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National Court of Papua New Guinea |
PAPUA NEW GUINEA
[NATIONAL COURT OF JUSTICE]
WS NO. 875 OF 2016
BETWEEN
HBS (PNG) LIMITED
Plaintiff/Cross Defendant
AND:
NORTHBUILD CONSTRUCTION PNG LIMITED
Defendant/Cross claimant-
LAE: DOWA J
15, 16 AUGUST 2022; 24 OCTOBER 2025
CONTRACT – Plaintiff alleges breach of a subcontract to release contract retention-whether Retention was due on day of practical completion-whether Defendant entitled to detain retention on account of monies due and owing to the Defendant in debts outside of the subcontract-
Held:
Although there was no initial breach of contract, plaintiff entitled to judgment for outstanding debt.
CROSS-CLAIM-defendant crossclaims damages against defendant for breach of contract-whether there was implied condition that the goods sold were free from defects and of merchantable quality-Whether there was breach of implied conditions-whether prior examination of goods negated any implied conditions-
Held:
Defendant failed to prove there was breach of implied conditions-crossclaim dismissed.
Cases cited
Yooken Paklin v The State (2001) N2212
Jonathan Mangope Paraia v The State (1995) N1343
Samot v Yame (2020) N8266
NKW Holdings -v- Poladin Solutions PNG Ltd (2020) N8339
Keam investments v Toyota Tsusho (PNG) Ltd (2019) N7859
Titus Tumba v Samson (2020) N8721
Woodward v Woodward [1987] PNGLR 92
Tapenda Limited v Waghi Mek Plantations Limited (1998) N1787
Counsel
P Sawanga with G Waide, for the plaintiff
I Molloy with A Konena, for the defendant
JUDGMENT
Facts
Trial
Evidence-Plaintiff
The Defendant’s Evidence
Burden of Proof
10. The burden of proving their respective claims rests on the parties and they must discharge the burden on the balance of probabilities. Refer: Yooken Paklin v The State (2001) N2212, Jonathan Mangope Paraia v The State (1995) N1343, and Samot v Yame (2020) N8266.
Issues
11 The issues for consideration based on pleadings, evidence and submissions of counsel are:
Law on contract
12. The parties’ respective claims are based on contract. The law on contract is settled in this jurisdiction. Refer to NKW Holdings -v- Poladin Solutions PNG Ltd, (2020) 8339, Keam investments v Toyota Tsusho (PNG) Ltd (2019) N7859, Titus Tumba v Samson (2020) N8721.
13. For a contract to be valid and enforceable, the following elements be present:
a. Whether the Defendant breached the terms of the Subcontract in failing to pay the balance of the Retention funds.
14. Counsel for Plaintiff submitted that under Clause 5 (b) of the Subcontract, the Plaintiff was entitled to the balance of the retention funds on completion of the project. Having completed the contract on 20th June 2015, the Plaintiff was entitled to be paid the retention monies on 20th June 2015. In breach of the contract, the Plaintiff was paid only 50 % on 15th July 2015 and the balance of K 158,968.65 remains outstanding.
15. In response, Counsel for the Defendant submitted there was no breach of the subcontract stating that; i) the Defendant retained the 50% of the retention monies because it was not due until after the Defects Liability Maintenance Period had expired, on 20th June 2016 under Clauses 1 (a) (viii) and 5 (a) & (b) of the subcontract, and ii) initially when the retention monies became due in June 2016, they were retained as a set off in respect of the Defendant’s crossclaim which exceeded the Plaintiff’s claim.
16. The relevant terms under the Subcontract are Particulars 13 under the Subcontract Order and Clauses 1 (a) (viii) and 5 of the General Conditions of Subcontract and they read:
“Defects Liability Maintenance Period: 52 weeks (if nothing stated then 52 weeks).”
“Defects Liability Maintenance Period” means the period commencing on the date of the Substantive Completion and ending on either on the date set out in this Subcontract Order or 0r the date of expiration of the last defects liability under the Head Contract, whichever is the later.”
3. Clause 5
“Retention
(a) Subject to the subcontract, the Builder may deduct and retain 5% of any progress payment to the Subcontractor until the total Retention equals 5% of the Subcontract Sum as security for the performance of the Works.
(b) The Builder may hold the Retention until the expiration of the Defects Liability Maintenance Period, provided that on Practical Completion the Builder must release to the Subcontractor that part of the Retention in excess of 2.5% of the Subcontract Sum.
(c) Nothing in this clause affects any entitlement of the Subcontractor at the general law of under statute to substitute an unconditional Bond or Instrument from a security provider approved by the Builder with a branch office in Port Moresby and in a term acceptable to the Builder for any part of the Retention.
(d) The Retention or any Bond or Instrument substituted by the Subcontractor secures the subcontractor’s performance of its obligation under this Subcontract, including its obligations to rectify defects and replace materials.
(e) The Builder may, upon the giving of written notice to the Subcontractor, have recourse to the Retention, or convert into cash any bond or instrument substituted by the Subcontractor.
- (i) Where an amount is due to the Builder under the Subcontract or
- (ii) in respect of any claim to payment (liquidated or otherwise) the Builder may have against the Subcontractor under the Subcontract or otherwise”
17. In construing the above terms and conditions of the Subcontract, the defects liability maintenance period was fixed at 52 weeks from the date of substantive completion of the subcontract. There is no dispute that the Plaintiff completed its contractual obligations on 20th June 2015. The defects liability maintenance period commenced on that date and lapsed on 20th June 2016. The detention of retention monies up to 20th June 2016 was in accordance with the terms of the subcontract and there was no breach of contract. I note the Plaintiff’s contention that the 2.5 % retention was paid 10 days after the substantive completion date resulting in breach of contract. I reject this argument because Clause 5 (b) does not give a specific date when payment is to be made except that it must be paid upon completion of the work, that is on the day or 24 hours later. Ten (10) days’ delay is not unreasonable.
18. However, the continuous detention of the final 2.5% retention monies after the 20th of June 2016 would amount to breach of the contract unless justified under the terms of the subcontract. The Defendant detained the balance seeking to set off its crossclaim which, it submitted, far exceeded the Plaintiff’s claim. This contention is premised to some extent on the notion that the release of the retention monies would be made in conjunction with the negotiations and agreement for the sale of the Terex Crane by the Plaintiff to the Defendant. The Plaintiff submitted to the contrary that the sale and purchase of the Terex Crane is not collateral to the Subcontract between the parties.
19. I note the email communication by the respective senior management centered around the release of the Retention monies in conjunction with the contract for the sale and purchase of Terex Crane. Although the discussions were for the resolution of some sort, the contract for the sale of the Terex Crane was not a collateral to the Subcontract. It is a separate and distinct transaction between the parties and is not made subservient to the Subcontract.
b. Whether the Defendant is entitled to retain the retention monies to set off its crossclaim.
20. Despite the distinctive nature of the two contracts, it is permissible for the Defendant to detain the retention monies under the first Subcontract because of its crossclaim arising from the second contract by virtue of Clause 5 (e) of the Subcontract. Clause 5 (e) allows the Defendant to have recourse to the Retention ...in respect of any claim to payment (liquidated or otherwise) the Builder may have against the Subcontractor under the Subcontract or otherwise.” The word “otherwise” connotes openness or liberty to the Defendant to have recourse to the Retention funds in respect of the crossclaim arising out of the breach of second contract.
21. I find there is no breach of the contract in detaining the retention for the reasons given. If the Defendant’s crossclaim is dismissed, an order shall be made for the release of the retention money.
c. Whether the Plaintiff is liable for breach of contract in the sale of a Terex Crane that had defects and was not fit for the purpose of use as a crane.
22. The Defendant’s crossclaim is for breach of contract in the sale of the Terex Crane by the Plaintiff.
23. What were the terms of the agreement. The undisputed agreed terms of the contract were:
24. The Defendant paid the purchase price of K 605,000 inclusive of GST and took delivery of the crane on 8th July 2015.
25. According to the Defendant, two months after delivery, the defendant encountered problems with the crane, and it was discovered it had major electrical damage, resulting in major breakdowns by November 2015.
26. The Defendant submitted that the Plaintiff breached the terms of the contract by selling a crane that had defects and, in a condition, not reasonably fit for the purpose of its use.
27. The Defendant submitted that the contract to purchase the crane was on condition that the crane was free from defects, of merchantable quality and reasonably fit for the purpose, in the ordinary course of its use, as a crane.
28. The Defendant relies on the Purchaser Order, which it submitted, contains the terms and conditions of the transaction. The following are significant terms:
Clause 5 of the Purchase Order.
“5. DEFECTS
Clause 6 of the Purchase Order
“6. MAKING GOOD
The Supplier shall be responsible for making good any damage to the goods or any property for which the Builder is otherwise responsible caused by the Supplier or his carrier at any time until delivery of the goods in accordance with condition 4.”
Clause 9 of the Purchase Order:
“9. CONDITIONS & WARRANTIES
The Supplier warrants that:
29. The Defendant submitted further that the terms and conditions contained in the Purchase Order are consistent with section 15 (2) (b) of the Goods Act.
30. In response to the Plaintiff’s assertion that the crane was sold subject to Nil Warranty, the Defendant submitted that an agreement was reached between the parties before the Tax Invoice dated 2nd July 2015 containing the exclusion clause was issued, that the exclusion clause was not brought to the attention of the Defendant and not agreed upon to exclude the implied conditions.
31. In response the Plaintiff pleaded that it was an express term of contract that the Terex A600 Rough Terrain Crane was a used crane sold with nil warranty as to its condition and merchantable quality. The Defendant relies on the Tax Invoice containing the exclusion clause which reads:
“1 x Used Terex A600-1 Rough Terrain Crane, 60T
Model: A600-1
Serial No. 507378
Registration No: SAC 092
Hours: 4742
Warranty: Nil Offered nor implied
Availability: Ex Stock HBS 11-Mile Lae
Delivery Terms: Ex WH HBS 11-Mile Facility
Payment Terms: In Full On or Prior to Delivery” (underlining mine)
32. The terms of the contract were partly oral and partly written and partly to be implied. The parties did not sign a formal and specific written contract for sale of the crane. The Defendant relies on the Purchase Order dated 2nd July 2015, while the Plaintiff relies on its Tax Invoice dated 2nd July 2015. There is no clear documentary evidence on the terms agreed except for the Defendant’s Purchase Order and the Plaintiff’s Tax Invoice. Generally, the Court will be hesitant to enforce a contract where the terms are vague or uncertain. However, where the Court can resolve the uncertainty through other acceptable evidence or conduct of parties then it should find that the parties have acted upon and intended to have an agreement and to have legal effect, be it in writing or oral or even implied.
33. In the case Woodward v Woodward [1987] PNGLR 92 the Supreme Court stated the principle of law in the following terms:
“Whilst this Court would not disagree with the general rule that if the terms of an agreement are so vague or indefinite that it cannot
be ascertained with reasonable certainty what is the intention of the parties there is no contract enforceable at law, if the court
can resolve this uncertainty by reference to other acceptable evidence or the subsequent conduct of the parties it should attempt
to find that parties have acted upon and intend an agreement to have legal effect.”
34. The contract involves the sale of goods. Section 15 of the Goods Act 1951 is relevant, and it reads as follows:
“15. Implied conditions as to, quality, etc.
(1) Subject to this Part and any other law there is no implied warranty or condition as to the quality or fitness for a particular purpose of goods supplied under a contract of sale.
(2) Notwithstanding Subsection (I) but subject to Subsections (3) and (4)-
(a) where-
(i) the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required so as to show that the buyer relies on the seller's skill or judgement; and
(ii) the goods are of a description that it is in the course of the seller's business to supply (whether or not he is the manufacturer), there is an implied condition that the goods are reasonably fit for that purpose; and
(b) where goods are bought by description from a seller who deals in goods of that description (whether or not he is the manufacturer), there is an implied condition that the goods are of merchantable quality; and
(c) an implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade; and
(d) an express warranty or condition does not negative a warranty or condition implied by this Part unless the express warranty or condition is inconsistent with the implied warranty or condition.
(3) In the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition as to its fitness for a particular purpose.
(4) If the buyer has examined the goods, there is no implied condition as regards defects that the examination 'ought to have revealed.”
35. Section 15 (1) of the Act clearly states that no warranty or condition as to the quality or fitness for a particular purpose of goods supplied under a contract of sale is implied. Notwithstanding that subsection (2) provides that there is an implied condition that the goods sold under the contract are of merchantable quality, fit for the purpose for which they are sold where the circumstances show that:
36. Subsection (4) provides that if the buyer has examined the goods, there is no implied condition as regards defects that the examination 'ought to have revealed.”
37. It is not disputed that the Terex crane was a used crane. It was previously used by Exxon Mobil Group. The Plaintiff acquired the crane with other used machinery in a bulk purchase in 2014. The Defendant was aware of that. The initial discussions for the purchase were between Abraham Broadhurst for the Plaintiff and Paul Boddington for the Defendant. Although the discussions included early release of the Retention monies, the arrangement for the purchase was not collateral to the Subcontract. The agreement to buy the second-hand crane was made only in conjunction with the release of the Retention.
38. On reaching agreement, the Defendant issued a Purchase Order on 2nd July 2015. The second page of the Purchase Order contained specific conditions that the goods are free from defects and reasonably fit for the purpose for which goods of this kind are ordinarily supplied and of merchantable quality. On the same day, the Plaintiff, in response, issued a Tax Invoice. In the invoice, the Plaintiff specifically stated Nil Warranty, a clear message that no warranty was given as to defects and condition of the crane.
39. There is no evidence of further discussions on settling the terms. The Defendant proceeded to make payment for the crane and took delivery thereafter.
40. The Defendant contends that despite the lack of express warranty, there is an implied term of the contract under section 15 (2) of the Goods Act that the crane would be free from defect and be reasonably fit for the purpose for use as a crane and of merchantable quality and that the Plaintiff breached the implied conditions and misled the Defendant into buying the crane that was defective and unfit for the purpose for use as a crane. The Defendant submitted further that the Plaintiff was aware of the defects and poor condition of the crane but misrepresented the Defendant.
41. Although it is open to argument that the express words “Nil Warranty” does not necessarily negate any implied conditions, the conduct of the parties and other evidence indicate that there was no misrepresentation made by the Plaintiff as to the fitness, condition and merchantable quality of the crane.
42. The Plaintiff is in the business of hiring, buying and selling machinery and heavy equipment. Plaintiff purchased the Crane from Exxon Mobil in a bulk sale in 2014. This is confirmed by Curtis Triffet who gave evidence for the Defendant. Mr. Triffet, a former employee of Exxon Mobil, testified that the crane was acquired by Exxon Mobil in 2010, about four years old and was well kept and maintained by Exxon Mobil before it was sold to the Plaintiff in 2014. According to Triffet, the Logbook and maintenance records were passed onto the Plaintiff during the sale. Bob Watkins for the Plaintiff denied receiving the maintenance records from Exxon Mobil which could be passed on to the Defendant. Watkins maintained that they did a bulk purchase of almost 300 items from Exxon Mobil and did not get specific documentation except for a spreadsheet. Watkins deposed the Plaintiff did not operate the Crane before offloading it to the Defendant as a used crane. As far as he was aware, the Crane was in working condition when sold. I accept Mr. Watkins’ explanation. Although no Logbook and maintenance records were produced, there is no evidence that the Plaintiff had knowledge of defects and poor condition of the crane which they deliberately concealed.
42. On the other hand, the Defendant was aware that the crane was second-hand. The crane was sold immediately after it was purchased from Exxon Mobil. At the time when it was purchased by the Defendant, it was in working condition. The Defendant has specifically requested a Final Crane SafeReport. The CraneSafe Report was provided to the Defendant. The evidence shows that one Peter Dobbe, an expert from Omnico Company and engaged by Cranesafe Australia had conducted inspection and examination of the Crane from 30th June 2015 to 8th July 2015 and issued a CraneSafe Report and Certificates as requested by the parties. The initial Temporary Report was done on 30th June 2015. The report was done according to the accredited standards of Cranesafe Australia. The Certificate issued by the Cranesafe on 8th July 2015 shows that the crane had undergone an inspection to the appropriate standard and was considered safe for continued use at the time of inspection.
43. I note the Defendant’s contention that the CraneSafe Report was not made available until 22nd September 2015. However, the evidence shows the CraneSafe Report was done at the request of the Defendant. The inspection and examination commenced 30th June 2015 when a Temporary Report was issued. The final Report and Certificates were issued on 8th July 2015. It was only after the report was done when the Defendant took delivery of the Crane. I do not accept the Defendant’s contention that the Defendant was not aware of the CraneSafe Report until after 22nd September 2015. Besides, the Defendant did not raise any issues after receipt of the Report.
44. Furthermore, the evidence also indicates that the Defendant company had also conducted its own examination of the Crane before taking delivery on 8th July 2015. The evidence of Andrew Edwards, the Plant and Logistics Manager of the Defendant company is significant. He deposed that the Crane was delivered to their yard on 8th July 2015. They carried out “initial operability tests” and could not recall any problems with the fundamental functions of the crane. The Crane was shipped out on 26th July 2015. In early December 2015, he carried out tests in Port Moresby and found out various faults and formed an opinion that they were preexisting faults. I place little weight on his evidence because the Defendant had sufficient time and opportunity to assess the condition of the Crane before taking delivery. While it is arguable that no one would know the true condition of the crane until it is put into operation, the evidence shows the crane was put into operation and developed problems afterwards. It is significant to note that the Defendants’ own personnel operated the crane and attended various repairs before the tests were conducted by Mr. Edwards. The evidence from the Defendants’ witnesses indicated that they do not have sufficient knowledge and experience in handling the crane. Apart from conducting the initial operability tests, the Defendant had the time and opportunity to do further tests before delivery.
45. In Tapenda Limited v Waghi Mek Plantations Limited (1998) N1787, the Court held that the Goods Act implies a condition under Section 15 (2) that goods are of merchantable quality subject to the proviso under subsection (4) that if the buyer has examined the goods there is no implied condition as regards defects that the examination ought to have revealed. In that case, Woods J (as he then was) referred to English cases in adopting and applying the law in his judgment:
“In the case Cammell Laird & Co Ltd V Manganese Bronze & Brass Co Ltd [1934] AC 402 at 430 Lord Wright states that the implied condition does not apply to defects which such examination ought to have revealed. The critical word here is ‘ought’. A full and proper examination could have revealed the defect.
In James Drummond & Sons V E.H. Van Ingen & Co [1887] UKLawRpAC 15; [1887] 12 AC 284 & 291 Lord Herschell states that the implied condition was only excluded as regards those matters which the purchaser might, by due diligence in the use of all ordinary and usual means, have ascertained from an examination of the sample. ‘Due diligence’ is the operative words here and it could have found the defect, therefore by the exemption in S 15 (4) there is no implied warranty.
Grant v Australian Knitting Mills [1936] AC 85 notes the proviso to the exemption does not apply where no examination the buyer could or would normally have made would have revealed the defect.
The buyer here could have made the test and would have found the defect. There clearly was an examination, a fairly full one, it was just not enough. I cannot say there was no examination, there was, and it was apparently not sufficient considering the grade of the coffee being considered. Yet Angco did a more complete test.
I find that Goods Act section 15 (4) applies here. There was an examination which if done with due diligence considering what was to be done with the coffee would have revealed the defect. The defendant took a risk.”
46 Applying the above principles, I find section 15 (4) of the Goods Act applies to the present case. Firstly, there was as inspection and examination conducted by an expert and provided the CraneSafe Assessment Report and Certification before delivery. Secondly there was an “operability tests” examination conducted by the Defendant’s own technical persons. The Defendant had that opportunity to properly examine the condition and merchantable quality and satisfy itself of what it was buying, especially in the light of the fact that the Plaintiff has expressly given nil warranty as to the quality and fitness for the purpose of its use as a Crane. Finally, there is no evidence of the Defendant raising the issue of the defects early until 29th January 2016 when it (Defendant) was asked by the Plaintiff to release the Retention funds under the Subcontract.
47. Based on the foregoing reasons, I am not satisfied that the Plaintiff is guilty of any misrepresentation nor breached any implied conditions that the Terex Crane would be free from defects and fit for the purpose of use as a crane. In the end, the Defendant has the burden of proof. It has not discharged the burden on the balance of probabilities. The Defendant’s crossclaim shall therefore be dismissed.
What orders should the Court make.
48. Having dismissed the Defendant’s crossclaim, the Plaintiff is now entitled to immediate release of the retention funds. I note the Plaintiff claims damages for breach of contract, pleading that the breach occurred on 20th June 2015. I reiterate that there was no breach by 20th June 2015. However, I find that there was a breach of contract after 20th June 2016 when the Defendant failed to release the money. I accept the submissions of the Defendant that the monies were retained for what the Defendant considered to be for debt due and owing in respect of its cross claim. Now that the cross claim is dismissed, the money can be released. In the circumstances, I am not inclined to make an award for damages for breach of contract including economic loss under the subcontract.
Costs
49. Generally, costs follow the event, that is, the successful party is entitled to costs. The Plaintiff has succeeded in defending the proceedings. The Plaintiff shall be entitled to costs.
Orders
50. The Court orders that:
_____________________________________________________________
Lawyers for the plaintiff: Albright Lawyers
Lawyers for the defendant: O’Briens
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