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Pacific Foam Pty Ltd v Zurich Pacific Insurance Pty Ltd [1998] PGNC 77; N1745 (31 July 1998)

Unreported National Court Decisions

N1745

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

WS NO. 919 OF 1996
BETWEEN;
PACIFIC FOAM PTY LTD
PLAINTIFF
AND:
ZURICH PACIFIC INSURANCE PTY LTD
DEFENDANT

Waigani

Kapi DCJ
10 March 1998
23-24 March 1998
31 July 1998

CONTRACT - When terms of contract in writing - no evidence allowed to add to, subtract from, vary or qualify the written contract - Evidence may be admitted to show a collateral agreement or to show that that the contract was induced by false misrepresentation.

DAMAGES FOR FALSE MISREPRESENTATION - may not be brought against a person not a party to the contract.

Counsel

K Kua for the plaintiff

D Lightfoot for the defendant

31 July 1998

KAPI DCJ: It is necessary to set out the background to the claims that have arisen in this action.

Wespac Bank (PNG) Ltd (hereinafter referred to as “the Bank”) was the original registered proprietor of house situated on Allotment 21 Section 34, Granville, City of Port Moresby being the whole of land comprised in State Lease Volume 5 Folio 1127 (hereinafter referred to as “the premises”). The Bank entered into negotiations with the plaintiff company for the sale of the premises.

Whilst these negotiations were in progress, the Bank sought to lease the property to a tenant. It negotiated the rental of the premises with the defendant company. Mr Green and his family of the defendant company moved into the premises on 15^th December 1995. The terms of the lease agreement was drawn up and signed by the representatives of the Bank and the defendant on 1st February 1996 with effect from 15^th December 1995.

The Bank completed the sale of the premises to the plaintiff with settlement taking place on 13 March 1996. The lease agreement with regard to the premises was assigned to the plaintiff.

In the lease agreement, the rental for the premises was agreed at K5, 633.00 per month for a period of two years. On the 9^th of September 1996 Mr Green and his family of the defendant company vacated the premises.

The plaintiff filed these proceedings to recover damages by way of rentals due for the balance of the lease period under the lease agreement.

The defendant by way of defence claims that the agreement is void ab initio in that prior to the 16^th December 1995, it was induced to enter into the agreement by fraudulent misrepresentation (a) that the residential premises would be fit and proper for the use and safety of human habitation by a senior expatriate executive, his wife and their young family (b) that certain improvements and repairs would be carried out prior to occupation (c) that the residential premises and its surrounds would be safe and secure for human habitation.

In the alternative, the defendant claims that when it agreed and occupied the premises on 15^th December 1995, it was an implied term of the agreement (a) that the premises are fit and proper for the use and safety of human habitation by a senior expatriate executive, his wife and their young children (b) that certain improvements and repairs would be carried out prior to occupation (c) that the residential premises and its surrounds would be safe and secure for human habitation.

Further, the defendant claims that after 16^th December 1995 it was induced to sign the lease agreement on 1^st February 1996 by fraudulent misrepresentation in that certain improvements, repairs would be carried out no later than the end of the month of December 1995.

If there is a valid lease agreement as claimed by the plaintiff, the defendant claims that the plaintiff breached clause 18.2 of the lease agreement in that it failed to carry out maintenance in accordance with the lease agreement and therefore it was justified in treating the agreement at an end and thereby vacating the premises.

In a counterclaim the defendant claims damages for fraudulent misrepresentation as previously set out.

The issues that arise for consideration are: (1) whether the defendant was induced to occupy the premises by false misrepresentation (2) whether the defendant was induced to sign the lease agreement on 1^st February 1996 by fraudulent misrepresentation (3) If the lease agreement is valid, did the plaintiff breach clause 18.2 of the lease agreement and whether the defendant was justified in vacating the premises on 9^th September 1996.

Before I consider these issues, I should deal with objections taken by counsel for the plaintiff to admissibility of certain documents that were sought to be led in evidence by the defendant. I reserved my decision in respect of these documents. The documents objected to have been marked “X”, “Y”, “Z”, “AA”, “AB”, “AC”, “AD”, “AE” and “AF”.

Counsel for the plaintiff objects on two grounds. First, these documents tend to supplement the lease agreement and a party is not entitled to lead any such extrinsic evidence to supplement the lease agreement. He relies on Curtain Brothers (QLD) Pty Ltd & Kinhill Kramer Pty Ltd v The Independent State of Papua New Guinea [1993] PNGLR 285.

Counsel for the defendant submits that whilst this is the general rule, there are exceptions to the rule. One of these exceptions is that a party is entitled to rely on terms of a collateral agreement. He relies on Pearson v Pearson [1884] UKLawRpCh 173; 27 Ch. D. 145; Lindley v Lacey [1864] EngR 696; 17 CB (ns) 578; De Lassalle v Guildford [1901] UKLawRpKQB 56; [1901] 2 KB 215; Henman v Berliner [1918] 2 KB 236.

In so far as these documents deal with the terms of the lease agreement, they cannot be admitted. The parties have agreed to put the terms of the lease agreement in writing and they will be governed by the terms of the agreement.

However, if the defendant can show that these documents relate to a collateral agreement and relies on the terms of such an agreement, these documents may be admitted for the purposes of proving such an agreement. As I understand the defendant’s defence, counsel seeks to rely on these documents to show that the lease agreement was induced by fraudulent misrepresentations. I find that these documents may be admitted for the purpose of showing that there was a collateral agreement and that the lease agreement was induced by fraudulent misrepresentation.

The second ground of objection is that the plaintiff was not a party to the negotiations and the agreement that was reached between the defendant and the Bank and therefore it should not be affected by the consequences of the actions of the previous owner of the premises. I have already ruled that these documents cannot form part of the lease agreement but they are relevant for the purposes of determining whether there was a collateral agreement and whether the defendant was induced to enter into the lease agreement by false misrepresentation.

I accept that the plaintiff was not a party to the lease agreement. However, its cause of action in the present case is based on the agreement. It is in the plaintiff’s interest to support the validity of the lease agreement. I have already ruled that these documents are relevant to the validity of the lease agreement. It follows from this that the plaintiff was entitled to call any evidence to support the validity of the lease agreement. The plaintiff did not call any evidence in this regard.

The question then arises; was there fraudulent misrepresentation by the previous owners and whether the defendant was induced by such misrepresentation. The defendant pleaded the following fraudulent misrepresentations; (1) that the premises would be fit and proper for the use and safety of human habitation by a senior expatriate executive, his wife and their young family (2) that certain improvements and repairs would be carried out prior to occupation of the premises (3) that the premises would be safe and secure for human habitation (4) that certain improvements and repairs would be carried out no later than the end of December 1995.

WERE THE PREMISES FIT AND PROPER FOR HUMAN HABITATION?

There is no direct evidence to show that the previous owners did represent that the premises would be fit, safe and secure for human habitation. However, in view of the fact that the premises was put on the market for rental, it may be inferred from this that the previous owners were representing that the premises was fit, safe and secure for human habitation.

The question is whether these representations were false and whether these representations induced the defendant to enter into the lease agreement.

Mr Green gave evidence on behalf of the defendant. There is no evidence to suggest that the premises is not fit for human habitation generally nor is any evidence that it is not fit for habitation by Mr Green and his family. In fact Mr Green indicated in no uncertain terms that the premises is not bad and that it is in a good location and he would have been prepared to stay on if the plaintiff was prepared to accept a lower rent of K800.00 per month. This evidence is contrary to the claim that the premises is not fit, safe and secure for human habitation. I find that there is no basis for this claim and I dismiss it.

REPRESENTATIONS TO CARRY OUT MAINTENANCE AND IMPROVEMENTS.

Further, Mr Green claims that he was induced to enter into the agreement by the representation that certain repairs would be carried out before occupation of the premises. In about the second week of October 1995, he made a joint inspection of the premises with a representative of the previous owners. During this inspection, he made notation of certain repairs to be carried out and new items for improvement (Exh. “X”). There is evidence to show that Mr Green was willing to rent the premises on the condition that these maintenance and improvements would be carried out (see Exh. “Y”). As at 6^th December 1995 Mr Green still raised the issue of items that had not been repaired (Exh. “Z”). The question of repairs became desperate and Mr Green again raised the items of repairs and explained that the situation was totally unacceptable and requested the real estate company to bring this to the attention of the landlord and to attend to all the items of repair before the Christmas break (see Exh. “AB”). This was brought to the attention of the Bank (see Exh. “AC”). In a fax dated 2^nd January 1996 Mr Green wrote to the plaintiff and complained of the repairs and indicated that the rental would not be paid until the repairs were carried out (Exh. “AD”).

It is clear from all this evidence that the defendant treated the issue of repairs was a condition to the rental of the premises. The plaintiff has not called any evidence by the previous owners to dispute that they did not make any such representation. I infer from all the evidence that the conduct of the previous owners was such that the defendant believed that they would comply with the demands and thereby induced it to enter into the lease arrangement. It is clear from the evidence that the previous owners failed to carry out the items of maintenance and new improvements by the time it undertook to complete and after 8 to 9 months the repairs and the improvements had not been carried out. I find that there was false misrepresentation and these representations induced the defendant to occupy the premises and subsequently signed the lease agreement. The net result of this is that the lease agreement is void and the plaintiff cannot rely on the terms of the lease agreement and therefore I dismiss the plaintiff’s claim.

COUNTER-CLAIM FOR DAMAGES FOR FALSE MISREPRESENTATION.

The question then arises; whether the defendant may claim damages for false misrepresentation against the plaintiff. Whilst I have held that there was false misrepresentation and therefore there is no valid lease agreement, it does not necessarily follow that the defendant may make a claim against the plaintiff. The question of misrepresentation arose as between the defendant and the Bank. The plaintiff was not a party to this. If the defendant has any claim for damages for false misrepresentation it would be against the previous owner, the Bank. The defendant should have joined the Bank as a party to the cross claim or issue a separate claim against the previous owners of the premises. I would dismiss the cross claim against the plaintiff.

Lawyers for the Plaintiff: Fiocco Posman & Kua

Lawyers for the Defendant: Carter Newell