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Kumar v Khan [2008] FJHC 297; HBA14.2006 (18 July 2008)

IN THE HIGH COURT OF FIJI
AT LAUTOKA

CIVIL APPEAL NO. HBA 14 OF 2006
(Nadi Magistrates Court Civil Action No. 74 of 2005)

BETWEEN

MADHUR KANT KUMAR
f/n Ram Narayan
Plaintiff

AND

KHAIYUM KHAN
f/n unknown to plaintiff
1st defendant

AND

SHERIN NAZRUL NISHA
f/n Wali Ahmed Khan
2nd defendant

Appearances: Haroon Ali Shah for the plaintiff
Patel & Sharma (Nadi) for the defendants

JUDGMENT

[1] These proceedings were commenced by an appeal from orders made in the Nadi Magistrates Court including a judgment given on 12 April 2006. The judgment on the appeal was decided in favour of the defendants. In the exercise of the court’s powers under Order XXXVII rule 18 of the Magistrates’ Courts Rules I ordered that the whole case be re-heard in this court.

[2] The proceedings arise from a contractual dispute between the plaintiff and the 2nd defendant. The following facts are not disputed. Pursuant to a partly written and partly oral agreement made on 31 March 2005 the plaintiff agreed to purchase and the 2nd defendant agreed to sell a nightclub business called Rangeela Nightclub (the nightclub) situated in premises owned by Grace Brothers (the landlord) in Nadi town, for $150,000.00 (the agreement). The settlement date was 31 April 2005. No money changed hands on 31 March 2005. On 7 April 2005 the plaintiff and 2nd defendant entered into an addendum to the agreement whereby the plaintiff upon execution of the addendum paid $20,000.00 cash to the defendants and received the keys to the nightclub so as to operate the same. The settlement date was extended to 15 May 2005.

[3] There was no transfer of any licence from the 2nd defendant to the plaintiff on 7 April 2005 or any tenancy agreement with the landlord. The defendants on 22 April 2005 took back the keys to the nightclub and started operating the nightclub to the exclusion of the plaintiff. On 2 May 2005, the plaintiff regained entry to the nightclub pursuant to an injunctive order from the Nadi Magistrates Court. The 2nd defendants liquor licence and business licence expired on 31 December 2005. The plaintiff has since 31 December 2005 operated a nightclub under her own name; "Rangeen Nightclub" with its own liquor licence.

The amended statement of claim

[4] The plaintiff claimed that it was agreed inter-alia between the parties that the 2nd defendant would on the date of settlement and before payment provide to the plaintiff written confirmation that the landlord would grant the plaintiff a long term tenancy but in any event for not less than 10 years. She alleged that it was an essential term in the addendum that the plaintiff would immediately pay $20,000.00 to the 1st defendant in exchange for the plaintiff commencing operation of the nightclub and the settlement date for payment of the balance of $130,000.00 was extended to 15 May 2005. She paid $20,000.00 and commenced operation of the nightclub. She alleged that the 2nd defendant did not on the payment of $20,000.00 provide her with a letter of confirmation of her long-term tenancy from the landlord. She alleged that the 2nd defendant did not on the day of payment of the said $20,000.00 transfer the liquor and business licences to the plaintiff as allegedly agreed. She claimed that in breach of the agreement the 2nd defendant and her husband, the 1st defendant, on 22 April 2005 forcefully took over the nightclub and evicted her from the nightclub premises. The plaintiff regained entry by virtue of the Magistrates Court order in her favour on 2 May 2005. She claimed that in the period of the alleged wrongful takeover, from 22 April to 2 May 2005, the defendants unlawfully converted her stock in the sum of $15,000.00. Further that they operated and profited. She claimed that she remains upon the subject premises in her own right. She alleged that the 2nd defendant was in fundamental breach of the agreement and by her conduct frustrated the performance of the said agreement. She also claimed that during the currency of the agreement the defendants trespassed upon and converted her goods and has sought general damages for losses allegedly sustained by her. Damages for breach of contract and aggravated damages for wrongful conduct were also claimed.

Amended statement of defence

[5] The defendants denied the allegation that they were to have secured written confirmation from the landlord for a long-term tenancy in favour of the plaintiff. They claimed that the addendum was effected by the plaintiff’s request to make provisions for part-payment and to extend the time for settlement of the agreement. They claimed that upon payment of the initial $20,000.00 the plaintiff verbally assured the defendants that a further payment of $20,000.00 would be made on 2 April 2005. That based on this promise and assurance the plaintiff demanded the keys to the nightclub and the defendants handed over the keys to the nightclub to the plaintiff who took occupation of the nightclub. They denied the alleged obligation of having to provide a letter of confirmation from the landlord or to transfer the liquor and business licences prior to settlement. They stated that after she took possession of the nightclub the plaintiff breached her assurance and promise to pay a further sum of $20,000.00 by 22 April 2005. They denied the allegations of wrongfully taking over the nightclub on 22 April 2005 and the allegation of unlawfully converting the plaintiff’s goods. They claimed that the plaintiff was in fundamental breach of the agreement in failing to pay the total purchase price of $150,000.00.

[6] By way of counter-claim they claimed that in breach of the agreement the plaintiff had failed to pay the balance sum of $130,000.00 which remained due and owing despite the plaintiff taking possession of the nightclub. They claimed that the plaintiff, without any color of right or propriety interest has been in control and has been operating their business from the first week of May 2005. Further that the plaintiff has generated income from operating the nightclub causing damages in the form of loss of profit to the defendants particularized at the rate of $10,000.00 average per month for 22 months and being unable to pledge the nightclub for security for further investment. The sum of $130,000.00 or alternatively the possession of the nightclub was sought, general damages for breach of contract and loss of profit, special damages for loss of profit in the sum of $220,000.00, loss of income from March 2007 till the date of payment and other ancillary orders.

The Agreement

[7] There is no dispute that there was a valid contract entered into by the plaintiff and the 2nd defendant on 31 March 2005 and supplemented by the addendum dated 7 April 2005. There is also no serious dispute that both parties intended by the contract to create legal relations and intended that legal consequences were to follow arising from the terms of the contract. The contract is enforceable. Mutual instructions were conveyed to a common solicitor before the execution of the agreement. I have found as a fact, preferring the defendants’ testimonies in this regard over that given by the plaintiff for reasons which I will expand on later, that the terms and conditions of the agreement and the addendum were explained to both parties who each understood their contractual obligations arising from the contract.

[8] The plaintiff agreed to purchase the nightclub for $150,000.00 which initially was to have been paid on 31 April 2005. The settlement date was extended to 15 May 2005 at the plaintiff’s request. She admitted in cross-examination that she did not have $150,000.00 to pay to the 2nd defendant by 31 April 2005. There has been sufficient performance on the part of the 2nd defendant of her obligations under the contract. I have found that the alleged deviations from exact compliance pleaded are both minute and unimportant.

[9] In consideration of the payment of the purchase price of $150,000.00, the 2nd defendant agreed to sell as a going concern on a walk-in-walk-out basis the nightclub business. Possession of the chattels and nightclub premises was to have been given by the 2nd defendant and taken by the plaintiff on the extended date of settlement i.e. 15 May 2005. The plaintiff maintains that the 2nd defendant breached the terms of the agreement as follows:

(i) no long term tenancy was given to her at the time she took possession of the nightclub. The agreement expressly stipulated that the parties agreed and were satisfied that the landlord had agreed to accept the plaintiff as the new tenant. The plaintiff’s testimony was that she was told that the 2nd defendant would talk to the landlord. She was taken to the landlord’s office but he wasn’t there. She testified that the 2nd defendant agreed to give her a long term tenancy of 10 years. That was not an expressed provision of the agreement. I find that the agreement was also never varied orally to include such a term. I find that at the time she agreed to purchase the nightclub, the plaintiff was well aware, having been informed that the 2nd defendant occupied the premises as a monthly tenant, that she was purchasing the nightclub on the basis that all she was acquiring was a monthly tenancy. Her testimony in this regard was not credible and was inconsistent with what has actually transpired. The plaintiff todate continues to operate the nightclub on the premises as a monthly tenant. The evidence has established that Clause 10 of the agreement was complied with in that the plaintiff was accepted as the new tenant and the tenancy continues up until today.

(ii) there was no transfer of the liquor licence. The plaintiff’s own evidence has established that she utilized and operated the nightclub under and during the currency of the 2nd defendant’s liquor licence from 2 May 2005 until 31 December 2005 and was also given a temporary licence until 10 June 2006. Thereafter the licence had been renewed in her name which was the prevailing practice. For all intents and purposes, the licence had effectively been transferred to the plaintiff as she continued the operation of the nightclub under it and obtained the full benefit of operating and trading under the said licence for the full period of its remaining term.

(iii) possession of the nightclub was forcefully taken from her on 22 April 2005. Again I have preferred the testimonies of the defendants over that from the plaintiff. I find that the agreement was orally varied after the parties had signed the addendum on 7 April 2005 by further agreeing that the plaintiff was to take possession of the nightclub on condition that a further sum of $20,000.00 was paid to the 2nd defendant by 22 April 2005. The plaintiff obtained the keys from the defendants and commenced operation of the nightclub on 7 April 2005. On 22 April she did not pay the promised sum of $20,000.00 and avoided the defendants’ telephone calls to her. Later that evening the defendants visited the premises and were given back the keys, voluntarily by the plaintiff, because she had failed to pay the second installment of $20,000.00. The defendants’ account of this incident is the more credible version. The plaintiff has given differing versions of this incident under oath. In her affidavit sworn on 2 May 2005 in the Magistrates Court proceedings she deposed at paragraph 9 that on 22 April 2005 the 1st defendant demanded that she pay another $10,000.00 which she was not in a position to pay having purchased items for the nightclub. In her examination-in-chief in this court she said that the 1st defendant demanded from her the sum of $130,000.00 on the evening in question. Her inconsistent accounts have cast an extremely unfavourable impression over her entire testimony. It is the testimony from the defendants which I have assessed as having been truthfully rendered.

Frustration

[10] The plaintiff pleaded that the 2nd defendant by her conduct described in paragraph [9] above frustrated the performance of the agreement. She stated in examination-in-chief that her pending "bank loan application was demolished because of the dispute and that Khaiyum told the bank we were no longer at the club and the bank demolished the loan application". Frustration may arise from a multitude of causes but whatever the alleged source of frustration, a contract is not discharged under the doctrine of frustration merely it turns out to be difficult to perform or onerous. Further, where the change in circumstances is insufficiently serious to frustrate a contract, the party unsuccessfully claiming frustration remains liable to perform his promises[1]. The doctrine has been succinctly by the Court of Appeal in H. P. Kasabia Brothers Ltd v Reddy Construction Company Ltd[2] as follows:

"It is sufficient in the first place to cite a well known passage from the speech of Lord Radcliffe in Davis Contractors Ltd v Fareham V.D.C [1956] AC 1996 AT pp 728-9 where his Lordship said:

‘So perhaps it would be simpler to say at the outset that frustration occurs whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do".

[11] The onus of establishing frustration lay with the plaintiff. The question is whether performance of her obligation to pay the full purchase price under the agreement was contingent upon her ability to obtain finance and whether the defendants’ conduct made this obligation incapable of being performed. There is no reference in the agreement or the addendum to the manner in which the $150,000.00 purchase price was to be sourced or that performance was subject to finance. Performance of this obligation was not dependant upon the approval or otherwise of a bank loan. The defendants were aware that the plaintiff intended to pay the purchase price from the proceeds of a bank loan. They gave her the financial records of the nightclub to facilitate the loan application. However, again the plaintiff’s evidence in this regard is inconsistent with her prior averments. In her affidavit sworn on 24 May 2005 she deposed that she had managed the nightclub for the last two weeks and "I see no problem whatsoever in paying of the balance sum to the defendants. This however can only be possible if the defendants allow me to operate the business without unnecessary disturbance." At paragraph 4 of the same affidavit she said that she ought to be given further time to pay up the balance sum. She also undertook to pay a further sum of $20,000.00 by 30 May 2005 if the balance sum of the purchase price was not forthcoming. She exhibited a document purporting to be the approval from a financier for a loan of $130,000.00 on or before 26 May 2005. In that same affidavit she said that due to the disturbance by Mr. Khan she had not been able to secure a loan from the Bank and had resorted to another source for finance. Even on her own evidence that knowing that her supposed loan application had been declined, she had then maintained her promises and undertaking to pay the balance purchase price of $130,000.00. This undertaking and commitment to fulfill her end of the bargain was made in an affidavit to maintain the injunction she had obtained against the defendants. It also reflected her contractual obligation to make full payment. She was careful to convey an impression that she fully intended to pay the full balance purchase price of $130,000.00. I have upheld Mr. Singh’s submission that the plea of frustration in defence to the defendants’ claim to have the balance purchase price paid was merely an after-thought designed to avoid her obligations of payment under the agreement altogether. Aside the misconceived use of the doctrine, the plaintiff did not discharge the onus of proving that the defendants conduct frustrated her performance of an essential term of the agreement. No doubt the plaintiff would have had documents supporting her contention that she made a loan application which was declined for the reasons she gave. None were produced. Nor was a Bank Officer called to substantiate her testimony in this regard. In the absence of documentary evidence supporting her testimony, which I have treated with caution for reasons already given, the evidence relied on simply does not suffice as sufficient proof of her claim or frustration. I have also upheld Mr. Singh’s submission that the allegation of an oral variation incorporating a long term tenancy as a term of the agreement was also an after-thought. The plaintiff did not raise this at all in the Magistrates Court proceedings.

Allegation of Conversion

[12] The plaintiff’s evidence alone does not suffice adequate proof given my findings on her credibility in view of her tainted testimony. In the absence of any documentary evidence to substantiate this claim I have dismissed it in its entirety.

The Counter-Claim

[13] The plaintiff does not dispute that she did not pay the balance purchase price in the sum of $130,000.00. She considers that she is not liable to pay this amount because the defendants frustrated the performance of her obligation in this regard and the 2nd defendant breached essential terms of the agreement. The defence of frustration fails because the plaintiff did not establish the essential pre-requisites that were required to be established by her. I have also found that the 2nd defendant did not breach any essential terms of the agreement. The plaintiff who resided in New Zealand visited the nightclub on one of her visits to Fiji. She liked what she saw and wanted to buy the business. She accepted the purchase price of $150,000.00 and entered into the agreement with the 2nd defendant. The nightclub business was the defendants’ only source of income. Both husband and wife operated the business. By all accounts it was and still is one of the more successful nightclubs in Nadi. The defendants allowed the plaintiff to take possession before the settlement date trusting that she would uphold her part of the bargain by paying the full purchase price. Their trust was completely misplaced. The defendants’ lives have been virtually ruined by their dealing with the plaintiff. They lost a business undertaking which was very successful and which they were clearly very proud of. I have no doubt that it was due to their hard work and perseverance that the nightclub developed the reputation it had when the plaintiff patronized it and wanted to buy it. The plaintiff continues to run the nightclub albeit under a different name. She continues to make a substantial income from the business. Yet she refuses to abide by her obligation to pay the full purchase price under the agreement. For reasons for not doing so are unmeritorious and unjustified in law. They also reflect her lack of good faith in her dealing with the 2nd defendant.

[14] The defendants’ counter-claim for the balance purchase price in the sum of $130,000.00 succeeds. I have also upheld Mr. Singh’s submission that the plaintiff is liable to pay the 2nd defendant damages for breach of contract. The measure of damages payable to her in respect of the plaintiff’s breach of contract is the amount required to put her in the position she would have been if the contract had been duly performed. She has lost the opportunity to invest monies which were payable to her. She and her family has suffered from the financial burdens brought about by the loss of their business and the lost opportunity to start another business from proceeds which ought to have been paid to her three years ago. She has been put to enormous inconvenience and stress as a result of the plaintiff’s completely unjustifiable actions. I have calculated damages due to her at the rate of 10% per annum on $130,000.00 for three years which amounts to $39,000.00.

Conclusion

[15] The plaintiff’s claim is dismissed. She has not proved her claim including the plea of frustration. She called one witness who was not convincing and who gave a clear impression of having been coached in what he had to say in court. He was also completely unaware of the terms of the agreement between the parties. The plaintiff’s testimony on its own was not credible being substantially inconsistent with her earlier affidavits on the disputed issues of fact in the action. I have upheld the defence and the defendants’ counter-claim. The plaintiff’s claims were fictitious and in my view designed to delay performance of her contractual obligations. In the circumstances the defendants are entitled to indemnity costs.

Orders

(i) The plaintiff is to pay the 2nd defendant the sum of $130,000.00 being the balance purchase price of the agreement.

(ii) The plaintiff is to pay the 2nd defendant the sum of $39,000.00 being damages for breach of contract.

(iii) The plaintiff’s action is dismissed.

(iv) The plaintiff is to pay the defendants costs of these proceedings on an indemnity basis to be taxed if not agreed.

(v) The plaintiff is also to pay the defendants 6% interest on the judgment award calculated from 23 October 2006 todate.

Gwen Phillips
Judge

At Lautoka
18 July 2008

^[1] Halsbury’s Laws of England 4^th Edition Vol. 9 (1) para 904
^[2] [1979] FLR 99