SC1275

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCA 6 OF 2012

VANIMO FOREST PRODUCTS LIMITED
Appellant

V

OSSIMA RESOURCES LIMITED
Respondent

Waigani: Salika DCJ, Cannings & Logan JJ
2013: 29 August, 19 September

NATURAL JUSTICE – Failure by counsel to appear on adjourned date appointed for closing submissions following trial – adjourned date pronounced orally by trial judge in presence of counsel – whether a denial of natural justice.

PRACTICE AND PROCEDURE – whether plaintiff had adequately pleaded renewal of contract by conduct in a claim for breach of contract – particulars of alleged conduct neither given nor sought – effect of interlocutory ruling on point of law.

CONTRACT – whether renewal of conduct evidenced by conduct of parties – whether defendant in breach of contract entitling plaintiff to damages.
 
The appellant appealed against a judgment of the National Court finding it liable in breach of contract to the respondent. The National Court awarded damages to the respondent but the appeal was confined to the question of liability. The appellant argued that: (1) it was denied natural justice as a result of the trial judge not hearing its submissions before proceeding to judgment; (2) the question of liability was decided on the basis of a renewal of the contract by conduct, a matter that was not pleaded in the statement of claim; and (3) there was no evidence to warrant the conclusion that the contract was renewed by conduct.

Held:

(1)	The trial judge afforded the appellant the opportunity to be heard but the appellant, as a result of its counsel's confusion as to the date of the hearing, failed to take up the opportunity extended to it. There was no denial of natural justice.

(2)	Though desirable it is not essential that every element of every cause of action be expressly pleaded in a statement of claim. What is essential is that the statement of claim read as a whole discloses a cause of action in sufficiently clear terms to put the defendant on notice as to the claim that it has to meet. The respondent adequately pleaded that its contract with the appellant had been affirmed and extended by the conduct of the appellant.

(3)	The renewal of a contract can be inferred from the conduct of the parties. Here there was a body of relevant and materially uncontroversial evidence to support the conclusion that the appellant by its conduct affirmed renewal of the contract. The conclusion reached by the trial judge was open in law and fact. The appeal was accordingly dismissed.

Cases cited

The following cases are cited in the judgment:

Bank South Pacific Ltd v Gibson Nad SCA No 41 of 2008, 14.05.10, unreported
Household Fire Insurance Co v Grant (1879) 3 Ex D 216
Jimmy Mostata Maladina v Posain Poloh (2004) N2568
Kumagai Gumi Co Ltd v National Provident Fund Board of Trustees (2006) SC 837
Mercidita Malihan v Divine Word University (2010) N4112
Michael Kuman v Digicel (PNG) Ltd (2013) SC1232
National Development Bank Ltd v Maxtone Graham (2012) N4739
Sela Gipe v The State [2000] PNGLR 271

APPEAL

This was an appeal against a decision of the National Court that the appellant was liable in breach of contract to the respondent.

Counsel

N Kopunye for the appellant
T Sirae for the respondent

19th September, 2013 

1	BY THE COURT: Vanimo Forest Products Limited (VFP) appeals against the decision of the National Court that it was liable in breach of contract to the respondent, Ossima Resources Limited (ORL). VFP was the holder of a timber permit issued by the Minister for Forests on 31 October 1991 for blocks 1, 2, 3, 4, 5 and 6 of the Vanimo Timber Rights Purchase Area in West Sepik Province. That permit conferred on VFP an exclusive right to log timber from those blocks for a period ending in November 2011.

2	On 1 November 2005, VFP entered into a contract with ORL under which it authorised ORL to harvest logs from blocks 1, 2 and 6 within that permit area and sell them to it. Clause 6.1 of that contract provided:

The agreement shall be renewed every one year (1) from the date of the signing of this agreement.

3	There was a variation to the contract in February 2006. It was common ground that this variation did not affect, amend or delete clause 6.1. Materially, the variation enlarged the type of timber species that VFP would accept and purchase from ORL. The contract bound VFP to purchase the logs harvested by ORL. It further provided that it was determinable on one week's notice.

NATIONAL COURT PROCEEDINGS

4	ORL instituted proceedings in the National Court against VFP, claiming damages for breach of contract. As pleaded in its amended statement of claim, the case made by ORL was that, on the true construction of the contract, its term was for a period limited only by the expiry of the timber permit. That contract, it alleged, had been breached by VFP's actions in January 2007. ORL cast its damages claim accordingly. By its defence, VFP denied that any contract existed in 2007, the contract between the two companies being said, on the true construction of its terms, to have been of but one year's duration and thus brought to an end by effluxion of time before then. VFP's stance was that it was entitled to harvest logs itself in January 2007 because the contract had by then expired.

5	The evidence before the National Court at trial disclosed that, during the period prior to November 2006, ORL commenced logging pursuant to the contract with VFP making payments accordingly. It also established and the trial judge, Thompson AJ, found that, in January 2007 (two months after the expiry of the first year of the contract) VFP went into the timber permit areas allocated to ORL under the contract and began logging for itself. The trial judge also found that, in the period from the start of November 2006 to that time, ORL had harvested 150 logs from that area, which VFP not only refused to accept but also refused to allow ORL to sell to other sawmills.

6	One allegation made by ORL in its reply which should be noted is an allegation that VFP had by its conduct "clearly indicated" that ORL was "the only contractor to harvest logs on the subject land until year 2011". Particulars were neither given, nor were they sought, in respect of that allegation. It must also be noted that from the very outset of the proceeding, part of the case for ORL was that VFP's conduct was material to ORL's claim that the term of the contract was for a period longer in duration than one year.

7	On 14 April 2011, the proceeding came on for directions before Kandakasi J. Each party was legally represented. The transcript of that hearing discloses that his Honour made orders directed to resolving a legal issue as to what was, on the true construction of the contract, its duration. Those directions included provision for the filing in advance of written submissions. The proceeding was then adjourned for oral submissions. On 4 May 2011, and as the transcript reveals, after hearing submissions from counsel for the parities, Kandakasi J delivered ex tempore reasons, ruling that the meaning of clause 6.1 was not that the contract was automatically renewed after one year but rather that the parties had done no more than to negotiate with respect to its renewal after the expiry of a given year. His Honour further found that, for the contract to be renewed after the expiry of the first year, there had to be evidence of its renewal for a further year. The parties were then left to consider their positions in light of that ruling.

8	Neither an order for the separate determination of a legal question nor the resultant determination was drawn up, lodged and entered; nor did the parties seek before the later trial that the ex tempore reasons for judgment be revised by his Honour and placed on the court file. The failure by the parties to undertake these steps was to occasion Thompson AJ some initial difficulty at the trial in ascertaining what had earlier occurred before Kandakasi J.

9	In the result, the ruling on the point of law did not, as his Honour, from a reading of the transcript clearly hoped it might, lead to a consensual resolution of the proceeding. It came on for trial before Thompson AJ on 10 and 21 November 2011. On 21 November 2011, after evidence at the trial had been completed, her Honour adjourned the proceeding until 14 December 2011. The occasion for the adjournment was the then unavailability of the transcript of the hearing which had taken place before Kandakasi J. The suitability to counsel of an adjournment until that date and the pronouncement of the adjournment accordingly are explicitly recorded in the transcript of proceedings of 21 November 2011.

10	On 14 December 2011 when the proceeding came back on before Thompson AJ there was an appearance on behalf of ORL, but not VFP. By that stage, the transcript of proceedings before Kandakasi J was available. The submission on behalf of ORL was, in effect, that it had done what the ruling made by Kandakasi J contemplated. It had led evidence on the question of VFP's conduct. Her Honour then reserved judgment. The judgment was handed down on 18 January 2012.

11	The reasons for judgment of the learned trial judge disclose both a consideration of authorities relevant to the construction of contracts as well as a recognition that a "finding has already been made that in order for it [the contract] to be renewed there had to be actual renewal by the parties." The need felt by her Honour to consider authority is not, with respect, readily reconcilable with the recognition, evident from the passage quoted, that there had already been a preliminary ruling as to the meaning of clause 6.1. In the result at trial nothing turned on this as her Honour decided the case on the basis that, unless extended in some way, the contract was of one year's duration. Her Honour found that the contract had been extended for a further year by the conduct of the parties but before the end of the extended period, was treated by ORL as at an end by its acceptance of VFP's conduct (its timber harvesting on and from January 2007) in repudiating it. Her Honour assessed damages in the amount of K207,241.34 (plus interest) on the basis of a breach by VFP constituted by its failure to purchase as obliged the 150 logs that ORL had cut and offered to it.

GROUNDS OF APPEAL 

12	It was expressly conceded on the hearing of the appeal that it was no part of VFP's case on appeal that there was any error in the assessment of damages. It necessarily follows that a challenge evident in the notice of appeal based on an alleged absence of obligation under the contract for VFP to pay for the logs was abandoned. The abandonment of that issue was prudent as the existence of such an obligation was plain.

13	Instead, though pleaded in various ways in the notice of appeal, VFP's challenge to the judgment may be summarised as if there were three grounds of appeal:

(1)	An alleged failure to afford it natural justice constituted by continuing the trial in its absence on 14 December 2011 and then giving judgment without further hearing from its counsel or receiving written submissions from him.

(2)	Deciding the case on the basis of a renewal of the contract by conduct in circumstances where that had not been pleaded.

(3)	In any event, error in concluding that the contract had been renewed by conduct when there was no evidence of that.

GROUND 1: DENIAL OF NATURAL JUSTICE

14	That a trial judge in an adversarial proceeding must afford the parties natural justice is axiomatic (Constitution, Sections 37(11), 59; Sela Gipe v The State [2000] PNGLR 271, Jimmy Mostata Maladina v Posain Poloh (2004) N2568). One cardinal feature of the principles of natural justice is the affording to each party of an opportunity to be heard. All parties must be given the opportunity to make oral submissions. Failure to provide that opportunity will constitute a procedural irregularity and give rise to a substantial miscarriage of justice (Kumagai Gumi Co Ltd v National Provident Fund Board of Trustees (2006) SC 837, Bank South Pacific Ltd v Gibson Nad SCA No 41 of 2008, 14.05.10, unreported (Mogish J, Gabi J & Yagi J). It is a mistake though to confuse a failure to afford a party an opportunity to be heard with a failure by that party to take up an opportunity extended. That is this case.

15	The appellant's counsel sought to read on the hearing of the appeal an affidavit in which he deposed to circumstances pertaining to his failure to attend on 14 December 2011. That was not opposed by counsel for ORL. Its contents were not controversial. We permitted the affidavit to be read. The affidavit was self-evidently prepared by counsel from recollection, prior to the availability of the transcript of proceedings on 21 November 2011. Suffice it to say, the transcript makes clear that the order formally pronounced orally by Thompson AJ was to adjourn the trial to 14 December 2011. It is true that there was reference before this to the possibility of both 14 and 15 December 2011 being available but it was the 14th which her Honour expressly selected in her adjournment order. If, as counsel asserted in submissions, he did not properly hear this final pronouncement, it was incumbent on him forthwith to ask her Honour to repeat the same or at least to remedy his ignorance by checking the adjournment date with the Registry. This he did not do. Having pronounced the adjournment order in open court and in the presence of counsel for each party, her Honour was entitled to proceed as she did. There is no substance in the natural justice denial ground.

GROUND 2: FAILURE TO PLEAD RENEWAL OF CONTRACT

16	In the course of the proceeding, the parties chose to seek and the National Court agreed to make a preliminary ruling on a point of law: the construction of clause 6.1 of the contract. Adopting such a course can be fraught in some cases with elongating rather than truncating a proceeding in the event of an appeal in respect of such a ruling. Sometimes, too, such a ruling can operate as a reality check in respect of the expectations of one party or another and either prove to be the catalyst for a settlement or at least narrow the issues at trial with a consequent saving of costs and court time. The only criticism we make of the course adopted in this case was a failure by the parties to take out formal orders by which such a ruling was sought and embodying the ruling.

17	ORL did not, after the ruling made by Kandakasi J, abandon the factual case which it had pleaded. All that it did was accept the ruling as to the meaning of the contract. Neither party sought to re-plead their cases in light of the ruling. VFP, in particular, let the case proceed to trial without ever seeking from ORL particulars of the manner in which the contract was allegedly renewed. Instead, each party permitted the case to go to trial on the basis of the existing pleadings but in light of the ruling on the preliminary point of law. ORL had always pleaded that its contract with VFP had been affirmed by the conduct of VFP. It contended that, as a matter of law, the true construction of the contract was that its term ended in 2011. Though desirable it is not essential that every element of every cause of action be expressly pleaded in a statement of claim. What is essential is that the statement of claim read as a whole discloses a cause of action in sufficiently clear terms to put the defendant on notice as to the claim that it has to meet (Michael Kuman v Digicel (PNG) Ltd (2013) SC1232). The respondent adequately pleaded that its contract with the appellant had been affirmed and extended by the conduct of the appellant. There was no injustice in the learned trial judge considering whether VFP had, by its conduct, affirmed an extension of the contract or, as VFP contended, whether the contract had expired by effluxion of time.

GROUND 3: FINDING THAT THE CONTRACT WAS RENEWED BY CONDUCT

18	In principle, the existence of a contract can be inferred by the conduct of the alleged parties to it. As was stated in Household Fire Insurance Co v Grant (1879) 3 Ex D 216:

Agreement is not a mental state but an act, and, as an act is a matter of inference from conduct. The parties are to be judged, not by what is in their minds but by what they have said or done.

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. Repudiation of a contract can also be inferred from the conduct of the parties: Mercidita Malihan v Divine Word University (2010) N4112, National Development Bank Ltd v Maxtone Graham (2012) N4739. There was, therefore no error in principle in her Honour acting on the basis that it was lawfully possible for renewal to be inferred from the conduct of the parties. There did not have to be a formal instrument of renewal signed by the parties.

20	Her Honour did not, as one might, with respect, expect, set out in her reasons for judgment the evidence which constituted the basis upon which she concluded that there had been a renewal of the contract for a further year by conduct. There was, however, evidence upon which such a conclusion was warranted.

21	ORL's Mr Ossi deposed, and this was not challenged under cross-examination, that ORL had cut up to 150 logs and that these had had to be abandoned in the bush. Annexed to his affidavit and tendered in evidence without objection was a letter dated 12 February 2006, written to the Principal Forestry Officer, PNG Forestry Authority at Vanimo by VFP's director, Mr Tiong, in which he made reference to the making of a contract with ORL and to the fact that VFP "will be sending in our surveyors to cut out the boundary lines so that the contractor harvest logs from the areas specified in the contract agreement" [sic]. In that letter, Mr Tiong exhorts the Forestry Authority strictly to monitor that the contractor logs only within this area and not within other areas covered by the timber permit.

22	In the course of his re-examination and without objection Mr Ossi was asked about the continuance of ORL's relationship with VFP. He replied that VFP had never disputed what ORL was doing and had assisted with the skidding by providing machinery. In context, these questions were directed to a logging operation position which had continued beyond the end of the first year of the contract.

23	The position thus which obtained was one of a permit holder which had taken care to have marked out the area allocated to ORL and exhorted the Forestry Authority to ensure it logged only within that area. Inferentially, 150 logs had been cut by ORL after the end of the first contract year. Mr Ossi's evidence was that VFP had not only voiced no concern about this but had assisted it. There was no objection from VFP's counsel that the questions about this were insufficiently precise as to when this assistance had occurred. Inferentially, the logs concerned were large and their harvesting no minor operation. Inferentially again in these circumstances, it is inherently unlikely that ORL's logging operation could have occurred without VFP's approval.

24	There was therefore a body of relevant and materially uncontroversial evidence to support the conclusion that VFP had, initially, affirmed the renewal of the contract for a further year by its conduct. Its later undertaking of its own operation in the area allocated to ORL was consistent with it having second thoughts on that subject.

25	In these circumstances, the conclusion reached by the learned trial judge as to renewal by conduct was open in law and fact.

ORDER 

26	It follows from the above that the appeal must be dismissed. Costs will follow the event. We order that: 

(1)	The appeal is dismissed.

(2)	The appellant shall pay the respondent's costs of and incidental to the appeal, to be taxed if not agreed.

Judgment accordingly.
________________________________________

Bradshaw Lawyers: Lawyers for the Appellant 
Sirae & Co Lawyers: Lawyers for the Respondent