Niya Ltd v Derwent Ltd (formerly Telemu No 9 Ltd) [2021] PGSC 87; SC2156 (1 October 2021)

SC2156

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCA NO 32 OF 2020

NIYA LIMITED
First Appellant

ANTON PAKENA
Second Appellant

V

DERWENT LIMITED
(FORMERLY TELEMU NO 9 LIMITED)
Respondent

Waigani: Cannings J, Murray J, Anis J
2021: 28^th September, 1^st October

CONTRACT – whether a contract executed on behalf of a person not actually authorised at the time of execution to execute the contract was enforceable – whether a contract for sale of land has been rescinded by agreement of the parties.

COSTS – whether an error of law was made when ordering costs against a defendant in proceedings for breach of a contract between companies when that defendant was no longer a shareholder or director of that company.

PRACTICE AND PROCEDURE – whether a trial judge can order separate trials on liability and assessment of damages – whether National Court Rules require that once a notice of trial is given, the trial be on all issues including liability and remedies in the proceedings.

This appeal arose from an order of the National Court in proceedings for breach of a contract for the sale of land, in which the Court found in favour of the plaintiff purchaser (the respondent in the appeal) by declaring that the contract was valid and had not been rescinded by agreement of the parties and ordering that there be a trial on assessment of damages and that the two defendants pay the plaintiff’s costs. A claim for specific performance of the contract was refused. The appellants raised 15 grounds of appeal, which were distilled through submissions into four categories of alleged errors of fact and/or law on the part of the trial judge: (1) error in finding that the contract was valid and enforceable; (2) error in finding that the contract had not been rescinded by agreement of the parties; (3) error in ordering costs against the second appellant, who was not a party to the contract; and (4) error in ordering a separate trial on assessment of damages.

Held:

(1) The fact that the person who signed the contract on behalf of the respondent was not, at the date of signing, a director or officer of the company and had no express authority in writing to sign the contract was inconsequential. The trial judge did not err in finding that there was a lack of evidence to support the argument that the person who actually signed lacked implied authority. The trial judge correctly invoked 155 of the Companies Act, which allows a contract to be entered into by a company, by a person acting under the company’s implied authority.

(2) The evidence before the National Court clearly showed that there was no effective rescission of the contract by agreement of the parties to the contract. Negotiations took place with a view to an agreement, but fell well short of actual or implied agreement. The trial judge made no error in that regard.

(3) The second appellant was a party to the proceedings in the National Court, as second defendant, and actively defended the case and filed a cross-claim against the respondent. In these circumstances he properly and reasonably had a costs order made against him. The trial judge made no error in that regard.

(4) Whether there are separate trials on liability and assessment is always a matter for the trial Judge. No obligation arises under the National Court Rules, upon filing a notice of trial, for there to be a trial on all issues. There was no denial of natural justice.

(5) Appeal dismissed, with costs.

Cases Cited

Derwent Ltd v Niya Ltd & Anton Pakena (2020) N8294
Kombra & The State v Finance Corporation Ltd (2021) SC2127
Tiri v Eka (2017) SC1586

Counsel

H Leahy & B Sinen, for the First Appellant
M Philip, for the Second Appellant
S Gor, for the Respondent

1^st October, 2021

1. BY THE COURT: This appeal arises from an order of the National Court in proceedings for breach of a contract for the sale of land at Ensisi Valley in the National Capital District, in WS 1144 of 2013 of 21 April 2020.

2. The Court, constituted by Justice David, found in favour of the plaintiff purchaser (the respondent, Derwent Ltd) by declaring that the contract was valid and had not been rescinded by agreement of the parties and had been breached. His Honour ordered a trial on assessment of damages and that the two defendants, Niya Ltd (the first appellant) and Anton Pakena (the second appellant) pay the plaintiff’s costs. A claim for specific performance of the contract was refused (Derwent Ltd v Niya Ltd & Anton Pakena (2020) N8294).

3. The appellants raised 15 grounds of appeal, which were distilled through submissions into four categories of alleged errors of fact and/or law on the part of the trial judge:

(1) error in finding that the contract was valid and enforceable;

(2) error in finding that the contract had not been rescinded by agreement of the parties;

(3) error in ordering costs against the second appellant, who was not a party to the contract; and

(4) error in ordering a separate trial on assessment of damages.

1: ALLEGED ERROR IN FINDING THAT THE CONTRACT WAS VALID AND ENFORCEABLE

4. The appellants argue that the trial Judge erred in finding that there was a contract between Niya Ltd, as vendor, and Derwent Ltd, as purchaser, for sale of the land at a price of K1.95 million. It is argued that his Honour ought to have found that the contract was invalid and unenforceable from the start for the following reasons:

• the person who signed the contract on behalf of Derwent Ltd, Christopher Reynolds, was not a director or officer of the company on the date of signing it, 28 August 2007;
  
• there was no evidence at the trial that Christopher Reynolds was authorised to sign the contract and bind Derwent Ltd to it;
  
• Derwent Ltd failed to prove that Christopher Reynolds was so authorised;
  
• his Honour erred by placing the onus of proving that Christopher Reynolds was unauthorised on Niya Ltd, when the onus of proving that Christopher Reynolds was authorised ought to have been placed on Derwent Ltd, and that onus was not discharged;
  
• his Honour erred by disregarding s 2(1)(a) of the Frauds and Limitations Act, which provides that no interest in land can be created except in writing by the person creating that interest or “that person’s agent lawfully authorized in writing for the purpose”, and was applicable in this case as there was no evidence that Christopher Reynolds was lawfully authorized in writing to sign the contract on behalf of Derwent Ltd;
  
• his Honour erred by disregarding the argument at trial that there was nothing in the Companies Act to stop Niya Ltd relying on the lack of lawful authority in support of its defence that the contract was unenforceable.
  

5. We are not persuaded by any of those arguments that the trial judge erred in finding that the contract was valid and enforceable. It was an agreed fact at trial that Christopher Reynolds was not on the date of signing the contract a director or officer of Derwent Ltd. It was unnecessary to put Derwent Ltd to formal proof, by tendering evidence, that Christopher Reynolds was authorised to sign the contract. The only reasonable inference to draw from commencement of the proceedings in the National Court by Derwent Ltd, seeking enforcement of the contract, was that Christopher Reynolds was in fact impliedly authorized to sign the contract.

6. We find no error in the trial judge placing the onus of proving that Christopher Reynolds was unauthorised, on Niya Ltd. His Honour did not err in his treatment of s 2(1)(a) of the Frauds and Limitations Act. That provision has no application in situations where one party to a contract is trying to avoid a contract by relying on the lack of authority of the person who signed the contract for another party to the contract. Counsel for Niya Ltd, Mr Leahy, was unable to cite any local or overseas authority for that novel proposition, or indeed for any of the other propositions in support of the lack of authority issue.

7. We agree with the trial judge that the question of authority to sign the contract on behalf of Derwent Ltd was a matter for Derwent Ltd. It was not for the other party to the contract, Niya Ltd, and therefore it was not for the Court, to delve into the internal affairs of Derwent Ltd.

8. The argument about the Companies Act not stopping Niya Ltd from relying on the lack of authority of Christopher Reynolds carries little weight.

9. The trial judge correctly invoked s155 of the Companies Act, which allows a contract to be entered into by a company, by a person acting under the company’s implied authority.

10. The fundamental point, made clear by the trial judge, is that Christopher Reynolds did have actual authority to sign the contract on behalf of Derwent Ltd.

11. We agree with his Honour that, ultimately, the fact that the person who signed the contract on behalf of Derwent Ltd was not, at the date of signing, a director or officer of the company and had no express authority in writing to sign the contract, was inconsequential. His Honour did not err in finding that there was a lack of evidence to support the argument that the person who actually signed lacked implied authority. Nor did his Honour err in invoking s155 of the Companies Act, which allows a contract to be entered into by a company, by a person acting under the company’s implied authority.

12. The first category of grounds of appeal is refused.

2: ALLEGED ERROR IN FINDING THAT THE CONTRACT WAS NOT RESCINDED BY AGREEMENT

13. The appellants argue that the trial Judge erred in finding that the contract had not been rescinded by agreement of the parties, in that:

• there was clear evidence that the second appellant, Mr Pakena, who had the authority of Niya Ltd, had a meeting with a director of Derwent Ltd, Dr Reynolds, and after a vigorous and robust exchange of views (recorded in a transcript that was admitted in evidence), had reached an agreement to rescind the contract, on terms involving payment of a sum of money to Derwent Ltd;
  
• the trial judge erred in giving no weight to ratification of the rescission of the contract that occurred a few days after the Pakena-Reynolds meeting when Niya Ltd wrote to Derwent Ltd, confirming the agreement to rescind;
  
• his Honour misapplied the Supreme Court’s decision in Tiri v Eka (2017) SC1586, the facts of which were entirely different to those in the present case;
  
• the trial judge erred in finding, against the evidence, that Mr Pakena had no authority to negotiate and agree, on behalf of Niya Ltd, to rescind the contract;
  
• his Honour erred in finding that Mr Pakena (who was the sole director and shareholder of Niya Ltd at the time the contract was entered into) was motivated by the prior sale of his shareholding.
  

14. We find merit in the last two of those arguments. We consider, with respect, that the evidence amply demonstrated that Mr Pakena did, in fact, have authority to negotiate on behalf of Niya Ltd for rescission of the contract. We also consider that his Honour’s comments about Mr Pakena’s motivation were unwarranted and that the issue of motivation was irrelevant.

15. However, we find no error on the part of his Honour’s referring to Tiri v Eka (2017) SC1586 as a leading case on the issue of rescission. We agree that the facts of that case are different to those in the present case, but the principle of law demonstrated in that case is that for rescission of a contract to be effective there must be an “unequivocal assertion” by the party arguing for rescission that he is no longer bound by the contract.

16. We also find no error on the part of his Honour’s finding that there was no agreement between Mr Pakena, on behalf of Niya Ltd, and Dr Reynolds, on behalf of Derwent Ltd. We have considered the transcript carefully. There was talk about an agreement for rescission and the terms of such an agreement, but it is fanciful to assert that at any point they reached an agreement. It was a case of Dr Reynolds saying ‘yes, we can agree to rescind but you have to pay us what we demand’, and Mr Pakena saying ‘yes, we can pay you, just provide the break-up of the figures’ and Dr Reynolds saying, ‘I am not going to provide you a break-up, I am just going to give you an amount and you pay it’. The conversation went round in circles once that point was reached. There was no agreement and his Honour’s assessment of this critical issue was absent of error.

17, The argument about subsequent ratification of the agreement is also flawed. There was no agreement to ratify. There was nothing that Derwent Ltd did in the exchange of correspondence that occurred after the Pakena-Reynolds meeting that required a finding that any agreement had been reached on recission of the contract.

18. The second category of grounds of appeal is refused.

3: ALLEGED ERROR IN ORDERING COSTS AGAINST THE SECOND APPELLANT

19. This category of grounds of appeal can be easily determined. The second appellant, Mr Pakena, was a party to the proceedings in the National Court, as second defendant, and actively defended the case and filed a cross-claim against the respondent. He was separately represented, as he is in the appeal. In these circumstances he properly and reasonably had a costs order made against him. The trial judge made no error in that regard.

20. The third category of grounds of appeal is refused.

4: ALLEGED ERROR IN ORDERING A SEPARATE TRIAL ON ASSESSMENT OF DAMAGES

21. The appellants argue that the trial judge erred by ordering a separate trial on assessment of damages. We dismiss this argument as being entirely meritless.

22. Whether there are separate trials on liability and assessment is a matter for the trial Judge (Kombra & The State v Finance Corporation Ltd (2021) SC2127). No provision of the National Court Rules restricts the exercise of the trial judge’s discretion in that regard. The appellants had the opportunity to clarify this issue at the start of the trial, and also at the end of the trial when making submissions. There was no prejudice to the appellants due to the course of action taken by the trial judge, which was unremarkable and in accordance with the conventional practice and procedure of the National Court.

23. The fourth category of grounds of appeal is refused.

CONCLUSION

24. All grounds of appeal fail and the appeal must be dismissed, with costs.

ORDER

(1) The appeal is dismissed.

(2) The order of the National Court in WS 1144 of 2013 of 21 April 2020 is affirmed.

(3) Any order of this Court staying the order of the National Court in WS 1144 of 2013 of 21 April 2020 is dissolved.

(4) The appellants shall pay the respondent’s costs of the appeal on a party-party basis, which shall, if not agreed, be taxed.

______________________________________________________________
Pacific Legal Group Lawyers: Lawyers for the First Appellant
Korerua & Associates Lawyers: Lawyers for the Second Appellant
Fiocco & Nutley Lawyers: Lawyers for the Respondent