Watkins v Kumagai Gumi Co [1988-89] PNGLR 454 (30 October 1989)

	Home \| Databases \| WorldLII \| Search \| Feedback Papua New Guinea Law Reports

ESTOPPEL - Equitable estoppel - Principles - Need for clear, unambiguous representation - Need for material disadvantage from reliance on - Joint venture agreement - Hydro-electric construction - Arbitration clause - Time limit on referral to arbitration - Settlement negotiations - Referral not notified in time - Whether estoppel.

CONTRACTS - Time limitations - Strict compliance with - Arbitration clause - Time limit on referral to arbitration - Settlement negotiations - Referral not notified in time - Whether equitable estoppel.

ARBITRATION - Submission to arbitration - Under contract - Time within which notice to be given - Strict compliance with - Settlement negotiations - Referral not notified in time - Whether equitable estoppel.

A joint venture agreement in respect of a hydro-electric project provided for the settlement of disputes by a process of arbitration under which notice of referral to arbitration was required to be given within 60 days of the final determination of disputed claims. Following the determination of disputed claims under the agreement, the parties entered into communications and correspondence with a view to negotiating a settlement. No notice of referral to arbitration was given under the agreement. In proceedings seeking declaratory and injunctive relief in respect of the claims, the claimant argued that the contractor was estopped from insisting on strict compliance with the time limit in respect of the referral to arbitration.

(1) In the absence of express agreement to the contrary, time limitations in contracts should be strictly complied with.

(2) A party to a contract will not be estopped from relying on strict compliance with time limitations in that contract unless there is evidence:

(a) of a clear and unambiguous representation, either express or implied, that the time limits will be extended or waived: failure to make any statement in relation thereto will not suffice; and

(b) that the party seeking to rely upon the estoppel has placed himself in a position of material disadvantage as a result of reliance upon the representation.

(3) In the circumstances, no representation, express or implied, had been made which would support such an estoppel.

This was the hearing of an originating summons in which the plaintiff sought declaratory and injunctive relief in respect of claims for work done under a joint venture agreement for the construction of major hydro-electric works.

HINCHLIFFE J: The Watkins-Kumagai Joint Venture is a joint venture between Kumagai Gumi Company Ltd and Thiess Watkins (PNG) Ltd (hereinafter referred to as “the plaintiff”).

Watkins-Kumagai Joint Venture is the contractor (hereinafter referred to as “the plaintiff”) pursuant to a contract for civil works dated 30 March 1984 (hereinafter referred to as “the contract”) for the Rouna 4 Hydro-electric Project. The defendant is the employer pursuant to the contract. The plaintiff is also the contractor pursuant to a nominated sub-contract for civil works dated 29 August 1984 (hereinafter referred to as “the sub-contract”) for the construction of the Penstock on the Rouna 4 Hydro-electric Project. Hornibrook Constructions Pty Ltd is the nominated sub-contractor pursuant to the sub-contract (hereinafter referred to as “the sub-contractor”).

The contract and the sub-contract provide for the appointment of an Engineer. Sir William Halcrow and Partners of Swindon, England, were appointed by the defendant as the Engineer (hereinafter referred to as “the Engineer”) and Mr R A H Brown was appointed by the Engineer by letter of appointment dated 19 March 1984 as the Engineer’s Representative (hereinafter called “the Resident Engineer”).

“Clause 2 of the contract sets out the functions, duties and obligations of the Engineer and the Resident Engineer. Clause 2(2)(b) is of particular importance in this matter and it provides as follows:

“If the contractor shall be dissatisfied by reason of any decision of the Engineer’s Representative he shall be entitled to refer the matter to the Engineer, who shall thereinafter confirm, reverse or vary such decision.”

Clause 67 of the contract is also of particular importance in this matter and it provides for settlement of disputes.

During the period of the contract and sub-contract, several claims pursuant to the contract were submitted by both the plaintiff on his own behalf and by the plaintiff acting on behalf of the interests of the sub-contractor.

On 24 February 1987, a meeting took place between the plaintiff, the sub-contractor and the Resident Engineer to discuss finalisation of the claims by the sub-contractor.

Agreement could not be reached at that meeting in relation to four claims and those claims were referred to the Engineer by the Resident Engineer. The question now arises as to whether it was a referral pursuant to cl 2(2)(b) of the contract or whether it was a referral pursuant to cl 67. It is important because, if it was a cl 67 referral, then it may well be that the Engineer’s determination is now final and the sub-contractor must accept it. If it was a cl 2(2)(b) referral, then it is argued that the sub-contractor still has the right to seek a decision of the Engineer under cl 67 and if necessary to proceed to arbitration. At this stage, the defendant argues that the sub-contractor’s claims were referred to the Engineer under cl 67 and because there was no objection to the Engineer’s decision within 60 days (as required under the contract), the matter is finalised.

At the trial, Michael Edmund O’Connel, the General Manager of the sub-contractor, gave evidence in particular of the meeting on 24 February 1987. He said that six claims were discussed and that two of the claims were settled. He went on to say that he wanted the four unresolved claims to go to the Engineer to be reviewed. The witness said that he thought it was a cl 2(2)(b) referral.

But I am satisfied that the referral was one pursuant to cl 67 of the contract for the following reasons.

1. The referral of the four claims was done by the Resident Engineer. It is not in dispute. But a cl 2(2)(b) referral must be done by the contractor. That is quite clear when one reads the clause. The Resident Engineer is not permitted to make a referral under the clause.

On the other hand, it is proper for the Resident Engineer to make a referral under cl 67.

In the course of the trial, it was suggested that it was “practice” that the Resident Engineer would submit the claims to the Engineer under cl 2(2)(b) on behalf of the contractor. Even if that was the case (which I am not really satisfied that it is), there is no evidence in this matter that the plaintiff told the Resident Engineer to do so. I would have thought that evidence to be essential if the plaintiff wished to rely on the “practice” proposition.

2. It was suggested during the course of the trial by the plaintiff that a dispute had not arisen when the sub-contractor’s claims were sent off to the Engineer and therefore the implication is that it was a cl 2(2)(b) referral. If a dispute had arisen, then it would have to be a referral under cl 67, because the clause is there to settle disputes. Not so with cl 2(2)(b).

I am unable to agree with the plaintiff. It seems to me that a dispute had well and truly arisen and it had passed the cl 2(2)(b) stage. I say that because two days after the meeting on 24 February 1987, the Resident Engineer wrote to the plaintiff enclosing a list of the Engineer’s decisions on all outstanding matters entitled “Engineer’s Determination of the Contractor’s Claims”. The list was a computer print-out and the plaintiff’s project manager was requested to confirm the details in the print-out by signing it and returning it to the Resident Engineer. He subsequently complied with the request.

The print-out included the four unsettled sub-contractor’s claims and it indicates to me that the Engineer had already determined the sub-contractor’s claims but there were still amounts in dispute. It is clear from the print-out, in that it is headed “Engineer’s Determination of the Contractor’s Claims”, that it was not the Resident Engineer’s determination. The columns in the print-out indicate the amount claimed by the contractor and then the Engineer’s determination. The final column is headed “Disputed Amount”. The four disputed amounts are K3,065, K17,582.30, K143,498.08 and K2,743. Those are the four figures I am satisfied that were referred to the Engineer under cl 67. It is clear the cl 2(2)(b) stage had passed.

It was argued by the plaintiff that a letter sent by the Resident Engineer to the plaintiff’s project manager on 27 February 1987 clearly refers to cl 2(2)(b). That is so, but I am of the view that the letter reports decisions made in the past and decisions taken at the meeting on 24 February 1987. It indicates to me that these matters were referrals under cl 2(2)(b) in the past.

The letter does not say, “I am referring the four Hornibrook claims to the Engineer under Clause 2(2)(b)”. It must also not be forgotten that it is not a letter to the Engineer; that comes later on.

The plaintiff submitted that because the Resident Engineer enclosed a copy of his letter of 27 February 1987 (addressed to the plaintiff — referred to above) with his reference of the four Hornibrook disputes to the Engineer, it therefore follows that the Resident Engineer is saying to the Engineer, “This matter is being referred under Clause 2(2)(b) of the contract”.

“1. The Resident Engineer is simply saying to the Engineer, ‘Here is a copy of a letter I have already sent to the joint venture’. That letter speaks for itself, it clearly refers to events which have occurred in the past, that is, the Resident Engineer’s unsuccessful attempts to resolve the disputes over a long period of time.

2. In any case, there is not one scrap of evidence about what happened as between the Resident Engineer and the joint venture after Mr O’Connel (from Hornibrook) met the Resident Engineer on 24 February 1987.

3. What clearly did happen was that the Resident Engineer was able to obtain Mr Kimura’s (plaintiff’s project manager) signature on the double page schedule of disputes (including all four Hornibrook disputes) which clearly refers to a determination having already been made by the Engineer.

4. It is this schedule of disputes that shows precisely what it was that the joint venture, through its project manager, Mr Kimura, directed the Resident Engineer to do. That is, a reference under par 67 of the contract, the Engineer having already made a preliminary, unfavourable finding in relation to all four Hornibrook claims.”

3. After looking at the relevant correspondence, it seems to me that the plaintiff was well aware that the referral was one pursuant to cl 67. On 27 March 1987, the Engineer wrote to the plaintiff and said, inter alia:

“The Engineer has reviewed the items in dispute which were listed in the table dated 02/26/87 accompanying the Resident Engineer’s letter and he now confirms or amends his determination of the sums relating to those items disputed by you as follows: ... In that letter the sub-contractor’s four claims are listed.”

Again I refer to the defendant’s submission with which I agree. It goes as follows:

“(a) In its letter to Elcom of 2 April 1987 the joint venture admits in the clearest possible terms that:

‘We are in receipt of the Engineer’s final determination under Clause 67 relating to the items we considered to remain in dispute.

The Engineer has determined that an additional amount is due to the contractor and has awarded K467,293.47. The majority of this claim relates to finance charges (previously assessed at zero) and overhead recovery.

We do not consider the Engineer’s final award properly reflects the contractor’s entitlement under the contract, and it therefore seems that we have no option than to proceed with the formal disputes procedure under clause 67 of the contract.’

The final certificate of K467,293.47 of course includes the four Hornibrook’s claims.

(b) The joint venture does not totally reverse this position until its letter to the Engineer dated 13 July 1987. Only then does it say that Hornibrook claim No 47716 (and not the other three Hornibrook claims) was not the subject of a reference to the Engineer under paragraph 67 of the contract. By then of course, it is all too late.

The Engineer was not confused. He received from the Resident Engineer the joint venture’s claims and the Hornibrook claims which he was asked to determine under paragraph 67 of the contract. He was never asked to make a determination of any of the claims under paragraph 2(2)(b).”

4. The plaintiff submitted that the sub-contractor’s Claim No 47716 was not to do with extension of time. This was an important submission because, if I agreed with the plaintiff, then it would be possible to refer that claim under cl 2(2)(b). On the other hand, if I disagreed, then it would not be possible to refer under cl 2(2)(b). I say that because, under his delegation of powers, the Resident Engineer has no power to make a decision on extension of time for completion relating to cl 44 of the contract. It follows therefore that if he could not make a decision on extension of time there would be no decision to refer under cl 2(2)(b). The dispute would need to go to the Engineer for his decision under cl 67.

I agree with the plaintiff when it says that Claim No 47716 is for money but it seems to me that the money claim would fail if it did not get an extension of time to complete its works. Claim No 47716 is a claim by the sub-contractor for an extension of time of 30 weeks.

The sub-contractor can only quantify the amount of the claim in respect of that extension of time.

The correspondence refers to Claim No 47716 as a claim for an extension of time or a “prolongation of time” and throughout the sub-contractor’s correspondence with the joint venture, Claim No 47716 is referred to in terms of an extension of time “to 30 weeks”.

“It follows that, if one of the four claims could only be made under paragraph 67, then, the other three claims have to be in the same category. That is, they were all made under paragraph 67, there being no other possible alternative. The Resident Engineer does not say, Claim No 47716 is made under paragraph 67 but all the others are made under paragraph 2(2)(b).”

I am therefore satisfied that the sub-contractor’s four claims were referred under cl 67 of the contract.

The second issue raised by the plaintiff in this matter is one of estoppel. The plaintiff submits that the defendant acted in such a way as to lead the plaintiff to believe that it (the defendant) agreed to extend the 60-day arbitration limit as set out in cl 67 of the contract. The defendant denies that and claims that at no time did it agree to any waiving of the 60-day period either expressly or impliedly. Clearly, if the defendant’s argument succeeds, then the plaintiff’s case must fail.

Unlike the sub-contractor’s claims, there appears to be no dispute that the contractor’s claims were referred to the Engineer pursuant to cl 67 of the contract. The correspondence indicates the history of this alleged estoppel and I therefore propose to touch on the relevant letters.

The Engineer’s determinations of claims were in a faxed letter to the plaintiff dated 27 March 1987 and to the defendant in a faxed letter of 26 March 1987.

On 30 March 1987, the defendant wrote to the plaintiff in reply to a previous letter regarding referring various matters to arbitration. It said:

“The Commission agrees that the period in which any claims disputed further are to be referred to arbitration can be deferred and that the period now be sixty days from the date that the Engineer’s decision under Clause 67 is received for the last of the claims listed. We will notify you of the date.”

On 2 April 1987, the plaintiff wrote to the defendant indicating that it was in receipt of the Engineer’s final determination and it indicated “that we have no option than to proceed with the formal disputes procedure of Clause 67 of the Contract”. Later it said:

“Therefore, prior to instituting this step, we believe it would be in our mutual interests to make one further effort to endeavour to resolve the remaining differences.”

Then, on 10 April, the defendant wrote to the plaintiff stating that it had received the Engineer’s final determination on 27 March 1987.

That information seems to be in line with the defendant’s said letter of 30 March 1987 and I would have thought that what the defendant was saying was: “the 60-day period is running from 27 March 1987”. There is no doubt from that letter that they had received the plaintiff’s letter of 2 April on 6 April. That is, it had that letter in mind when writing its letter of 10 April.

“We notice your genuine desire to reach an amicable solution and share this with you.”

Then, on 19 May 1987, the plaintiff in a letter to the defendant suggested 8 and 9 June 1987 to discuss the disputed claims.

The suggested dates were outside the 60-day period which would fall due on about 26 and 27 May 1987.

“The Engineer advises that as he had received no notification of arbitration within the specified period, he is proceeding with his payment certificate, incorporating his Clause 67 determination. Elcom will undertake the necessary arrangements to make payment but as the matter is now considered finalized, the Commission does not see any purpose in holding separate meetings with your company.”

I am satisfied that an estoppel has not arisen and therefore I propose to go to part of the plaintiff’s submissions.

It says that in light of its letter of 19 May 1987 (about a meeting to resolve the outstanding disputes), the defendant should have responded prior to the expiration of the 60-day arbitration period, and not on 3 June 1987.

But it would appear to me that that letter or any of the other letters do not make any reference to the 60-day limitation period being deferred until after the proposed meeting is held.

In fact, there is no agreement between the parties to defer the 60-day period at all. Clearly both parties wanted an amicable resolution but to my mind that falls far short of an agreed deferment or anything similar. In past correspondence, it is clear, that in 1986 there were times when deferments were agreed to and in those instances the dates were fixed. Not so in this matter.

The plaintiff should have notified the Engineer that it wanted the disputes referred to arbitration and thus protected its interests whilst negotiations with the defendant proceeded. That would not be an uncommon course to take. In fact, I would have thought that it was the norm. Limitation periods in contracts should be strictly complied with unless there is some definite agreement outside the contract. There was nothing definite in this case and that is clear from the evidence of Ian Robert McIntyre whose company was engaged by the plaintiff in respect of the Rouna 4 Project. In examination-in-chief, he was asked:

“You said you were aware of the time constraints but you didn’t do anything. Why?”

“We believed the parties had agreed to suspend the time limit until a meeting was held.”

I am of the view that the plaintiff had no reason to be of that belief. It could not have come out of the correspondence.

In cross-examination of Mr McIntyre, part of the questions and answers went as follows:

“Q. You knew when you got the letter of the 10th April 1987 that Elcom was telling the joint venture that the sixty day period was running from the 27th March 1987.

Q. In your mind there was a real possibility that Elcom was putting the joint venture on notice on the 10th April, 1987 that it had sixty days from the 27th March, 1987 to refer the disputes to arbitration.

Q. The simple fact is that you knew the possibility that the sixty day period was running.

Q. A simple step was to put in a formal notice referring to arbitration under Clause 67.

That evidence indicates to me that there was uncertainty on the part of the plaintiff and in that event it would have been quite simple to clarify it in writing to the defendant. But that was never done. The plaintiff proceeded on a very shaky and dangerous course.

I might be more inclined to the plaintiff’s argument if the defendant had replied to the plaintiff’s letter of 19 March 1987, inside the 60-day period agreeing to the meeting date on 8 June, but that was not so. There is no evidence as to when the said letter of 19 May was received by the defendant but I suspect it would have been only a short time before the said expiration date. I say that because correspondence on file between the two parties in that period was taking between seven and eight days to reach each other.

If the joint venture was under the impression that it was not bound by the 60-day time period it never said so. I am of the view that the defendant did not say or do anything to give it that impression. There is no evidence to suggest that the defendant knew that the plaintiff was under the impression that the 60-day limitation period was not running.

The plaintiff relied on three authorities to establish an estoppel against the defendant:

On 22 October 1874, the plaintiff sent a notice to the defendant requiring it to repair houses which it held on lease, within six months. On 28 November 1874, the defendant wrote to the plaintiff stating that it had received the notice to repair and that repairs would be commenced forthwith. It added (at 440):

“It occurs to us that the freeholder may be desirous of obtaining possession of the company’s interest, which, as you know, is but short, and so we propose to defer commencing the repairs until we hear from you as to the probability of an arrangement such as we suggest.”

Subsequent negotiations were conducted on the basis of the suggestion contained in the defendant’s letter of 28 November 1874.

At 448, the Lord Chancellor (Lord Cairns) stated the principles on which the Court granted relief against forfeiture:

“... but it is the first principle upon which all Courts of Equity proceed, that if parties who have entered into definite and distinct terms involving certain legal results — certain penalties or legal forfeiture — afterwards by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties.”

I agree with part of the defence submissions on this case which went as follows:

“Unlike the defendant in Hughes v Metropolitan Railway Co, Elcom did nothing to advise the joint venture, or to lead it to believe that the time limits under the arbitration clause were not running.

Unlike the parties in Hughes v Metropolitan Railway Co, neither Elcom or the joint venture ever suggested that the time limit was not running. Neither party did anything to lead the other to believe that strict rights arising under the contract would not be enforced or were being held in suspense or abeyance.”

1. In this decision the High Court of Australia specifically rejected the defendant purchasers’ claim for an estoppel, the following facts being relevant:

(a) The vendors sent a notice to the purchasers threatening to rescind a contract for sale unless the purchasers tendered the balance of the purchase price before 10 August 1978.

(b) On 9 August 1978, the purchasers’ solicitor told an employee of the vendors’ solicitor that his client would be ready to settle on 17 August 1978. The employee replied, “I think that’ll be all right, but I’ll have to get instructions”.

2. The majority (Mason, Brennan and Deane JJ) concluded that it was impossible to read into the solicitors’ employee’s statement any representation to the effect that, unless they were advised to the contrary, the purchasers could disregard the time limit set in the notice for completion.

3. The basis upon which two of the majority (Mason and Deane JJ) dismissed the claim for estoppel was as follows, at 435-437:

“First, it has long been recognized that a representation must be clear before it can found an estoppel in pais ... .

‘The word “unambiguous” is explained by Kay LJ in Low v Bouverie [1891] UKLawRpCh 106; (1891) 3 Ch 82 at 113 ... “It is essential to shew that the statement was of such a nature that it would have misled any reasonable man, and that the plaintiff was in fact misled by it”. Bowen LJ says [at 106]: “It must be such as will be reasonably understood in a particular sense by the person to whom it is addressed” ...’

The requirement that a representation must be clear before it can found an estoppel is, in our view, applicable to any doctrine of promissory estoppel ... In the Woodhouse Case (Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd [1972] AC 741) Lord Hailsham of St Marylebone LC ... commented at 757:

‘Counsel for the appellants was asked whether he knew of any case in which an ambiguous statement had ever formed the basis of a purely promissory estoppel, as contended for here, as distinct from estoppel of a more familiar type based on factual mis-representation. He candidly replied that he did not. I do not find this surprising, since it would really be an astonishing thing if, in the case of a genuine misunderstanding as to the meaning of an offer, the offeree could obtain by means of the doctrine of promissory estoppel something that he must fail to obtain under the conventional law of contract. I share the feeling of incredulity expressed by Lord Denning MR in the course of his judgment in the instant case when he said (1971) 2 QB 23 at 59-60: “If the Judge be right, it leads to this extraordinary consequence: a letter which is not sufficient to vary a contract is, nevertheless, sufficient to work an estoppel — which will have the same effect as a variation” ‘ ...

‘If the representation is put forward as a variation, and is fairly capable of one or other of two meanings the judge will decide between those two meanings and say which is right. But, if it is put forward as an estoppel, the judge will not decide between the two meanings. He will reject it as an estoppel because it is not precise and unambiguous. There is good sense in this difference. When a contract is varied by correspondence, it is an agreed variation. It is the duty of the court to give effect to the agreement if it possibly can: and it does so by resolving ambiguities, no matter how difficult it may be. But, when a man is estopped, he has not agreed to anything. Quite the reverse. He is stopped from telling the truth. He should not be stopped on an ambiguity. To work an estoppel, the representation must be clear and unequivocal ...’

The second of those rules is that a person will not be estopped from departing from an assumption or a representation ‘unless, as a result of adopting it as the basis of action or inaction, the other party will have placed himself in a position of material disadvantage if departure from the assumption be permitted ...’ ”

“In the present case ambiguity does not arise as an issue. There is nothing in the correspondence from Elcom which even hints at the fact that the 60 day arbitration period has been suspended. There is no ambiguity, there is simply no statement to this effect which can give rise to an estoppel.”

Mr Molloy relied upon the principles of estoppel referred to by Mocatta J, at 250. Principle 2 reads as follows: “(2) a representation, express or implied, by one party that he will not enforce his strict rights against the other; ...” It is now quite clear in my judgment that I am satisfied that such a representation either express or implied was not made by the defendant. The plaintiff cannot argue that it acted on such a representation.

I am therefore of the view that the plaintiff’s action must fail and I refuse to grant the declarations and injunctions as sought by the plaintiff.

PacLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback
URL: http://www.paclii.org/pg/cases/PNGLR/1988/454.html

Papua New Guinea Law Reports

Watkins v Kumagai Gumi Co [1988-89] PNGLR 454 (30 October 1989)

Papua New Guinea Law Reports - 1988-89