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Common Constructions Ltd v TSC Contractors (PNG) Ltd [2017] PGNC 59; N6681 (13 February 2017)

N6681

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS No. 349 OF 2011

BETWEEN:

COMMON CONSTRUCTIONS
LIMITED

Plaintiff

AND:
TSC CONTRACTORS
(PNG) LIMITED
Defendant

Waigani: Hartshorn J
2016: 18^th April
: 3^rd May
2017:13^th February

Trial

Cases:

Stocznia Gdynia SA v. Gearbulk Holdings Ltd [2009] EWCA Civ 75; [2009] 3 WLR 677
Spar Shipping AS v. Grand China Logistics Holding (Group) Co, Ltd [2015] EWHC 718 (Comm)

Counsel:

Ms. M. Konge, for the Plaintiff
Mrs. M. Saroa , for the Defendant

13^th February, 2017

1. HARTSHORN J: The plaintiff (CCL) and defendant (TSC) entered into an agreement on 7^th May 2008 for CCL to supply crushed material to TSC (Contract). This material was for TSC’s road construction in the Chimbu Province. The “duration” of the Contract was for one year. TSC terminated the Contract more than 10 months later on 23^rd March 2009. The reason for the termination was that CCL, according to TSC, had breached the Contract by not producing and supplying the required amount of crushed material as required by clause 4 of the Contract.

2. CCL claims that TSC breached the Contract by terminating it and seeks judgment against TSC in the sum of K 3,149,195.00.

3. The parties agreed five stated issues for trial in a statement of agreed and disputed facts and issues for trial filed 28^th September 2015. I now consider those stated issues.

Whether the defendant breached its terms of the Contract as claimed in the statement of claim

4. The claims in the statement of claim that the defendant breached its terms of the Contract are:

1. in paragraph 10: “.... well into the job and on 25 March 2009, the Defendant without reasonable cause, explanation or notice and in breach of the Agreement just terminated the Agreement prematurely.”
2. in paragraph 14: “By the Defendant’s actions and inactions, the Defendants (sic) have breached their contracted terms, conditions and obligations.”

5. The above paragraphs of the statement of claim do not specify which terms of the Contract the defendant breached. Without knowing what terms of the Contract it is claimed in the statement of claim that the defendant breached, I am not able to determine this stated issue.

Whether the Defendant’s action in rushing the plaintiff to crush the road base first reasonable (sic) and fair in the circumstances

6. In regard to the allegation that TSC rushed CCL to crush road base first, from the evidence of Mr. Koim and Mr. Noki, the allegation is that CCL was rushed to produce sealing chips and not road base, and so the stated issue appears to be incorrect. I will consider this issue as being whether the TSC’s action in rushing CCL to crush sealing chips first was reasonable and fair in the circumstances, as alleged in the evidence and submissions of CCL.

7. When regard is had to the invoices that were submitted to TSC by CCL, they show that all of the material supplied to TSC was charged out at K47.00 m³. In the Contract, K47.00 m³ is the rate for road base. The rate for sealing chips is K70.00 m³. One would have thought that if CCL has been pressured to supply sealing chips instead of road base to TSC, this would be reflected in the amount charged to TSC for the material supplied. It is not. I am not satisfied on the evidence therefore that CCL was rushed to crush sealing chips first as there is no evidence of sealing chips being supplied.

Whether the Defendant’s actions in terminating the Contract amount to a breach of contract

8. The Contract does not contain a specific provision for the termination of the Contract before the end of the Contract period by either or both parties, apart from clause 7. Clause 7 concerns termination of TSC’s construction contract with the Government and is not relevant here. The lack of a specific provision providing for termination does not preclude a party in an appropriate case to elect to terminate a contract.

9. In Stocznia Gdynia SA v. Gearbulk Holdings Ltd [2009] EWCA Civ 75; [2009] 3 WLR 677 at [14], Moore-Bick LJ said:

“It is inherent in the nature of a legally binding contract that each party expects to obtain the benefit of the bargain into which he has entered, or, if the contract is not performed, a right to recover compensation in the form of damages for the loss of that benefit. Accordingly, in a case where one party’s breach is such as, in the words of Diplock L.J. in Hong Kong Fir Shipping Co, Ltd v. Kawasaki Kisen Kaisha Ltd [1961] EWCA Civ 7; [1962] 2 QB 26, to deprive the other of substantially the whole benefit which it was intended that he should obtain from the contract, the common law recognises the right of the injured party to treat the contract as discharged and to recover damages for the loss of the bargain. Such a breach is commonly described as “going to the root of the contract”. This is all trite law,.....”

10. Recently in Spar Shipping AS v. Grand China Logistics Holding (Group) Co, Ltd [2015] EWHC 718 (Comm), Popplewell J at [96], after referring to numerous authorities said:

“(1) There are essentially three categories of conduct by one party to a contract which may entitle the innocent party to treat the contract as at an end, namely (a) a total or partial failure to perform obligations which have fallen due, (b) conduct which evinces an intention not to perform future obligations when they fall due, and (c) impossibility to perform future obligations when they fall due created by the defaulting party’s own act. The first is actual breach. The second and third, commonly termed renunciation and self induced impossibility respectively are the two forms of anticipatory breach.

(2) In the absence of any relevant contractual or statutory provision, the innocent party’s right to treat the contract as terminated will depend upon whether the term breached is to be categorised as a condition, warranty or an innominate term. Any breach of a condition will entitle the innocent party to terminate the contract. Only a sufficiently serious breach of an innominate term will do so, often expressed as one which goes to the root of the contract or one which deprives the innocent party of substantially the whole benefit of the contract. The expression repudiatory breach is sometimes used to cover only a breach of an innominate term, in distinction to a breach of condition; sometimes it is used to cover both. I shall use it to cover both.

........

(3) Where there is a repudiatory breach or renunciation, the innocent party is entitled to elect to terminate the contract. If he does so, the consequence is that (a) each party is relieved from its obligations to render any further performance under the contract; and (b) the innocent party is entitled to damages for loss caused by the breach, which includes loss flowing from the termination. For the purpose of assessing damages, it is the defaulting party’s repudiatory breach or renunciation which is regarded as the cause of the termination, not the innocent party’s election to terminate.”

11. The above two English cases are persuasive in our jurisdiction.

12. In this instance TSC terminated the Contract as it concluded that CCL was not capable of achieving “the required quantity as per stated in Item 4 of the Contract”. This was based upon CCL’s production for 8 months of the Contract since its crusher had started operating - 10 months since the signing of the Contract, and after a warning letter was sent 20 days earlier. That warning letter had informed that amongst others that CCL was not complying with Item 4 of the Contract. CCL’s production was far behind its projected 4,000 m³ per month, being only 5,640 m³ in total. Further, a final warning was given for breach of contract, and that if there was no improvement within “this month”, and if there was a failure to comply with the required volume as stated in Item 4, TSC would automatically terminate the Contract.

13. The issue here is whether CCL’s breach of the Contract went to the root of the Contract or was one which deprived TSC of substantially the whole of the benefit of the Contract.

14. In this instance CCL had only provided 5,640 m³ of crushed material. The Contract stipulated that 46,065 m³ in total would be supplied over one year, with an average of 4,000 m³ per month. After the tenth month of the Contract only 5,640 m³ had been provided leaving a balance of 40,425 m³ - or about 88% still to be provided of the total amount of material that TSC and CCL had agreed that CCL would supply to TSC.

15. Further, CCL had received a warning letter to the effect that the Contract would be terminated if there was not an improvement in its production. In my view, in circumstances where the specific purpose of the Contract was for TSC to be supplied with a certain amount of crushed materials within one year to be used on a specific project, but there still remained about 88% of crushed material to be provided with only about 1 ½ months of the Contract remaining, and there was no indication from CCL that the amount would be able to be provided notwithstanding a termination warning letter being given, TSC was entitled to form the view that CCL’s breach of Item 4 of the Contract went to its root and was one which was depriving TSC of substantially the whole of the benefit of the Contract.

16. Consequently, in my view, TSC was entitled to elect to terminate the Contract and TSC’s action in terminating the Contract did not breach the Contract.

17. Given this, as to the remaining two stated issues, I am satisfied that TSC was justified in terminating the Contract and it is not liable for the claim of loss and damage as sought by CCL.

18. CCL’s claim should be dismissed.

Orders

19.

1. This proceeding is dismissed;
2. The plaintiff shall pay the defendant’s costs of and incidental to this proceeding to be taxed if not otherwise agreed;

100. Time is abridged.

____________________________________________________________
Centurion Lawyers : Lawyers for the Plaintiff
Warner Shand Lawyers : Lawyers for the Defendant