Home | Databases | WorldLII | Search | Feedback National Court of Papua New Guinea

Olympic Stationery Pty Ltd v Niugini Steel Corporation Pty Ltd [1991] PGNC 3; N1313 (12 February 1991)

Unreported National Court Decisions

N1313

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

WS 79 OF 1993
OLYMPIC STATIONERY PTY LTD
v
NIUGINI STEEL CORPORATION PTY LTD

Waigani

Salika J
March 1995

JUDGMENT

CONTRACT - Negotiations for sale of land between parties - offer and acceptance - Deposit paid - Contract of Sale executed - Ministerial Approval obtained - Defendant refuses to co-operate to honour contract.

DEFENDANT DENIES CONTRACT - Persons signed on behalf of Defendant ostensible authority to enter into contracts.

Specific performance ordered.

Counsel:

Mr Merrick for the Plaintiff

Mr Briggs for the Defendant

Cases Cited:

AGC (Pacific) Ltd v Woo International Pty Ltd (1992)

McWilliams v McWilliams Wines Pty Ltd [1964] HCA 6; (1964) 114 CLR 656

March 1995

SALIKA J: The suit in this matter was commenced by way of a writ of summons by the plaintiff against the defendant.

The main facts not in dispute are:

(1) The plaintiff is the registered proprietor of land namely Lots 18 and 19 (consolidated) Section 341 Hohola.

(2) The defendant is the registered proprietor of a business lease Volume 84 Folio 198 which was granted on the 28th September 1983 for a term of 99 years from 9 July 1981. The lease comprises Allotment 20,21,22 and 23 (consolidated) section 341 Hohola. The plaintiffs and the defendants share land boundaries.

(3) Negotiations took place between the parties, Ray Thurecht and Anton Rasiah on behalf of the plaintiffs and Kurt Fieldman and Joshua Kuruilla on behalf of the defendants for the sale by the defendants to the plaintiffs of Lot 20 Section 341 Hohola.

(4) An offer of K15,000 for Lot 20 was accepted by Mr Kurt Fieldman by a letter dated 24 May 1990 with a proviso that payments be made immediately and not when the title changes hands.

(5) A deposit of K15,900 was paid by cheque by the plaintiff to the defendant between 15 and 20 June 1990.

(6) A contract of Sale and Purchase of Lot 20 was drawn up by Steeles Lawyers, the plaintiffs lawyers with the approval of the defendants for execution.

(7) The Contract was executed on the 29th October 1990 and the common Seal of both Niugini Steel Corporation Pty Ltd and Olympic Stationary Pty Ltd were affixed thereto and witnessed by Kurt Fieldman (Director) and “Joshua Kuruvilla (Secretary)” on behalf of the defendants and “Ray Thurecht (Director)” and “Anton Rasiah, (Secretary)” on behalf of the plaintiff.

(8) Stamp duty was paid by the plaintiffs on the documents on 6 November, 1990.

(9) Ministerial Approval was obtained to the dealing in the land on the 12 February, 1991.

(10) Payment of the outstanding land lease rental due to the Department of Lands for Lots 20, 21, 22 and 23 Section 341, Hohola was paid by the plaintiff in the sum of K4,425.00 in or about December of 1991 upon instructions of the defendant.

(11) There is no dispute as to the identity of the signatories on the contract on behalf of both parties.

PLAINTIFF’S CASE

The plaintiff submits that there was a valid agreement for the sale of Lot 20 following an offer and acceptance between itself as the purchaser and the Defendant as the vendor.

The plaintiff further submits that the agreed purchase price of the property was K15,000 and that at the request the defendant the plaintiff had paid a deposit of K14,900.

The plaintiff argues that a contract was drawn up by its lawyers with the approval of Mr Kurt Fieldman a director of the Defendant company and which was signed across the common seal on behalf of the defendant by Mr Fieldman and Mr Joshua Kuruvilla who held himself out to be the Company Secretary of the Defendant Company was a valid contract.

The contract and transfer documents were dated executed on the 29 October 1990 and stamp duty on the transfer and the Contract was paid by the plaintiffs.

Ministerial approval was granted on 12/1/91 but the documents were not returned to the plaintiff’s lawyers until the plaintiff had paid the outstanding land lease rentals in December 1991. It was the responsibility of the defendants to pay the land lease rental and the plaintiff was forced to pay in order to obtain the documents duly approved.

After the plaintiff had received the approved Transfer documents it was necessary to apply to the Lands Department for sub-division under Section 71 of the Lands Act. The Plaintiff argues that although it was the vendors ( defendants) responsibility the defendants had indicated it was taking a passive role in the procedure. The Plaintiff therefore took the lead role in this and required the defendants cooperations in so far as it had to consent to the application made on its behalf.

The Minister for Lands would either approve or refuse the application. If the terms and conditions of the new lease are acceptable to the plaintiff, the defendant would then be called upon to surrender the State lease for new leases to be granted over each of the subdivided portions of the land.

The defendant refused to give instructions to its Mortgage, the ANZ Banking Group to release the State Lease for the purpose of the application to the Minister for Lands for a Sub-division.

The plaintiff argues that by its refusal the defendants is in breach of the contract and is seeking specific performance of the contract.

In the alternative the plaintiff seeks an order for damages for losses suffered as a result of the breach.

The defendants has denied knowledge and existence of the contract of sale. It submits that there was no contract binding on it because of the way in which the purported execution took place. If submits that Mr Kurt Fieldman and Mr Joshua Kuruvilla were not authorised by the Directors of it to enter into such a contract and furthermore it submits that Mr Fieldman was no longer Director of it and that Mr Kuruvilla was never the Company Secretary. The defendant pleads the statute of Frauds and Limitations Act Sections 2 (1) (a) and S. 4. It argues that those provisions deal with situations where the vendor of an interest in land is a company (as in this case) and not a natural person there are two ways by which a Vendor company can “sign” so as to comply with provisions of Section 2 and 4 of the Statute of Frauds and Limitations Act. The first is by duly fixing the Company seal on a document and the second is pursuant to s. 38 of the Companies Act Chapter 146.

The Companies Act is silent as to how companies should fix their common seals to documents but it is a matter which is dealt with by the Company's articles of association. In this case the defendant Company articles of association say that the common seal:

(a) must be used only by the authority of the Directors or of a Committee of Directors authorised by the Director in that behalf; and

(b) must be accompanied by the signature of a Director and shall be counter signed by the Secretary or a Second Director or by some other persons appointed by the Directors for that purpose.

The defendant thus argues that because Mr Fieldman and Mr Kuruvilla were not either Directors or Secretaries or specially appointed persons they could not execute the document on behalf of it. It submits that the company seal is not duly affixed to the Contract of Sale.

In relation to the second means of compliance Section 38 (i) (b) states:

“(i) Contracts on behalf of a company may be made as follows:

(a) ...

(b) a contract that, if made between private persons, would be by law required to be in writing signed by the parties to be charged with it may be made on behalf of the company in writing signed by a person acting under to express or implied authority; and

any contract so made is effectual in law and binds the company and its successors and all other parties to it and may be varied or discharged in the manner in which it is authorised to be made.”

The first point the defendants argues is that it says the contract of sale cannot be construed as a document which is purported to be executed by natural persons on behalf of the defendant company. It says that the execution clause was drafted for execution by a Director and Secretary of the defendant company signing as witnesses to the affixing of the common seal and not for execution of the document by individuals on behalf of the defendant. It argues that the only function of the Director and Secretary in such execution is to record by signature, the attestation to the sealing of the instrument but it is by the sealing of the instrument that the document is executed. The defendant thus argues that the Contract of Sale cannot be construed to be an example of the defendant company executing an agreement pursuant to section 38 of the Companies Act.

The second point the defendant argues is that Section 2 and 4 of the frauds and Limitations Act requires lawful authorisation of agents in writing for the supposition of interest in land to be evidenced by writing of an agent and not the principal. the defendant argued that there was no such written, lawful authorisation of Mr Fieldman and Mr Kuruvilla to enter the contract. The defendant argues that in any event the two officers who purported to execute the contract on behalf of the defendant were acting without the authority of the defendant company.

The defendant also argues that in appointing a director or a Secretary, a company is bound by any action taken by the director of Secretary in accordance with express authority conferred by the shareholders or directors of the company. They also submit that a company is bound by any action taken by a Director or Secretary which is incidental to their position. This is called implied authority. A company can also be bound by action taken by a Director or a Secretary where that company holds out that person as having such authority. That is called “ostensible authority”.

The defendant argues that it did not do anything which could be construed as holding out Mr Fieldman or Mr Kuruvilla as having ostensible authority to execute the contract of sale. It argues that the documents was not to be executed under authority but by the Company itself under seal.

I have heard evidence from both sides and I must say at the outset that I was not impressed with the evidence of Mr Fieldman. This is because I am of the view that he is the cause of this litigation.

The first issue for the court to determine is whether there was a contract binding on the defendant.

There is evidence of negotiations taking place between the plaintiff and Mr Kurt Fieldman and Mr Kuruvilla purportedly on behalf of the defendant. Correspondences were sent on the company letterheads of each of the parties. Mr Fieldman held himself out to be a Director and Mr Kuruvilla held himself out to be the Company Secretary of the defendant Company. The defendant argues that it did not give authority to Mr Fieldman and Mr Kuruvilla to act on its behalf. I do not accept that submission. I am of the view that Mr Fieldman and Mr Kuruvilla were both acting on behalf of the defendant company. They were the men at the locality and surely one would expect them to master some authority to act on behalf of the defendant company. I refer to exhibit D, a letter signed by Mr Fieldman on the 20/6/90. That letter was in reply to a letter from the plaintiffs Managing Director Ray Thurecht. The letter reads:

“We thank you for your letter dated 15/6/90 with attached deposit cheque, and we wish to advise that we approve the deal be done as per your suggestion.”

That in my view is evidence enough for the plaintiff company to accept and believe that the defendant company had authorised Mr Fieldman to correspond on its behalf and agreed to the deal.

Earlier, on the 30/4/90 Mr Kuruvilla had written to the plaintiff and his letter says:

“We have consulted our Board of directors regarding your offer...”

Again this is evidence that the Board of Directors of the defendant company were aware of the deal and that Mr Kuruvilla was authorised to act on its behalf. In the same letter Mr Kuruvilla said:

“We require all the monies in full and the legal formalities will be your responsibility.”

Again, anyone reading that letter was expected to reasonably assume that Mr Kuruvilla was acting on instructions from the Board of Directors. From all the correspondence and negotiations a contract of sale was drawn up by the Plaintiffs lawyers. An up front payment of K14,900 was paid by the Plaintiff as requested and accepted by the defendants through Mr Fieldman. After the contract of sale was drawn up it was signed by the parties. The defendant argues it had no knowledge of the contract and that Mr Fieldman and Mr Kuruvilla were not authorised to execute the document. I am of the view that following on from the negotiations and the correspondence received from the defendant company the plaintiff was entitled to assume that both Mr Fieldman and Mr Kuruvilla were the mouth piece for the defendant company in Papua New Guinea and that each was authorised to sign the contract of sale. There were no suspicious circumstances in my view which would have placed the plaintiff on inquiry that the dealings by the Director and Secretary were anything other than regular. The fact that Mr Thurecht had been told that the contract had been sent to Sydney is not in my view a circumstance which would have placed Mr Thurecht on inquiry. This is because right from the start of negotiations Mr Fieldman and Mr Kuruvilla held themselves out to be a director and secretary respectively of the defendant company. Mr Fieldman who was a Director said Mr Kuruvilla might have held himself out to be the company secretary of the defendant. Mr Fieldman a Director impliedly allowed Mr Kuruvilla to hold himself out to be the company secretary. Indeed “Exhibit A” a letter from Mr Kuruvilla, to the plaintiff Mr Kuruvilla holds himself out as the company Secretary. One would expect copies of such correspondence to be on the company files and that a prudent Company Director such as Mr Fieldman would have seen the correspondence and stopped Mr Kuruvilla from holding himself out as the company secretary. Mr Fieldman did not and so Mr Kuruvilla in my view was entitled (rightly or wrongly) to assume he was the company secretary which in turn entitled the plaintiff to assume that Mr Kuruvilla was the company secretary of the defendant company. In my view the circumstances in this case were such that there was ostensible authority given by the defendant company to both Mr Fieldman and Mr Kuruvilla to act for the defendant Company.

I refer to the case of AGC (Pacific) Ltd v Woo International Pty Ltd (1992) for support where Sakora J said:

“Where a person dealing with a company acts in good faith with no other notice or reasonable grounds of suspicion of irregularity or impropriety, he is not affected by any actual irregularity or impropriety in a matter of internal regulations. That is a third party dealing with a company is not bound to ensure that the internal regulations derived, inter alia from the articles of association, have in fact been complied with as regards the exercise and delegation of authority in the company. A third party need not go further; he need not ensure that the rules of internal management sometimes referred to as rules of ‘indoor management’ have been observed.”

In my view the fact that Mr Fieldman and Mr Kuruvilla held themselves out as a Director and a Company Secretary was a matter of internal management of the company and should have been attended to by the Directors. As far as the plaintiff is concerned he is a third party interested in buying land from them. It is not the plaintiffs business to sort out the management deficiency of the defendant company.

The defendant has relied on an extract that it produced to the court showing the affairs of the company as at the 28 June 1985. There is no further evidence of the state of affairs of the company between 1985 and 1992. I could not accept that the position of the defendant company was the same between 1985 to 1992. To my mind that extract is of no evidentiary value to the Court.

The plaintiff in my view had acted on good faith all along. The owners of the company in Sydney were aware of the deal. If Mr Fieldman and Mr Kuruvilla acted without authority then that in my view is a matter the defendant company has to sort out, because right from the beginning of negotiations the plaintiff was entitled to assume that both men had the authority to act for the defendant.

I find there is a valid contract and that the defendant is bound by it.

The next issue is was the contract breached by the defendant. The plaintiff alleges that the defendant refused to co-operate with the plaintiffs lawyers in submitting an application for a sub-division of the land in accordance with the obligations under clause 19 (b) of the contract. Clause 19 (b) reads:

“This Agreement is subject to and conditional upon the vendor obtaining a separate state lease for the property upon terms and conditions acceptable to the purchaser and in the event that the vendor within six (6) weeks from the date hereof fails to obtain the said state lease or obtains the state lease upon terms and conditions not acceptable to the purchaser, the purchaser may rescind this Agreement in which event the provisions of clause 19 shall...apply.”

The defendant argues that although the contract may appear to impose obligations on the defendant to obtain a separate state lease for allotment 20, the plaintiff in fact assumed that obligation of the defendant and failed to obtain the separate lease within 6 weeks. The defendant argues further that since the condition remains unsatisfied the contract is not enforceable. Evidence does support the contention that the plaintiff assumed the obligation to obtain the separate state lease. Evidence is that legal formalities to obtain the lease was to be the plaintiffs responsibility. The plaintiff was forced into that position by the defendant. The point here is that the defendant did not co-operate with the plaintiff when its cooperation was required to achieve the intention of the parties. Evidence is that the defendant was a passive party to the transaction. It was prepared to go through the deal so long as it did not play the leading role.

The plaintiff is seeking an order that the defendant take all steps that are “reasonable or necessary” to obtain a separate state lease of Lot 20. This means it is called upon to take the steps set out in s. 71 (1) to (6) of the Lands Act. All the other steps had been completed except to surrender the lease for the purpose of granting new leases over each of the subdivided portions of land. The defendant has refused to surrender the lease in that it has refused to sign the application made on its behalf for a sub division of the land under s. 71 of the Lands Act. It is necessary that the defendants sign the application to achieve their intention. To my mind the refusal by the defendant to sign the application for the purpose of achieving their goal is a hindrance to their cause. The defendant in my view must on its part, take all steps necessary to achieve their intentions. I refer to the case of McWilliams v McWilliams Wines Pty Ltd [1964] HCA 6; (1964) 114 CLR 656 at 661 where the court said:

“We think it proper at this stage to direct the appellant to do all such things as may be necessary on his part to support an application for the consent of the Commission to a transfer of the subject land to the respondent company or as it may direct.”

This case in my view lends support to the proposition that it is necessary for the defendant to do everything reasonably necessary to transfer Lot 20 to the Plaintiff. The defendant must make or sign the appropriate application and it should not delay or refuse to co-operate. That is all the plaintiff is asking the defendant out to do - sign the application - which the plaintiff has prepared on behalf of the defendant.

The defendant has submitted that if it were to sign the appropriate application it would mean that it would have to surrender the whole lease relating to the whole of the land including Allotments 21, 22 and 23 which he says was unforeseen and which it did not wish to do and in the circumstances has decided for that reason not to take the step to sign the application.

What the defendant has failed to realise is that in order to obtain a separate state lease for Lot 20 the defendants has to go through the stages stipulated under section 71 of the Lands Act. I do not consider that the requirement to surrender the lease is unforseen. The requirement has been there all the time in the Land Act.

Taking into account all the circumstances of the case I am satisfied on the balance of probabilities that the defendant breached the contract in that it has not performed its obligations under the contract.

I accordingly make the following orders:

a) The defendant is to speedily do all things that are necessary to obtain a separate State Lease of Allotment 20 Section 341 Hohola being part of the land comprised in State lease volume 84 Folio 198 together with the improvements thereon; and

b) Do all things that are necessary to complete the sale of the said piece or parcel of land namely Allotment 20 section 341 Hohola being part of the land comprised in state lease volume 84 Folio 198.

c) Costs of these proceedings is awarded to the plaintiff.

Lawyer for Plaintiff: Warner Shand

Lawyer for Defendant: Blake Dawson Waldron