N5900
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
 
WS 1358 of 2010

BETWEEN:

MMK TRANSPORT LIMITED
Plaintiff

AND:

THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Defendant

Waigani: Hartshorn J.
2013: September 5th,
2014: April 25th

Trial

Counsel:

 N. Kera, for the Plaintiff
 I. Mugugi, for the Defendant

25th April, 2014

1. HARTSHORN J. The plaintiff and defendant entered into a contract on 13th December 2007 for the plaintiff to rehabilitate a section of existing gravel road between Seven Corner and Kagua Station in the Southern Highlands Province.

2. On the 5th April 2008, the plaintiff commenced the Works. Pursuant to the contract, the time period was 18 months. There was provision for an extension on appropriate grounds.

3. On 7th May 2009, about six months before the finish date, the defendant terminated the contract. The reason that was given was the slow rate of progress. The plaintiff's explanation for the slow rate of progress was amongst others, landowner issues. The plaintiff also claimed that the slow rate of progress was not a breach which was fundamental to the contract such as to warrant termination.

4. The plaintiff commenced this proceeding claiming damages, interest and costs.

Preliminary

5. The defendant raised some preliminary issues. The first concerned whether there was any evidence of any binding contract between the plaintiff and defendant. In evidence relied upon by the plaintiff there is reference to the Contractor being a company other than the plaintiff. The plaintiff submitted that this issue was not raised in the defendant's defence and so it cannot be raised. Further, the reference to the Contractor being a company other than the plaintiff was an error.

6. From the evidence, it is clear that the contract was executed by the plaintiff. The company seal of the plaintiff is affixed and the Managing Director of the plaintiff has signed. Further, in the space for the affixing of the seal it is typed with the name of the plaintiff and on the same page there is execution on behalf of the defendant.

7. On the first issue, it is the case that this issue has not been raised by the defendant in its defence. Further, I am satisfied that the reference to a company other than the plaintiff is an error. On the execution page in evidence, it is clear that the plaintiff has executed the contract in the space specifically provided for and typed for that purpose. There has also been execution on behalf of the defendant on the same page. I find for the plaintiff on this issue.

8. The second preliminary issue is whether the plaintiff has failed to disclose a reasonable cause of action against the defendant as it has failed to plead the proper nexus between the defendant and the State agencies which purportedly breached the contract.

9. The plaintiff submits that it is not necessary for any entity other than the defendant, the State, to be named as a defendant. The contract was between the plaintiff and the defendant and not between the plaintiff and any other entity, and no other entity is liable for the purported breach of the contract. I agree with the submissions of the plaintiff. I see no merit in the argument of the defendant on this issue.

10. The third issue raised, concerns the plaintiff's claim for exemplary damages. The defendant submits that such a claim cannot be made pursuant to s. 12 Claims By and Against the State Act. The plaintiff in its submissions has forgone such a claim so it is not necessary for the court to consider this issue.

11. On 19th October 2012 this court ordered amongst others, that the draft statement of agreed and disputed facts and issues for trial of the plaintiff dated 27th September 2012 shall be relied upon for the trial. This followed the defendant's non-compliance with directions to respond to the statement. The parties have made submissions on the basis of this statement. 

12. The issues for trial in the statement are:

a) whether the delay of the works can be attributed to landowner and other issues as pleaded;

b) whether the plaintiff committed a fundamental breach of the contract such as to warrant termination;

c) whether the plaintiff suffered loss and damage as a result of termination of the contract.

13. I will consider the second issue first.

Whether the plaintiff committed a fundamental breach of the contract such as to warrant termination

14. As the plaintiff submits, the contract provides guidance as to what constitutes a fundamental breach giving a right to either party to terminate the contract.

15. Clause 56.1 provides:

"The Employer or the Contractor may terminate the Contract if the other party causes a fundamental breach of the Contract."

16. Clause 56.2 provides:

"Fundamental breach of Contract shall include, but shall not be limited to, the following:
……………
(e) the Project Manager gives Notice that failure to correct a particular Defect is a fundamental breach of Contract and the Contractor fails to correct it within a reasonable period of time determined by the Project Manager;

(f) the Contractor does not maintain a Security, which is required; and

(g) the Contractor has delayed the completion of the Works by the number of days for which the maximum amount of liquidated damages can be paid, as defined in the PCC.

(h) if the Contractor, in the judgement of the Employer has engaged in corrupt or fraudulent practices in competing for or in executing the Contract, pursuant to GCC 57.1.

56.3 When either party to the Contract gives notice of a breach of Contract to the Project Manager for a cause other than those listed under GCC 56.2 above, the Project Manager shall decide whether the breach is fundamental or not.

56.4 Notwithstanding the above, the Employer may terminate the Contract for convenience.

Plaintiff's submissions

17. The plaintiff submits that the contract was not terminated for convenience nor was it terminated on any of the grounds provided for under clause 52.6, particularly 52.6 (h). (I presume here that reference is being made to clause 52.6(g) and not (h) and I will proceed on that basis). The plaintiff submits that clause 52.6(g) seems to apply to delay post the Completion Date.

18. The plaintiff submits that what appears to have happened is that the defendant through its Project Manager made a decision that the plaintiff had caused a fundamental breach of the contract based on the following:

a) completion of the project was unattainable in the time remaining (five months) given the negative slippage that he calculated:

b) the negative slippage was purely the plaintiff's fault;

c) there were no landowner issues or other issues;

d) if there were any landowner issues or other issues, the associated delays and stoppages cannot be considered in calculating negative slippage or considering whether to extend the completion date because it was the plaintiff's responsibility to deal with landowner issues and progress the works.

19. Accordingly submits the plaintiff, the Project Manager made the recommendation for termination and the contract was subsequently terminated.

20. The plaintiff submits that it has established with evidence that a significant delay in the Works was attributable to landowner issues or landowners' various demands for compensation hence the Project Manager's decision was flawed to begin with.

21. When the relevant provisions of the contract are read together submits the plaintiff, it is clear that the employer (defendant) was the party responsible for issues associated with landowners' claims for compensation and in accordance with that responsibility the employer (defendant) was to attend to such issues as and when they arose so that the contractor (plaintiff) could perform its obligations uninterrupted. 

22. The plaintiff claims that from a reading of clause 11.1(a)(iii) the defendant was the party responsible for issues associated with landowners' claims for compensation and in accordance with that responsibility the defendant was to attend to such issues as and when they arose so that the plaintiff could perform its obligations uninterrupted.

23. Further, the plaintiff claims that it was entitled to an extension of time to complete the Works because it was affected by the defendant's risks giving rise to a Compensation Event, compensation claims by landowners that resulted in stoppages, which the defendant failed to address.

The Contract

24. Clauses 10, 11 and 12 of the General Conditions of Contract define Employer's and Contractor's risks. Sub clause 11.1(a) (iii) was added by the Particular Conditions of Contract. Clauses 10, 11 and 12 are as follows:

10.1 The Employer carries the risks which this Contract states are Employer's risks, and the Contractor carries the risks which this contract states are Contractor's risks.

11.1 From the Start Date until the Defects Liability Certificate has been issued, the following are Employers risks:
 
(a) The risk of personal injury, death, or loss of or damage to property (excluding the Works, Plant, Materials, and Equipment), which are due to

(i) use or occupation of the Site by the Works or for the purpose of the Works, which is the unavoidable result of the Works or

(ii) negligence, breach of statutory duty, or interference with any legal right by the Employer or by any person employed by or contracted to him except the Contractor.

(iii) delay or temporary suspension of all or part of the Works by civil disorder that arises from criminal activity, tribal conflict or in pursuit of compensation claims

(b) The risk of damage to the Works, Plant, Materials, and Equipment to the extent that it is due to a fault of the Employer or in the Employers design, or due to war or radioactive contamination directly affecting the country where the Works are to be executed.

11.2 From the Completion Date until the Defects Liability Certificate has been issued, the risk of loss of or damage to the Works, Plant and Materials is an Employer's risk except loss or damage due to

 (a) a Defect which existed on the Completion Date,

(b) an event occurring before the Completion Date, which was not itself and Employer's risk, or

(c) the activities of the Contractor on the Site after the Completion Date.

12.1 From the Starting Date until the Defects Liability Certificate has been issued, the risks of personal injury, death, and loss of or damage to property (including, without limitation, the Works, Plant, Materials, and Equipment) which are not Employer's risks are Contractor's risks."

25. "Works" is defined in clause 1.1 (jj) of the General Conditions of Contract:

"(jj) The Works are what the Contract requires the Contractor to construct, install, and turn over to the Employer, as defined in the PCC."

26. The Particular Conditions of Contract provides that:

"GCC 1.1 (jj) The Works consist of the rehabilitation of 12.10km of existing unsealed gravel road between Seven Corner Village and Kagua, using crushed granular material and include the construction of new culverts and lined open drains."

Defendant's submissions

27. The defendant in its defence pleads amongst others, that it did not have an Employer's risk as described under clause 11.1 of the General Conditions of Contract. Also, in the statement of agreed and disputed facts and issues for trial, one of the disputed facts is that, "Under the agreement, landowner issues were a compensation event and thus a responsibility falling on the Defendant, who failed to deal with such issues resulting in the delays of works."

28. Further, the defendant raised in its defence that the plaintiff had breached clause 16 of the contract by failing to perform the Works in accordance with the Work Program approved, and that the plaintiff failed to discharge its duties and obligations to perform the Work in accordance with the Time of Completion.

29. The defendant also submits that the notice of termination referred to the plaintiff's rate of progress as being too slow to comply with the Time of Completion, the plaintiff's progress of Work had a negative slippage of 11% and the plaintiff was behind schedule by 27.57% with 87.38% of the Works to be completed. The plaintiff had been given a first warning of the termination of the contract but had failed to take this into consideration to improve its rate of production of the Works under the contract. The plaintiff was then given a second warning and still failed to improve and then a final warning was given. The defendant submits that the plaintiff is not entitled to an extension of the intended completion date because of its slow rate of progress.

Consideration

30. As to the Notice of Termination, I note that the plaintiff has not taken issue with the clause numbers stated in the Notice and proceed on that basis.

31. As to the interpretation of clause 11.1(a) of the General Conditions of Contract, it is clear on a plain reading of the words that "Works, Plant, Materials, and Equipment" which are due to the matters set out in sub-clauses 11.1 (a) (i), (ii) and (iii), are specifically excluded from the Employer's risk. So any "delay or temporary suspension of all or part of the Works by civil disorder that arises from criminal activity, tribal conflict or in pursuit of compensation claims," is not, in my view, an Employers/defendants risk, contrary to the claim of the plaintiff.

32. The plaintiff also relies on clauses 41.1(j), 41.2 and 26.1. Clause 41.1(j) is as follows:

"41.1 The following shall be Compensation Events:
 ………..
(j) The effects on the Contractor of any of the Employer's risks."

33. As the delays referred to above are not Employer's risks, they are not Compensation Events.

34. Clause 41.2 is as follows:

"41.2 If a Compensation Event would cause additional cost or would prevent the work being completed before the Intended Completion Date, the Contract Price shall be increased and/or the Intended Completion Date shall be extended. The Project Manager shall decide whether and by how much the Contract Price shall be increased and whether and by how much the Intended Completion Date shall be extended."

35. As the delays referred to above are not Employer's risks, they are not a Compensation Event and so clause 41.2 does not apply.

36. Clause 26.1 is as follows:

"26.1 The Project Manager shall extend the Intended Completion Date if a Compensation Event occurs or a Variation is issued which makes it impossible for Completion to be achieved by the Intended Completion Date without the Contractor taking steps to accelerate the remaining work, which would cause the Contractor to incur additional cost."

37. Again, the plaintiff is not able to rely on clause 26.1 on the basis that a Compensation Event occurred, as the delays referred to are not Employer's risks and are not Compensation Events. 

38. For the above reasons, I am satisfied from the evidence and the wording of the relevant clauses in the contract that the delays to the Works were not Employer's risks and not Compensation Events entitling an extension of the Completion Date.

39. As to the plaintiff's submission that clause 52.6(g) applies after Completion of the Works, from a perusal of clause 52.6(g), I am not satisfied that the plaintiff's submission is correct. On the plain reading of the words, the reference to "completion" in clause 52.6(g) does not restrict its operation to after the Works are completed. I am satisfied that sub clause 52.6(g) can be relied upon before the Works are completed.

40. In my view, the defendant's submission that the plaintiff's progress in performing the Works was too slow is confirmed by the evidence of the plaintiff's Managing Director. In the evidence of Mr. Kandege there are annexures which amongst others, indicate that 99 days of delays to the Works were "mainly caused by landowner issues." Reference is made to "Refer Table 1 Summary of Outgoing Correspondences (sic)." The Table 1 referred to, lists the periods of delay. The number of days delayed is said to total 99 days but in three instances the delay is referred to as "Over 28 days," "More than 30 days," and "More than 10 days." It can be presumed then that the number of days delayed totals more than 99 days and is at least 100, or 101 days delay.

41. As referred to, clause 56.2(g) provides that a fundamental breach shall include where the Contractor has delayed the completion of the Works by the number of days for which the maximum amount of liquidated damages can be paid, as defined in the Particular Conditions of Contract. The Particular Conditions of Contract defines the maximum number of days as 100 days.

42. As the delays are not Employer's risks, they are the plaintiff's responsibility (clause 12.1). On the evidence, and given the wording of the Notice of Termination that refers to the rate of progress of the Works being too slow, and given that the plaintiff does not take issue with the clause numbers stated in the Notice of Termination, I am satisfied that the defendant was entitled to terminate the contract for a fundamental breach pursuant to clause 56.2(g) of the General Conditions of Contract as the plaintiff had delayed the completion of the Works by the number of days to which the maximum amount of liquidated damages can be paid, being 100 days. So in answer to the issue of whether the plaintiff committed a fundamental breach of the contract such as to warrant termination, I am satisfied that the answer is in the affirmative.

43. Given this finding it is not necessary to consider the other submissions of counsel.

Orders

44. The formal orders of the Court:

a) this proceeding is dismissed.

b) the plaintiff shall pay the defendant's costs of and incidental to the proceeding.

c) time is abridged.
_________________________________________________________
Young & Williams Lawyers: Lawyers for the Plaintiff 
Office of the Solicitor General: Lawyers for the Defendant