Associated Plumbing Installation Ltd v Air Niugini Ltd [2011] PGSC 31; SC1127 (28 October 2011)

SC1127

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCA NO 160 OF 2010

BETWEEN

ASSOCIATED PLUMBING INSTALLATION LIMITED
Appellant

AND

AIR NIUGINI LIMITED
Respondent

Waigani: Cannings, Makail & Kawi, JJ
2011: 26th & 28th October

LAW OF CONTRACT - Contract of sale - Sale of property - Sale by public tender - Offer and acceptance - Offer made - Acceptance of - Whether offer and acceptance constituted a contract - Considerations of - Enforceability of - Requirements of obtaining statutory approvals - Compliance of - Failure of - Effect of - Illegality of - Independent Public Business Corporation of Papua New Guinea Act, 2002 - Sections 46B & 46F.

PRACTICE & PROCEDURE - Dismissal of proceeding - Application of - Ground of - Failure to disclose reasonable cause of action - Whether arguable case shown - Cause of action unsustainable or obviously and incontestably bad - Proceeding bound to fail - Appeal dismissed - National Court Rules, 1983 - O 12, r 40(1)(a).

Facts

The respondent put up for sale by tender a property by advertising it for interested applicants to apply to purchase it. The property is located at 6 Mile, in Port Moresby and described as portions 454 and 455. The appellant who was its tenant made an offer of K7 million. The respondent accepted it and advised the appellant to make a down payment of K700,000.00 as 10% deposit. About 5 days later, the respondent informed the appellant that it had decided to withdraw its offer as it needed to obtain approval from its board and also the Independent Public Business Corporation and Minister for Treasury under sections 46B and 46F of the Independent Public Business Corporation of Papua New Guinea Act, 2002 before proceeding further with the negotiation.

The appellant obtained ex parte interlocutory orders, inter-alia, restraining the respondent from evicting it from the property and subsequently commenced substantive proceeding by originating summons seeking inter-alia, a declaratory order that it had a binding contract with the respondent based on various correspondences exchanged between the parties and an order that the respondent complete the contract. The respondent applied by notice of motion to dismiss the proceeding for failing to disclose a reasonable cause of action pursuant to O 12, r 40(1)(a) of the National Court Rules, 1983. The National Court upheld the application and dismissed the proceeding for failing to disclose a reasonable cause of action. On appeal, the appellant argued inter-alia, the National Court erred in dismissing the proceeding when there was sufficient evidence based on the various correspondences exchanged between the parties that there was a contract between the parties sufficient to establish an arguable case.

Held:

1. The primary judge did not fall into error when she held that the various correspondence exchanged between the parties did not constitute a contract of sale of property. The various correspondence exchanged between the parties was regarded merely as an intended basis for a future contract and not as constituting the contract.

2. Further, even if there was a contract, it was null and void, hence unenforceable against the respondent as no statutory approvals had been obtained from the respondent's board and also the Independent Public Business Corporation and Minister for Treasury under sections 46B and 46F of the Independent Public Business Corporation of Papua New Guinea Act, 2002.

3. The appellant had failed to sufficiently establish an arguable case and the cause of action was unsustainable or obviously and incontestably bad such that it was bound to fail if it were allowed to go to trial. PNG Forest Products Pty Ltd and Inchcape Berhad -v- The State [1992] PNGLR 85 referred to.

4. The appeal was accordingly dismissed with costs.

Cases cited:

Papua New Guinea cases:

PNG Forest Products Pty Ltd and Inchcape Berhad -v- The State [1992] PNGLR 85
Nings Trading Pty Ltd -v- ANZ Banking Group (PNG) Limited (1998) N1700
Re The Companies Act Chapter 146 and Pacific Rim Corporation Holdings Pty Ltd [1992] PNGLR 491
Mathew Tolanas -v- Colin Gipe (2008) N3536
Shell Papua New Guinea Ltd -v- Specko Investment Ltd (2004) SC767
Fly River Provincial Government -v- Pioneer Health Services Limited (2003) SC 705
The State -v- Barclay Brothers (PNG) Ltd (2001) N2090
Sioti Bauf and Lovoi Nadai -v- Poliamba Pty Ltd [1990] PNGLR 27
Golobadana No 35 Ltd -v-Bank of South Pacific Ltd (2002) N2309

Overseas cases:

Cameron -v- Masters [1954] HCA 72; [1954] 91 CLR 353
Rushton (Qld) Pty Ltd & Ors -v- Rushton (NSW) Pty Ltd & Ors (2003) QSC 8 (24th January 2003)
GR Securities -v- Baulkham Hills Private Hospitals Pty Ltd (1986) 40 NSWLR 631

Legislations:

Independent Public Business Corporation of Papua New Guinea Act, 2002
National Court Rules, 1983

Counsel:

Mr G Poole & Ms A Narokobi, for Appellant
Mr I Shepherd, for Respondent

28th October, 2011

JUDGMENT

1. BY THE COURT: This is an appeal against the decision of the National Court of 05th November 2010 which set aside ex parte interlocutory orders of 27th August 2010 and also dismissed the proceeding in its entirety for failing to disclose a reasonable cause of action pursuant to O 12, r 40(1)(a) of the National Court Rules, 1983.

Brief Background Facts

2. The respondent put up for sale by tender a property by advertising it for interested applicants to apply to purchase it. The property is located at 6 Mile, in Port Moresby and described as portions 454 and 455. The appellant who was its tenant made an offer of K7 million. The respondent accepted it and advised the appellant to make a down payment of K700,000.00 as 10% deposit. About 5 days later, the respondent informed the appellant that it had decided to withdraw its offer as it needed to obtain approval from its board and also the Independent Public Business Corporation and Minister for Treasury under sections 46B and 46F of the Independent Public Business Corporation of Papua New Guinea Act, 2002 ("IPBC Act").

3. The appellant obtained an ex parte order restraining the respondent from evicting it from the property and subsequently commenced substantive proceedings by originating summons seeking inter-alia, a declaratory order that it had a contract with the respondent based on various correspondence exchanged between the parties and an order that the respondent complete the contract. The respondent applied by notice of motion to dismiss the proceedings for failing to disclose a reasonable cause of action pursuant to O 12, r 40(1)(a) of the National Court Rules. The National Court upheld the application and dismissed the proceeding for failing to disclose a reasonable cause of action.

Grounds of Appeal

4. It raised 8 grounds of appeal. For convenience of parties, we set out in full the grounds hereunder:

"3.1 The learned Judge at first instance erred in summarily striking out the Appellant/Plaintiff's Amended Originating Summons filed on 30 September 2010 as an abuse of process when there was evidence that the Appellant/Plaintiff had pleaded an arguable case.

3.2 The learned Judge at first instance erred in law in concluding "that the correspondence exchanged does not constitute a binding contract" to convey title when the evidence was that:

(a) the Respondent/Defendant purported to withdraw its prior acceptance of the Appellant/Plaintiff's offer to purchase the property.

(b) the Respondent/Defendant had taken a step in part performance.

3.3 The learned Judge at first instance erred in law in concluding that if the correspondence between the Appellant/Plaintiff and the Respondent/Defendant constituted a binding contract, that agreement would be null and void by reason of Sections 46B and 46F of the Independent Public Business Corporation of Papua New Guinea Act 2002 Consolidated No. 15 of 2008.

3.4 The learned Judge at first instance erred in concluding that the ex parte Orders obtained by the Appellant/Plaintiff on 27 August 2010 expired on 10 September 2010.

3.5 The learned Judge at first instance erred in setting aside the ex parte Orders made on 27 August 2010 in view of her finding that they had expired on 10 September 2010.

3.6 The learned Judge at first instance erred in law and the exercise of her discretion in setting aside the ex parte Orders made on 27 August 2010 on the basis that the Undertaking as to Damages was not made under the Appellant/Plaintiff's seal.

3.7 The learned Judge at first instance erred in law in concluding that the interim Injunction was not properly before the Court and there were sufficient bases to set aside the interim Injunctive Orders.

3.8 The learned Judge at first instance erred in exercising her discretion awarded costs in favour of the Respondent/Defendant."

Issues

5. From our perusal of the grounds of appeal and having considered parties' submissions, we consider grounds 3.1 & 3.2 raise the issue of whether or not there is a binding contract of sale of property between the parties, which would in turn establish an arguable case. Ground 3.3 alone raises the issue of whether or not the contract is null and void, hence unenforceable against the respondent because statutory approvals under sections 46B and 46F under the IPBC Act have not been obtained. This issue is raised on the premise that there is a binding contract between the parties. Grounds 3.4 - 3.8 relate to the ex parte interlocutory orders.

Grounds 3.1 & 3.2 of Notice of Appeal

6. Under these grounds of appeal, Mr Poole of counsel for the appellant submitted, inter-alia, the primary judge erred in dismissing the proceeding for failing to disclose a reasonable cause of action when there was sufficient evidence based on various correspondences exchanged between the parties sufficient to establish an arguable case that there was a contract between the parties. He further submitted, in an application to dismiss proceedings for failure to disclose a reasonable cause of action, such as in this case, it is sufficient for the Court to satisfy itself that there is an arguable case. Whether the plaintiff, in this case, the appellant will succeed at the trial is another matter.

7. There was an offer and acceptance of the offer and it was not open to the respondent to withdraw the offer. The offer and acceptance are contained in the letter from Mr Sean Donnelly of the appellant to the respondent dated 30th March 2010 where K7 million was offered for the property based on the notice of sale by tender of the respondent and letter from the respondent to Mr Donnelly dated 13th May 2010 where the respondent accepted the offer of K7 million. Her Honour misdirected herself when she held that the offer was withdrawn. Furthermore, he submitted the respondent had taken a step in part performance when it accepted the appellant's tender and the part performance constituted by the respondent's promise to prepare and forward a contract of sale.

8. Mr. Shepherd of counsel for the respondent submitted otherwise, that the primary judge was correct in finding that the respondent had always reserved the right to withdraw the property from sale and gave notice to all tenderers that this was a condition of the tender process. That is, at any time prior to the execution of a formal contract, the respondent could withdraw from the negotiations. Accordingly, the question before her Honour was whether the correspondence constituted a formal agreement.

9. We agree with the submission by Mr Shepherd that the main question before her Honour was whether the correspondence exchanged between the parties constituted a contract and the question of an arguable case hinges on the consideration of this issue.

10. The Court has power under O 12, r 40 of the National Court Rules and also its inherent power under the Constitution to summarily dismiss proceedings in appropriate cases. The exercise of these powers is discretionary and may be exercised in many different circumstances, one of which is where an alleged cause of action is obviously and incontestably bad: PNG Forest Products Pty Ltd and Inchcape Berhad -v- The State [1992] PNGLR 85.

11. The primary Judge emphasised that the correspondence exchanged between the parties did not constitute a binding contract and concluded that the appellant's alleged cause of action was obviously and incontestably bad. If it were to go to trial, it would not succeed.

12. The principles of law in relation to agreements to agree have been succinctly summarised by the primary judge in her written judgment. We agree with her Honour the principles of law have been considered and applied by the Court on a number of the occasions including Nings Trading Pty Ltd -v- ANZ Banking Group (PNG) Limited (1998) N1700 where Woods, J referred to the case of Cameron -v- Masters [1954] HCA 72; [1954] 91 CLR 353 when deciding an action by the plaintiff for specific performance of an alleged agreement for sale of property by the defendants. Her Honour had also referred to local case authorities of Re The Companies Act Chapter 146 and Pacific Rim Corporation Holdings Pty Ltd [1992] PNGLR 491, Mathew Tolanas -v- Colin Gipe (2008) N3536, Shell Papua New Guinea Ltd -v- Specko Investment Ltd (2004) SC767 and Australian cases of Rushton (Qld) Pty Ltd & Ors -v- Rushton (NSW) Pty Ltd & Ors (2003) QSC 8 (24th January 2003) and GR Securities -v- Baulkham Hills Private Hospitals Pty Ltd (1986) 40 NSWLR 631 where these cases identified three distinct classes or categories of agreements to agree which may be summarised as follows:

1. Where the parties have finalised negotiations and intend to be bound by the agreed terms and wish to have those terms "restated in a form which will be fuller or precise but no different in effect". In this case, there is a binding contract whether or not the form agreement comes into existence or not.

2. Where the parties have agreed on all the terms except that they have made one or more of those terms conditional on execution of a formal document. In this case, there is a contract "which binds the parties to join bringing the formal contract into existence and then carry it into execution".

3. Where the parties do not intend to make "a concluded bargain at all unless and until they execute a formal contract." What has been agreed on must be regarded merely as an intended basis for a future contract and not as constituting a contract.

13. In the present case, her Honour found this case fell within category 3 of the different classes of agreements as identified in the case of Cameron -v- Masters (supra). We find no error in her Honour's finding on this aspect.

The appellant's offer and the respondent's acceptance of the offer did not conclude the agreement of the parties as the respondent had expressly stated to the tenderers including the appellant that it would withdraw the offer at any time. When it did, the negotiations ceased. In our view, the various correspondence exchanged between the parties was regarded merely as an intended basis for a future contract and not as constituting the contract. Further, if the appellant claims that the contract had been partly performed, there is no evidence that the parties signed a written contract of sale and very importantly, the appellant paying K700,000.00 as 10% deposit. We dismiss grounds of appeal 3.1 and 3.2.

Ground 3.3 of Notice of Appeal

14. The first observation we wish to make in relation to this ground of appeal is, the appellant does not take issue with the lack of pleadings in the respondent's notice of motion and reliance on sections 46B and 46F of the IPBC Act as a ground for the primary judge's decision in dismissing the proceeding. Indeed, we note there are no grounds in the notice of appeal alleging that it was not open for the primary judge to consider and rely on section 46B and 46F of the IPBC Act to dismiss the proceeding as such ground had not been pleaded and relied upon by the respondent in its application to dismiss the proceeding in the National Court.

15. The appellant only takes issue with the application of sections 46B and 46F of the IPBC Act, in so far as the enforceability of the contract is concerned.

16. Mr. Shepherd submitted her Honour did not make any determination in relation to whether or not the contract complied with the requirements of sections 46B and 46F of the IPBC Act. The reference by her Honour to the requirements of sections 46B and 46F of the IPBC Act was merely to emphasise and support her earlier finding that there was no contract between the parties because the parties had not completed the agreement for sale. This was because there was no evidence that the requirements of sections 46B and 46F of the IPBC Act have been complied with by the parties.

17. Therefore, it was important that the parties had to comply with the requirements of sections 46B and 46F of the IPBC Act, because a failure to do so would render the contract null and void. The requirements of obtaining statutory approvals under sections 46B and 46F of the IPBC Act are similar to the public tender requirements under section 40 of the Public Finances (Management) Act, 1995 and the Courts, especially the Supreme Court, has held the failure to comply with the public tender requirements under section 40 of the Public Finance (Management) Act, 1995 would render the contract illegal, null and void. The cases of Fly River Provincial Government -v- Pioneer Health Services Limited (2003) SC 705 and The State -v- Barclay Brothers (PNG) Ltd (2001) N2090 stand for this proportion.

18. In relation to Mr Shepherd's submission that her Honour did not make any determination in relation to the non-compliance with the requirements of statutory approvals, with respect, we are unable to agree. We are of the view that her Honour has made a determination that if there was a contract between the parties based on the correspondence exchanged between the parties, the contract would be null and void hence, unenforceable against the respondent because parties had not complied with the public tender requirements under sections 46B and 46F of the IPBC Act. Her Honour stated "[further, even if the parties had entered into a written agreement for sale of the property, that agreement would be null and void in the absence of the relevant statutory approvals which the defendants requires because of the provisions of the Independent Public Business Corporation of Papua New Guinea Act, 2002 Consolidated to No. 15 of 2008......."

19. In our view, that statement is a definitive finding of fact and law and on that premise, we note the appellant has correctly raised it as a separate ground of appeal and we are obliged to determine it. Section 46B of the IPBC Act states:

"46B. Approval required for certain contracts.

A Majority State Owned Enterprise shall not, except with the approval of the Minister referred to in Section 61 of the Public Finances (Management) Act 1995 upon the recommendation of the Managing Director, enter into any contract involving the payment or receipt of an amount, or of property to a value, (or both) exceeding K1,000,000.00."

20. Section 46F states:

"46F. Sale or lease of land and plant.

(1) A Majority State Owned Enterprise must not –

(a) sell or lease any land; and

(b) sell or lease any plant under a contract for consideration exceeding K1,000,000.00, without the approval of the Corporation.

(2) A contract or arrangement entered into contrary to Subsection (1) is void, and the Majority State Owned Enterprise may recover any land or plant which is the subject matter of any such contract or agreement, and upon doing so must refund any moneys received from the other party to the contract or arrangement."

21. There is no dispute between the parties that the respondent is a Majority State Owned Enterprise and that it is subject to the IPBC Act. The appellant made an offer of K7 million for the property. Obviously, the amount offered is in excess of K1 million and according to sections 46B and 46F, the respondent is prohibited from entering into a contract in excess of K1 million except with the approval of the Minister for Treasury and IPBC respectively.

22. We also consider the proposition established in the decisions of Fly River Provincial Government (supra) and Barclay Brothers (PNG) Ltd (supra) that a failure to comply with the public tender requirements under section 40 of the Public Finance (Management) Act, 1995 renders a contract illegal, null and void equally apply in this case. That being so, we find that even if there was a contract between the parties, it would be null and void, hence unenforceable against the respondent because no statutory approvals have been obtained under sections 46B and 46F of the said Act.

23. Indeed, that was the very reason for the respondent to withdraw its offer. We refer to the letter of the respondent to Mr Donnelly of the appellant dated 18th May 2010 where the respondent stated that "[w]e refer to our letter dated 13 May 2010 and ask that this letter be disregarded. We hereby wish to acknowledge receipt of your tender bid for the above property and advise that all the tenders will be presented to the Air Niugini Board and Independent Public Business Corporation (IPBC) for their respective approvals". If the contract was to be relied upon by the appellant at trial, in our respectful opinion, the proceeding was bound to fail.

24. For this reason, we are of the opinion that the cause of action against the respondent is unsustainable or obviously and incontestably bad. We find no error in the decision of the primary judge in dismissing the proceeding on this ground. Accordingly, we dismiss this ground of appeal.

Grounds 3.4 - 3.8 of Notice of Appeal

25. As we have dismissed the grounds in relation to the contract and enforceability of the contract, it is not necessary to discuss the grounds relating to the setting aside of the ex parte interlocutory orders of 27th August 2010 as they are already dead.

Conclusion

26. We have reached a decision that the appeal must be dismissed and we so order. In relation to costs, as correctly submitted by both counsel, costs is a discretionary matter. Mr Poole submitted if the appeal is upheld, the appellant be awarded costs of the appeal while Mr Shepherd urged us to award costs to the respondent if the appeal is dismissed. He submitted it was the actions of the appellant that had landed both parties in Court because the appellant had failed to pay rent since August 2009 and that gave the respondent no choice but to ask the appellant to vacate the property. Instead of vacating the property, it went to Court and obtained ex parte interlocutory orders which inter-alia, restrained the respondent from evicting it from the property and subsequently paid the outstanding rentals. At the hearing of the application, it did not disclose to the Court that it did not pay rent to the respondent, hence the eviction notice.

27. We have decided to exercise our discretion in favour of the respondent because, apart from it being successful in defending the appeal, there is evidence that it has been forced to defend the proceeding in the National Court and also the appeal after the appellant failed to pay rent since August 2009. In our view, even though it eventually paid the outstanding amount on 31st August 2010, the payment was made after it had obtained the ex parte interlocutory orders on 27th August 2010. We are also not satisfied with the explanation given by Ms Logea Gabina Renagi that the appellant's failure to pay rent was because of the respondent's failure in submitting its rental invoices on time for processing of payments. It was the appellant's duty pursuant to the lease to pay rent regardless of whether or not there were invoices.

28. As a result of the non-payment of rent, the respondent exercised its right under the lease and asked the appellant to vacate the property. When it did that, the appellant went to Court and applied for ex parte interlocutory orders which inter-alia, restrained the respondent from evicting it from the property. When the appellant applied for the ex parte interlocutory orders, it failed to disclose to the Court that it did not pay rent to the respondent, hence the eviction notice.

29. It is settled law in our jurisdiction that where a party applies for ex parte injunctive orders, it must fully disclose all material facts to enable the Court to make an informed decision on the application: Sioti Bauf and Lovoi Nadai -v- Poliamba Pty Ltd [1990] PNGLR 27 and Golobadana No 35 Ltd -v- Bank of South Pacific Ltd (2002) N2309.

30. In this case, we find the appellant did not disclose all material facts relating to the ex parte interlocutory orders, in particular, the non-payment of rent and the Court gave no consideration to that aspect of the appellant's case before granting the ex parte interlocutory orders on 27th August 2010. For these reasons, we order the appellant shall pay the respondent's costs of the appeal to be taxed if not agreed.

Judgment and orders accordingly.
_________________________________________
O'Briens Lawyers: Lawyers for Appellant
Blake Dawson Lawyers: Lawyers for Respondent