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National Court of Papua New Guinea |
PAPUA NEW GUINEA
IN THE NATIONAL COURT OF JUSTICE
WS 415 of 2004
TIMOTHY LIM KOK CHUAN
AND:
SIMON GOH SAY BEN
AND:
TONG CHO CHIN
-Second Defendant-
WAIGANI: Injia DCJ
2004: May 10th, 17th. 18th
CIVIL – Law – Contract for sale of auto-repair business on walk – in walk- out basis – Contract part oral and part in writing - Breach of – Action for specific performance and damages – Interim injunctions to preserve plaintiff’s possession of company assets and records – Whether contract of a kind which could be required to be specifically performed by a party by interim injunctive relief– Interim injunction previously granted discharged.
Cases cited:
Clifford v Turrell [1841] EngR 1212; [1861] 62 E.R. 826
Cogent v Gibson [1864] EngR 493; [1864] 55 E.R. 485
Craftworks Niugini Pty Ltd v Allan Mott Unreported Supreme Court Judgement No. SC525 dated 1997.
Employers Federation of PNG v Waterside Workers and Seaman’s Union Unreported National Court judgement No. N393 dated 1982.
Mainland Holdings Ltd v Paul Stobbs N2522 (2003).
Modilon Automotive Pty Ltd v Kevin Southcomb & Others [1997] PNGLR 158.
Robinson v National Airlines Commission [1983] PNGLR 476.
Turner v Bladin & Others [1951] CLR 463
Counsel:
Mr Manjin for the Plaintiffs
Mr Kua for the Defendants
18 May 2004
INJIA DCJ: The parties in these proceedings are non-citizens. The Plaintiff is a registered accountant and the owner of the accounting firm of Lim Samuel Caris & Co. The Defendants are spouses. They own the business described as Active Engineering ("the business") through their ownership of Auto Parts (PNG) Ltd.
Sometimes in July 2000, the parties entered into some kind of an oral agreement for the Plaintiff to buy from the Defendants the business for K2.78 million but this agreement was never reduced to writing and signed by the parties. Pursuant to the agreement, on or about 1 August 2000, the parties entered into further mutual arrangement for the Plaintiff to take control of the daily business operations. A new bank account was opened under the business name. The Plaintiff was to run the business for which service he was paid a monthly salary of K8,000.00.
Between September 2000 and June 2003, the Plaintiff says he paid a total of K750,000.00 towards the purchase price. In around October 2003 the parties agreed on a scheme for accelerated payment, whereby the Plaintiff would pay the sum of K2.3million to buy off the company completely. The offer of accelerated payment was made by the Defendants in writing and accepted in writing by the Plaintiff. Under this agreement, the Plaintiff was to pay a deposit of K300,000.00 by 7th October and the balance by 17th October. The Plaintiff’s acceptance of the Defendants’ offer of accelerated payment was endorsed by hand on the letter of offer but with one variation – the sum of K300,000.00 would be paid on 7th October and the balance by 7th November 2003. There is no evidence that this variation was accepted by the Defendants. On 2nd October the Plaintiff secured a K1.7 million loan facility from the Bank of South Pacific to finance the purchase of the business. A written contract of sale of the business prepared and submitted to the defendants by the Plaintiff was never signed by the parties. On 6th October 2003 the Plaintiff took out two bank cheques totaling K260,000.00 which were raised in favour of the Defendants and paid to the Defendants. The Plaintiff did not pay the balance on 7th November. On 12th November, the Defendants returned the payments of K260,000.00 in two bank cheques to the Plaintiff. Problems between them over the sale/purchase agreement started and intensified. The Defendants insisted on remaining in the business premises and refused to hand over the business assets, keys to the business premises and business accounting and other records. The Defendants then convened a meeting of the board of directors of Auto Parts (PNG) Ltd and resolved to request the Plaintiff to return the assets and records. They also took steps to lock out the Plaintiff from the business premises and demanded the return of the records, keys etc.
After an earlier unsuccessful attempt to obtain interim injunctive relief in OS 9/04, the Plaintiff filed these proceedings on 22nd April 2004. He sought specific performance of the oral contract and damages for breach of contract or alternatively a refund of the sum of K1,525,395.90 being monies by the Plaintiff to the Defendants. On 27th April, 2004 the Plaintiff sought urgent interim orders ex parte pending determination of the substantive proceedings, which I granted. The interim orders were returnable on 29th April. It is the issue of extension of these interim orders which is the subject of this ruling.
The interim orders I granted on 27th April are:
Both counsel made detailed submissions on the issue with reference to case law precedent and relevant provisions of various statutes governing regulation of foreign business enterprises, stamp duty on agreements, and so on. The arguments were centred around the requirements on the grant of or extension of interim injunctive relief first established in Employers Federation of PNG v Waterside Workers and Seaman’s Union & others N393 (1982) per Kapi Dep CJ (as he then was) which have been since adopted and applied in many National Court cases. These principles were adopted by the Supreme Court in Craftworks Niugini Pty Ltd v Allan Mott SC525 (1997) (Amet CK, Kapi Dep CJ & Los J). There are three basic requirements: A Plaintiff must show there is a serious issue to be tried, the balance of convenience favour the grant of the interim injunction in order to maintain the status quo and damages is not an adequate remedy.
In the cases decided by the National Court including the Supreme Court case of Allan Mott, I am unable to locate a case on point where a prospective purchaser of a business under an oral contract of sale is seeking to preserve his rights to acquire and operate the business as his own against the prospective vendor/owner of the business, pending the determination of the substantive relief for specific performance and damages. The grant of interim relief in effect may amount to ordering a party to specifically perform, in part or in full, the terms of the contract, when the substantive relief is yet to be determined.
The decree of specific performance is a discretionary remedy founded on equitable principles and its grant will depend on many factors including the bona fide conduct of the parties. So too is an injunctive relief. This business, like any other business is a sizeable business worth substantial amount of money by Papua New Guinea standards, and the discretionary power to grant of the type of interim injunctive relief sought in this kind of cases should be exercised with caution. The onus of course is on the Plaintiff to show that he has a serious case to be tried on specific performance such that the damages he has claimed in the Writ is not totally an appropriate and adequate remedy.
On the question of whether the decree of specific performance is available in the kind of case before me, in the absence of any local case on point, Mr Manjin for the Plaintiff has referred me to the Australian High Court decision in Turner v Bladin and Others [1951] CLR 463. In that case, the Plaintiffs entered into an oral contract for the sale by them to the Defendants of its quarry business on a walk-in walk-out basis. Upon taking possession of that business the Defendants made part payment and the balance was payable by instalments over a period of time. The Defendants failed to pay the balance. The Plaintiff sued for specific performance by seeking payment of the balance of the purchase price. The Defendants contested the claim saying, inter alia, the agreement was not specifically enforceable under S.128 of the Instruments Act (Victoria) 1928-1936 which said no action shall be brought to enforce an agreement in affecting an interest in land unless it was in writing and signed by the parties. The Supreme Court found in favour of the Plaintiff and ordered the Defendants to pay the balance of the purchase price plus interest. The Defendants appealed to the High Court. The High Court in dismissing the appeal said at p.472 – 473:-
"We are of the opinion that the contract was specifically enforceable. We reject the contention that a contract, some part of which is not immediately performable, is not capable of specific performance. In our opinion proceedings for the specific performance of a contract of such a kind that it can be specifically enforced as soon as one party threatens to perform any promise for which the time of performance has arrived. The Court can then make a decree and order such enquiries and order such enquiries, accounts and other proceedings under the decree as may be necessary to carry into effect all the promises of both parties whether they are presently performed or only performable in the future...
"We are of the opinion that where the contract is if such a kind that the purchaser can sue for specific performance, although the claim is merely to recover the sum of money and he can do so although at the date of the Writ the contract has been fully performed except for the payment of the purchase money or some part thereof. The law is, we think, correctly stated by Nicholas J (as he then was) in Eastwood-Epping Ice & Fuel co. Ltd v Pittock [1938] NSWStRp 39; (1938) 38 S.R. (N.S.W.) 671: "The right of a vendor to sue for a decree in equity that payment should be made according to a contract, although it is a claim for payment for money only, appears to be an additional right recognized in every case in which the other party to the contract might have sued for specific performance had been the party complaining about the breach."
The High Court then discussed several old English cases which deal with contracts for the payment of purchase money which are enforceable by specific performance where damages would have been inappropriate remedy: Clifford v Turrell [1841] EngR 1212; (1861) 62 E.R. 826; Cogent v Gibson [1864] EngR 493; (1864) 55 E.R. 485. These principles are relevant to the present case and I adopt them. I find that the contract of sale of business in the present case is enforceable by specific performance.
Returning to the requirements for interim injunctions, I am not satisfied that the interim orders ought to be extended, for to do so it would amount to requiring the Defendants to specifically perform the contract in part, in a substantial way. I say this for several reasons. First, the Plaintiff did not pay the full amount of deposit under the agreement for accelerated payment. He also did not pay the full purchase price on the 17th of October or even on the 7th of November as varied by him. In other words, he failed to fully perform his side of the contract by paying the balance of the purchase price on the agreed date. Consequently he has not come to this Court with clean hands.
Secondly, it is not clear if the earlier payments made by the Plaintiff of some K750,000.00 was strictly part of the purchase price or business income return to the owners of the business.
Thirdly, as Mr Kua submits, by the time these proceedings were instituted, the time for specific performance of the balance of the oral contract had already expired on 17th October or 7th November, 2003. These proceedings were filed 5 – 6 months after that expiry and the urgency of the Plaintiff’s interest requiring protection by interim injunctive relief has faded away.
Fourthly, the oral agreement is of a type that should have been formalized in writing to meet legal requirements including tax law, company law, and Investment Promotion Act requirements which regulate conduct of business in this country by foreigners. Both parties may have collaborated in such a scheme to avoid such legal requirements.
Fifthly, the contract is not purely for sale/purchase of a company business on a walk-in walk-out basis. It is mixed with mutual arrangements for provision of employment service, accounting service, management service and so forth, for which the Defendants paid the Plaintiff a fixed monthly salary. A Court of equity rarely enforces a contract of employment by way of interim injunctive relief. The case of Robinson v National Airline Commission [1983] PNGLR 476 cited by Mr Kua for the Defendants is on point. Also see Modilon Automotive Pty Ltd trading as Modilon Construction v Kevin Southcomb and others [1997] PNGLR 158 and Mainland Holdings Ltd v Paul Robert Stobbs & Ors N2522 (2003).
In these circumstances, although the Plaintiff may have a serious case to be tried on specific performance, I do not think the balance of convenience favours the grant of interim injunctive relief. Such injunctive relief would force the parties to continue a business relationship which has since become unworkable. It is also not in the interest of good business that the management and operational affairs of the business should be put to risk by on-going tussle between the parties over management and control of the business and its assets, facilitated or perpetuated as it were, by interim injunctions. The Plaintiff’s claim for substantive relief for specific performance is separable from his claim for injunctive relief, because if he succeeds in the substantive relief, he will pay the purchase price and take possession and control of the business therefrom. There is no evidence that the Defendants will sell the "business" to a third party or cease operations. There is no need for interim injunctive relief.
Alternatively, if the Plaintiff succeeds in proving breach of contract but fails to obtain a decree of specific performance, he will not go without a remedy because he is entitled to claim damages. I am satisfied that the Defendants have the financial means and capacity to meet an award of damages in the sum claimed in the Writ if the Plaintiff is successful in proving its claim for breach of contract.
Having reached the above conclusion, it is not necessary to consider the other arguments raised including those in relation relevant provisions of the Investment Promotions Act, Companies Act and Stamp Duties Act and certain decisions of the board of the company requiring the Plaintiff to return the assets of the company.
For these reasons, I discharge the interim injunctive orders issued on 27th April 2004 and allow the Defendants to take steps to recover
the company assets and records from the Plaintiff if he does not return them to the Defendants voluntarily. The Plaintiff is entitled
to keep any assets and records which belong to him and his accounting firm. He should hand over the keys, assets, records which belong
to the company and vacate the company’s business premises forthwith. If there is any disagreement as to the ownership in any
of these assets or records, I grant liberty to both parties to apply for appropriate orders. The Defendants shall have their costs
of and incidental to this application paid by the Plaintiff.
__________________________________________________________________
Lawyer for the Plaintiff : Ketan Lawyers
Lawyer for the Defendants : Posman Kua & Aisi
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