N7882

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS.NO.1106 of 2014

BETWEEN
TEACHERS SAVINGS AND LOAN SOCIETY LIMITED
Plaintiff/Cross – Defendant

AND
MICHAEL WILSON trading as WARNER SHAND LAWYERS
Defendant/Cross Plaintiff

Waigani: Kandakasi, J.
2016: 2nd November
2019: 28th February, 14th March and 2nd May

CONTRACT- Written lease agreement- Purpose of – Occupation of property by servant or agent of the counteracting party-Expiry of initial term-Tenant still occupying- Application of holding over provisions- Default in payment of rentals – Letters of demand issue by real estate agents-Debt acknowledge and agreeing to pay by practice manager of the defendant-Real estate agent and practice manager of the defendant had the ostensible authority to bind their principles- Valid contract- Breach of – Landlords power to keep rental deposits – Forfeiture of – Assessment of damages – Damages assessed at the agreed rental rate for the period the Defendants servant or agent was in occupation-Defendant  liable to pay assessed amount less rental deposit.

LAND LAW-Landlord and lease- Written lease agreement- Expiry of – Effect of – Tenancy from month to month and at will of landlord – Tenant continuing on occupation without paying rents- Demands for payment issues – Rents still not paid despite agreeing to paying- Rental deposit- Landlord’s power to require keep and forfeit- Damages assessed against the tenant at agreed month rental rates under expired contract - Tenant liable to pay less amounts held in deposit or security.

COSTS- Relevant principles- Costs usually allowed on party and party basis- Claim for costs on solicitor and own client basis- Relevant principles – Relevant facts-Failure to meaningfully engage in settlement discussions and settle the matter- Factors favouring settlement – No valid and sustainable defence – No evidence in rebuttal of that of the plaintiff- Liability resolved in Plaintiff’s favour- Submissions on damages by the defendants having no foundation in law and relevant facts- Costs ordered on solicitor and own  client basis. 

Cases Cited
Papua New Guinea Cases Cited:

Coecon Limited (Receiver/Manager Appointed) v. The National Fisheries Authority of Papua 

Overseas Cases Cited:

Livingstone v. Rawyards Coal Co (1880) 5 App Cas 25

Legislation Cited:

Nil

Counsel:

W. S Mai, for the Plaintiff
S. Wanis, for the Defendants

02nd May, 2019

1.	KANDAKASI DCJ: This case concerns continued occupation by a tenant without paying rents after the expiry of a lease agreement. The property is one located at Section 2015, Lot 3, Unit 8, Kouaka Street, Gordons 5, National Capital District (TSLS). Michael Wilson, trading as Warner Shand Lawyers (Mr. Wilson) was the tenant pursuant to a written lease agreement. The agreement had a provision on “holding over” which allows for continued occupation on the same rental rates under the agreement.

Parties arguments

2.	Wilson claims it has no obligation to pay the rentals beyond the term of written agreement because it did not agree to continue to rent the property passed that period. It does admit though that it owes TSLS one month’s rent. This he is prepared to have it offset against the bond fee, which it claims by way of a cross-claim. On the other hand, TSLS claims at the expiry of the written agreement, the lease converted to a month to month tenancy at the same rental rates as those that applied under the expired agreement. Hence, TSLS argues, Mr. Wilson is liable in damages to it.

Relevant issues

3.	The parties have agreed to the relevant facts and a set of issues. However, I consider there are only three key issues. These are:

(1)	Whether a landlord and tenant relationship came into existence between the parties upon the expiry of the written lease agreement?

(2)	If the answer to the first issue is in the affirmative, what was the agreed rental?

(3)	Subject to answers to the first two questions what damages are due and owing to TSLS, if any?

Relevant fact

4.	As indicated, the parties have agreed to the relevant facts. These are set out in a document headed: Statement of Agreed Facts”, filed on 30th September 2016 and is document number 47. From that statement, the following facts are established by the agreement of the parties:

(1)	 TSLS is the owner of the Property;
(2)	The [parties] entered into a Residential Lease Agreement commencing on 7th June 2012 ( the lease agreement);
(3)	The agreed monthly rental was K16,729.16, inclusive of GST;
(4)	 Century 21 Real Estate, first managed the Property, Later that changed to Strickland Real Estate, During their respective management of the property each of these real estate agents rendered invoices and collected the rentals;
(5)	 Wilson accommodated his employee or consultant, late Peter Donigi at the Property and paid the rentals under the initial term of the lease agreement except for the month of March 2013. Payment for the month of January 2013 made by cheque bounced back with the cheque dishonoured by Mr. Wilson’s Bank. TSLS’s bank charged it 20.00 in fees for dishonoured cheque.
(6)	The late Mr. Donigi continuously occupied the property during the currency of the lease agreement. During that period, TSLS through its agent dealt with both late Mr. Donigi and one Graham Ward, Wilson’s law firm Practice Manager on all matters concerning the lease agreement;
(7)	 Upon the expiry of the written lease agreement, on 6th June 2013, the late Mr. Donigi continued to occupy the Property for an additional five (5) months. He vacated the property on 31st October 2013, TSLS allowed this to happen in accordance with the “ Holding Over” clause of the lease agreement;
(8)	By letter dater 05th August 2013, TSLS’s then real estate agent, Strickland Estate send a letter to the late Mr. Donigi asking him if he wants to extend the lease agreement. Neither the late Mr. Donigi or Mr. Wilson responded;
(9)	 Wilson’s Practise Manger was aware of the late Mr. Donigi’s continued occupation of the property up until 31st October 2013, when he vacated the Property without giving TSLS, its servants or agents one month’s notice as required by holding clause of the lease agreement;
(10)	Neither, Mr. Wilson nor the late Mr. Donigo paid the rentals due for the period occupied under the holding over clause. The relevant period was July to November 2013;
(11)	The total of the outstanding rental arrears owed by Mr. Wilson to TSLS inclusive of the dishonoured cheque fees adds to K100, 394.96. On 20th November 2013, TSLS through its lawyers demanded a payment of these arrears and charges. Following no payment and a lack of appropriate response, TSLS’ lawyers sent out a follow up letter on 8th January 2014 and warned that legal proceedings to recover the debt will be taken unless the outstanding rental arrears was paid in full within seven (7) days of the letter. This did not attract any response from Wilson; 
(12)	At no point Mr. Wilson took issue with its liability for the unpaid rentals but admitted his liability. On 20th September 2013, Mr. Wilson’s Practice Manager assured TSL that Mr. Wilson will pay the rental arrears inclusive of the Holding Over period, and 
(13)	TSLS has not refunded Mr. Wilson his bond fee of K16,729.16, given the outstanding rentals and the failure to give any notice under clause 24 of the lease agreement to TSL, prior to vacating the Property.

5.	These statements of the relevant facts are silent on the precise terms of the “holding over” term of the written contract. Parties were therefore invited to assist the Court with relevant information. Only TSLS has been helpful. Through that assistance, the court ascertained that the “ holding over” provision in the lease agreement reads:

“ if the Landlord permits the Tenant to continue in occupation of the Premises after the expiration of the Term than the lease shall continue as a periodic lease from month to month at the Rent unless the parties agree in writing to the contrary but otherwise on the same terms and conditions terminable by either party giving one month’s written notice to the other”.

Answers to all issues or questions presented

6.	The provisions of the “holding over” as reproduced above provides in my view, the answers to issues 1and 2. The agreed facts clearly establish that the period of lease was for 12 months commencing on 07th June 2012 and ending on 6th June 2013. Also, the agreed facts clearly establish that the person who was to physically occupy the rented premises was the late Peter Donigi who was then a consultant to Mr. Wilson’s firm, Warner Shand Lawyers. Further, the agreed facts establish that, the late Peter Donigi continued to occupy the rented premises after the expiry of the initial agreed rental period up until 31st October 2013. Hence, he was in occupation for a further 4 months and the lack of one month’s notice took it to 5 months from July to November 2013 in accordance with provisions of the “holding over” clause. No rents were paid of each of these months. That was in addition to rents for the month of March 2013 which were paid by a cheque that was dishonoured. That cost TSLS a further K20.00. In total therefore, Mr. Wilson owed TSLS rents for the months of March, July, August, September, October 2013 and November 2013 in the total K100,394.96 inclusive of the K20.00 dishonour cheque charges. The debt was allowed to accrue despite invoices being rendered and communication sent to both Mr. Wilson and Mr. Donigi.

7.	It is settled law that the Court must do its best to give effect to the free agreements of the parties. After a careful consideration of the development of the relevant contract law, I concluded in Tian Chen Limited v. The Tower Limited ( N0.2) (2003) N2319 at pages 20-21 that:

“It is clear from these authorities that, it is the duty of the Court to uphold the agreement of the parties regardless of whatever difficulties there might be in the construction of their contract. In the exercise of that duty, the Courts must endeavour to uphold the agreement of the parties, particularly in commercial arrangements. This is because the Courts are not there to destroy the agreement of parties but to uphold them. This should readily be the case where the parties have not only agreed but have gone further into implementing their agreement resulting in expenses being incurred by either or both of the parties. In so doing, the Courts can and have ignored words or clause that are meaningless or superfluous (Nicolene v. Simmonds (1953) 1 QB 543) and supply terms or words as appear reasonable and necessary in the circumstances to give effect to the parties agreement”.

8.	The Supreme Court in Fly River Provincial Government v. Pioneer Health Services Ltd (2003) SC705, effectively endorsed this discussion and statement of the law and applied them to the case before it in favour of a contract despite being met with some uncertainties.

9.	In the present case, there are no uncertainties or difficulties surrounding the contract. The relevant and applicable clause in the written agreement is clear. It is clear as to what will be the terms upon which there could be continued occupation after the expiry of the agreed period under the written agreement. The terms of the parties’ agreement are so plain and clear. Once again, the relevant provision reads:

“ if the Landlord permits the Tenant to continue in occupation of the premises after the expiration of the Term than the lease shall continue as a periodic lease from month to month at the Rent unless the parties agree in writing to the contrary but otherwise on the same terms and conditions terminable by either party giving one month’s written notice to the other”.

10.	 Clearly, the contracting parties here, namely, TSLS and Mr. Wilson effectively agreed as follows:

(1)	With the permission of the landlord the tenant may continue to occupy the rented premises beyond the term agreed to under the written contract upon its expiry:
(2)	The nature of the tenancy will be converted to a month to month rental basis;
(3)	 Rental payable will be at the agreed rate payable under the expired written agreement, which was K16,000.00 per month;
(4)	Other terms of the month to month rent will be those agreed to under the expired written agreement. However, if the parties otherwise agree in writing, different terms and conditions including the rental rates could apply for the month to month rental.

11.	Obviously, TSLS as the landlord was not required to have anything in writing or otherwise seek and secure an agreement with its tenant, Wilson or the actual occupant of the Property, the late Mr. Donigi. It was sufficient that, the late Mr.  Donigi continued to occupy the Property and the parities did not agree to different terms. This obligated both Mr. Wilson to pay the rentals due to TSLS. The contracting parties were TSLS and Wilson and not the late Donigi. He was purely a beneficiary of the lease agreement. Besides, the late Donigi was an employee and or servant or agent of Wilson. Hence the primary and sole responsibility to pay the rental arrears and charges and related costs is Mr. Wilson, who was the sole contracting party with TSLS. If Mr. Wilson want different terms and conditions to govern the holding over period or the month to month lease, he had the obligation to seek and secure the different terms and conditions he preferred from TSLS. He neither sought nor secured such agreement. Consequently, the “holding over” provisions applied. Accordingly, I reject the argument for Mr. Wilson that, he had no legally binding agreement in writing or at all with TSLS. On the basis of this, I find Mr. Wilson is liable pursuant to clause 4 of the written agreement in outstanding rentals due to TSLS as claimed in its statement of claim in the total sum of K100, 394.96.

Cross-claim

12.	Turning then to Mr. Wilson’s cross claim, I note the cross claim is mainly for a recovery a sum of k16, 729.16 paid by him to TSLS in rental bond. Usually, rental bonds are required and paid before a tenant takes possession of a rented property. The value of a month’s rent would be the amount often fixed as the amount that must be paid as a bond. Such bonds serve as a security against any unpaid rentals, early vacation of the rented premises without notice to the landlord, damage to the property or charges or costs otherwise recoverable from a tenant.

13.	In this case, clause 5 of the lease agreement provided for the tenant to pay a bond. Then item 8 of the agreement specifies the amounts that are payable at K16, 729.16. Clause 17 deals further with rental bond in the following terms:

“17.1 the Bond is to secure the Landlord against any failure by the Tenant to comply with those conditions of the Lease relating to the care or repair of the Premises, the payment of Rent or charges and any other amount that may be payable by the Landlord by reason of a breach of any of the provisions of the Lease by the Tenant including, without limitation, any legal fees and disbursements incurred by the Landlord is relation to this Lease. In the event of such fai8lure the Landlord is entitled to apply the Bond wholly or in part to any loss or damage sustained and to claim payment accordingly.

17.2 subject to Clause 17.1, the Bond shall be refunded by the Landlord to the Tenant upon the delivery of possession of the Premises to the Landlord on termination of the Lease”.

14.	The claim by Mr. Wilson is that TSLS has unreasonably and unlawfully withheld the bond money. He is therefore seeking as reimbursement of the same. In response, TSLS claims it is entitled to keep the bond for two reasons. The first is the failure of Mr. Wilson or his consultant in occupation of the rented premises to give the required one month’s notice under clause 24 of the Agreement. The second is the fact of unpaid rents, for 6 months and the bank charges for one dishonoured cheque. On this basis, I find Mr. Wilson has failed to establish his Cross-Claim. Accordingly, I dismiss the Cross- Claim as having no merit.

15.	Based on all of the foregoing, I order judgment for the Plaintiff in that sum K100, 394.96 against the Defendant. Also, I order interest at the rate of 8% pursuant to the Judicial Proceedings (Interest on Debts and Damages) Act 2015 to be calculated and added onto the judgment sum until the judgment is satisfied in full. Further, costs are ordered against the Defendant to be agreed, if not taxed.
__________________________________________________________
Albatross Law: Lawyers for the Plaintiff
Warner Shand Lawyers: Lawyers for the Defendant