MAGNA TERRIS LTD v. BERTHOLD PAA JOE GADAGBUI

MAGNA TERRIS LTD v. BERTHOLD PAA JOE GADAGBUI

Citation: Suit No. H1/155/2016 Court: Court of Appeal, Ghana.

Judges

• GYAESAYOR, J.A. (PRESIDING)
• K.N. ADUAMA OSEI, J.A.
• M.M. AGYEMANG (MRS.), J.A.

Facts of the case

Magna Terris Ltd, the Plaintiff/Respondent, was a Ghanaian company engaged in real estate development. Berthold Paa Joe Gadagbui, the Defendant/Appellant, entered into a contract with the company in or about August 2008 for the construction and sale to him of two houses, numbered 46Ca and 46Cb, at Kingsville, Oshiokpo-Dawhenya.

In March 2009, the parties executed a 90-year sublease relating to the two properties. Under the sublease, the Appellant was described as the sub-lessor and the Respondent as the sub-lessee, as reflected in the judgment’s description of the instrument. The sublease reserved an annual rent of GH¢50.

The central provision in dispute was Clause 3:10, under which the sub-lessee covenanted to pay, in common with other sub-lessees or occupiers, a proportionate part of charges incurred in making up and maintaining the housing community, including roads, water, electricity, verges, footpaths and public open spaces.

Relying on this clause, the Respondent invoiced the Appellant for charges relating to electricity consumption, road infrastructure, water connection and water usage. The amounts claimed for each house included GH¢1,480 for electricity, GH¢5,000 for road infrastructure, GH¢2,450 for water connection and GH¢980.04 for water usage.

The Appellant refused or neglected to pay the charges. He argued that Clause 3:10 required him to contribute towards the relevant expenses but did not expressly empower the Respondent to levy the charges. He contended that utility providers such as the Electricity Company of Ghana and Ghana Water Company could bill him directly, and that the Respondent could not assume a management role that the parties had not expressly incorporated into the sublease.

The Respondent commenced proceedings in the High Court to recover the charges. At the application-for-directions stage, the High Court set down a preliminary issue for determination by legal argument: whether the Respondent had the right to levy charges under Clause 3:10. On 2 December 2015, the High Court answered the question in the affirmative.

Dissatisfied, the Appellant appealed to the Court of Appeal, arguing that the trial judge had misconstrued Clause 3:10 and failed to ascertain the true intention of the parties.

Issues for determination

The principal issue was:

Whether the High Court correctly interpreted Clause 3:10 of the sublease as empowering Magna Terris Ltd to levy charges on Berthold Paa Joe Gadagbui for utilities and other shared expenses.

The issue raised several subsidiary questions:

1. Whether the intention of the parties could be determined from Clause 3:10 and the sublease as a whole.
2. Whether the Respondent could levy charges despite the absence of an express provision identifying who was entitled to bill the Appellant.
3. Whether the Respondent’s role in providing or administering utilities and maintaining common infrastructure could be inferred from the terms of the sublease and the parties’ dealings.
4. Whether the Court could refuse to enforce the covenant on the ground that the charging arrangement was unreasonable or unconscionable, when the Appellant had not sought to set the sublease aside on that basis.

Holding and decision

The Court of Appeal dismissed the appeal and affirmed the High Court’s ruling.

It held that:

• Clause 3:10 empowered the Respondent to levy charges for utilities and other shared expenses covered by the clause.
• The intention of the parties had to be determined from the written instrument, read as a whole, rather than from isolated words or an assumed intention.
• The Appellant had expressly covenanted to contribute proportionately towards the relevant charges.
• The Appellant’s own pleadings acknowledged that the water and electricity supplies were measured through master meters controlled by the Respondent.
• The Court would not relieve the Appellant from a contractual bargain freely entered into merely because he considered the arrangement unreasonable or preferred a different billing system.

Reasoning of the Court

A. Interpretation of the written contract

The Court began with the principles of contractual interpretation advanced by the Appellant himself. It accepted that the court’s duty is to ascertain the intention of the parties from the words they used in the written instrument.

The Appellant relied on Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724, Shore v Wilson (1842) 9 Cl & F 355, and Prempeh v Agyepong [1989–90] GLR 407 to support the propositions that courts must ascertain contractual intention, must not insert words into an agreement and must give effect to what was actually written.

The Court agreed with those principles but rejected the Appellant’s application of them. It held that the relevant intention had to be gathered from the written instrument as it stood, rather than from the Appellant’s preferred interpretation of the clause.

It relied on Akim Akroso Stool and Others v Akim Manso Stool and Others [1989–90] 1 GLR 100 at 106, which emphasised that the court must ascertain the meaning of the words used in the document and must not substitute a presumed intention for the intention expressed in the instrument.

The Court also cited Boateng v Volta Aluminium Company Ltd [1984-86] 1 GLR 733 and Opare Yeboah and Others v Barclays Bank Ghana Ltd [2011] SCGLR 330 at 342 for the principle that the document must be read as a whole.

Applying these principles, the Court found that Clause 3:10 was part of the Appellant’s express covenant to contribute towards shared expenses. The absence of a separate management clause did not eliminate the obligation created by Clause 3:10.

Principle: Where the terms of a contract are clear and unambiguous, the court must ascertain the parties’ intention from the words they used in the written instrument. The contract must be read as a whole, and the court must not import words into it or substitute its own presumed intention for that of the parties.

B. Construction of Clause 3:10 and the meaning of a covenant Clause 3:10 required the sublessee to pay a proportionate part of charges incurred in making up and maintaining the housing community, including water, electricity and roads.

The Court treated this as a contractual promise to contribute to the specified expenses. It referred to Black’s Law Dictionary, 8th edition (2004), page 1381, which defines a covenant as a formal agreement or promise, usually contained in a contract.

The Court reasoned that the Appellant had expressly agreed to contribute to the specified charges if required to do so. It was not necessary for the clause to contain a separate sentence stating that the Respondent could issue invoices, where the clause, read in its context, imposed an obligation to pay the relevant charges and the evidence established the Respondent’s role in administering the services.

The Court therefore rejected the contention that the clause’s silence on the identity of the person who could levy charges necessarily meant that only public utility companies could bill the Appellant.

Principle: A covenant contained in a valid contract creates an enforceable obligation between the parties. A party who voluntarily enters into a contract is generally bound by its terms and cannot avoid an obligation simply because its performance later becomes inconvenient or because the party disagrees with the other party’s exercise of a contractual right.

C. The significance of the master meters and the parties’ dealings

The Court examined the Appellant’s own pleadings. Although he denied that the Respondent had provided the services for which it sought payment, he acknowledged that the water he consumed passed through a master water meter and that his electricity consumption was regulated by the Respondent’s meter.

The Court regarded these admissions as significant. They supported the conclusion that the Respondent controlled the relevant measurement and billing arrangements within the housing community.

The Court consequently held that the Respondent was entitled to levy charges for water, electricity and the other outgoings specified in Clause 3:10.

The decision did not establish that every property developer automatically has the right to bill purchasers for utilities. Rather, the entitlement arose from the construction of the particular contractual provision in the context of the evidence concerning the master meters and the parties’ arrangement.

D. Freedom of contract and sanctity of contract

The Court relied on the common-law principles of freedom of contract and sanctity of contract.

Freedom of contract means that parties who are legally capable of contracting are generally free to decide the terms of their agreement, subject to applicable law.

Sanctity of contract means that courts ordinarily hold parties to valid contractual obligations freely undertaken. A party cannot ordinarily escape a contractual promise merely because the bargain later becomes inconvenient or because the party would prefer different terms.

The Court cited Dr Date-Bah JSC in Volta Aluminium Company Ltd v Tetteh Akuffo [2003–2004] SCGLR 1158, particularly the proposition that courts generally do not intervene to determine what the parties’ bargain ought to have been simply because one party considers the bargain unfair.

The Court acknowledged that the charging arrangement might arguably be unreasonable or unconscionable. However, the Appellant had not sought to have the agreement set aside on that basis. The Court therefore held that he remained bound by the terms he had voluntarily accepted.

The central point was that the Court’s task was to interpret and enforce the existing agreement, not to rewrite it to create a different utility-billing arrangement.

Principle: The principle of freedom of contract recognises the parties’ autonomy to determine the terms of their contractual relationship. Once parties freely enter into a lawful agreement, the sanctity of contract requires them to honour their bargain, and the court will ordinarily enforce the agreement according to its terms. This principle is subject to applicable law and recognised grounds for challenging contractual validity or enforcement.