N8841

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS 78 OF 2013 (COMM)

BETWEEN:
T.W. TRANSPORT LIMITED trading
as TRANSWEST TRANSPORT
Plaintiff/Cross Defendant

AND:
NATIONAL DEVELOPMENT
BANK LIMITED
Defendant/Cross Claimant

Waigani: Hartshorn J,
2020: 13th January

CONTRACT – trial - whether a contract between the plaintiffs and the defendant for the plaintiff to return trucks purchased on loan due to default in loan repayment based on promise that upon return of the trucks its loan will be extinguished is binding – contract can be oral, written, or both – for the contract to be binding Mainland holdings would have agreed to the terms of the contract – Defendant’s intention was to attempt to find a workable proposition to assist Plaintiff – it was an agreement to agree - agreement to agree is not capable of enforcement – plaintiff’s claim is dismissed

Cases Cited:
Papua New Guinea Cases

Shell Papua New Guinea Ltd v. Speko Investment Ltd (2004) SC767 
Jixing Industries Ltd v. Aitape Metropolitan Forest Investment Ltd (2013) SC1294

Overseas Cases

RTS Flexible Systems Ltd v. Molkerei Alois Muller GmbH & Co KG [2010] UKSC 14

Counsel:

Mr. D. Levy, for the Plaintiff
Mr. I.R. Shepherd, for the Defendant

13th January, 2020

1. HARTSHORN J: The plaintiff T.W. Transport Ltd trading as Transwest Transport (TWT) and the defendant National Development Bank Ltd (NDB) entered into two loan agreements in respect of amongst others, the purchase by TWT of five trucks. TWT fell into arrears in making the requisite loan payments to NDB. TWT claims in essence, that NDB then agreed that if TWT returned the five trucks to NDB, its debt to NDB would be extinguished. TWT returned the five trucks but NDB did not extinguish TWT's debt.

2. TWT seeks a declaration to the effect that as agreed between TWT and NDB, TWT had extinguished the total debt owed by it to NDB by returning the five trucks to NDB.

3. The parties agreed four stated issues for trial in a statement of agreed and disputed facts and issues for trial. I now consider the first of those stated issues.

Whether there was a valid novation in 2008 constituted by the defendant's representation letter of 15th August 2008 in which the plaintiff's loan account/arrears would be effectively extinguished upon return of the five new trucks by the Plaintiff to the Defendant on 18th of August 2008 at 10 am

Consideration
4. The law concerning whether a contract is binding was considered in Shell Papua New Guinea Ltd v. Speko Investment Ltd (2004) SC767. The Supreme Court stated that:
“Notwithstanding the absence of a formal written agreement, it is possible for a binding contract to be entered into either in writing, or oral, or by conduct, or a mixture of those methods.  The question is whether it can be said that a binding contract was entered into in the circumstances of this case. 
In determining this issue, the intention of the parties to enter into an enforceable contract is critical.  The Court will have to infer from the conduct as would (sic) a reasonable person would do.  The test is an objective one.”

5. The Court then reproduced a passage from the Australian High Court case of Masters v. Cameron (1954) HCA 72 [9]-[12]. That passage detailed three classes of agreement and the principles to be considered in determining whether they are binding. I refer also to the Supreme Court case of Jixing Industries Ltd v. Aitape Metropolitan Forest Investment Ltd (2013) SC1294. After referring to Rushton (Qld) Pty Ltd & Ors v. Rushton (NSW) Pty Ltd & Ors [2003] QSC 8, the Supreme Court at [18] said:
“… the existence of an agreement may be inferred from subsequent conduct of the parties. (That is a possible 4th category to the three identified in Masters v. Cameron)”

6. In the English and Wales Supreme Court case of RTS Flexible Systems Ltd v. Molkerei Alois Muller GmbH & Co KG [2010] UKSC 14, Lord Clarke at [45] stated:
“Whether there is a binding contract between the parties and, if so, upon what terms depends on what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations.”

7. The letter of 15th August 2008 from NDB to the Managing Director TWT (subject letter) is marked: "Without Prejudice" and is as follows:
"Further to previous correspondence, we note T. W. Transport Ltd is still not able to service it's (sic) loan commitment with this Bank and despite our efforts to assist the position continues to deteriorate.
As a consequence the Bank has taken action to recover the debt under the security held. We believe we have a workable proposition whereby you may retain the old vehicles currently under tender for sale by the Bank, which will be returned, and the real estate properties.
Mainland Holdings Ltd has expressed interest in taking the five (5) prime movers that were subject of the funding under this loan. In consideration they will take over the existing debt owed by T.W. Transport Limited to the Bank. That will effectively extinguish your commitment with NDB and allow retention of the properties as well as having some units for ongoing operations of the Company.
At this stage this is the best deal we can negotiate for T.W. Transport Ltd. Otherwise we envisage the Bank will need to realize on the Mortgaged real estate in Lae which we would prefer not to do.
Consequently you are requested to have the five (5) prime movers that were subject of the funding under this loan available in your yard by 10-00am next Monday 18 August 2008 for collection by Mainland Holdings Ltd.
We look forward to your co-operation in this matter."

8. TWT submits that by the subject letter, an offer was made, the words of the subject letter are clear, definite, unambiguous and speak for themselves, TWT relied on the wording of the letter and accepted the offer by returning the five trucks to NDB on 18th August 2008 as they were collected by Mainland Holdings Ltd. Three days later however, NDB wrote to TWT and informed that TWT would be liable for, "any residual debt remaining after disposal". TWT submits that there exists an enforceable agreement that the loan has been extinguished and that NDB is estopped from denying that the subject letter was intended to completely extinguish TWT's loan with NDB and that the subject letter was merely to assist TWT to reduce its loan to a manageable level.
9. That the subject letter is marked, "Without Prejudice " does not assist in determining whether it constitutes a binding agreement apart from reflecting an intention on behalf of NDB to attempt to negotiate a workable proposition. If that workable proposition could not be negotiated into an agreement then NDB would not be bound by anything contained in the subject letter.
10. From a perusal of the subject letter, for the workable proposition as referred to therein to occur, Mainland Holdings Ltd had to consent to the workable proposition, confirm its expression of interest and consent to give the consideration referred to. It was critical for Mainland Holdings Ltd to give its consent as mentioned. It was an essential term of the workable proposition that Mainland Holdings Ltd would take over the existing debt owed by TWT to NDB. There is no indication in the wording of the subject letter that NDB offered or agreed to extinguish TWT's debt to NDB if the trucks were returned but in the absence of Mainland Holdings Ltd agreement to take over TWT's debt. Further, as there is no such indication, NDB is not estopped as claimed by TWT.
11. As to the intention of NDB, from the wording of the subject letter, I am satisfied that its intention was to attempt to find a workable proposition to assist TWT on the basis mentioned, but if it could not negotiate such a workable proposition, it, "envisage(d) the Bank will need to realize on the Mortgaged real estate ....". This is supported by the letter of NDB that was sent after the five trucks had been returned, in which it informed that TWT would be liable for any residual debt remaining after disposal. It is also supported by NDB requesting the return of the five trucks so that the trucks could be delivered to Mainland Holdings Ltd to facilitate the workable proposition being agreed. 
12. The intention of TWT, as demonstrated by the return of the five trucks, was that it wanted to agree to the workable proposition.
13. To my mind the wording of the subject letter constitutes an agreement to agree. That is, if Mainland Holdings Ltd consented to the workable proposition, including giving the consideration of taking over TWT's debt, then NDB and TWT would agree to the workable proposition. All that was capable of being agreed to from the content of the subject letter was an agreement to attempt to negotiate the workable proposition suggested, as distinct from agreeing to the workable proposition per se. For the workable proposition to be agreed the consent of Mainland Holdings Ltd, NDB and TWT was required.
14. An agreement to agree is not capable of enforcement: Jixing v. Aitape (supra).
15. Consequently, in answering the first stated issue, the subject letter was not a valid, "novation" of the Loan Agreement between NDB and TWT and it did not effectively or at all extinguish TWT's loan account/arrears upon the return of the five trucks by TWT to NDB. Given this answer, it is not necessary to consider the other stated issues. TWT is not entitled to any of the relief that it seeks and its claim should be dismissed.
Orders
16.   The Court orders that:
a)	The plaintiff's proceeding on the writ of summons and statement of claim is dismissed;
b)	The plaintiff shall pay the defendant's costs of and incidental to that proceeding, to be taxed if not otherwise agreed;
c)	The defendant is entitled to pursue its cross claim pursuant to Order 8 Rule 47 National Court Rules;	
d)	Time is abridged.
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Manase & Co Lawyers: Lawyers for the Plaintiff                                                         
Ashurst: Lawyers for the Defendant