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Kumul Builders Pty Ltd v Post and Telecommunication Corporation [1991] PGNC 59; [1991] PNGLR 299 (16 August 1991)

Papua New Guinea Law Reports - 1991

[1991] PNGLR 299 - Kumul Builders Pty Ltd v PTC 

[1991] PNGLR 299

N1000

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

KUMUL BUILDERS PTY LTD

V

POST AND TELECOMMUNICATION CORPORATION

Waigani

Sheehan J

12 August 1991

16 August 1991

PRACTICE AND PROCEDURE - Summary judgment - Facts not disputed - Determination of points of law to be made - National Court Rules, O 12, r 38.

BUILDING AND ENGINEERING CONTRACTS - Construction and effect - Performance bond - Release on certificate of substantial completion - Release obligatory.

Held

On an application for summary judgment under O 12, r 38 of the National Court Rules, where the facts are not in dispute, the Court should determine any point of law which may finally settle matters between the parties.

European Asian Bank v Punjab Sind Bank (No 2) [1983] 1 WLR 642; [1983] 2 All ER 508, adopted and applied.

Held further

A clause in a building contract which provided that “within seven days after the receipt of the Project Manager’s certificate of substantial completion as referred to in clause 10.9 the Principal shall by notification in writing, advise the sureties accordingly. All moneys held as security against the satisfactory discharge of the contract shall be refunded within seven days” was to be construed as requiring obligatory payment on advice of completion to the sureties, sufficient to enter summary judgment thereon.

Cases Cited

European Asian Bank v Punjab Sind Bank (No 2) [1983] 1 WLR 642; [1983] 2 All ER 508.

Imak International Pty Ltd v Pacific Wholesale Freezers Pty Ltd (N976, unreported).

Westminster Corporation v Jarvis & Sons [1970] 1 WLR 637; [1970] 1 All ER 943.

Motion

This was an application for summary judgment under O 12, r 38 of the National Court Rules.

Counsel

P Steele, for the plaintiff.

A Marat, for the defendant.

Cur adv vult

16 August 1991

SHEEHAN J: Before the Court is an application for summary judgment. The applicant, the plaintiff, is a building contractor which contracted with the defendant to construct certain buildings for the sum of K799,600.96.

Pursuant to a condition prescribed by the contract between the parties, the plaintiff also supplied a bond to ensure due performance of the work. It is the plaintiff’s contention that though the work has now been duly carried out the defendant has failed to release the bond. The effect of that, has been to tie up substantial funds required for the plaintiffs ongoing business.

The plaintiff has therefore issued a writ seeking an order that the bond be released. With the defence now filed, summary judgment is sought under O 12, r 38 of the National Court Rules on the grounds that no defence has been disclosed and in fact no defence is available to the defendant.

The defence accept the factual situation pleaded by the plaintiff but assert that defects in the construction need to be cured and the maintenance period is still running. As such the contract cannot be said to be complete. The defendant relies on the contract terms. The plaintiff on the other hand maintains that since there is no suggestion of any special interpretation required by the contract terms there can be no contest to its claim since the contract itself specifically directs the very orders that the plaintiff seeks. An affidavit in support was filed by the plaintiff testifying to this effect and to the deponents belief that there was indeed no defence available to the defendant.

Order 12, r 38 of the National Court Rules says:

“Summary judgement

N2>(1)      Where, on application by the plaintiff in relation to any claim for relief or any part of any claim for relief of the plaintiff:

(a)      there is evidence of the facts on which the claim or part is based; and

(b)      there is evidence given by the plaintiff or by some responsible person that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part, or no defence except as to the amount of any damages claimed,

the court may, by order, direct the entry of such judgment for the plaintiff on that claim or part as the nature of the case requires.”

The purpose of these rules is to enable a plaintiff to obtain judgment without trial, if he can prove his claim clearly and if the defendant is unable to set up a bona fide defence, or raise an issue against the claim which ought to be tried.

There was no conflict between counsel on the principles to be applied in respect of O 12, r 38 and the decision of Jalina J in Imak International Pty Ltd v Pacific Wholesale Freezers Pty Ltd (N976, unreported) cited by Dr Marat does succinctly summarise the proper approach to be taken by courts in consideration of applications for summary judgment.

Essentially, the court will direct an entry of judgment, summarily, where there is sufficient, clear evidence before the court, of the facts on which the claim is made to enable it to conclude that there is no triable issue of fact, and no arguable defence in law.

An application for summary judgment is normally made after the filing of a notice of intention to defend but prior to the actual filing of a statement of defence. But the mere fact of filing a defence does not, of itself, prevent an application under the rule if it can be shown there is in fact no arguable defence. The plaintiff says in this case an order for summary of judgment is appropriate.

Decided cases show that the court should exercise its discretion with considerable care. A defendant should not be prevented from making his case in defence unless it is clear that he does not have one. Summary judgment must therefore not be granted when there is any serious issue of fact or law arising. But if there is no dispute of fact and the law is clear to the point that the court is satisfied that it is really unarguable, then judgment will be entered. Indeed faced with such a situation, the court has little discretion, the plaintiff is entitled to judgment: see European Asian Bank v Punjab Sind Bank (No 2) [1983] 1 WLR 642; [1983] 2 All ER 508. That was an English Court of Appeal decision which went further, in that it held that to give proper effect to O 14 applications (that is, the equivalent English rule to O 12, r 38) the court when faced with applications where the facts were established should, determine any point of law which may finally settle matters between the parties. That view has not yet been raised in Papua New Guinea but such a view is consistent with the spirit and intent of O 12, r 38 and may readily be adopted. It certainly points the way to avoidance of delay and prompt settlement of disputes.

For the plaintiff, Mr Steele submitted that the contract between the parties provides two forms of security for the principal in the contract, that is, the defendant. The first of these is the performance bond which is intended to ensure that the contract works are carried out. The second security is the moneys retained from progress payments that is “the retention monies” which are aggregated over the contract to the extent of 5 per cent of the total contract price. This latter Mr Steele said was intended to cover the defects and the maintenance period.

By cl 3.3 of the general conditions of contract the plaintiff claims that it is entitled to the release of the performance bond within fourteen days of the issue of a certificate of substantial completion. That certificate was issued by the project manager in terms of cl 10.9 of the contract on 16 November 1990. The clause provides:

N2>“10.9   Certificate of Substantial Completion of Works

As soon as in the opinion of the Project Manager the Works shall have been substantially completed and shall have satisfactorily passed any final test that may be prescribed by the contract, the Project Manager shall issue a certificate of substantial completion in respect of the Works and the period of maintenance of the Works named in the special conditions of contract shall commence from the date of such certificate. (The clause goes on to also provide for partial completion).”

The plaintiff reports that possession also was handed over to the defendant on 16 November 1990.

The defendant on the other hand, says that the bond and the retention moneys are intended to cover both the general contract and the maintenance period. He says that though they are separate in effect, each represents a security for the defendant to ensure proper, final completion of the contract. He submits that this is shown by the contract as a whole. He referred in particular to cl 7.7 of the general conditions and cl 1.08 of the special conditions as raising questions of interpretation which should go to trial.

With due respect, I can not accede to Dr Marat’s argument. I find that with facts accepted, the statement of defence does no more than plead the contract, and cl 3.3 does specifically state that which the plaintiff asserts. It reads:

N2>“3.3.   Advice to Sureties of Completion

Within seven days after the receipt of the Project Manager’s certificate of substantial completion as referred to in clause 10.9 the Principal shall by notification in writing, advise the sureties accordingly. All moneys held as security against the satisfactory discharge of the contract shall be refunded within seven days.”

Clause 7.7 referred to by Dr Marat is in no way contradictory of the above clause. It simply says that all works are to be carried out to the satisfaction of the project manager while cl 1.08 simply extends the maintenance period in certain areas. But the fact remains that if the contract works had been carried out to the satisfaction of the project manager and he issues a certificate of substantial completion, then within fourteen days of that date it is obligatory that the performance bond be released.

From texts on building and engineering contracts and more particularly from decided cases, it is clear that in present day building practice it is normal to provide for progress payments throughout the construction of the works, and to acknowledge that when the contract has been substantially performed, in the sense that the construction contracted for has been erected, the maintenance period will commence.

The whole of this is summarised in Halsbury’s Laws of England, 4th ed, vol 4, pars 1181 at 604:

“Modern standard forms of contract for works of construction require the architect or engineer to certify that the works have been practically or substantially completed and it is thought that the contractors obligation to complete the works by a specified date is discharged if the works are practically completed by the contract date. If owing to latent defects, substantial remedial work is necessary alter the contract has left the site the contract is nevertheless completed at the date the contractor left the site.”

Ordinary building/engineering contracts are therefore commonly divided into two phases, the first and major phase being the carrying out of the construction of the works contracted for. The second phase is the maintenance period, during which time a contractor may be required to make good any defects or faults which appear during that time.

This is clearly contemplated in the subject contract. Clause 16.11 says:

“Maintenance Certificate

The contract shall not be considered as completed until a maintenance certificate shall have been signed by the Project Manager and delivered to the Principal stating that the Works have been completed and maintained to his satisfaction. The maintenance certificate shall be given by the Project Manager fourteen days after the expiration of the period of maintenance or as soon thereafter as any Works ordered during such period pursuant to part 11 shall have been completed to the satisfaction of the Project Manager and full effect shall be given to this clause notwithstanding any previous entry on the Works or the taking possession working or using thereof or any part thereof by the Principal.”

By taking cl 3.3 and cl 16.11 together it is clearly within the contemplation of the parties that the whole contract is regarded as being in two parts; first the construction of buildings themselves, and secondly the maintenance period, on the completion of which the entire contract will be regarded as wholly performed. But in line with the current law in building contracts the contract shows that effective completion of the construction bargained for under the contract is not postponed until the maintenance period is ended or defects which become apparent after the major work is finished have all been remedied. The construction of the buildings is regarded as substantial completion with the flow-on effects set out in the contract.

In a House of Lords decision Westminster Corporation v Jarvis & Sons [1970] 1 WLR 637; [1970] 1 All ER 943, it was held that the issue of a certificate of substantial completion determined the date of completion of the major works. It was recognised too that the maintenance or defects liability period runs from that date and is provided in order to enable defects not apparent at the date of completion to be remedied within the terms of the contract as a whole. (If they had been apparent then obviously no certificate of substantial completion would have been issued.)

It is worth noting in that decision that the contract under scrutiny appears to have been very similar in terms to the contract here. The following passages occur in the decision (at 646-647):

“The main contract ... provides ... that when in the opinion of the architect the works are practically completed he shall issue a certificate to that effect and ‘practical completion’ of the works shall be deemed for all the purposes of this contract to have taken place ... . The contract does not define what is meant by ‘practically completed’. One would normally say that a task was practically completed when it was almost but not entirely finished, but ‘practical completion’ suggests that that is not the intended meaning and that what is meant is the completion of all the construction work that has to be done.

This interpretation is supported by the fact that the defects liability period runs from the date in the practical completion certificate ... .

Under cl 30(6) the architect has so soon as practicable but before the expiry of six months after the end of the defects liability period or after ... to issue the final certificate which, unless there has been a request for arbitration, is conclusive evidence that the works have been properly carried out and completed in accordance with the terms of the contract. So the final certificate may not be issued until long after the completion of the works.

From these provisions there are, in my opinion, two conclusions to be drawn: first, that the issue of the certificate of practical completion determines the date of completion, which may, of course, be before or after the date specified for that in the contract, and, secondly, that the defects liability period is provided in order to enable defects not apparent at the date of practical completion to be remedied. If they had been then apparent, no such certificate would have been issued.

It follows that a practical completion certificate can be issue when owing to latent defects, the works do not fulfil the contract requirements and that under the contract works can be completed despite the presence of such defects. Completion under the contract is not postponed until defects which became apparent only after the work had been finished have been remedied.”

That passage would easily apply here.

But on the specific terms of the contract between the parties in this case I am satisfied the plaintiff is entitled to judgment in this matter and there will be orders in terms of the amended draft.

There is one other matter which also requires comment. The terms of this contract are not difficult, abstruse or requiring the specialist knowledge of lawyers for interpretation. It appears to be a normal sort of contract. In such a case it has to be asked why it was that application to the court was necessary at all. Ignorance of the meaning of a common place contract term such as “substantial performance” in a building contract or indeed failure to implement the plain terms of the contract does not reflect well on the parties.

By cl 19.2 the project manager is required to act as impartial arbitrator in any dispute between the contracting parties and it would be expected that an experienced and knowledgeable project manager should have quickly sorted this matter out. That this did not occur, has prevented the dispute provisions of the contract from operating.

Judgment for plaintiff

Lawyers for the plaintiff: Peter Steele, Lawyer.

Lawyers for the defendant: Marat & Co Lawyers.