessment by this Court, of the whole of the evidence before the trial judge.

These issues are related and they can be dealt with together. It is clear to us that the trial judge did not consider Mr Amini’s oral evidence that all these exchange of correspondences and discussions amounted to nothing more than negotiations which would have resulted in a formal lease agreement. He gave evidence that there was a standard formal contract used by the Defendant which he offered to produce in evidence.

The requirement for a standard formal contract is repeatedly acknowledged by both parties in their written correspondences from the beginning to the end, i.e Exhibit "E": – "Shell will have to sign a Sale and Purchase Agreement with yourself"; Exhibit. "F": - "We are prepared to sign a sales and purchase agreement . . . we would also be prepared to negotiate a lease agreement with Shell"; Exhibit "I": - "Meanwhile could you please arrange a reply to this letter and arrange for a formal lease agreement to be negotiated and signed at an earliest possible date"; Exhibit "K": - "What we need at this stage however is a formal comprehensive offer from Shell covering all aspects of the proposal including arrangement of other things. . . .(a) reseller agreement."

The intention of the parties was clear from the beginning to the end – that the terms were still being negotiated and once concluded, the terms agreed would then be incorporated in a standard formal lease agreement prepared by the Defendant and signed by the parties. Once signed and executed, it would become enforceable. Parties were clearly consensus ad idem on the need to enter into a formal agreement. The Plaintiff’s last letter of the 6th February 1995 (Exhibit "K") states this clearly.

If parties intended a separate collateral agreement to be made in respect of the K70,000, there must be clear evidence of this offer being made and accepted on its own terms. The evidence shows that there was no binding agreement reached on the K70,000 independent from the 3 options given by the Defendant. The context in which the K70,000 was offered goes back to the 3 options given by the Defendant at the beginning of the negotiations. It was not contended before the trial judge and before us too that, no agreement was reached on any of the 3 options. No question arises as to Option 3. In relation to Option 1 and 2, initially, the Plaintiff accepted option 1 but later changed its mind and went for option 2. Therefore, no agreement was reached in relation to Option 1. Was there an agreement reached on Option 2? In our view, no final agreement was reached on Option 2 either. The Plaintiff’s letter of 16th April 1993 shows it changed its mind and accepted option 2 ("Shell Company Lease and Contract"). But there is no evidence that the Defendant agreed to Option 2.

It is not clear if the Defendants’ offer of K70,000 as expressed on 24th February 1992 is in relation to Option 2 as accepted by the Plaintiff. The evidence shows that the K70,000 was in relation to Option 1 and not Option 2. The expenditure of K70,000 for "improvements in terms of engineering design, provision of dispensing with equipment and signage" falls squarely under the first paragraph of Option 1 (which option had been rejected by the Plaintiff) and not Option 2. Under Option 1, the Defendants said the Plaintiff would be required to "spend the money yourself on the improvements" and "their only involvement would be in the provision of tanks, pumps, signage and possibly engineering design and supervision which would cost over K100,000." The offer of assistance of K70,000 falls squarely within the type of work covered by the K100,000, to be provided by the Defendant under Option 1. Therefore, the offer of assistance of K70,000 cannot be read on its own, in isolation to Option 1.

Under Option 1, a formal Sale and Purchase Agreement had to be signed between the parties. In fact, in the Plaintiff’s final letter of 6th February 1995, the Plaintiff, without specifically mentioning accepting Option 1, referred to a formal comprehensive agreement which is required under Option 1. Such were the correspondences between the parties that it is difficult to say the parties are agreed ad idem on Option 1.

Further, the costs incurred by the Plaintiff in securing the land and clearing it etc; is not in our view a consideration provided by the Plaintiff for Option 1. It is indeed a valuable gain for the Plaintiff, particularly when land at key locations in the city is scarcely available and difficult to find and the Plaintiff got the land to build a service station with support from the Defendant. We agree with Mr Amini that land is valuable and his company had supported the Plaintiff to get the land and therefore, it was a gain, for the Plaintiff. In our view, the expenses incurred in securing title to the land and clearing the site etc; was not a detriment suffered by the Plaintiff to provide consideration for any offer made by the Defendant.

In these circumstances, it is difficult for any reasonable tribunal to conclude that a binding agreement had been reached in relation to Option 1 (which include the K70,000) and Option 2 or 3 for that matter.

In our view, these important facts as we have found on the evidence were not considered by His Honour. Had the Court considered these evidence and made those findings which we have done, the Court would have reached a different conclusion, in favour of the Defendant.

Applying the principles in Masters v Cameron, we consider that the facts of the present case fall into the third category. It is clear from the evidence that the parties intended that no bargain would be concluded at all, in respect of any of the 3 options or even in respect of the K70,000 alone, until a formal contract was signed and executed.

We appreciate the force in the Respondent’s argument that it is not open for the Appellant to raise evidence on matters which were not raised before the trial judge because His Honour did not address his mind on them and to make findings of fact. However, in our view, it is open to the appellate Court to re-visit the evidence before the Court and make its own findings on the evidence placed before the trial judge and reach its conclusion.

We are satisfied that the trial judge erred in not considering the evidence in its total context and misapprehend himself as to the offer of f K70,000 which was made as part of Option 1. For these reasons, we allow the appeal, quash the decision of the trial judge and in lieu thereof, substitute an order dismissing the Plaintiff’s action. The Respondent shall pay the Appellant’s costs of the appeal.
________________________________________________________________________
Lawyer for the Appellant : Posman Kua Aisi
Lawyer for the Respondent : Powes Parkop