IN THE SUPREME COURT OF SAMOA
HELD AT MULINUU

BETWEEN:

MAPOSUA KYLE KEIL of Vaigaga, Business Proprietor trading as Arco Chemicals
Plaintiff

AND:

DIGICEL (SAMOA) LIMITED a duly incorporated company carrying on business at Vaimea and elsewhere in Samoa.
Defendant

Counsel: Mrs R Drake for plaintiff
Mr R Schuster for defendant

Decision: 12 July 2010

DECISION OF THE COURT

Introduction

1. The plaintiff who operated an industrial cleaning and chemical supply business was engaged by the defendant in 2006 to clean its main office and outlets when the defendant launched its operations as provider of digital cellular phones and related products in Samoa. Initially the plaintiff dealt with the Chief Executive Officer of the defendant, then in October 2006 the Human Resource and Facilities Manager of the defendant took over. It was about the same period that the plaintiff and the Human Resources and Facilities Manager ("The Manager") initiated talks about a cleaning service agreement ("agreement"). After a series of discussions and correspondence between the plaintiff and the Manager, and after their meeting on the morning of the 20th February 2007, the plaintiff prepared a written agreement which they both signed the following day, the 21st February 2007. The signed agreement states:

February 20th, 2007

Ms Karleen Rasmussen
HR & Facilities Manager
Digicel Samoa

Agreement for Continuing Cleaning Maintenance of Main Office, Levili and Chan Mow Outlets

According to our meeting of this morning, I have outlined below stages and costs of our cleaning services to Digicel as agreed for a period of twelve (12) months commencing from the date of signed agreement.

1. Pest Control: We offer a twelve (12) months contract to fumigate all areas occupied by Digicel on a monthly basis for $200.00 / month.

2. Office Cleaning: To dust all counter surfaces including bookshelves, displays, computers & desks, cupboards, mop all floor areas; clean bathroom / toilet facilities; replenish toilet tissues, hand paper towels and hand soap; empty ashtrays from smokers corner; collect rubbish from each desks; wipe and clean fingerprints or smudge marks on walls, clean windows; etc…….

We will install Margaret to work with Maima during working hours with the two (2) men to come and clean from 4.30pm – 8.30 pm (4 hours) Monday to Friday, Saturday 2 hrs, and Sunday 2 hours only.

Provision of Tea Lady – to prepare coffee, etc… clean kitchen counters, wash dishes and any other duties as directed by a Digicel Managers.

Rubbish – Carting trash bundles to Tafaigata Dump.

Levili Cleaning: Daily cleaning of Office from Monday to Saturday for two (2) hours only from 8.00am – 10.00am.

Chan Mow Outlet: Rubbish collecting every evening from Monday to Saturday.

Our weekly costs to carry out the above-mentioned tasks is $4500.00, vagst inclusive.

3.	Exterior Cleaning: To clean all exterior walls and water blast all concrete walkways every two (2) months for $2500.00 / month, vagst inclusive.

Cleaning Chemicals and Maintenance Products will be provided for by Digicel Samoa.

We take this opportunity to Digicel Management for trusting us to work together with you through our cleaning services.

Sincerely yours

……………………………… 	…………………………..	
M.Kyle Keil
Proprietor
	Date	

Digicel Samoa, is in agreement with all services and costs as stated above

………………………………. 	…………………………….	
Karleen Rasmussen
For Digicel Samoa 	Date	

2. Three months after the agreement was signed the defendant attempted to re-negotiate the agreement and requested the plaintiff to review his costs. On instruction from the defendant's board of directors the Manager held discussions and corresponded with the plaintiff to review the cleaning service agreement. By an e-mailed letter dated 9th May 2007 the manager outlined two cleaning service options and invited the plaintiff to provide two quotes for each option. Another e-mailed letter was sent the following day, 10th May 2007, referring to a telephone discussion earlier that day and requesting the plaintiff to accept the changes by the defendant of its cleaning requirement and reduced costings.

3. Proposed changes were resisted by the plaintiff. In his letter of response the plaintiff after acknowledging notification of change to the cleaning agreement as directed by the defendant's board the plaintiff requested the defendant's board to re-consider the written agreement of the 21st February 2007.

4. By an undated letter received by the plaintiff on the 25th July 2007 the manager cancelled the written agreement. The commercial manager of the defendant was copied with the cancellation notice. That letter reads:

Maposua Kyle Keil
Arco Chemicals 
Fonofou Road
Saleufi
Apia

cc: Pepe Christian Fruean
Commercial Manager, Digicel Samoa

Dear Maposua

This letter serves as one month's notice for the cancellation of Arco Chemicals cleaning contract with Digicel Samoa. The final date your services will be required is Friday 31 August 2007.

We thank you for your efforts to date.

Yours sincerely

Karleen Rasmussen
HR & Facilities Manager
Digicel Samoa.

5. The plaintiff says the termination was unlawful and a breach of a binding contract entered into on the 21st February 2007. He seeks damages for the benefit that would have accrued to him from the performance of the contract for the remaining unexpired term.

6.	In its written statement of defence the defendant neither admits or denies the existence of a written contract and puts the plaintiff to proof. It does however specifically denies that the termination of the contract was unlawful and a breach of the contract.

7.	In accordance with the pleadings in the statement of claim and statement of defence the plaintiff led evidence to establish the existence of a legal binding contract, the subsequent breach of the contract by the defendant and the damages suffered by the plaintiff as a consequence of the breach. The defendant on the other hand not only contested the existence of a legal binding agreement but it also went on to lead evidence that, if there was a binding legal agreement, the Manager had no authority to execute the contract on behalf of the defendant. Counsel for the plaintiff understandably objected. I allowed the Manager to relate her evidence on the issue but reserved my ruling until I have perused the written submissions.

Evidence touching the Validity of the Agreement

8. I will now deal with that issue, namely whether the evidence led by the defendant as to the validity of the agreement should be admitted. The answer is to be found in the decision of the Court of Appeal in Philip (Chris) v L.T. Endermann & Company Ltd 1980 – 1993 WSLR 539 at 541:

"The purpose of pleadings is to show exactly and unambiguously what allegations are made by one party and what the other party denies in order to define the issues and thereby inform the parties in advance of the case they have to meet: Farrell v The Secretary of State of Defence [1980] 1 All ER 166 at 173".

In its statement of defence, consisting of thirteen (13) paragraphs, the first two paragraphs admit to the designations of the plaintiff and of the defendant; two paragraphs deny the breach of a contract by the defendant and losses suffered by the plaintiff as a result of the breach, while the rest of the paragraphs simply invite the plaintiff to prove his allegations. There is neither a hint nor a suggestion obliquely surfacing from the statement of defence that such a specific defence existed. It follows that the defendant cannot rely on such a defence.

9. The fundamental issue therefore is whether the plaintiff and the defendant entered into a contractual relationship. The second point is, if there was an enforceable contract, whether the defendant was in breach. The final point is to consider the relief sought. Counsel for the defendant in his written submissions acknowledged that the above three issues are indeed the ones for determination by the court (paragraphs 2.1).

Was there a Contract?

10. The defendant acknowledged there was a service agreement but deny that such an agreement represented a binding legal relation between the plaintiff and the defendant so that the parties were at liberty to opt out with reasonable notice where the circumstances dictate. (Paragraph 4.3 Defendant's legal submissions). The same submission went on to state:

"Mrs Karleen Rasmussen testified that as Human Resources and Facilities Manager, she had no authority to commit the defendant into contractual agreements nor had she been delegated such authority to enter in any contractual relationship…"

11. I have already ruled that the attempt by the defendant to advance a specific defence of the lack of authority of the manager to bind the defendant to a valid contract cannot succeed. Nonetheless the documentary and oral evidence before the court, strongly suggest that the manager either had such authority from the board of directors, or sufficient grounds exist for the plaintiff to invoke the Indoor Management rule as phrased in The Royal British Bank v Turquand [1856] 6 E & B 327 (119 ER 886).

12. As the Human Resource and Facilities Manager, the Manager in October 2006 was responsible for the maintenance and upkeep of the defendant's facilities and in that role she took over from the Chief Executive Officer in dealing with the plaintiff. As stated earlier, discussions and correspondences started to flow over cleaning service culminating in the execution of the cleaning service agreement.

13.	In May 2007 the manager and others were told by the board of directors to cut costs (see page 26 transcript) and all contractors to be approached to re-negotiate their contracts. The manager telephoned the plaintiff. She also wrote on the 9th and 10th May. This piece of evidence puts beyond doubt that the manager had the authority to enter into a binding agreement and to alter such agreement. If she did not have the authority, the Board certainly ratified the agreement when it instructed the Manager and others to talk to the defendant's contractors in an effort to reduce costs.

14. The plaintiff's case for a binding contract and its terms rests not only on the wording of the signed agreement but also in the circumstances in which the agreement was made as well as the conduct of the parties after the agreement was signed. Although it does not appear to have been settled whether evidence of post contract conduct is admissible on matters of construction, however the reaction of the defendant is considered relevant when it comes to deciding whether there was a contract at all.

15. From the time the defendant's business operation was launched to October 2006, the plaintiff's employees were engaged by the defendant 12 hours a day 7 days a week to clean its main office and outlets. The plaintiff was also on site doing a type of facility management role for the defendant (page 25 transcript). He billed the defendant monthly for cleaning and for extra services requested by the defendant.

16. Between October and December 2006 after the appointment of the manager to Human Resources and Facilities portfolio, the defendant's regional team members including the Chief Executive Officer were gradually leaving the country reducing employees in the main office. Employees were also shifted from other outlets to the main office reducing the cleaning requirements of the defendant. It was the need to reduce the involvement of the defendant and to reduce his costs in providing the cleaning service to the plaintiff which prompted discussions and correspondence between the plaintiff and the Manager to standardize, identify specific cleaning tasks and costings for those tasks and enter into an agreement to formalize these particular areas of service and costings.

17. After a series of discussions and correspondence the plaintiff parties finally signed the agreement. The manager was asked (at page 26 of the transcript):

"Question: Can u tell the court when you entered into the contract were you bound by the terms of the agreement?

Answer: My answer will be no we weren't. Not only because as I mentioned we had other documents such as this. Requirements continuously changed so at this time, yes it was seen that for the next 12 months possibly this is what our requirements will be. But Keil had been involved with Digicel right from the beginning and understood; well I assume he understood…"

18. It is elementary that whether the parties have entered into a contract is to be determined objectively not subjectively. Agreement is not a mental state but an act and, as an act, is a matter of inference from conduct. The idea that the signed agreement of the 21st February 2007 was not intended to have legal force or to create legal rights and obligations as between the plaintiff and the defendant is unpersuasive in the circumstances in which it came into existence. It must not be overlooked that it took about three months for the plaintiff and the manager to negotiate and sign the agreement. It is a simple agreement for a twelve month period covering three areas of cleaning service to be provided by the plaintiff namely:

(i) office cleaning on a daily basis at a weekly charge of $4, 500

(ii) pest control treatment on a monthly basis at $200 per month and

(iii) exterior cleaning on a two monthly basis at $2, 500

19. Consequent to the signing of the agreement the plaintiff performed his part of the agreement in all the three areas covered by the agreement. He also did extra work not stipulated in the agreement and billed the defendant accordingly. Likewise, the defendant paid the plaintiff $4, 500 weekly for the office cleaning, $200 monthly for the pest control and $2, 500 every two months. It also paid the plaintiff for the extra work not covered under the agreement. Payments continued for six months pursuant to the terms of the contract until August 2007.

20. The objective of the attempt by the defendant to re-negotiate the agreement was to reduce the weekly charges of the plaintiff for the office cleaning from $4, 500 to $1, 480. On instructions from the defendant's board of directors to the Manager, the Manager requested the plaintiff by telephone discussions and letters of the 9th and 10th May 2007. The manager's letter of the 30th July 2007 clearly brings this out. The second paragraph of that letter reads:

"In May 2007 Digicel Samoa requested Arco Chemicals to review the pricing in place as the requirements of Digicel had changed. We had verbally agreed to the change in pricing to reflect a $1, 480 weekly charge in place of $4, 500 per week. A letter was sent to you on the 10th May 2007 to confirm the telephone discussions had."

The same objective was echoed in the letter of the Commercial and Country Manager of the defendant to the Solicitors for the plaintiff. Paragraph two of his letter reads:

"We note your client's recollection of events and his interpretation of our agreement as asserted by you. It is our belief though that we has provided ample opportunity and been quite fair with your client in re-negotiating the terms of our agreement through numerous consultations. Our company was not prepared to proceed with the pre-existing terms being grossly unjustified. We were therefore entitled as of right to re-evaluate our position in the contract ensuring that your client was informed and involved in the evaluation."

21. The court bears in mind the lack of formality in the preparation of the agreement. Although not in a form of a deed or agreement, there is nothing unusual or surprising in the use of a letter rather than a form of agreement if the intention was to create legal obligation: State Bank of South Australia v Luney (NZ Court of appeal 8/6/95 CP 255/94). The court also bears in mind the concern of the Country and Commercial Manager expressed in his letter namely that the "pre-existing terms being grossly unjustified", as well as the attempts by the manager to re-negotiate the weekly charges from $4, 500 to $1, 480. The 12 months contractual term, the monthly pest control treatment and the two monthly exterior cleaning services was of no concern to the defendant and did not need re-negotiating.

22. But the court also bears in mind that it is a familiar feature of litigation for parties to be endeavouring to extricate themselves from what they have done but later regret. In response to the plaintiff's written quote of $4, 500 for the office cleaning, the manager replied by letter dated the 21st December 2006 to provide a break down to show how the weekly amount of $4, 500. That break down was submitted by letter of the 22nd December 2006, about two months before the agreement was signed.

23. When she terminated the agreement with the plaintiff the Manager used the word contract. 

"This letter serves as one month's notice for the cancellation of Arco Chemicals cleaning contract (my emphasis) with Digicel."

She repeated the same term when she wrote again five days later.

"We therefore have given one months notice to terminate this contract"

24. The agreement undoubtedly had a contractual effect. Objectively there existed an exchange of promises and obligations. When the plaintiff offered to clean the defendant's office for 12 months on a weekly charge of $4, 500, he was requested by the defendant to provide a breakdown of the charges which the plaintiff did. The plaintiff's offer to do pest control and exterior clean for the same period at quoted prices was not questioned. The exchange of promises and obligations from the resulting agreement continued for six months.

25. Objectively the parties intended to enter into a legally binding agreement. It cannot possibly be said that the parties were intending something which was not enforceable in law. Objectively viewed the agreement demonstrated all the indications of a contractual intention. See Fleming v Beevers [1994] 1 NZLR 385.

Was the defendant in breach?

26.	When the defendant was unsuccessful in re-negotiating the weekly charges of the plaintiff to reduce it from $4, 500 to $1, 480 it issued a termination notice on the 25th July 2007. The Country and Commercial Manager also told the plaintiff that his services were no longer required. As a result the plaintiff ceased to fulfill his contractual commitment and receive contractual payments he was entitled to.

27.	The defendant was in breach of the contract and the plaintiff is entitled to damages.

Damages

28.	The general objective underlying the assessment of damages for breach of contract is to compensate the injured party, in money terms for the loss off the benefit he would have had if the contract had been performed. As Richardson stated in Stirling v Poulgrain [1980] 2 NZLR 402 at 422:

"The general objective underlying the assessment of damages for breach of contract is compensation; the innocent party should be put, in money terms, in as good position as he would have been had the contract breaker performed his contract. So in measuring the damages the basic inquiry must be as to the value to the party injured of the loss of the promised performance."

29.	The plaintiff submitted that for the unexpired six months period of the contract he was entitled to payment of:

(i)	$4,500 weekly for cleaning amounting to 
	$108000	
(ii)	$200 per month for pest control totaling 
	$1,200	
(iii)	$2,500 per 2 months for exterior cleaning totalling
	$7,500	
Total claimed =	$116, 700	

30.	The breakdown of the $4, 500 weekly for office cleaning which the plaintiff provided to the defendant before the signing of the agreement is as follows:

(i)	Wages	$1, 506.00
	
(ii)	Chemicals, rags, brooms etc	$ 757.15
	
(iii)	Carting of trash to dump $30 for PUMA and $20 diesel @ $50 a day
	$ 350.00	
(iv)	Service fee	$1, 300.00
	
	$3, 913.15
	
Add VAGST	$ 586.97
	
Total weekly cost	 $4, 500.12	

Items (i), (ii) and (iii) are disbursements and expenses which the plaintiff would have expended if the contract had been performed. He is entitled to be compensated for the service fee he would have earned and which was paid to him during the first six months of the contract. 

Under the heading weekly cleaning of office the plaintiff is entitled to damages of:

$1, 300 x 24 weeks = $31, 200

31.	Under the heading pest control the plaintiff claims $200 per month for six months totaling $1, 200. From that amount I will deduct 40% to account for wages and other deductions like taxes, National Provident Fund and Accident compensation.

$1, 200 less 40% = $720

32.	Under the heading exterior cleaning the plaintiff claims $2, 500 for every two months totaling $7, 500. Again I deduct 40% as in 31 above.

$7, 500 less 40% = $4, 500

Result and Costs

33.	(a) Judgment is given for the plaintiff in the sum of $36, 420

(b) Plaintiff is entitled to costs which I fix at $1, 500.

JUSTICE VAAI