Kawage v Kanturk Ltd [2020] PGSC 80; SC1990 (27 August 2020)

SC1990

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCA NO 8 OF 2020

JOE KAWAGE
First Appellant

PIAWA TOKO LIMITED
Second Appellant

V

KANTURK LIMITED
Respondent

Waigani: Cannings J, Kangwia J, Miviri J
2020: 24^th, 27^th August

CONTRACTS – sale of land – vendor selling same property twice to different purchasers – whether vendor breached first contract of sale by not completing it and selling property to another purchaser – consequences of breach – whether purchaser under first contract ought to be granted decree of specific performance – significance of purchaser under second contract becoming registered proprietor.

The first appellant entered into a contract for sale of his property to the respondent, then subsequently, before completion of that contract, entered into a contract for sale of the same property to the second appellant. The first appellant refused to complete the first contract, so the respondent commenced proceedings, as plaintiff, by writ of summons in the National Court against both appellants, who were defendants. The respondent’s cause of action was breach of contract by the first appellant. The National Court upheld the respondent’s claim by finding that there was a breach of contract by the first appellant and granted an order for specific performance of the respondent’s contract with the first appellant. The appellants appealed against the order of the National Court, arguing that the trial judge erred in law by (1) finding that the contract between the first appellant and the respondent was valid and enforceable when the respondent had breached the contract by not providing a copy of it to the first appellant; (2) finding that the contract between the first appellant and the respondent was valid and enforceable when the respondent had breached the terms of the contract requiring it to obtain ministerial approval within a prescribed time limit, which had lapsed; (3) failing to consider that the property that was the subject of the contract between the first appellant and the respondent was a different property to that which was the subject of the second contract; (4) ordering specific performance of the first contract despite the respondent being guilty of unreasonable delay in commencing the proceedings, after the second appellant had become registered proprietor; (5) failing to find that the second appellant was a bona fide purchaser who had entered into the second contract without knowledge of the first contract; and (6) finding that by virtue of the first contract the first appellant became trustee of the property for the respondent.

Held:

(1) The respondent did not breach the first contract by not providing a copy of it to the first appellant.

(2) The respondent did not breach the first contract by failing to obtain ministerial approval in a timely manner.

(3) There had been a misdescription of the property in the first contract but it was not a material issue at the trial and the statement of claim had been amended to clarify that the same property was the subject of the two contracts. The trial judge made no error in that regard.

(4) The fact that the second appellant had become registered proprietor of the property prior to commencement of the proceedings was in evidence but not brought to the trial judge’s attention by any of the parties. It was a critical fact that made it inappropriate to order specific performance.

(5) The trial judge erred in finding that the second appellant was not a bona fide purchaser and that it had entered into the second contract with knowledge of the first contract.

(6) The trial judge did not err in finding that by virtue of the first contract beneficial ownership of the property had passed to the respondent.

(7) The appeal was allowed as the order for specific performance was made in error. The order of the National Court was quashed and the proceedings were remitted to the National Court for further conduct of the proceedings. Parties were ordered to bear their own costs.

Cases Cited

The following cases are cited in the judgment:

Augwi Ltd v Xun Xin Xin (2014) SC1616
Fly River Provincial Government v Pioneer Health Services Ltd (2003) SC705
Isaac Lupari v Sir Michael Somare (2010) SC1071
Koang No 47 Pty Ltd v Mondo Merchants Pty Ltd (2001) SC627
Mudge v Secretary for Lands [1985] PNGLR 387
Papua Club Inc v Nusaum Holdings Ltd (2005) SC812

APPEAL

This was an appeal against a decision of the National Court which ordered specific performance of a contract for the sale of land.

Counsel

S Javati, for the First Appellant
J S Abone, for the Second Appellant
S Gor, for the Respondent

27^th August, 2020

1. BY THE COURT: This is an appeal against a decision of the National Court that ordered specific performance of a contract for the sale of a property, Section 70, Allotment 26, in Gordon, National Capital District.

2. The first appellant, Joe Kawage, was the registered proprietor of the State Lease over that property. On 31 January 2014 he entered into a contract for its sale with the respondent, Kanturk Ltd, for the sum of K1.3 million. On 30 July 2014, before completion of that contract, Kawage entered into a contract for sale of the same property to the second appellant, Piawa Toko Ltd, for the sum of K1.55 million.

3. Kawage refused to complete the first contract, so Kanturk commenced proceedings, as plaintiff, by writ of summons in the National Court against both appellants, as defendants. Kanturk’s cause of action was breach of contract by Kawage.

4. After a trial at which all parties were legally represented, the National Court, constituted by Justice Hartshorn, in a judgment delivered on 9 December 2019, upheld Kanturk’s claim. His Honour held that there was a breach of contract by Kawage in two respects: failing to notify Kanturk that an application to change the State Lease from residential to commercial had been granted and refusing to complete the contract. His Honour granted Kanturk an order for specific performance of its contract with Kawage.

GROUNDS OF APPEAL

5. The appellants argue that the trial judge erred in law and/or fact in six respects:

(1) finding that the contract between Kawage and Kanturk was valid and enforceable when Kanturk had breached the contract by not providing a copy of it to Kawage;

(2) finding that the contract between Kawage and Kanturk was valid and enforceable when Kanturk had breached the terms of the contract requiring it to obtain ministerial approval within the prescribed time limit, which had lapsed;

(3) failing to consider that the property that was the subject of the contract between Kawage and Kanturk was a different property to that which was the subject of the contract between Kawage and Piawa Toko;

(4) ordering specific performance of the first contract despite Kanturk being guilty of unreasonable delay in commencing the proceedings, after Piawa Toko had been transferred title and become registered proprietor;

(5) failing to find that Piawa Toko was a bona fide purchaser that had entered into the second contract without knowledge of the first contract; and

(6) finding that by virtue of the first contract Kawage became trustee for Kanturk of the property and that beneficial ownership of the property had passed to Kanturk.

GROUND 1: FINDING THAT THE FIRST CONTRACT WAS VALID AND ENFORCEABLE DESPITE KANTURK BREACHING IT BY NOT PROVIDING A COPY OF IT TO KAWAGE

6. We find that there was no credible evidence or argument that Kanturk breached the first contract by not providing a copy of the contract to Kawage. 7. That issue was not included in Kawage’s defence. The trial judge focussed on the defences pleaded by Kawage: that there was difficulty in giving vacant possession to Kanturk and difficulty in changing the status of the State Lease from residential to commercial use.

8. His Honour properly found that the defences were not supported by the evidence, that the first contract was valid and enforceable, that it had not been breached by Kanturk and that it had not been lawfully terminated by Kawage. We dismiss ground 1.

GROUND 2: FINDING THAT THE FIRST CONTRACT WAS VALID AND ENFORCEABLE DESPITE KANTURK BREACHING IT BY FAILING TO OBTAIN MINISTERIAL APPROVAL

9. We find that there was no credible evidence or argument that Kanturk breached the first contract by failing to obtain ministerial approval within the prescribed time. That issue was not included in Kawage’s defence. The trial judge focussed on the defences pleaded by Kawage: that there was difficulty in giving vacant possession to Kanturk and difficulty in changing the status of the State Lease from residential to commercial use.

10. His Honour properly found that the defences were not supported by the evidence, that the first contract was valid and enforceable, that it had not been breached by Kanturk and that it had not been lawfully terminated by Kawage. We dismiss ground 2.

GROUND 3: FAILING TO CONSIDER THAT DIFFERENT PROPERTIES WERE THE SUBJECT OF THE TWO CONTRACTS

11. It is clear that there had been a misdescription of the property in the first contract, where it was referred to as Section 70, Allotment 27 – rather than Allotment 26.

12. However, this was not a material issue at the trial. The statement of claim had been amended to clarify that the same property was the subject of the two contracts. The trial judge made no error in that regard. We dismiss ground 3.

GROUND 4: ERRORS IN ORDERING SPECIFIC PERFORMANCE OF THE FIRST CONTRACT

13. The appellants argue that the trial judge, even if he did not err in finding Kawage guilty of a breach of contract, erred in granting specific performance of the first contract in three respects:

(a) Kanturk was guilty of unreasonable delay in commencing the proceedings;

(b) Kanturk had not come to court with clean hands;

(c) Piawa Toko had been transferred title and become registered proprietor of the property.

14. As to (a), there is no doubt that if Kanturk were guilty of unreasonable delay the doctrine of laches would have applied and a decree of specific performance ought to have been refused (Augwi Ltd v Xun Xin Xin (2014) SC1616). However, we are not persuaded that this was a case of unreasonable delay. Besides that, the issue was hardly mentioned at the trial.

15. Likewise with (b), if Kanturk had acted in bad faith, its hands would not be clean and it should be refused equitable relief such as specific performance (Isaac Lupari v Sir Michael Somare (2010) SC1071). However, we are not persuaded that there was credible evidence of Kanturk acting without clean hands. Besides that the issue was hardly mentioned at the trial.

16. The appellants are raising new issues not raised in the National Court and doing so without the leave of this Court. They are not permitted to do this (Fly River Provincial Government v Pioneer Health Services Ltd (2003) SC705, Papua Club Inc v Nusaum Holdings Ltd (2005) SC812).

17. There is more merit in (c). The fact is there was a transfer of the State Lease over Section 70, Allotment 26 from Kawage to Piawa Toko registered on 27 August 2014. On that date Piawa Toko became registered proprietor and enjoyed protection of the principle of indefeasibility of title subject only to the exceptions in s 33 of the Land Registration Act (Mudge v Secretary for Lands [1985] PNGLR 387). Significantly, it became registered proprietor before the filing of the writ on 6 October 2015, and well before the trial on 9 May 2018.

18. We find that this fact – that Piawa Toko was the registered proprietor of the property – was in evidence in the National Court, but it was not brought to the trial judge’s attention by any of the parties. It was a critical fact, which favoured the appellants, but it was left buried in the annexures to the affidavit of Mr Kawage, filed 7 November 2016, and admitted into evidence at the trial as exhibit 1. It was not highlighted by any of the counsel in submissions.

19. It is difficult to overestimate the significance of the fact that Piawa Toko was the registered proprietor. It has indefeasible title, in the relevant sense. This made it unjust and inequitable for its title to be put in jeopardy by an order for specific performance of the first contract. Moreover the fact that it was the registered proprietor made it virtually impossible for the order for specific performance of the first contract to be given practical effect.

20. An order for specific performance should only be made when it is just and equitable to do so (Koang No 47 Pty Ltd v Mondo Merchants Pty Ltd (2001) SC627). Here it was unjust and inequitable to order specific performance of the first contract. We consider with respect that the learned trial judge erred in law in granting specific performance but we qualify that finding by emphasising that his Honour was led into error by a lack of diligence on the part of all counsel who appeared at the trial in not bringing a critical fact to the Court’s attention. We uphold ground 4(c).

GROUND 5: FAILING TO FIND THAT PIAWA TOKO WAS A BONA FIDE PURCHASER

21. The trial judge addressed the issue of whether Piawa Toko was a bona fide purchaser in these terms:

Further, notwithstanding to it executed the second contract, the second contract is second in time in regard to the sale and purchase of the property. In my view, Mr Kawage may only give to Piawa Toko his interest in the property subject to what he is already legally obliged to give to someone else. By virtue of the first contract, Mr Kawage became the trustee for Kanturk of the property that had been sold to Kanturk. When Mr Kawage entered into the second contract with Piawa Toko, as there is no evidence that Piawa Toko and its officers did not know of the first contract, Piawa Toko was not a bona fide purchaser. This is because it likely had actual and constructive knowledge of the first contract and became the constructive trustee of the property for Kanturk.

22. We consider with respect that the trial judge decided without sufficient evidence that Piawa Toko had actual or constructive knowledge of the first contract. Indeed our view of the evidence suggests the opposite: that Piawa Toko did not know of the first contract and that is because Mr Kawage did not tell them about it. The onus was on Kanturk to prove that Piawa Toko had knowledge of the first contract and in our view the evidence did not support the discharge of that onus.

23. We find that the trial judge erred in finding that Piawa Toko was not a bona fide purchaser and that it had entered into the second contract with knowledge of the first contract. We uphold ground 5.

GROUND 6: FINDING THAT BY VIRTUE OF THE FIRST CONTRACT KAWAGE BECAME TRUSTEE FOR KANTURK

24. The trial judge did not err in finding that by virtue of the first contract beneficial ownership of the property passed to Kanturk. However its beneficial ownership or its equitable interest in the property was surpassed by the legal interest in the property acquired by Piawa Toko upon it becoming registered proprietor. We dismiss ground 6.

CONCLUSION

25. We have upheld two of six grounds of appeal, one of which is very significant: that the order for specific performance was made in error, due to a critical fact not being brought to the trial judge’s attention. We will allow the appeal and quash the order of the National Court and remit the case to the National Court with the appropriate orders. There is no need for the case to go before another Judge. It is better that the matter returns before the trial judge.

26. As to costs, we will order that the parties bear their own costs as the appeal has only become necessary due to the failure of the appellants’ counsel (and also to a lesser extent, the failure of the respondent’s counsel) to highlight a critical fact at the trial.

ORDER

(1) The appeal is allowed.

(2) The order of the National Court of 9 December 2019 in WS No 1416 of 2015 is quashed.

(3) WS No 1416 of 2015 is remitted to the National Court for further conduct of those proceedings, subject to the requirement that the parties be invited to make fresh submissions (based on the evidence before the National Court, and the proper determination of the National Court that there was a breach of the contract between the first appellant and the respondent committed by the first appellant) as to what orders should be made by the National Court in the light of the judgment of the Supreme Court, including whether the respondent should be awarded damages.

(4) The parties shall bear their own costs of the appeal.

Judgment accordingly.

________________________________________________________________
Parkil Lawyers: Lawyers for the First Appellant
Javati Lawyers: Lawyers for the Second Appellant
Fiocco & Nutley Lawyers: Lawyers for the Respondent