Kwila Insurance Corporation v Kwangtun Pty Ltd [1992] PGLawRp 589; [1992] PNGLR 200 (29 October 1992)

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CONTRACT - Sale of land - Specific performance ordered - Performance of order by execution of fresh agreement - Claim order thus varied - Claim order failed by lapse of time.

REAL PROPERTY - Contract of sale of land - Delay in obtaining ministerial approval - Declaration that contract of sale to be rescinded failed.

The plaintiff, after contracting to sell land to the defendant, sought to avoid this contract to sell to a third person whose offer was better. The defendant then obtained a court order for the contract to be specifically performed. The Court ordered the parties to conclude the sale. However, the plaintiff now seeks the Court's declaration that the contract of sale be rescinded due to the lapse in time for required ministerial approval.

N1>1.�� When a party reneges on its contract of sale, the Court cannot by an order of specific performance convert an unwilling vendor into a willing seller, but it can compel the unwilling seller to do all the things that a willing seller would do to endeavour to complete the sale.

SHEEHAN J: This is a case where a vendor, having contracted to sell a property to a purchaser, subsequently received a better offer for the property and sought to avoid his contract with the original purchaser. This obliged the purchaser to come to the National Court to obtain an order that the contract of sale entered into by the parties be specifically performed.

The parties are now back in court. This time it is the vendor who is the plaintiff. It seeks a declaration that, because the required statutory approval of the Minister for Lands to the transaction has not been obtained within the time stipulated in the contract of sale signed by the parties subsequent to the court order, the contract between the parties is automatically rescinded. The sequence of events backgrounding the application is as follows.

On 17 May 1990, the National Court made an order that the agreement for the sale of Lot 3 Section 451 Hohola, made between the parties in July 1987, be carried out. The order is made in the following terms.

N2>1.�� The defendant sells that portion of land known as Lot 3 Section 451 Hohola to the plaintiff at the price of K49,000.00 within two months.

N2>2.�� The defendant takes all steps necessary to obtain approval under s 69 of the Lands Act Ch 185 to transfer the title of the state lease being Lot 3 Section 451 Hohola to the plaintiff.

N2>3.�� The defendant to pay the plaintiff plaintiff's taxed costs. [Ordered 17 May 1990 and entered 1 June 1990.]

On 28 June 1990, the vendor's solicitors, "pursuant to the National Court order of 17 May 1990", presented an agreement for sale of the property to the purchaser company direct.

Then followed a request by the purchasing company through its solicitors to substitute another transferee. This was refused. The vendor's solicitors pointed out:

"We confirm that our client does not agree to amend the terms of the sale but simply intends to comply with the National Court Order of 17 May 1990."

By further letter sent the same day, 11 July 1990, the vendor's solicitors stated that, should the executed contract of sale and the transfer instrument and necessary cheques not be received by 17 July 1990, that is two months after the court order, it would give serious consideration to advising it's client that it's obligations under the court order were at an end. The purchaser, in reply, on 16 July, returned the Agreement for Sale duly executed together with a transfer and the necessary fees. It also requested to be notified when these documents had been lodged for stamping and statutory approval.

Receiving no reply to that letter, a follow-up request was made on 30 August 1990, which brought the response from the vendor's solicitors stating that the documents were then at the stamp office being stamped. That letter was sent on 7 September 1990 and, in fact, it was only on that day that the documents were lodged for stamping.

They were subsequently lodged with the Department of Lands and Physical Planning on 25 September 1990 but were rejected because of an erroneous claim that land rent was still outstanding by the vendor. This issue was subsequently overcome and the documents re-lodged with the department, though the purchaser's solicitors were not advised of this. This led to further correspondence on 27 November requesting further information as to the state of the ministerial approval to the transfer. On or about 29 November, there was apparently a reply advising that the documents were with the Lands Department and that the approval was being awaited.

The purchaser's solicitors made no further enquiry till 9 May 1991, when it again asked the question as to the state of the minister's consent. The vendor's solicitors did not specifically reply to that letter, but with a letter dated 8 May 1991 (that is, the day prior to the purchaser's letter and received on 10 May), stated that it considered that, since the requested ministerial approval had not been obtained, the contract automatically self destructed by virtue of the cl 18(a) of the Agreement of Sale.

That clause states that, in the event that ministerial approval is not obtained within six months of the execution of the agreement, that was July 1990, the contract shall be regarded as at an end.

It is the plaintiff's contention that, taking into account what it calls the "imprecise" nature of the National Court order, it has done all that is necessary to try and effectuate the sale. It prepared an agreement for sale, stamped the transfer, and lodged these with the Minister for Lands for approval under s 69 of the Lands Act. Since that consent did not eventuate and because the agreement signed stipulated a period of six months for that to happen, and that six months had elapsed, the contract must be regarded as rescinded. It was submitted by counsel for the plaintiff/vendor that the purchaser, by signing an agreement for sale as it did, was in fact agreeing to a variation of the court order and should have been alert to the dangers of such a clause as that stipulating a limited time for obtaining ministerial approval.

The defendant/purchaser on the other hand contended that the "new" agreement after the order was only a vehicle for the carrying out of the court order for sale. That, in fact, all that was really necessary to ensure the performance of the contract was a stamped transfer and a sealed court order lodged with the minister.

The counsel for the purchaser went on to say that the "new" agreement was, in fact, unnecessary to the carrying out of the court order because the order for specific performance was an order made for enforcement of the agreement that the vendor had failed to honour.

The purchaser's main contention was that, in any event, the vendor had not done what was necessary to ensure the compliance with the court order to facilitate the sale. The purchaser said that the vendor had been guilty of gross delays and had failed to notify the purchaser of all the problems being encountered to obtain ministerial consent. It could not, therefore, in all conscience, say it had done equity or that, in coming to the court, it did so with clean hands. With the court having discretion in such matters, it should not be exercised in favour of the plaintiff vendors.

I have considered seriously the arguments put forward by both counsel. I was particularly impressed by counsel for the plaintiff/vendor's statement that:

"both parties could be said to have acted inconsistently since the order, since neither seems to have been duly concerned about getting on with the matter".

He went on to say that because of "inactivity on both sides - not deliberate delay - cl 18(a) came into effect". It was under these circumstance that the plaintiff/vendor did what he could, given the "imprecise nature of the Court's order".

I accept the first part of that submission, that there was a considerable inaction by both parties, but I cannot see that the order is imprecise or vague. Even if it was, it was the duty of the party on whom the obligation was imposed to seek instructions from the Court to clarify that imprecision.

Counsel for the purchaser took up the issue regarding the contract failing by way of inactivity and pointed out that, in fact, the court order to get on with the contract could only be defeated if the minister refused consent, not if the consent went begging by inactivity. The Court had placed a positive obligation on the vendor to take action to see that the sale of land was carried out. The contract produced for execution was unnecessary and a clause such as s 18(a), limiting the time in which the contract could be performed, could be seen as placing the limits on the Court's order.

I have considered the arguments put forward by the counsel and the cases that were cited in support. But I propose, in fact, to deal with this matter on the contention that the plaintiff/vendor himself relied on. That is that, pursuant to the National Court order of 17 May 1990, the plaintiff/vendor prepared an agreement for sale to put that order into effect.

It contained a normal term of contract, namely a period of limitation in which time the requisite ministerial consent was to be obtained. That contract was accepted by the defendant/purchaser, presumably as containing all terms acceptable to him. By signing that agreement, the parties were, in effect, setting up a variation of the order pursuant to the original contract. That is to say, the purchaser accepted that a time limit was placed on the effectiveness of the court order and is now caught by its terms.

I find, in fact, that the lawyers for both vendor and purchaser were extremely lax in their handling of this matter. Accusation by one that the other is guilty of delays and failures to act can equally be levelled at the other.

A 1987 disputed contract was taken to Court for solution, yet in 1991 the parties are no further ahead. The solution was simple and the order was made. There was no requirement for any further agreement to be entered into. The Court was specifically ordering the carrying out of the original agreement. A sealed order and a stamped transfer were all that was required to put the matter before the minister for approval or otherwise. In the event of delays, reasonable enquiries were obviously necessary, particularly by the vendor under the order made by the National Court; but by the plaintiff/purchaser as well. In the event that satisfactory replies were not obtained from the department (notorious for delays), persistent enquiries should have been made and, if necessary, complaint to the minister direct if no action was forthcoming. In an extreme case, application should have been made to the Court for orders that the matter be dealt with according to law within the department. In fact, the sort of situation that can occur in obtaining processing of documents through this department are the very reason that the public rely on lawyers to avoid extreme delays. They are the very situations that lawyers claiming expertise in conveyancing use to justify the fees that they charge.

However, for whatever reason, the appropriate course of action was not taken. This matter must be dealt with according to what did happen. An agreement was executed, not as the plaintiff/vendor contends to vary the court order or even to operate so incidentally as a variation of it. The correspondence is plain; both lawyers thought only of carrying out a sale in the normal way, albeit this time pursuant to the order of the Court. Yes it does contain a six-months time limit for obtaining ministerial approval, but this was, as I say, an agreement for sale to carry out a court order in the normal course. I find as fact that the vendor, through its lawyers, did not do what was necessary to try and effect the approval that was necessary. Simply filing the application and doing nothing more is not enough. It is not acceptable in this case to say that the failure to get ministerial approval within time is just as much a refusal as an approval specifically withheld.

In a normal contract of sale, there is a willing seller and willing buyer. Under such circumstances, the situation is that both parties, anxious to complete the sale, do what is necessary for this purpose. This includes acting to overcome any delays in procedures. With the delays of the Lands Department well known, notorious in fact, simply filing documents in this situation was not enough. Ordinary professional practice demands that due enquiry is made to ensure the proper procedures are followed, within time limits. Delays and obstacles are dealt with promptly. That was not done here, and even though the purchaser's solicitor is at fault in overseeing progress, the vendor's solicitor, on whom the obligation was firmly laid by the court order, is even more at fault. I take it as significant that, after apparently no enquiry at all throughout from December 1990 onwards, the plaintiff/vendor was able to uplift the documents from the ministry in July 1991 for the purposes of this application without difficulty.

When a party reneges on its contract of sale, the Court cannot by an order of specific performance convert an unwilling vendor into a willing seller. But it can compel that unwilling seller to do all the things that a willing seller would do, to endeavour to complete its sale. Here, the vendor has, by inaction at least, failed to honour the Court's order. Under this circumstance, the plaintiff's application fails and the motion is dismissed.

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Papua New Guinea Law Reports

Kwila Insurance Corporation v Kwangtun Pty Ltd [1992] PGLawRp 589; [1992] PNGLR 200 (29 October 1992)

Papua New Guinea Law Reports - 1992