N8790

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS 419 OF 2018

BETWEEN
SIG NO. 1 LTD
Plaintiff

AND
CROWN METAL INDUSTRIES LTD
First Defendant

AND
CREDIT CORPORATION FINANCE LTD
Second Defendant

Waigani:  Thompson J
2021:  11th & 17th March, 8th April

BREACH OF CONTRACT– whether hearsay evidence was admissible -failure to complete work -oral variation to written contract – rule in Browne v Dunne -parol evidence rule –Jones v Dunkel rule – unexplained failure to call relevant witness -necessity to both plead and prove loss- guarantee for completion of contract work – entitlement to claim under guarantee
Counsel:

Mr. R Diweni, for the Plaintiff
Mr. I R Molloy with Ms. A Narakobi, for the First Defendant
Ms. M Saroa, for the Second Defendant

8th April, 2021

1.	THOMPSON J:	  On 18 April 2018 the plaintiff issued these proceedings against the defendants, claiming for loss sustained as a result of breach of a construction contract entered into between the plaintiff and first defendant on 30 May 2016 (‘the Second Contract’),  and breach of a guarantee issued by the second defendant on 15 December 2015 (‘the guarantee’).  By a cross-claim filed on 15 October 2018, the first defendant claims for work done on a quantum meruit basis.

2.	As a preliminary matter, I refer to O 10 r 4 of the National Court Rules, whereby a Notice of Trial may state that it is for the trial of specific issues. Otherwise, the proceedings are set down for trial generally, on all issues. The parties must be ready to proceed on all issues of liability and quantum.
	
3.	By a Notice of Trial filed on 20 October 2020, this cause was set down for trial on 11 March 2021.  The Notice did not state that the trial was to be of specific issues. The trial duly proceeded on that date, and continued on 17 March 2021. After conclusion of the evidence and submissions by all counsel, the plaintiff’s counsel asked for and was given leave to file further submissions by 23 March 2021.

4.	A trial is not conducted in a piecemeal way, with one party seeking to adjourn part way through to enable it to obtain more evidence or prepare further arguments. The plaintiff had two years after commencing the proceedings, to obtain all its evidence. The plaintiff’s counsel had a further nearly 5 months after setting it down for trial, to ensure that the evidence was ready and to prepare his submissions. He had a further six days during the trial to obtain further evidence and prepare his submissions, and another six days after the trial to make further submissions.

5. 	Despite this, the plaintiff’s counsel, both orally and in writing, said that if certain findings were made, he wished to be able to make further submissions on the evidence and on the quantum of the various claims.  His submission was therefore that the court should issue its findings, without making a decision, and then allow him to make further submissions based on those findings. Such a course of action could not be entertained. The appropriate course was for counsel to include submissions in the alternative, on the findings sought by the parties.

Issues

6. 	The plaintiff’s case is essentially that pursuant to the Second Contract, the first defendant was required to obtain and maintain a guarantee of K1m, and complete the Work within 58 weeks of 30 May 2016. This was not done, so the first defendant is liable for damages for breach of contract, comprising K1.147m for advance payments/loans, K683,192.00 for liquidated damages, K2.625m for the cost of completing the Work, and K825,000 for lost rental income, making a total of K4,599,553.33.  As a result of the first defendant’s failure to complete the Work, the plaintiff became entitled to call upon the guarantee issued by the second defendant. The plaintiff submitted that if the evidence was insufficient to establish the precise amount of its loss, the court should award the maximum amount of the guarantee, namely, K1m.

7. 	The first defendant’s case is essentially that the obligation to complete the Work within 58 weeks, never arose, because this obligation was contingent on the provision of complete plans and specifications approved and initialled by the parties, which never happened. The first defendant was therefore not in breach of the Second Contract. In relation to the guarantee, the first defendant said that it only applied to guarantee the work in the First Contract, and so could not be relied on for work under the Second Contract. The first defendant submitted that it was entitled to be paid for the work done under the oral agreement, on a quantum meruit basis.

8. 	The second defendant’s case was essentially that the guarantee of 15 December 2020 only guaranteed work under the 2015 First Contract, and they had not issued a guarantee for work under the Second Contract. They further argued that in any event, they were entitled to terminate the guarantee if there was default by Dennis Bux or the first defendant, there had been default, and so they had terminated the guarantee on 31 October 2017.

Evidence

9.	On 17 December 2015, following a tender process, the plaintiff and first defendant entered into a Construction Contract (“the First Contract”).  It was said to be a term of that Contract that the first defendant would provide Bank Guarantees for advance payment and retention monies.  It was said that these had been provided in November 2015. Various terms of these guarantees were pleaded, including how a demand had to be authenticated, but neither the First Contract nor those guarantees were in evidence.

10.	On 15 December 2015, the second defendant issued a guarantee for “… completion of the contract work up to an amount no greater than K1m” which was ‘valid until 31 December 2017 or completion of the contract work, whichever occurs first’ in favor of the plaintiff, subject to certain terms (“the guarantee”).

11.	On 30 May 2016 the First Contract was terminated by mutual agreement between the plaintiff and first defendant.  A Notice of Termination was signed by both parties, in which it was stated that the First Contract format was unworkable, the plaintiff’s drawings were deficient, the designs for structural foundations and steel framing were incomplete, revised drawings would be issued, the First Contract was terminated, and a new contract had been agreed.

12.	The Notice said that in terminating the current contract, it was recognized that some aspects of the old contract would be identified in the new contract, referred to the existing insurance and dispute adjudication agreement, and then said that “Performance Bond Clauses in the new contract now standalone”.

13.	On the same date, the parties signed a new Construction Contract (“the Second Contract”).  Relevant terms included:

“Clause 6. Work under this agreement will begin within seven calendar days after the following contingencies have been met.  (1) Complete Plans and Specifications have been approved and initialled by both Owner and Contractor …
Clause 7.  Work under this agreement will be Substantially Completed within 58 weeks.”

14. 	In the Glossary which was incorporated into the Second Contract, ‘Work’ is defined to mean essentially all labour, materials and ‘management services required to complete the Project in compliance with the Contract Documents.’

15. 	By Cl 46, “… no change to this Contract … shall be made without mutual agreement and a written Variation Order”.

16.	By Cl 55, “Any … Claim arising out of or relating to this Contract … or breach thereof … shall be settled by arbitration”. Neither party relied on this clause.

17.	By Cl 58 A, the first defendant was required to obtain a Performance Security in the amount of K1m, to be delivered to the plaintiff “… within 28 days after receiving the Letter of Acceptance … The Performance Security … shall be in a form approved by the Owner”.

18.	Cl 58 C provided that “The Owner shall not make a claim under the Performance Security except for amounts to which the Owner is entitled under the Contract in the event of … failure by the Contractor to remedy a default within 42 days after receiving…” the default notice, or “… circumstances which entitle the Owner to irrespective of whether notice of termination has been given”.

19.	The Glossary defined Bond, but not Performance Security. As a Bond is not referred to in the body of the Second Contract, then in order to give business efficacy to the agreement, I proceed on the basis that the words are interchangeable. Reading Cl 58 and the Glossary definition together, the Performance Security was to satisfy a claim of failure to properly perform ‘obligations undertaken in this Agreement’ and until the Contractor had ‘completed the Works’.

20.	By Cl 62, “the Contract Documents … supersede all prior agreements…”

21.	The Second Contract contained a Liquidated Damages clause in Cl 72, whereby “Any … failure of the Contractor to reach Substantial Completion within the Contract Time … will result in damage to Owner impossible to estimate accurately in advance, and difficult to calculate after the occurrence.  In lieu of actual damages for delay, Owner shall deduct from money due to Contractor … the amount … being the sum of K28,466.34 per week, capped at 24 weeks as liquidated damages …is reasonable, is our best estimate of actual damages, and is not a penalty … liquidated damages are the exclusive damage remedy for Owner for any failure of Contractor to complete Work according to Schedule.  No damages of any other type … shall be awarded Owner for failure of Contractor to comply with the Construction Schedule”.

22.	By Cl 73, “Contractor and Owner waive all Claims for consequential damages against each other…”

Plaintiff’s evidence

23.	The plaintiff relied on the affidavits of Ronald Jenkins sworn on 18 July 2018 and 2 December 2019, together with his oral evidence, and the plaintiffs’ Answers to interrogatories. 

24.	In relation to Mr. Jenkins’ affidavit of 18 July 2018, some words and sentences were struck out as being hearsay.  His affidavit filed on 2 December 2019 annexed various documents, on which he gave his opinion of what they meant and to what they referred, which were put forward as being true.  Mr. Jenkins was not the author of the documents, which appeared to have been prepared by a person named David Gole (‘DG’). They purported to be Minutes of meetings which had not been attended by Mr. Jenkins, but which were attended by Brett Thomas (‘BT’), and on occasions by Cheyne Cooke (‘CC’).  There was no evidence that BT or the first defendant had adopted or accepted them as Minutes or any other form of accurate record. In fact, BT later gave evidence that the documents were not accurate, had not been accepted, and that he had asked for them to be changed. DG and CC were described in the documents as owner’s representatives, but neither person was called to identify the documents or to give any evidence of their contents. 

25.	The documents solely comprised statements of what was alleged to have been said by and to other persons, none of whom were called to identify the documents. They were therefore hearsay. As the object of tendering the documents was to establish the truth of their contents, they were also inadmissible.  
As cited from Subramaniam v Public Prosecutor (1956) 1 SLR 965 in Jack Gopave v Francis Kugameandanor (2003) PGNC 34:

“Evidence of a statement made to a witness by a person who is not himself called as a witness, may or may not be hearsay. It is hearsay and inadmissible when the object of the evidence is to establish the truth of what is contained in the statement”.

26.	In the present case, the statements contained in the annexed documents were not made by or to Mr. Jenkins, who was not even present when they were made. They were made by and to other persons, none of whom gave evidence, with the exception of BT who said that they were not a correct record.  Those annexures, and almost all of the contents of the affidavit, were therefore struck out as being hearsay and inadmissible.

27. 	Other documents showed that on 27 March 2017, the plaintiff and first defendant made a loan agreement (‘Loan No.1’) of US$ 230,538.70 for the purchase of materials. It was actually an agreement for the plaintiff to make advance payments of up to this figure, directly to suppliers, and not to make any payments to the first defendant.  It provided that copies of the ‘bank transfer documents’ to the suppliers ‘will be provided’ by the plaintiff to the first defendant ‘as evidence of the amount paid’. Mr. Jenkins provided a schedule of 11 payments said to have been made by the plaintiff to suppliers, which he described as ‘other loans…including Loan No.1..’ totaling K1,147,816.00. Over half of this total was paid on 4 and 6 January 2017, before Loan No.1. None of the payments were supported by bank transfer documents, or invoices or other documentary evidence, with the exception of the payment to the second defendant of K75,000.00.

28.	Documents tendered by the plaintiff showed that on 24 October 2017, the plaintiff paid K75,000.00 to the second defendant in payment of its invoice addressed to the first defendant, for 5 monthly payments from June to October 2017 
overdue on the second defendant’s loan account with Dennis Bux, who was a shareholder in the first defendant.

29. 	Mr. Jenkins said that he understood that this payment was for the guarantee, which they wanted to be able to rely on, if there was a default.  However, the second defendant’s invoice made no reference to the guarantee, which had been issued almost 2 years earlier. The invoice stated that the overdue payments were from a loan account with Dennis Bux.

30. 	Mr. Jenkins said that because work had stopped, on 26 October 2017 the plaintiff issued a Notice to Remedy Defects to the first defendant.

31. 	Mr. Jenkins said that on or about 27 October 2017 the plaintiff issued notice of a claim under the guarantee to the second defendant, with a copy of the Notice to Remedy Defects. He said that as no response was received, on 30 November 2017 he telephoned the second defendant who told him that they had issued a letter of termination of the guarantee on 31 October 2017.  He said that the plaintiff did not receive a copy of this termination letter until 13 December 2017.

32. 	Mr. Jenkins said that on 22 December 2017 he gave Notice of Termination of contract to the first defendant.

First defendant’s evidence

33.	The first defendant relied on the affidavit of Brett Thomas filed on 24 September 2020, his oral evidence, and the plaintiff’s List of documents. Some parts of his affidavit were struck out for being non-factual.

34. 	BT said that Complete Plans and Specifications were never provided by the plaintiff, or approved and initialled by the parties. 

35. 	As a consequence, BT said that he proceeded on the basis that the obligation to carry out and complete the Works, did not commence.  He said that the absence of complete initialled plans and specifications was acknowledged by CC, and so on the same date as signing the Second Contract, he and CC entered into an oral agreement whereby the plaintiff would provide uninitialed progressive drawings, the  first defendant would perform progressive work based on those drawings, the plaintiff would make advance payments/loans for the purchase of materials, these payments would be offset against the payments to be made to the first defendant for work performed, and the first defendant would provide the ‘guarantees required by the (Second) Contract’ (‘the  oral agreement’).

36. 	Somewhat confusingly, BT said in his affidavit that during the period from 1 June 2016 to 27 October 2017, the first defendant provided 2 guarantees issued by the second defendant, in addition to performing progressive works based on the progressive drawings. There was no evidence of what these 2 guarantees were, and BT was not asked about them in cross-examination by either the plaintiff or second defendant.

37. 	BT said that the first defendant had performed progressive work to the value of K3,602,472.27, for which invoices had been issued, which were annexed to his affidavit. He said that the advance payments and loans made by the plaintiff totalled K2,880,924.92, and after offsetting them, the sum of K721,541.26 remained owing by the plaintiff.

38.	There were 15 invoices annexed to BT’s affidavit. Two invoices were dated in January and February 2016, prior to the oral agreement.None of the 15 matched the invoices listed in the cross-claim, by either date, number or amount.In cross-examination, inconsistencies in the invoices were broadly raised but not specifically put to BT, and so were not clarified.  Only one of the invoices listed in the cross-claim was annexed to the affidavit, namely, Inv CMI 1299, shown as dated 31/3/2017 in the cross-claim and as 10/4/2017 in the annexure, for K53,565.23. The annexed invoices since 30/5/2016totalled K1,243,126.48.  One invoice of 29/9/2016 for K149,958.14 might have been included in another invoice on the same date for K150,696.68, one invoice of 3/2/2017 for K102,527.03 might have been included in another invoice on the same date for K268,376.16, and an invoice of 10/4/2017 for K53,565.23 might have been duplicated. The invoices included a claim for K15,285.33 for ‘12 days stand down in August 2016’.

39.	The Notice of Termination stated that monies due and payable as at that date, on 30 May 2016, were ‘K0.00 apart from retention’, which was K72,245.88 plus GST. There was no evidence that the retention needed to be taken into account. The value of the work subsequently performed pursuant to the oral agreement of 30 May 2016, was stated by BT in para 13 of his affidavit, to be as listed in the cross-claim and shown in invoices totaling K3,602,472.27 which were annexure D to his affidavit. However, the list in the cross-claim of amounts payable was not established by the invoices in Annexure D, which only totalled K1,243,126.48.

40. 	BT was not cross-examined on the oral agreement made with CC. It had not been admitted by the plaintiff in its Reply, but nor did the plaintiff plead that the oral agreement was not maintainable.  It was submitted by the plaintiff that pursuant to the parol evidence rule, evidence of the oral agreement could not be used to interpret or detract from the evidence of the written agreement (Curtain Brothers (Qld) Pty Ltd v the State (1993) SC450).

41. 	However, the oral agreement was not being relied on to interpret or detract from the Second Contract. It was relied on to show the creation of a variation or addition to the Second Contract. The parol evidence rule does not prevent a party from adducing evidence, oral or written, of an agreed variation to a written agreement. The variation cannot be unilateral, it must be mutual - ‘The parties to a contract are always free to vary it by a further contract, and evidence of such a variation is always admissible. A formal contract may thus be varied informally’. (Cheshire & Fifoot, Law of Contract, 6th Aust ed, Ch 4 [407]).

42.	A self-imposed contractual term, such as not to vary an agreement except in writing, does not prevent the parties ‘by express or oral agreement or by contract implied from conduct, from imposing...different rights and obligations on each other..’ (GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1, and citing Halsbury’s Laws of Australia Vol 3(2) 65-1145).

43.	In accordance with the rule of evidence in Browne v Dunn which forms part of the underlying law in PNG (Kitawal v the State (2007) PGSC 44), any matter on which it is proposed to contradict a witness, including that he is lying, must be directly put to him, so that he has the opportunity to explain the contradiction. A failure to do so implies acceptance of the evidence (see also Sidi Adevu v MVIT (1994) PNGLR 57). The plaintiff submitted that there was a discrepancy between the pleading, and BT’s evidence, of who made the oral agreement, but did not specifically put to BT that it proposed to contradict him or that he was lying, and did not call any evidence to contradict him.

44.	Despite the first defendant pleading in 2018 that the oral agreement was made with CC, the plaintiff did not call CC or any other witness to contradict BT’s evidence. The plaintiff did not say that CC was unavailable, or give any other explanation for not calling him. Under the rule in Jones v Dunkel, the unexplained failure by a party tocall a witness on an issue upon which he is likely to be able to provide relevant evidence, will likely lead to an inference that the uncalled evidence would not have assisted the party’s case. The plaintiff’s failure to call or explain the non-calling, of CC or any other witness to contradict BT’s evidence, leads to an inference that the uncalled evidence would not have supported the plaintiff’s case.

45. 	In further considering BT’s evidence of the oral agreement, the subsequent conduct of the parties is relevant:

•	the first defendant’s evidence that the plaintiff never provided ‘Complete 	Plans and Specifications..approved and initialled by both the ..’plaintiff and first defendant, was not contradicted. Indeed, it could not be denied, as it had been the subject of contentious Interrogatories and Discovery processes. The plaintiff’s Answers to interrogatories and List of Documents established that no such Plans were produced.

•	the first defendant pleaded and gave evidence that that the plaintiff issued progressive uninitialled drawings, which the plaintiff did not deny.

•	the first defendant pleaded and gave evidence that it performed progressive work based on those drawings, which the plaintiff did not deny.

•	the first defendant pleaded and gave evidence that the plaintiff made payments to it for some of that work performed, which the plaintiff did not deny.

46. 	The conduct of the parties after 30 May 2016 was consistent with the terms of the oral agreement. Under the Second Contract, Work did not begin until completed plans were approved and initialled.  As this never happened, no Work could have been performed under that contract.

47. 	Because the completed plans were never provided, the first defendant did not have to begin work under the Second Contract, and could have sat back and done nothing until such time as they were provided. Instead, the parties orally agreed to different terms, and proceeded to work on that basis.

48. 	BT’s evidence of the oral agreement was on its face reasonable and not improbable, was supported by the subsequent conduct of the parties, was not challenged or contradicted by any other evidence, and was therefore impliedly accepted by the plaintiff. I accept his evidence.

Second defendant’s evidence

49.	The second defendant called no evidence. The second defendant did not cross-examine Mr. Jenkins on his evidence about the date on which the plaintiff had received the letter of termination of the guarantee. No-one from the second defendant was called by the plaintiff to give evidence.

Conclusions from evidence

50.	The uncontested evidence showed that:

a.	the plaintiff and first defendant had entered into a First Contract in 2015, for which the second defendant provided a guarantee dated 15 December 2015, guaranteeing completion of the contract work.

	b. 	the guarantee was, inter alia, subject to the conditions that it would 			expire on 31 December 2017 or earlier termination, and if Dennis 			Bux (a shareholder of the first defendant) or the first defendant 				breached the conditions of the arrangement, the second defendant 			could terminate the guarantee.

	c. 	the First Contract was terminated on 30 May 2016, and a Second 			Contract was executed on the same date.

	d. 	nothing in the Second Contract provided that the existing guarantee 			would be treated as applying to the Second Contract, and the Notice 			of Termination said that the bond/performance security clauses in the 			new contract would stand alone.

	e. 	the Second Contract required the first defendant to obtain a 				Performance Security for K1m in a form approved by the plaintiff, 			and which would remain valid until completion of the Works.

	f. 	there was no evidence of any Performance Security other than the 			guarantee dated 15 December 2015.

	g. 	the plaintiff did not provide Complete Plans and Specifications 				approved and initialed by the plaintiff and first defendant.

	h.       the first defendant did not complete the Second Contract Work within 			58 weeks of 30 May 2016 or 21 June 2016, or at all.

51.	I find that BT’s evidence showed that the plaintiff and first defendant entered into an oral agreement, which created different rights and obligations from those in the Second Contract.

52.	 If the obligation to begin Work under the Second Contract had not arisen, it did not mean that other obligations in the Second Contract had not arisen. There was an obligation under Cl 58 to obtain a guarantee. If this was not a ‘management service required to complete the project’, then it was not Work within the meaning of the Second Contract, and so there was an obligation to obtain a guarantee in the way required by the Second Contract.

53. 	If obtaining the guarantee was Work under the Second Contract, and no obligation to obtain it had arisen under the Second Contract, it was nevertheless a term of the oral agreement that the first defendant would obtain ‘the guarantees required by the (Second) Contract.’

54. 	The guarantee required by the Second Contract is set out in Cl 58.

55. 	The first defendant’s obligation in Cl 58 A was to deliver the Performance Security to the plaintiff ‘within 28 days after receiving the Letter of Acceptance.’ There was no other reference or requirement in the Second Contract, to such a letter.  The evidence was that such a letter would only be issued after completion of a tender process, and there was no such process leading to the Second Contract, so that in fact there was no such letter, and the Second Contract was brought about by its signing.

56. 	The first defendant submitted that, as the letter was never received, the obligation to deliver the guarantee never arose.  However, it would not give business efficacy to the document to interpret it as needing compliance with a condition which was incapable of being complied with. The words ‘within 28 days after receiving the letter of acceptance’ must be taken to mean ‘within 28 days after signing the new contract’.

57. 	The plaintiff submits that this obligation was complied with, by provision of the guarantee.

58.  	The first defendant pleaded that the guarantee came to an end when the First Contract came to an end, and could not provide performance security under the Second Contract or the oral agreement.  However, if so, the first defendant would be relying on its own breach of the oral agreement. The pleading was not supported by BT’s evidence that it was part of the oral agreement that the first defendant would provide the guarantees required by the Second Contract, and did provide them. BT gave no evidence of any guarantee except the guarantee provided for the First Contract.

59.	Although the guarantee had been issued for the First Contract, it had not been revoked after termination of that Contract. It also complied on its face with the Second Contract requirement in Cl 58 A for the guarantee to be for ‘proper performance in the amount of K1m”, to ‘satisfy a claim of failure to perform obligations’ in the Second Contract, ‘issued by an entity’, and ‘in the form, approved by’ the plaintiff. The guarantee was not refused or challenged by the plaintiff.  In fact the plaintiff is relying on it, and has not alleged any breach of Cl 58 by the first defendant.

60.	Prima facie, the first defendant complied with its obligation under the oral agreement to provide a guarantee as required by the Second Contract.

61. 	In relation to the letter of termination of the guarantee, the second defendant did not clearly address the plaintiff’s argument that the letter was only issued after the plaintiff had already made a claim on the guarantee, and was therefore of no effect. The second defendant called no evidence to show that it had sent its letter of termination before receiving the plaintiff’s claim under the guarantee. The evidentiary position was therefore that the plaintiff had shown that it issued a notice of claim dated 27 October, and the second defendant had issued a letter of termination dated 31 October 2017, which the plaintiff said it did not receive until December 2017.

Plaintiff’s claim against the first defendant.

62. 	The plaintiff did not plead any breach of the oral agreement. It only pleaded in para 18 of the statement of claim, that the first defendant breached the Second Contract by failing to complete the Works as pleaded in paras 13-16, namely, failing to remedy defects and complete Works by 20 September 2017. According to paras 8 and 9, this date was obtained by reference to Cl 7 of the Second Contract, which stated that Works under the contract would be substantially completed within 58 weeks.

63. 	However, Cl 7 does not stand alone, and cannot be read without Cl 6. The requirement in Cl 7 is for completion of ‘Work under this agreement’, and Cl 6 states that ‘Work under this agreement’ will only begin within 7 days after the contingencies have been met. The first contingency to be met is for provision of ‘Complete Plans and Specifications (which) have been approved and initialled by both’ the plaintiff and first defendant.

64. 	The first defendant pleaded, and the evidence established, that ‘Complete Plans and Specifications (which) have been approved and initialled by both’ parties, were never provided. The contingency was therefore never met. The obligation for Work under the agreement to begin, was never triggered, and the time for completion under Cl 7 never began to run.

65.     Mr. Jenkins had said that in his opinion, the first defendant did not need the Complete Plans, to perform the work. He did not appear to appreciate that the plaintiff’s opinion was not relevant, because the First Contract had been terminated partly on the basis that the plans were deficient, and it had been made an express condition of the Second Contract that until Complete Plans were provided, no work would begin.

66. 	The only breach pleaded by the plaintiff was failing to complete the Work pursuant to the agreement. As the obligation to complete the Work pursuant to the agreement was never triggered, the time for completion never arose and never expired, and non-completion of the Work was not a breach of the Second Contract.

67. 	As there was no breach of the Second Contract, it follows that there is no entitlement to claim damages for breach. It is therefore unnecessary to consider the claims for various heads of damages.

68. 	The plaintiff’s claim for payment of the amount of the advances/loans made by it, was not pleaded as a cause of action, only as part of the loss sustained from the breach of contract.  It therefore also falls with the failure to prove a breach of the Second Contract. The plaintiff did not plead a breach of the oral agreement. It pleaded only that the plaintiff suffered loss of the proceeds of loans provided under the Second Contract, by the first defendant’s breach of the Second Contract. As there was no breach, there could be no loss.  Further, and in any event, the amount of the loss was not proven by the evidence.

69.	The plaintiff did not establish that it had an entitlement under the Second Contract to an amount for damages or other payment

First defendant’s cross-claim against plaintiff

70.	The first defendant cross-claims for monies payable on a quantum meruit basis for work performed pursuant to the First Contract and the oral agreement, after offsetting the advance payments or loans made by the plaintiff (see Teine v University of Goroka (2019) SC1881, Xu v Jinhong Design and Construction Pty Ltd (2011) NSWA 277).

71. 	The first defendant had no entitlement to payment on a quantum meruit or any other basis, for work performed under the First Contract. The Notice of Termination of that First Contract specifically set out the monies claimed and paid for work to date, and that ‘Monies outstanding and due for payment amount to K0.00..’Clause 62 of the Second Contract confirmed that it superceded all prior agreements.

72. 	The plaintiff did not challenge the nature or extent of the work stated in BT’s annexed invoices as having been performed by the first defendant, except for the claim first made on 13/1/2017 for ‘12 days stand-down claim-August 2016’. There was no evidence that it was a term of the oral agreement that stand-down claims would be payable, only that there would be payment for work actually performed, and so the first defendant did not show an entitlement to this claim of K15,285.33.

73.	The plaintiff did challenge the value of the work, and the first defendant failed to produce invoices which established the value claimed in the cross-claim.

74. 	BT said that the invoiced value of the work performed, was K3,602,472.27. He said that the plaintiff had made advance payments totalling K2,880,924.92. This figure was unsupported by documentary evidence.  He deducted this from the figure of K3,602,472.27 to arrive at a balance owing by the plaintiff of K721,541.26.

75. 	However, the invoiced value of the work was not shown to be K3,602,472.27. The invoiced value shown in the 15 invoices annexed to his affidavit was, at its highest, only K1,475,686.15. The Notice of Termination of the First Contract had stated on 30/5/2016 that there were no monies owing at that date, so the 2 invoices from January and February 2016 must be disregarded. Other invoices which might have included duplications, were not shown by the plaintiff to be duplications.  After deduction of the 2 earlier invoices and the amount for stand-down, the invoiced value would be K1,227,841.15. 

76.	If offset against the plaintiff’s figure for advances of K1,147,816.00, then K80,025.15 would be owing by the plaintiff.  If offset against the first defendant’s own figure for advances of K2,880,924.92, then K1,653,083.77 would be owing by the first defendant.

77. 	It is not in dispute that the plaintiff made some advance payments to third parties.  However, there was no supporting evidence of the total figures from either party as to the amount of those payments, and the bare figures gave opposing results. In the absence of evidence, the first defendant failed to prove that the value of the work performed by the first defendant exceeded the value of advances made by the plaintiff, so that no monies were shown to be owing by the plaintiff.

Plaintiff’s claim against second defendant

78.	The plaintiff pleaded that on 27 October 2017, it gave notice to the second defendant of its claim under the guarantee due to the first defendant’s failure to complete the Work. The notice said that a claim had ‘accrued under the guarantee’, and the plaintiff reserved ‘the right to claim the amount payable under the guarantee in the event of default by the’ first defendant. This appeared to mean that if the first defendant did not remedy the defects within 42 days, the first defendant would be in default, and the plaintiff would exercise its right to claim under the guarantee.

79. 	The second defendant issued a letter to the plaintiff dated 31 October 2017, terminating the guarantee, without stating a reason. The plaintiff said it did not receive this letter until 13 December 2017.

80. 	The issue is therefore whether or not the letter of 27/10/2017 was a valid claim under the guarantee. If it was, then the subsequent termination, while relieving the second defendant of future liabilities, could not be effective to relieve it of accrued liabilities (The Modern Contract of Guarantee, Courtney Phillips O’Donovan, 3rd ed, p 538.)

81. 	On 22 December 2017 the plaintiff wrote to the second defendant, saying that the plaintiff’s letter of 27/10/2017 gave notice that a claim had ‘accrued’ under the guarantee, which could not subsequently be terminated.

82. 	The plaintiff submitted, but had not pleaded, that it had ‘accrued’ a right to claim under the guarantee, by virtue of its payment of K75,000.00 to the second defendant on 24/10/2017, and the defendants were estopped from denying this.
 
83.	By O8 r14, a party must plead any matter which he alleges makes the opposite party’s case not maintainable.  Further, and in any event, as determined earlier, the plaintiff appeared to be under a misconception that this was payment of a premium owed by the first defendant for the guarantee, when in fact it was just payment of loan arrears outstanding from Dennis Bux. The payment conferred no rights on the plaintiff under the guarantee, so that no such right was accrued, and nor could an estoppel arise.

84.	A guarantee required under the Second Contract, had to be able to ‘satisfy a claim of failure to perform obligations undertaken in ‘the Second Contract. The guarantee issued by the second defendant was only for ‘completion of the contract work’ and was terminable at any time for breach of unspecified terms and conditions of the unspecified arrangement between Dennis Bux, the first defendant and the second defendant. Despite the invitation in the guarantee to contact the second defendant for additional information, the plaintiff did not do so.

85.	The obligation was on the first defendant to obtain the guarantee which was required by the Second Contract. If it did not do so, the plaintiff could have refused to proceed until it was done, or terminated the agreement, and/or brought action against the first defendant for breach of its obligation under the agreement.  Instead, the plaintiff accepted the guarantee, and has not pleaded any breach by the first defendant of its obligation to obtain the required guarantee.

86. 	The second defendant submitted that the guarantee could not be used by the plaintiff for the Second Contract, because it had only been issued for the First Contract.  It was submitted that the terms of the guarantee were not governed by the Second Contract but by the loan agreement, it was terminable on grounds unrelated to the first defendant’s performance of the Second Contract, and if this was a breach of the first defendant’s obligations to the plaintiff, then the plaintiff’s remedy was to sue the first defendant and /or Dennis Bux.
	
87.    The second defendant pleaded various matters relating to the loan agreement between it, Dennis Bux and the first defendant (‘the loan agreement’), default under the loan, and the reason for terminating the guarantee.  However, none of that was proven in evidence.

88.	The guarantee was poorly worded. It said on 15 December 2015 that it was valid until whichever occurred first - 31 December 2017, or ‘completion of the contract work’ without specifying what that contract work was.  At the time, it could only have applied to the First Contract Work.  In or after May 2016, however, there was nothing in it which prevented it from applying to completion of the contract work at that time. 

89.	It is likely that the guarantee did not cease to be valid when the First Contract was terminated, as it does not state that it only guaranteed completion of the First Contract work. The second defendant gave no evidence that that it was unaware of the termination of the First Contract.  The words ‘contract work’ could apply to the Second Contract work as equally as they could apply to the First Contract work. The work was on the same construction project, between the same parties. The onus was on the second defendant to specifically identify the contract work, if it wished to limit cover to a specific contract.

90. 	However, it is not necessary to determine this point, because even if it is assumed that completion of the Second Contract work was guaranteed by the second defendant, a claim still needed to be validly made upon the guarantee. The wording of the guarantee meant that to be valid, a claim had to be for non-completion of the contract work. Whether or not there was a valid claim for non-completion of the contract work, could only be determined by reference to the contract.

91. 	A claim under the guarantee required by the Second Contract, could only be made by the plaintiff under Cl 58 C for ‘amounts to which the (plaintiff) is entitled under the Contract in the event of’ various breaches of obligations.

92. 	I have already found that no obligation to begin the Works had arisen under the Second Contract, and that as a result, no time for completion of the Works had begun to run, and there was no breach of obligations under the Second Contract. 

93. 	The guarantee also had an expiry date.  Cl 58B provided that if the guarantee had an expiry date, and the first defendant had not become entitled to a ‘..Performance Certificate by the date 28 days prior to the expiry date…’, the first defendant had to extend the validity of the guarantee until completion of the Works. 28 days before 31 December 2017, was 3 December 2017. That date had not yet occurred when the plaintiff issued a Notice to Remedy on 26/10/2017 requiring various breaches to be remedied in 42 days.  Further, these breaches were all of obligations to perform Work under the Second Contract, when in fact, there could be no breaches as no obligation to perform Works had begun.

94.  	It is not clear if the plaintiff’s letter of 27/10/2017 to the second defendant was actually making a claim, or merely giving notice of its intention to claim if the breaches were not remedied within the 42-day time limit.  However, nothing turns on this.

95. 	On 27/10/2017, the plaintiff had not become entitled to any amount under the Contract arising from non-completion of the Works, non-remedy of defects or non-extension of the guarantee, as there were no breaches by the first defendant of these or other obligations under the Second Contract. There were therefore no ‘amounts to which the (plaintiff was) entitled under the Contract’.

96. 	Pursuant to Cl 58 C, as the plaintiff was not entitled to any amounts under the Second Contract on 27/10/2017, it followed that the plaintiff ‘shall not make a claim under the’ guarantee.

97. 	The only basis for a claim under the guarantee, was for non-completion of the contract work. An entitlement to make a claim on this basis could therefore only arise when the plaintiff established non-completion of the contract work against the first defendant.  I have already found that there was no failure to complete the work, because there was no obligation to begin the work, so that the time for completion never ran.

98.	On 27/10/2017, the plaintiff had not established either an amount to which it was entitled under the Contract, or non-completion of the contract work by the first defendant. It follows that the plaintiff did not make a valid claim under the guarantee for non-completion of the contract work.

Conclusion

99.	The plaintiff failed to prove that the Second Contract was breached by the first defendant, and so failed to establish an entitlement to damages, the amounts of which in any event, were also unproven.

100.	The first defendant proved an entitlement to be paid for work performed after taking into account the amount of advances or loans made by the plaintiff, but failed to prove that any payment was due from the plaintiff on this basis.

101.	The plaintiff failed to prove that it had made a valid claim under the guarantee given by the second defendant.

102.	When considering costs, I have had regard to the fact that the second defendant’s basis for terminating the guarantee, was not the basis on which the claim under the guarantee was refused. I therefore make the following orders:

	1. 	The plaintiff’s claim against the first defendant, is dismissed.
	2. 	The first defendant’s cross-claim against the plaintiff, is dismissed.
	3.	The plaintiff’s claim against the second defendant, is dismissed.
	4. 	Each party is to pay its own costs.
_________________________________________________________________
Diwenis Lawyers: Lawyers for the Plaintiff
O’Briens Lawyers:  Lawyers for the First Defendant
Legal Division of Credit Finance Ltd: Lawyers for the Second Defendant