N3085

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO. 5 OF 2004

BETWEEN

JOHN LEANNA t/a WARI ENTERPRISES
Plaintiff

AND

PNG POWER LIMITED
Defendant

Port Moresby: Manuhu, J.
2005: November 25

DECISION

DECLARATORY ORDERS – contract – public tender - termination – reasons for termination.

CONTRACT – invitation to treat – offer – acceptance – consideration – breach – appropriate remedy.

CONTRACT –contract to sell distinguished from contract of sale – implied term – duty to be honest – breach of implied term.

No case cited.

Counsel:

Mr. R. Tuva, for the Plaintiff.
Ms. K. Nugi, for the Defendant.

25 November 2005

1. MANUHU, J.: The Plaintiff is seeking declaratory orders that the Defendant’s termination of a contract he entered into with the Defendant was wrong and unreasonable. The Plaintiff, consequently, seeks an order that the Defendant pay damages for breach of contract and economic loss suffered as a consequence of the wrongful termination of the contract. The matter comes before me for determination on liability and, if liability is proved, on assessment of damages.

2. The Plaintiff, John Leana, is the Manager of Wari Enterprises, a company incorporated under the Companies Act 1997. The Defendant, PNG Power Limited, formerly known as the PNG Electricity Commission, is also a duly incorporated company under the same Act. In or around May 1999, the Defendant advertised tender No 17/99 for a contract to supply papers of specified sizes and colours for printing and copying. The Plaintiff responded to the tender and his offer was accepted by the Defendant. The Defendant in a letter to the Plaintiff dated 31 March 2000 acknowledged and confirmed the contract with its terms and conditions. The contract was to commence on 1 April 2000 and was to conclude on 31 March 2001, with an option for extension for a further period of three (3) years subject to agreement by both parties and the maintenance of a preferential price structure satisfactory to the Defendant. The Plaintiff was required to supply papers upon order by the Defendant and payment was to be processed upon delivery. 

3. On 10 August 2000, a fax letter purportedly written and signed by the Defendant’s officer in charge of printing was sent to the Defendant’s stores at Gerehu advising the stores to sign off Order No. 070766 as the papers were being delivered to the Defendant’s printing section at the Head Quarters, Hohola. The fax letter was transmitted not from the Defendant’s premises but from the Plaintiff’s fax machine. The Defendant’s officer denies having signed and faxed any such correspondence from the Plaintiff’s fax machine. On suspicion of fraud, the contract was terminated on 29 September 2005 by Malchus Ataembo, Assistant Manager, Supplies and Transport Division, of the Defendant. 

4. It is necessary, from the facts already outlined, to understand the contractual arrangements between the parties. First, there are, in the arrangement, two contracts. The first contract is the contract to sell or supply. It will be referred to as the principal contract. The advertising of the tender may be perceived as constituting offer by the Defendant but the advertising was to the world at large and was merely an invitation to treat. The actual offer was made by the Plaintiff when he responded to the advertisement and submitted his supply proposals to the Defendant. Acceptance of the offer was made on 31 March 2000 when the Defendant formally acknowledged and accepted the Plaintiff’s proposals. By 31 March 2000, both parties had a legal relationship and they were ready to conduct business. 

5. Consideration is also an element of a contract. A contract without consideration is not enforceable. In this case, consideration for the principle contract was the collateral contract for the sale of papers upon order by the Defendant. In other words, without the collateral contract, the principal contract is nothing but a hollow contract. 

6. The collateral contract was the second contract in the arrangement. It was a contract of sale. Offer and acceptance were predetermined by the principal contract. The parties were legally bound to each other on 31 March 2000. But consideration of the collateral contract is constituted by the actual supply of papers by the Plaintiff to the Defendant. If papers were supplied against an order, such supply of papers was consideration for the contract of sale, and the Defendant may sue for short supply, for late delivery, for poor quality of papers, and so on. Similarly, the Plaintiff supplier may sue for the value of papers supplied. 

7. Secondly, the court is of the view that inherent in both contracts, in view of perceived rampant corruption in this country, was the duty upon the parties to deal honestly with each other so that the relationship is maintained throughout the specified period, which could be extended if the parties were desirous of an extension. This implied term was fundamental to the relationship. Its maintenance would guarantee the existence of the principal contract but its breakdown would irretrievably damage the relationship.

8. The Plaintiff submits that Mr. Ataembo did not have the authority to terminate the contract. The court has considered the argument and has formed the view that, at the very least, the Defendant has ratified Mr. Ataembo’s action and is, thus, defending this action. The Plaintiff also claims that termination of the contract was in direct breach of the supply contract as there was no substantial basis to warrant the termination of the contract. For this reason, the Plaintiff is claiming the monetary value of the balance of the contract. The issue, therefore, is whether, in permitting or constructively permitting the transmission of a questionable fax letter from his premises, the Plaintiff breached a fundamental term which warrants termination of the contracts. 

9. In that regard, the court has considered the events surrounding the controversial letter and the contractual arrangement of the parties. From them, the court is satisfied that the Plaintiff was in breach of the implied term of contract under which he was required to deal honestly with the defendant. The fax letter in question was not authored and transmitted by any of the Defendant’s officers. It was dishonest and or irregular that the Defendant’s fax letter was transmitted from the Plaintiff’s premises to the Defendant’s premises. It is not necessary to prove fraud. It is not unreasonable for the Defendant to feel cheated when its own fax letter, which was not written by its officer, was being transmitted to its own stores from the Plaintiff’s premises. It is a serious matter when the fax letter relates to the question of whether payment should or should not be made by the Defendant. The transmission of the Defendant’s fax letter from the Plaintiff’s premises is not a prudent management or accounting practice. In the circumstances, the Defendant was entitled to terminate the arrangement. The court has heard and accepts as a matter of fact that the Plaintiff has accepted the termination of the contractual relationship. 

10. However, even if the termination of the arrangement was wrong and unreasonable, suing the Defendant for the monetary value of the balance of the contract of sale is not available to the Plaintiff simply because he has not supplied any more papers and has not acted to his detriment. There is no cause of action in contract if a breach has not resulted in a loss. The claim appears to be the result of confusion in the remedies available between the two contracts. If the court has not been clear already, Chitty on Contracts, Volume 2, Specific Contracts, in paragraph 43- 008, is enlightening:

"Sales distinguished from agreements to sell. It is necessary to make this distinction because a sale of goods is both a contract and a conveyance; an agreement to sell, on the other hand, is a contract and nothing more. It follows that if one party to an agreement to sell defaults, the other party is limited to a personal remedy. But if there has been a sale the buyer also may have proprietary remedies in respect of goods themselves, and the seller can sue for the price." 

11. In other words, if the Defendant has defaulted in the contract to sell (principal contract) the Plaintiff would be limited to the remedy of specific performance. But if there has been a sale the Defendant would have proprietary remedies in respect of papers themselves, and the Plaintiff could sue for the price. The Plaintiff has not sought specific performance and has accepted the termination. Acceptance of termination concludes the contract. The Plaintiff cannot accept the termination and sue for the price of papers he has not supplied. A contract without consideration is not enforceable. The principles of quantum meruit and unjust enrichment also come to mind. Quite simply, the Plaintiff, who has not lost a single toea and is financially unharmed by the termination, is not entitled to demand the contractual value of the papers not supplied (K208,767.01) from the Defendant. 

12. In all the circumstances, the proceeding is dismissed with costs. The Plaintiff asked for costs on a solicitor-client basis but the Defendant has been forced to incur legal costs due to the unconscionable action by the Plaintiff. In the circumstances, cost is awarded in favour of the Defendant on a solicitor-client basis. 

Orders accordingly. 
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