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Reko PNG Ltd v Gopera Investment Ltd [2017] PGNC 112; N6752 (26 April 2017)

N6752

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS 612 of 2014

BETWEEN:

REKO PNG LIMITED

Plaintiff

AND:

GOPERA INVESTMENT
LIMITED
Defendant

Waigani: Hartshorn J.

2016: 9^th June
2017: 26^th April

Trial

CONTRACT – dispute concerning logging and marketing agreement – plaintiff seeking declaratory relief – whether LMA agreement is current and existing by virtue of an extension letter – whether LMA was lawfully terminated through a termination letter - termination letter does not comply with termination process as agreed between parties under the LMA – effect of - termination unlawful, void and illegal – LMA legally extended

Cases Cited:
Papua New Guinea Cases

Bio-Normalizer (PNG) Ltd v. CPL (2009) N3649
Con v. Jant Ltd (2014) N5503
Kurumbakari Ltd v. ENFI (PNG) Co Ltd (2012) N4704
Nivani Ltd v. China Jiangsu International (PNG) Ltd (2007) N3147
Raikos Holdings Ltd v. G & S Ltd (2014) N5613
Vanimo Forest Products Ltd v. Ossima Resources Ltd (2013) SC1275

Overseas Cases

British and Benningtons Ltd v. North Western Cachar Tea Co Ltd [1923] AC 48
Commissioner of Taxation of the Commonwealth of Australia v. Sara Lee Household & Body Care (Australia) Pty Ltd [2000] HCA 35; (2000) 201 CLR 520
Morris v. Baron and Company [1918] AC 1
Plevin v. Paragon Personal Finance Ltd [2017] UKSC 23
Royal Exchange Assurance v. Hope [1928] 1 Ch 179
Tallerman and Co Pty Ltd v. Nathan’s Merchandise (Vic) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93

Counsel:

Mr. M. Mukwesipu, for the Plaintiff
Mr. T. Tape, for the Defendant

26^th April, 2017

1. HARTSHORN J: The plaintiff is a logging contractor and the defendant is the holder of a timber permit. They are both parties to, and have a dispute concerning, a Logging and Marketing Agreement (LMA).

2. The plaintiff seeks substantively, declaratory relief to the effect that a letter of termination of the LMA is unlawful, and that the LMA was legally extended. A further declaration that was sought concerning a resolution of the defendant’s board was not proceeded with.

3. The issues for determination are:

a) whether the LMA is current and existing by being extended by a letter dated 11^th March 2014 from the defendant to the plaintiff (extension letter), and if so;

b) whether the LMA was lawfully terminated by the letter dated 12^th July 2014 from the defendant to the plaintiff (termination letter).

Whether the LMA has been extended

4. The plaintiff claims that the LMA has been extended as amongst others:

a) the term of the defendant’s timber permit lapsed on or about 10^th May 2014 and the defendant on 18^th November 2013 sought an extension of the term of the permit from the Papua New Guinea Forest Authority (PNGFA);

b) by letter dated 11^th March 2014, the PNGFA extended the term of the timber permit pending the formal determination of the LMA;

c) by the extension letter the defendant informed the plaintiff of the extension of the term of the permit and advised that the terms of the LMA were accordingly extended. By letter dated 11^th March 2014, the plaintiff accepted the terms of the extension of the LMA;

d) clause 28 of the LMA provides for its variation by agreement. The extension letter and the plaintiff’s reply on the same date is sufficient evidence of the variation of the term of the LMA. This extension of the term of the LMA is consistent with the terms of the timber permit and the terms of a Heads of Agreement entered into between the parties.

5. The defendant claims that the LMA has not been extended and it expired on 11^th March 2014 as amongst others:

a) pursuant to case law including the Supreme Court case of Vanimo Forest Products Ltd v. Ossima Resources Ltd (2013) SC1275, where in a contract there is a provision for the extension of a contract, an extension can be construed from the conduct of the parties;

b) there is no provision in the LMA for it to be extended or renewed;

c) the evidence given on behalf of the defendant is to the effect that the defendant did not want to renew or extend the LMA.

Consideration

6. As to the variation of a contract, in Nivani Ltd v. China Jiangsu International (PNG) Ltd (2007) N3147, Lay J held amongst others that:

“a) parties may by agreement, vary a contract made by them,

b) where a contract makes no provision for variation, there must be a contract of variation to bind the parties,

c) a contract of variation can be formed by the conduct of the parties.”

7. Nivani v. China (supra) has been followed by Cannings J in Kurumbakari Ltd v. ENFI (PNG) Co Ltd (2012) N4704, Con v. Jant Ltd (2014) N5503 and Raikos Holdings Ltd v. G & S Ltd (2014) N5613. I also followed Nivani v. China (supra) in Bio-Normalizer (PNG) Ltd v. CPL (2009) N3649.

8. In Vanimo Forest Products Ltd v. Ossima Resources Ltd (supra), in a passage cited by the defendant, the Supreme Court stated at [19]:

“It necessarily follows that, if the existence of an initial contract can be inferred by the conduct of the parties, that it has been renewed in accordance with a provision anticipating that the parties may extend its term can likewise be inferred from the conduct of the parties.”

9. In this instance, as there is no provision in the LMA that provides for an extension of the LMA, the defendant submits that on the authority of Vanimo Forest Products Ltd v. Ossima Resources Ltd (supra), the LMA was not extended or renewed by the extension letter.

10. In Nivani v. China (supra), Lay J referred to the House of Lord’s judgment of Morris v. Baron and Company [1918] AC 1. Morris v. Baron (supra) has been applied and followed in many cases since: British and Benningtons Ltd v. North Western Cachar Tea Co Ltd [1923] AC 48; Royal Exchange Assurance v. Hope [1928] 1 Ch 179; Tallerman and Co Pty Ltd v. Nathan’s Merchandise (Vic) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93; Commissioner of Taxation of the Commonwealth of Australia v. Sara Lee Household & Body Care (Australia) Pty Ltd [2000] HCA 35; (2000) 201 CLR 520 and recently by the United Kingdom Supreme Court in Plevin v. Paragon Personal Finance Ltd [2017] UKSC 23.

11. In Tallerman (supra), Taylor J at [14] said:

“It is firmly established by a long line of cases commencing at least as early as Goss v. Lord Nugent [1833] EngR 618; (1833) 5 B & Ad [1833] EngR 618; (110 ER 713) and ending with cases such as Morris v. Baron & Co. (1918) AC 1 and British & Bennington’s Ltd v. North Western Cachar Tea Co Ltd (1923) AC 48 – and, indeed, including Goss v. Lord Nugent ... itself - that the parties to an agreement may vary some of its terms by a subsequent agreement. They may, of course, rescind the earlier agreement altogether, and this may be done either expressly or by implication, but the determining factor must always be the intention of the parties as disclosed by the later agreement.”

12. In Commissioner of Taxation v. Sara Lee (supra), the majority of the High Court at [22] said:

“When the parties to an existing contract enter into a further contract by which they vary the original contract, then, by hypothesis, they have made two contracts. For one reason or another, it may be material to determine whether the effect of the second contract is to bring an end to the first contract and replace it with the second, or whether the effect is to leave the first contract standing, subject to the alteration.”

13. From a consideration of these cases, in my view, if parties intend to vary an existing contract by varying its term, but the existing contract does not have a clause that provides for the existing contract to be extended or renewed, the parties are not precluded from effecting their intended variation.

14. As the Supreme Court in Vanimo Forest Products Ltd v. Ossima Resources Ltd (supra) would have been aware of these cases, the meaning that the Court was conveying in [19] is in my view that, an occasion when a contract may be inferred to have been renewed by the conduct of the parties is when there is a provision in the contract that anticipates that the parties may extend the term of the contract, and not that a contract cannot be inferred to have been renewed by the conduct of the parties unless there is such a provision of the contract.

15. Given this, the previous cases to which I have referred including Nivani v. China (supra) and the cases that have followed, I am satisfied that the parties could have agreed to vary the term of the LMA, because of the variation clause in the LMA, and that they are not precluded from doing so because of the absence of a clause in the LMA providing for an extension or renewal of the LMA.

16. The next issue is whether it may be inferred from the conduct of the parties that they did vary the LMA by extending its term as claimed by the plaintiff.

17. The primary piece of evidence in this regard is the extension letter. It reads:

“We refer to our letter of 4 March 2014 to the PNG Forest Authority seeking for the extension of grace period of our Timber Permit No: 2-15 (“TP 2-15)

We hereby assure you, that upon the issuance of a letter by the PNG Forest Authority in regards to the grace period extension, you are to continue to perform your obligations and duties under our Logging and Marketing Agreement of 11 March 2009 on the same terms and condition.

You are also to continue your obligations and duties under the same LMA, upon formal extension of the TP 2-15 by the Minister for Forest. This, of course, will be followed by a review of certain of our terms and conditions under the same LMA, which we do not see as a hindrance between ourselves.

Please be assured of our continuous business relationship.

Thank you.”

18. The Chairman of the defendant deposes as to the content of the extension letter and states that he indicated two things: One was that “.... during the grace period the operations to continue based on the terms and conditions of the old LMA.” and “Upon former extension of the LMA, I indicated that the logging operations to continue as usual that the parties to review certain terms and conditions of the LMA. In other words, I said that the logging operations should proceed but since the LMA has expired parties to review the old LMA and enter into a new LMA.”

19. The Chairman goes on to depose that, “Nowhere in the above mentioned letter or any other letter I indicated that the old LMA will continue with its terms.”

20. A perusal of the third paragraph of the extension letter, clearly shows two references to the “same LMA”. In this regard I refer to a passage from Plevin v. Paragon (supra) in which the majority of the Supreme Court (United Kingdom) reproduced a passage from Morris v. Baron (supra) and said at [13]:

“To establish a discharge and replacement, “there should have been made manifest the intention in any event of a complete extinction of the first formal contract, and not merely the desire of an alteration, however sweeping, in terms which are still subsisting”: Morris v Baron & Co [1918] AC 1, 19 (Viscount Haldane).” ”

21. A further piece of evidence of the intention of the parties is paragraph 3 (a) and (b) of the Heads of Agreement between the parties. Notwithstanding that the defendant submits that it is unenforceable, I am satisfied that the content of it can be relied upon to show the intention of the parties. Clause 3 (a) and (b) are as follows:

“The Parties Agree:

(a) Gopera will extend its Timber Permit for a further 5 years

(b) Gopera will enter into a Logging Marketing Agreement (LMA) with Reko for the harvesting, extraction and sale of the logs and processed timber from the Timber Permit for the term of the Timber Permit including any extensions granted for the Timber Permit and Gopera warrants they have never entered into a LMA with any other Party.”

22. Given the above evidence, and that the extension contained in the extension letter was accepted by the plaintiff, I am satisfied from the conduct of the parties that it can be inferred that they intended to and did vary the term of the LMA so that the LMA’s term was extended. The evidence on behalf of the defendant as to what happened after 11^th March 2014 is not evidence as to the intention of the parties at the relevant time.

Was the termination letter issued in breach of the terms of the LMA

23. The plaintiff submits that the termination letter is defective as:

a) it is said to be issued pursuant to clause 23 (i) (c) of the LMA, but there is no such clause in the LMA;

b) the breaches of obligations under the LMA that are listed in the termination letter are purported defaults in the due observance or performance of any terms or conditions of the LMA and fall under clause 23.1 (a) of the LMA;

c) to be entitled to rely upon an event under clause 23.1 (a) of the LMA, or for breach of an obligation or condition under a term of the LMA, the defendant must satisfy the requirements of clause 23.1 (a) of the LMA;

d) clause 23.1 (a) is reasonably clear and is intended to operate as follows:

i) if one of the parties is in material default of a fundamental term of the LMA the other party may give a notice specifying the default;

ii) the defaulting party then has 60 days to remedy the default;

iii) if the party at fault disputes the notice, it has 30 days from the date of the issue of the notice to submit to Arbitration.

e) the termination letter was the only notice of alleged breaches that was issued by the defendant to the plaintiff. The defendant failed to give the plaintiff the opportunity to remedy the alleged defaults as required under clause 23.1 of the LMA. Consequently the purported ground of termination concerning failure to take remedial action set out in the termination letter is not a proper reason for termination of the LMA;

f) the purported grounds of termination under paragraphs 1, 2 and 3 of the termination letter refer to alleged breaches of obligations under the timber permit as referred to under clause 10.2 of the LMA;

g) under the timber permit the obligations for infrastructure as referred to under purported ground 3 of the termination letter and the obligation for an agriculture project under purported ground 1 are obligations that are imposed upon the defendant and not the plaintiff. These are set out under clauses 4.4 and 4.7 of the timber permit;

h) as to the allegation of non-payment of levies and monetary benefits to the defendant, there is no evidence of outstanding payments due and owing by the plaintiff to the defendant. The evidence given on behalf of the plaintiff is that it does not owe any outstanding payments to the defendant and instead it is the defendant that owes funds to the plaintiff. This is not a reasonable ground for termination;

i) even if there were truth in any of the grounds of termination, the allegations relating to alleged failures to comply with terms and conditions of the permit should be pursued under clause 23.1 (a) of the LMA and do not entitle the defendant to terminate the agreement in the first instance;

j) the defendant has failed to issue to the plaintiff a notice of breach or a notice to rectify any alleged breach of the terms of the LMA;

k) the alleged breaches do not amount to breaches of conditions of the LMA entitling the defendant to terminate the LMA;

l) the termination letter does not comply with the termination process as agreed between the parties under the LMA and so is unlawful, void and illegal.

24. The defendant submits that the termination letter is proper and in accordance with the terms of the LMA.

25. From a perusal of the evidence concerning the termination letter, I am satisfied that the termination letter was not properly issued pursuant to the relevant provisions of the LMA for the reasons submitted by the plaintiff. Consequently I find that it is unlawful and void.

26. Given the above, I am satisfied that the plaintiff has properly made out its claim against the defendant. As to the claim of the plaintiff for costs to be paid on an indemnity basis, I am not satisfied that this claim has properly been made out.

Orders

27. The formal Orders of the Court are:

a) the relief sought in paragraphs 1 and 2 of the Originating Summons of the plaintiff is granted;

b) the defendant shall pay the plaintiff’s costs of and incidental to this proceeding on a party to party basis;

c) time is abridged.
____________________________________________________________
Gadens Lawyers: Lawyers for the Plaintiff
Henaos Lawyers: Lawyers for the Defendant