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Tian Chen Ltd v The Tower Ltd (No 1) [2002] PGNC 35; N2313 (8 November 2002)

N2313

PAPUA NEW GUINEA

[IN THE NATIONAL COURT JUSTICE]

OS. 629 OF 2002

BETWEEN:

TIAN CHEN LIMITED

Plaintiff

AND:

THE TOWER LIMITED

Defendant

WAIGANI: KANDAKASI, J.
2002: 25th October
8th November

INJUNCTIONS – Interlocutory injunction – Continuity of – Principles relevant to grant and continuity or not of – Serious questions raised in the proceedings – Balance of convenience favouring continuity of – Likelihood of irreparable damage not only to the plaintiff but the country and others considered – Interlocutory injunction ordered to continue.

STAMP DUTY – Lease agreement not stamped – Admission and reliance on such document – In equity a party may still rely on such an agreement.

CONTRACTS – Lease agreement – Inserting date of possession by one party – No endorsement of insertion by either of the parties – No agreement of the parties on the correctness of the details inserted – Evidence show parties agreeing to leave it blank to be filled in later, conditional on certainty in drawings for a fit out and actual fit out of rented premises – Condition not yet fulfilled – No agreement on the date of possession.

AGENCY – Principle of usual and apparent agent considered and applied – Real estate agent of landlord in lease agreement giving tenant no choice but to engage a architect of the agents choice – Landlord failed to disclose at the earliest opportunity to the tenant of any authority in its real estate agent to engage architects as the landlords agent – Architect found agent of the landlord.

EQUITY – Real estate agent with apparent authority to bind the landlord caused tenant to engage an architect to do architectural drawings for its fit out – Delay in drawings and fit out – Tenant not in arrears – No invoice or demand for rents due served on tenant – No evidence of any serious default in payment of rents – Duty to pay rents made conditional on architectural drawings and fit out – Landlord’s apparent architectural agent cause of delay in drawings and fit out – Tenant incurred substantial expenses in import of equipment and material required for the intended purpose of its lease – Equity and fairness dictate an injunction against termination of lease.

LANDLORDS & TENANTS – Real estate agent having apparent authority to bind the landlord caused tenant to engage architect to do architectural drawings for its fit out – Delay in drawings and fit out – Tenant not in arrears – No invoice or demand for rents due served on tenant – No evidence of any serious default in payment of rents – Duty to pay rents made conditional on architectural drawings and fit out – Landlord’s apparent architectural agent cause of delay in drawings and fit out – Tenant incurred substantial expenses in import of equipment and material required for the intended purpose of its lease – Equity and fairness dictate against termination of lease.

Papua New Guinea Cases Cited:
Wal Wine v. Bill Giglmai [1990] PNGLR 462.
Markcal Limited & Robert Needham v. Mineral Resources Development Company Pty Ltd (Unreported judgement delivered on 05/996) N1472.
Employers Federation of Papua New Guinea v. Papua New Guinea Waterside Workers and Seamens Union (Unreported judgement delivered on 11/10/82) N393.
AGK Pacific (NG) Ltd v. William Brad Anderson Karson Construction (PNG) Ltd & Downer Construction (PNG) Ltd (Unreported judgement delivered on 04/12/99 or 00) N2062.

Overseas Cases Cited:
Summers v. Solomon [1857] EngR 609; [1857] 7 E & B 879.
Pole v. Leask [1862] 33 LJ Ch. 155.
Panaroma Developments (Guild Ford) Ltd v. Fidelis Furnishing Fabrics [1971] 2 Q.B. 711.
Chapleo v. Brunswick P.B.S. (1881) 6 Q.B.D. 686.
Grammar Corporation v. Provetine and General Investments Ltd [1952] Q.B. 147.
Freeman & Lockier v. Buckhurst Properties (Mangal) Ltd. [1964] 2 Q.B. 480;
Jacobs v. Morris [1902] UKLawRpCh 55; [1902] 1 Ch 816.
Overbrooke Estates Ltd v. Glencombe Properties Ltd. [1974] 1WLR 1335.
American Cyanamid Company v. Ethicon Limited [1975] UKHL 1; (1975) 1 All E.R. 504.
Smith v. Inner London Education Authority (1978) 1 All E.R. 411 at 419.

Counsel:
Mr. G. Poole for Respondent/Plaintiff
Mr. P. Honey the Applicant/Defendant

8th November 2002

KANDAKASI, J: This is an application by the defendant for a lifting of an interim injunction against it. The injunction was issued on the plaintiff’s claim of the defendant taking steps to terminate a lease agreement between them for alleged non-payment of rents.

Initially, counsel for the defendant argued that the injunction should be lifted, because the lease agreement relied on by the plaintiff had not been stamp dutied and that it is not even in a stamp dutiable form. But that argument was abandoned following my suggestion to counsel that in equity the plaintiff may still sue on the lease agreement without reliance on the document constituting the lease. That suggestion was put to counsel having regard to judgements like that of Brunton J (as he then was) in Wal Wine v. Bill Giglmai [1990] PNGLR 462.

So the application of the defendant proceeded on the basis that there was a lease agreement between the parties. The argument for the defendant was that as far as it was concerned, the agreement was for the rents to commence nine (9) months after the date of possessing. The date of possession was 22nd November 2001.

That date was inserted in handwriting on the lease agreement which was eventually stamp dutied. There was no initialling of the insertion by either of the parties. The plaintiff argues that the rents were to commence 9 months after the date of possession. But, it does not agree that the date of possession was 22nd November 2001. It argues that the date was left open for insertion after the architectural drawings (the drawings) for the plaintiff’s fit out of the rented premises were completed. To date, the drawings have not yet been completed. As such, the date of possession has not yet been agreed upon. The delay means loss of business and more expenses to the plaintiff and it is very concerned. Out of this concern it has asked the defendants to ask its nominated architects, Pacific Architects Consortium (PNG) Limited (PAC) to act promptly to enable them to be in business by November this year.

The defendant has not formerly responded to the plaintiff’s request and has proceeded to take steps to terminate the lease. The defendant claims that PAC was not its agent but was that of the plaintiff. Therefore, the duty to draw the plaintiff’s fit out promptly is that of the plaintiff even though PAC was nominated at the direction of the defendant’s real estate agents, Century 21 Siule Real Estate (Century 21).

From these arguments it is clear that the central issue is whether the parties agreed that the date of possession was 22nd November 2001, or was it yet to be agreed upon and dependent upon the completion of the relevant drawings for the fit out?

There are other subsidiary issues to the main issue and these are:

1. Whose agent is PAC, whether the defendant’s or the plaintiff’s?
2. Whether PAC is responsible for the delay in the parties agreeing on the date of possession?
3. Whether in all the circumstances, it is just and reasonable that the lease agreement should be terminated?
   

These issues are substantive issues for trial in this matter. The issue before me is whether or not the interim injunction obtained by the plaintiff should be lifted?

On the issue before me, the defendant argues that the substantive issues for trial are in its favour and, as such the injunction should be lifted. It also argues that there is no irreparable damage that is likely to be suffered by the defendant for which the injunction is necessary. Further, it argues that the "status quo" favours against a continuity of the injunctive orders.

Evidence

The evidence in this matter consists of an affidavit sworn on 14th October 2002 and oral evidence of Kevin Chen under cross-examination for the plaintiff. As for the defendant is the affidavit of Mr. Rod Mitchell sworn on 18th October 2002 and his oral evidence under cross-examination as well as an affidavit by Mrs. Winifred Kamit sworn on 24th October 2002.

Facts

From the above evidence, it is clear that the plaintiff and the defendant entered into a lease agreement. The premises to be leased was the old library in down town Port Moresby which was improved and incorporated into the now modern and new building called "The Tower," by the National Provident Fund, which has now become know as the Nasfund. The negotiations leading to the lease agreement was between the plaintiff’s directors on behalf of the plaintiff and Century 21, as agent for the defendant.

According to Mr. Chen’s evidence it was uncertain as to when its drawings could be completed for a fit out of the premises for its intended business of a Chinese restaurant. They therefore agreed to leave the actual date of possession of the premises by the plaintiff open, to be inserted once there was certainty in the architectural drawings and fit out. The parties also agreed to a "grace period" or "rent free" period of 9 months. That period was to commence from the date of possession.

To date, the plaintiff has not been given the keys to the premises and has not taken any physical possession of the rented premises. There has been only one or two visits by the plaintiff with a representative of PAC for the purposes of taking the necessary measurements for the drawings for the fit out.

Century 21 told the plaintiff that the drawings will have to be done by PAC which was their preferred architects. The plaintiff was not given any option to secure the services of an architect of its choice. Hence, as far as the plaintiff was concerned, PAC was the defendant’s architect. The plaintiff therefore agreed to PAC doing the drawings for the fit out.

Up to this date, the drawings have not yet been completed. The latest formal correspondence in this matter is a letter dated 22nd August 2002, from the plaintiff to the defendant. A copy of that letter is in evidence as exhibit "A" for the plaintiff. That letter confirms the plaintiff’s preparedness to perform its part of the lease agreement and expresses its anxiety to open for business by 1st November 2002 at the latest. It also confirms that, all the chattels required for the business including tables, chairs, cooking equipment, air conditioning and others were ordered from overseas and have arrived in PNG and are awaiting installation as soon as the fit out is completed. Further, it confirms that there was delay in the fit out due to non-completion of the drawings by PAC. It specifically referred to PAC as the defendant’s agents in these terms: "It seems your nominated architect, Pacific Architects Consortium (PNG) Limited is too busy to complete the drawings." It then asked the defendant to intervene and see to a speedy completion of the drawings.

The defendant has not responded to the plaintiff’s letter of 22nd August 2002 in any way. Instead, according to the evidence of Mr. Mitchell, he decided for the defendant that it was uneconomical to continue the lease and that it would not tolerate any further delays in the plaintiff meeting its rental obligations under the lease agreement. Instructions were thus issued for a termination of the lease. This, Mr. Mitchell says, was in line with the defendant’s normal position in relation to all lease agreements it enters into that there be a maximum of 9 or 12 months rent free period. This is to enable a lessee from settling in which includes a fit out where one is required. In this case, he says although he was not personally a party to or present in the negotiations leading to the lease agreement, he was advised and he believed that the normal position on "a rent-free period" was what was agreed to. That period commenced from the date of possession, which as far as he was concerned was the date of the execution of the lease agreement. The execution of the lease agreement took place on 22nd November 2001. Hence, he says the 9 months grace period ran from that date up to 22nd August 2002.

The defendant gave no notice or an invoice of a rent due and owing to the plaintiff at any one time except for one letter from its lawyers on 10th October 2002, threatening to terminate the lease. If indeed, there was an agreement for the date of possession to be 22nd November 2001, the first rent became due in October 2002, the month in which these proceedings were filed.

The affidavit of Mrs. Kamit says that "22nd November 2001" was inserted in or about July this year on the instructed of Mr. Mitchell. That followed an inquiry by Mr. Mitchell as to why the date of possession was left blank. No endorsement of Mr. Mitchell’s instructions to Mrs. Kamit was sought and obtained from the plaintiff or its lawyers. Also neither of the parties initialled the insertion.

Findings

In view of the above, I find that the parties did not in fact agree on the actual date of possession. Instead, they left it open to be completed once the date for the completion of the architectural drawings and the plaintiff’s fit out was certain. The fact that in July the defendant did in fact find the relevant provision concerning the date of possession blank confirms the agreement of the parties. Mr. Mitchell was not a party to or present in the negotiations leading to the lease agreement. His evidence on this is therefore based on what another person told him. Clearly, therefore, this was hearsay evidence and is totalling unreliable especially in view of the fact that there is a serous issue on this very point. If indeed there was an agreement, then I see no reason why the defendant could not have secured from the plaintiff, an endorsement of the insertion of the date of possession, "22nd November 2001."

Also on the evidence before me, I find that PAC was an agent of the defendant. I also find that Mr. Chen’s affidavit and his oral evidence as well as the letter dated 22nd of August 2002 from the plaintiff to the defendant confirm that position. The defendant has not to date, formally refuted or shown how that could not be the case.

It is settled law under the doctrines of apparent and usual authority that a principal is liable on the contracts made by his agent although the principal has not authorised his agent to make them: see Summers v. Solomon [1857] EngR 609; [1857] 7 E & B 879; Pole v. Leask [1862] 33 LJC h.155. In such a situation one need only be satisfied that a representation of authority has been made in fact by the agent as having the authority to act for its principal and that the representation has been made to a third party who has relied on the representation without knowing any lack of authority in the agent: see Summers v. Solomon (Supra); Panaroma Developments (Guild Ford) Ltd v. Fidelis Furnishing Fabrics [1971] 2 Q.B. 711; Chapleo v. Brunswick P.B.S. (1881) 6 Q.B.D. 686; Grammar Corporation v. Provetine and General Investments Ltd [1952] Q.B. 147; Freeman & Lockier v. Buckhurst Properties (Mangal) Ltd. [1964] 2 Q.B. 480; Jacobs v. Morris [1902] 1Ch 816 and Overbrooke Estates Ltd v. Glencombe Properties Ltd. [1974] 1WLR 1335. Also see for a detailed discussion of these principles DH Treitel, The Law of Contract, 5th edition, Stevens & Sons, London, 1979, pp. 530.

In the present case, there is no dispute that Century 21 was the agent of the defendant engaged specifically to secure tenants for "The Tower." Century 21 represented to the plaintiff that the nominated architect for the purpose of any architectural drawings for a fit out of the rented premises was PAC. The plaintiff was not given any choice or freedom to choose its own architects. Mr. Rod Mitchell in his evidence said that the defendant did not authorise Century 21 to engage the services of PAC. Instead PAC was the preferred architect for Century 21. He says Century 21 did many things that were not to the satisfaction of the defendant. So their services were eventually terminated.

At no stage neither the defendant nor Mr. Mitchell notified the plaintiff that PAC was not its nominated architect and that the plaintiff had the opportunity or the right to engage any other architect of its choice. The need to disclose these facts or the lack of any authority on the part of Century 21, did arise when the plaintiff wrote the letter of 22nd of August 2002. If indeed PAC was not the defendant’s agents through Century 21, then the defendant should have communicated that position to the plaintiff but it failed to do that. Even if that was communicated, it would have been a little too late as it seems much work had already been done by PAC. It is only a matter of finalising the drawings and constructing the fit out at the rented premises.

There is no argument between the parties that the delay in a fit out of the rented premises which could enable the plaintiff to go into his intended business and obliged it to pay rents, is attributable to the delay in completing the architectural drawings by PAC. It is also clear that without a certainty of the date for the completion of the drawings and the fit out, it is not possible for the parties to agree on the date of possession for the purposes of calculating when the rents fall due from the plaintiff to the defendant.

In anticipation of the plaintiff getting its drawings completed by PAC, it has gone ahead and ordered equipment and other material from China to make the plaintiff’s restaurant business an authentic Chinese restaurant in the country. In the process, it has incurred an estimated US$185,000.00 in preparation for trading from the demised premises. The drawings have been completed by PAC and have passed some of the initial stages of approval by the municipal authorities and it was before the National Capital District Commission Building Authority on 29th October 2002 meeting for approval. Once approved, the drawings were to be submitted to the defendant for its approval before the actual construction or fit out of the premises could occur.

What this means is that, the plaintiff is in a state of readiness to commence its intended business to fulfil its obligations under the lease agreement as soon as the drawings are approved by the municipal authorities and the defendant. The approval of the drawings is a matter beyond the control of both the plaintiff and the defendant. However the approval of the drawings by the lessor is within the power and control of the defendant. It would be incumbent on the defendant to do that promptly in the interest of seeing the lease agreement taking its course without unnecessary delay.

What the foregoing findings mean is that, the substantive issues for trial at least on a quick consideration of them on the material available before me shows that they will not be in favour of the defendant as it argues. Instead they favour the plaintiff. This leaves me to consider the remaining arguments of the defendant that there is no irreparable damage justifying a continuity of the injunction and the status quo favours against the continuity of the injunctive orders.

Continuity of Injunction

(i) The Relevant Law

There are numerous authorities on the requirements that must be met before an interim injunction can be granted. In Markcal Limited and Robert Needham v. Mineral Resources Development Company Pty Ltd (Unreported judgement delivered on 05/9/96) N1472, the National Court per Doherty J. held that three requirements must be met before there can be a grant of such a relief. These requirements are:

"1. There is a strong case which, on the evidence presented, would support a permanent injunction;

2. The balance of convenience favours the plaintiff;
3. Damages will not be an adequate remedy if the plaintiff succeeds."
   

Earlier on in the Employers Federation of Papua New Guinea v. Papua New Guinea Waterside Workers and Seamens Union (Unreported judgement delivered on 11/10/82) N393, the National Court per Kapi DCJ discussed the proper principles governing the grant or otherwise of interlocutory injunctions going by the leading English case of American Cyanamid Company v. Ethicon Limited [1975] UKHL 1; (1975) 1 All E.R. 504, a decision of the House of Lords. The Deputy Chief Justice summarised the principles as follows:

"1. Is the action not frivolous or vexatious? Is there a serious question to be tried? Is there a real prospect that the applicant will succeed in the claim for an injunction at the trial? All these questions laid down the same test. See: Smith v. Inner London Education Authority (1978) 1 All E.R. 411 at 419;

2. The Court must then consider whether the balance of convenience lies in favour of granting or refusing interlocutory relief;
3. As to the balance of convenience, the Court should first consider whether if the applicant succeeds he would be adequately compensated by damages for the loss sustained between the application and the trial, in which case no interlocutory injunction should normally be granted.
4. If damages would not provide an adequate remedy, the Court should then consider if whether the applicant fails the defendant would be adequately compensated under the applicant’s undertaking in damages; in which case there would be no reasons on this ground to refuse any interlocutory injunction.
5. Then one goes on to consider all the other matters relevant to the balance of convenience, an important factor in the balance should, other things being even, preserved the status quo; and
6. When all other things are equal it may be proper to take into account in tipping the balance the relative strength of each party’s case as reviewed by the evidence before the Court hearing the interlocutory application."
   

My brother Justice Injia cited with approval the judgment of the Deputy Chief Justice in the Employer’s Federation case in his judgement in AGK Pacific (NG) Ltd v. William Brad Anderson Karson Construction (PNG) Ltd & Downer Construction (PNG) Ltd (Unreported judgement delivered on 04/12/99 or 00) N2062, held that an applicant for interim injunction must in essence satisfy two basic requirements. They are:

"1. That there is a serious question to be determined;

2. That the balance of convenience favours the grant of interim injunction in order to preserve the status quo."
   

In this case, neither of the parties or their counsel cited any of these authorities or any other authority to support their respective arguments. Nevertheless, going by the authorities I have just cited, I find agreement in the authorities on point that the grant of an injunctive relief is an equitable remedy and it is a discretionary matter. The authorities also agree that before there can be a grant of such a relief, the Court must be satisfied that there is a serious question to be determined on the substantive proceedings. This is to ensure that such a relief is granted only in cases where the Court is satisfied that there is a serious question of law or fact raised in the substantive claim. The authorities also agree that, the balance of convenience must favour a grant or continuity of such a relief to maintain the status quo. Further, the authorities agree that, if damages could adequately compensate the applicant, then an injunctive order should not be granted.

(ii) Present Case

In this case, I am satisfied that there are serious issues to be determined in the substantive proceedings. I am also satisfied that the balance of convenience favours the continuity of the injunctive orders to maintain the status quo. The status quo is that on the basis of the lease agreement, the plaintiff has engaged the services of PAC, which as far as the plaintiff is concerned was the nominated architectural agent for the defendant. It is the architects who have delayed the commencement of the plaintiff’s business and the collection of rents by the defendant. It has also contributed to a delay in the parties agreeing on the actual date of possession, which is, critical for the purposes of calculating when rents fall due from the plaintiff to the defendant. If it turns out that the parties agreed to 22nd November 2001, as the date of possession, than by now it would appear that the plaintiff could be in rental arrears for the months of October and November. Further, damages in this area could be reduced by parties agreeing to a prompt determination for the substantive issues, to minimise damages or loss to either or both of the parties. Any such loss or damage the defendant could suffer could adequately be taken care of by the undertaking to pay damages given in the affidavit of Mr. Chen. There is no evidence before me that the plaintiff is incapable of coming good on that undertaking. Further, I note that the plaintiff paid a sum of K15,000.00 to Century 21, as a sign of the plaintiff’s commitment to the lease agreement and to fulfil its obligations under the lease agreement. It has incurred substantial expenses in equipment and chattels it has ordered and or imported from overseas which have arrived and are in the country already, waiting to be installed for the purposes of the plaintiff’s intended business out of the rented premises.

On the other hand, if the injunctive orders are not allowed to continue, it will result in the lease agreement being terminated and the plaintiff will no doubt suffer damages in the form of the expenses it has already incurred, and the loss of business it had intended to generate from the rented premises.

Further, from the evidence of the plaintiff through Mr. Chen I get the impression that, its intended business out of the rented premises was the plaintiff’s first major undertaking in Papua New Guinea as an investment. It follows therefore that, if the lease is terminated, it will not only result in substantial damages to the plaintiff but a loss of business interest in the country given its experiences with the defendant in this case.

At this time of the history of our country, every opportunity for foreign investment in the country is a much more treasured opportunity then ever before. The economy is in a state of collapse and the country needs much more foreign investment and in flow of foreign currency and exchanges to help rebuild the economy. Discouraging a first time investor or any investor in the country unnecessarily is the last thing any citizen or a government instrumentality or corporation could be allowed to undertake at this time.

What I have just said above also indicates that a termination of the lease and therefore the discouragement of the plaintiff’s business is something that cannot adequately be compensated by any order for damages. It might cause long term damages not only to the plaintiff but also to the country as a whole. I am therefore, of the view that a continuity of the injunctive orders would be more appropriate rather than not.

Furthermore, noting and appreciating the principles governing the doctrine of corporate veil, I note however that the defendant was incorporated specifically for the management of "The Tower." Originally it was an investment undertaking of the National Provident Fund. It continues to be so given Mr. Rod Mitchell’s involvement. It is therefore an investment undertaking by the contributors to the National Provident Fund Scheme. That scheme has come under the microscope of the Commission of Inquiry that is almost about to complete its task. If anything that has been highlighted in those enquiries it is the fact of mismanagement and poor decisions reached by the previous management of the Fund. A lifting of the injunction poses the risk of the lease being terminated and the defendant being faced with a substantial claim for damages. It will therefore have an impact on the Funds performance.

In expressing the above views, I am mindful of that fact that the cases on interlocutory injunctions have only focused on the parties in the proceedings. I consider however that, the interest of others that might be affected either directly or indirectly must be taken into account to ensure no injustice or damage is done to such persons. In this context, I am of the view that what I said about the damage to the country is important. After all, parties to an action come to the Court because there exist the country that provides the opportunity for the parties to exist and to do business and provides the Courts for a dissolution of their disputes. In these circumstances, I consider and find that the balance of convenience favours a continuity of the injunctive orders.

For these reasons, I order a dismissal of the application for a lifting of the injunction and order that the interlocutory injunction continues until this proceedings are determined. The costs of the application is awarded against the defendant.

Finally, in the interest of minimising any loss or damage to either of the parties, I suggest that the parties take all steps necessary to have the substantive matter heard and determined without delay possibly before me anytime this month, if they so desire.
______________________________________________________________________
Lawyers for the Plaintiff: White Young & Williams
Lawyers for the Defendant: Gadens