N5433
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO 82 OF 2012

SISIO YAWANUKA TRADING AS MASIVE MOWING SERVICE
Plaintiff

V

MADANG PROVINCIAL GOVERNMENT
Defendant

Madang: Cannings J
2013: 14 June, 6 September, 6 December

CONTRACTS – alleged breach of contract – whether written contract entered into in name of a business is enforceable – repudiation of contract: whether purported "suspension" of contract amounts to termination.

PRACTICE AND PROCEDURE – pleadings – whether defendant permitted to raise argument not mentioned in defence.

The plaintiff commenced proceedings against the defendant provincial government, claiming damages for breach of contract. The plaintiff claimed that he entered into a five-year service contract with the defendant, which was unlawfully terminated without notice after two and a half years. A trial was held on the issue of liability. The defendant argued that the contract relied on by the plaintiff was unenforceable as it was expressed to be a contract between the defendant and a business name, which was an unincorporated association, a legal non-entity. Therefore the defendant is not liable in breach of contract and does not owe anything to the plaintiff.

Held:

(1)	The defendant's argument about non-enforceability of the contract was rejected for two reasons. First, the argument was not raised in its defence, so it could not be raised at the trial. Secondly, the plaintiff signed the contract himself as managing director of his business, so the contract was in fact entered into by the plaintiff and was enforceable by him.

(2)	The plaintiff proved that the contract was breached as it was repudiated (by a communication from an officer of the defendant who said, without giving prior notice, that it was "suspended") in circumstances not provided for by the contract (which contained only a vague clause allowing for termination).

(3)	The plaintiff therefore established a cause of action in breach of contract.

Cases cited
Papua New Guinea cases

Cresseri v Halla Resources Corporation [1985] PNGLR 294
Matalau Nakikus v Aquila Tubal (2012) N4845
Mercidita Malihan v Divine Word University (2010) N4112
Mond v Okoro [1992] PNGLR 501
MVIT v Etape [1994] PNGLR 596
MVIT v Pupune [1993] PNGLR 370
MVIT v Waige [1995] PNGLR 202
PNGBC v Tole (2002) SC694
Pundari v Niolam (2011) SC1123
Raim v Korua (2010) SC1062

Overseas Cases

Bradley Egg Farm Ltd v Clifford [1943] 2 All ER 378

STATEMENT OF CLAIM

This was a trial on the question of liability.

Counsel
D F Wa'au, for the plaintiff
Y Wadau, for the defendant

6th December, 2013

1. CANNINGS J: The plaintiff, Sisio Yawanuka, runs a business called Masive Mowing Service. He is seeking damages against the defendant, Madang Provincial Government, for breach of contract. He claims that he entered into a written contract with the defendant to provide it with mowing and beautification services, in return for payment of K6,000.00 per month. The duration of the contract was five years, commencing on 31 January 2009. He claims that on 15 August 2011, just over half-way through the contract period, an officer of the defendant, acting without authority and without notice, terminated the contract.

2. The defendant argues that the contract relied on by the plaintiff is incompetent and unenforceable as it was expressed to be a contract between the defendant and a business name – Masive Mowing Service – which is an unincorporated association, ie a legal non-entity. The defendant says that in any event it has paid the plaintiff for the work he did, so it is not liable in breach of contract and does not owe anything to the plaintiff.

3. A trial has been conducted on the issue of liability. There are three issues:

1	Was there an enforceable contract?

2	Was the contract terminated by the defendant?

3	Did the defendant breach the contract?

1	WAS THERE AN ENFORCEABLE CONTRACT?

4. The defendant concedes that in 2009 a written contract was entered into between it and a party called Masive Mowing Service. The contract was signed by the then Provincial Administrator Mr Joseph Dorpar, on behalf of the defendant, and by the plaintiff Mr Yawanuka as Managing Director of Masive Mowing Service. The defendant also concedes that it was, as claimed by the plaintiff, a five-year contract to provide mowing and beautification services to the defendant and that such services were provided for two and a half years and that Masive Mowing Service was paid for the services provided.

5. The defendant, however, does not concede that the contract can be enforced. It argues that despite its factual existence and despite the fact that money was paid pursuant to it, the contract is, as a matter of law, unenforceable. Mr Wadau for the defendant submitted that Masive Mowing Service was not a corporation, it was simply a business name, so it was in the same position as an unincorporated association, which according to the underlying law can neither sue nor be sued in its name to enforce a contract to which it is a party. It was a legal non-entity. It lacked legal personality. Mr Wadau cited the leading British case Bradley Egg Farm Ltd v Clifford [1943] 2 All ER 378 in support of those propositions. He also pointed out that although in 2011 Masive Mowing Service was registered as a business name under the Business Names Act, at the date of signing the contract, 8 April 2009, it was unregistered. For all those reasons, Mr Wadau submitted, the contract is not binding. It is unenforceable. Therefore the plaintiff's claim must be dismissed.

6. I reject those submissions for two reasons. First, I uphold the submission of Mr Wa'au for the plaintiff that the defendant is precluded from raising this argument as it was not set out in the defendant's defence. The plaintiff commenced proceedings by writ of summons, on which was endorsed a statement of claim. Liability is therefore to be determined in accordance with the law of pleadings, a fundamental principle of which is that the parties are confined to bringing evidence and asserting arguments that are raised in a statement of claim (in the case of plaintiffs) or a defence (in the case of defendants). Sakora AJ, as he then was, made this clear in Mond v Okoro [1992] PNGLR 501:

The purpose of pleadings in civil actions is to ensure that the scope of the dispute between the parties is defined with some precision. Every party is thereby made aware of the case to be made by his opponent, and his preparation for the trial can be directed to the actual controversy. They are intended to inform each party of the case he will have to meet at the trial, and to inform the court of the issues for adjudication. And pleadings require the parties to plead facts in support of a claim or defence. Facts must be specifically alleged so that the opposite party is not surprised. Certain rules of pleadings such as notices and time limits come into play also to ensure parties do not attempt "trial by ambush".

7. This principle has been reinforced by numerous decisions of the Supreme Court, including Cresseri v Halla Resources Corporation [1985] PNGLR 294, MVIT v Pupune [1993] PNGLR 370, MVIT v Etape [1994] PNGLR 596, MVIT v Waige [1995] PNGLR 202, PNGBC v Tole (2002) SC694, Raim v Korua (2010) SC1062 and Pundari v Niolam (2011) SC1123.

8. By raising at the trial, without prior notice, the defence that the contract is unenforceable due to its being entered into by a party lacking legal personality, the defendant is guilty of attempting a trial by ambush. This defence was not raised expressly or impliedly in the defendant's defence, so it cannot be entertained.

9. The second reason for rejecting the defence is that it is misconceived. Masive Mowing Service was not an unincorporated association. It was not any form of association. It was a business name. The fact that it was unregistered is inconsequential. The evidence shows that it was Mr Yawanuka's business name and that he was a sole trader and that the contract was entered into by him, using the business name Masive Mowing Service. I find that as a matter of both fact and law the contract was entered into between the defendant and Mr Yawanuka, both of whom are legal entities. The contract is therefore enforceable.

2	WAS THE CONTRACT TERMINATED BY THE DEFENDANT?

10. I find that the defendant terminated the contract when on 15 August 2011 one of its officers, Mr Thomas Neruse, head of the Finance and Administration Branch of the Madang Provincial Administration wrote to Mr Yawanuka, advising him that due to "an oversight during Budget Formulation" his contract was not included in the 2011 budget. Mr Neruse continued:

Payments for January to May (K30,000.00) were made out of the Traffic Registry Funds that has now been depleted. Balance there will be used to purchase registry materials to December.

Funds for the contract will have to be sourced from internal revenue during second quarter review that is yet to be finalised. You are advised to wait for that process to be completed. In the meantime cleaning can be suspended.

There is also a need to review the contract in light of your failure to mow Sir Bato Complex and also other offices stated in the contract. That has been taken over by another group under Assembly Services. I will be seeking Provincial Supply and Tenders Board decision on the contract over the next two weeks.

11. The evidence shows that no action was taken by the defendant after the writing of the letter to lift the suspension on provision of services. Operation of the contract was not renewed. I find that Mr Neruse's letter, written on behalf of the defendant, is properly regarded as conduct of the defendant which would convey to a reasonable person in the plaintiff's position that it was unwilling or unable to continue performance of the contract. It was, according to the test for determining whether a party has repudiated a contract applied in Mercidita Malihan v Divine Word University (2010) N4112 and Matalau Nakikus v Aquila Tubal (2012) N4845, repudiating the contract. The contract was therefore terminated by the defendant on 15 August 2011.

3	DID THE DEFENDANT BREACH THE CONTRACT?

12. Mr Wa'au submitted that the termination of the contract was 'unlawful' as Mr Neruse had no authority to terminate it, only the Provincial Administrator could terminate it, and therefore this amounted to a breach of contract. To assess this argument it is necessary to consider clause 6 of the contract, which states:

The contract is for a 5 year term, effective on and from the date first above written [31 January 2009] and signed and is subject to reviewing from time to time as the parties see fit to do so. The Mowing Service Contractor shall serve the Madang Provincial Government as Masive Mowing Service and in such other capacity as determined by the Provincial Administrator for the Madang Provincial Administration as and in the capacity as the Chairman for the Provincial Supply and Tenders Board and that the Contract may be terminated by either Party in accordance with the Contract provisions.

13. Though clause 6 states that the contract may be terminated "in accordance with the Contract provisions" there are no other provisions that address the issue of termination. Clause 6 is the only part of the contract that provided for how the contract could be lawfully terminated, or put another way, how it could be terminated in a way that did not amount to a breach of contract. Clause 6 is a rather vague provision but it is reasonable to infer that it is saying that the contract can only be terminated by the defendant if the Provincial Administrator gives notice in writing to Masive Mowing Service that the contract will be terminated. And as the contract is for a fixed term and contains no express method of termination, it is also reasonable to infer that reasonable notice of termination must be given. I therefore uphold Mr Wa'au's submission. I find that there was no notice in writing by the Provincial Administrator and that the contract was terminated without notice. The contract was therefore terminated other than in the manner allowed for by the contact. This was a breach of contract. I add the comment that the reason given by Mr Neruse for suspending the contract – an oversight during budget formulation – was not a good reason, certainly not one provided for by the contract.

CONCLUSION

14. The contract between the plaintiff and the defendant is enforceable. It was a five-year contract commencing on 31 January 2009. It was repudiated and therefore terminated by the defendant on 15 August 2011. It was terminated in a way other than that provided by the contract. The plaintiff has established a cause of action in breach of contract, and the defendant is liable in damages.

15. As this trial was confined to the issue of liability, no assessment of damages will be made. This raises the question of how damages should be assessed. There are at least three options available to the court: (1) order a trial on assessment of damages or (2) let the parties resolve the matter or (3) order mediation.

16. Under the ADR Rules the National Court is empowered by Rule 5(2), of its own motion, to order mediation for a resolution of any part of any proceedings provided that at the time of considering whether to order mediation it has regard to the factors prescribed by Rule 5(3). I have had regard to those matters. I consider that: (a) mediation will not result in prejudice to the rights of either party; (b) it is reasonably within the ability and power of both parties to comply with a mediation order; (c) mediation will not entail substantial work for either party; (d) the nature of the relief sought lends itself to mediation; (e) a mediation at Madang can be set up very soon and this should be convenient to both parties; (f) neither party has expressed opposition to the prospect of mediation; (g) mediation has not yet been attempted and it should be attempted at least once before consideration is given to setting down a trial; (h) neither party loses the right to have the assessment of damages tried in court; and (i) it is in the interests of justice to attempt mediation as a method of resolving disputes such as this. I conclude that option (3) is the most appropriate as it is the option that has the greatest prospect of finally and quickly determining the dispute. I will therefore make an order for mediation. Costs of this trial will follow the event.

ORDER

(1)	The defendant is liable in breach of contract to the plaintiff.

(2)	The question of assessment of damages shall under Rule 5(2) of the ADR Rules, on the court's own motion, be referred for mediation pursuant to a separate mediation order under Rule 5(4) of the ADR Rules.

(3)	The defendant shall pay the plaintiff's costs of the proceedings on a party-party basis which shall if not agreed be taxed.

Judgment accordingly.
__________________________________________
Meten Lawyers: Lawyers for the Plaintiff
Young Wadau Lawyers: Lawyers for the Defendant