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Chemica Ltd v WPCC Investments Ltd [2011] PGNC 147; N4428 (31 October 2011)

N4428

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO 523 OF 2011

CHEMICA LIMITED
Plaintiff

V

WPCC INVESTMENTS LIMITED
Defendant

Cannings J

Madang: 6 October 2011
Waigani: 20 October 2011
Madang: 31 October 2011

CONTRACTS – commercial lease – whether defendant lessor's refusal to renew three-year lease on retail premises upon expiry was a breach of contract – whether defendant's refusal to renew lease unlawful as being harsh and oppressive in a democratic society contrary to Constitution, Section 41.

The defendant lessor leased retail premises to the plaintiff lessee under a three year lease. Under an option clause the lessor was obliged to renew the lease for a further three years if the lessee gave a written request to do so between three and six months before the date of expiry and there was no un-remedied default of which the lessor had given written notice and the lessee had not persistently defaulted. The lessee gave a written request to renew less than three months before the date of expiry and the lessor refused to renew the lease, relying on the un-remedied default clause. The lessee commenced proceedings against the lessor seeking specific performance of the lease and damages for breach of contract and harsh and oppressive conduct by the lessor.

Held:

(1) There was no breach of contract as the lessee was late in exercising its option and there was evidence of un-remedied default of which the lessor had given written notice.

(2) There was no sustainable action for harsh and oppressive conduct as it was inappropriate to imply any such term in the contract or to invoke the requirements of Section 41 (proscribed acts) of the Constitution.

(3) The plaintiff failed to establish either cause of action and all claims for relief were refused.

Cases cited

The following cases are cited in the judgment:

Kamit v AUS-PNG Research & Resources Impex Ltd (2007) N3112
Petrus & Gawi v Telikom PNG Ltd (2008) N3373
SCR No 5 of 1985; Raz v Matane [1985] PNGLR 329
Sukuramu v NBPOL (2007) N3124

STATEMENT OF CLAIM

This was a trial in which the plaintiff sought specific performance and damages for breach of contract and harsh and oppressive conduct by the defendant.

Counsel

S Toggo, for the plaintiff
T Cooper, for the defendant

31 October, 2011

1. CANNINGS J: The defendant, WPCC Investments Ltd, leased retail premises in Beckslea Plaza, Madang, to the plaintiff, Chemica Ltd, under a three-year lease that expired on 1 May 2011. An option clause provided that the lessor, WPCC, was obliged to renew the lease for a further three years if the lessee, Chemica, gave a written request to do so between three and six months before the date of expiry and there was no un-remedied default of which the lessor had given written notice and the lessee had not persistently defaulted. Chemica gave a written request to renew less than three months before the date of expiry and WPCC refused to renew the lease, relying on the un-remedied default clause. WPCC granted Chemica two temporary extensions but locked them out of the premises on 1 July 2011. Chemica ceased trading in Madang. Chemica has commenced proceedings against WPCC seeking specific performance of the lease and damages for breach of contract and harsh and oppressive conduct by WPCC.

2. The issues are:

1. Has Chemica established a cause of action in breach of contract?
   
2. Has Chemica established a cause of action based on harsh and oppressive conduct by WPCC?
   
3. If either cause of action is established, what relief should be granted?
   

1 HAS CHEMICA ESTABLISHED A CAUSE OF ACTION IN BREACH OF CONTRACT?

3. Chemica argues that it had an enforceable right to renew the lease under clause 17 (option), which states:

The Lessor [WPCC] will renew this lease for the further term [three years] set out in item 15 of the schedule if the lessee gives the lessor a written request not more than six (6) months or less than three (3) months before the lease expires.

The lessor does not have to renew this lease if:

(a) there is any un-remedied default of which the lessor have given the lessor written notice; or

(b) the lessee has persistently defaulted under this lease throughout its term and the lessor has given the lessee written notices of the defaults.

The renewed lease shall:

(a) commence on the day after this lease expires;

(b) be at a rental determinable in accordance with the rent review provisions provided for in item 9 of the schedule; and

(c) be on the terms and conditions contained in this lease including any provision for the review of the rental but not including any provision for renewal.

4. Chemica concedes that it was late in requesting a renewal of the lease. It did not make a written request until 25 February 2011, when the request should have been made within the period from 30 October 2010 to 30 January 2011. However, it is argued that this is inconsequential as WPCC has not until the trial relied on the lateness of the request as a ground for refusing to renew the lease. Chemica also concedes that during the course of 2009 WPCC director, David Chan, wrote to them on three occasions raising a number of issues such as foul smells from stock feed, dead chickens and chemicals, damage to electrical wiring due to chewing by rats, rubbish outside the store, staff and customers spitting betel nut and people crowding around the store adversely affecting other businesses in the plaza. However, it is argued that Chemica's Madang manager, Fred Yadiwilo, met with Mr Chan to address all those concerns and remedial action has been taken, as borne out by the absence of similar complaints in 2010. It is also argued that at a meeting with Chemica's national operations manager, Cheyne Cooke, and financial controller, George Siew, on 21 February 2011, Mr Chan indicated that WPCC's concerns had been addressed and that he would take the question of renewal of the lease to the WPCC board. Chemica relies on sworn evidence by Mr Yadiwilo and Mr Cooke in regard to those matters, both of whom suggested that the real reason WPCC did not want to renew the lease was that it had its own retail businesses in Beckslea Plaza that traded in the same sorts of goods as those sold by Chemica, so removing Chemica from the Plaza was aimed at reducing competition. WPCC cannot therefore rely on letters from Mr Chan to Chemica, dated 15 February and 2 March 2011, stating that WPCC was not renewing the lease.

5. Mr Chan gave a different version of events when he gave evidence. He testified that Mr Yadiwilo never met with him in 2009 to discuss the three letters that he wrote; and he did not say at the 21 February 2011 meeting that he was satisfied with Chemica's efforts to address his complaints. He denied that WPCC had its own businesses in Beckslea Plaza or that WPCC wanted Chemica out of the Plaza to reduce competition.

6. As to the factual issues arising from the conflicting evidence, it is the plaintiff who bears the onus of proof on the balance of probabilities. I find that the onus has not been discharged. Mr Chan's evidence was more convincing. There was nothing in writing to support Mr Yadiwilo's claim that he had met with Mr Chan three times in 2009 to iron out the problems raised in Mr Chan's correspondence. There was nothing in writing to support Mr Cooke's version of what transpired at the 21 February 2011 meeting. There is no proper basis on which the court could conclude that WPCC had indicated that it was satisfied that Chemica had remedied the problems identified in 2009 or that it was going to renew the lease.

7. WPCC was not obliged to renew the lease as it gave written notice (on three occasions in 2009) of defaults by Chemica and those defaults had not been remedied within a reasonable time. I am satisfied that they remained 'un-remedied' by the time of the meeting of 21 February 2011. I am also satisfied that Chemica had persistently defaulted under the lease throughout its term. Either way, WPCC is not obliged to renew the lease by virtue of the exceptions created by clauses 17(a) and (b). Chemica has therefore failed to establish a breach of contract.

8. Even if I had decided the factual issues in Chemica's favour I am not convinced by the argument that its failure to give notice of its request to have the lease renewed within the window period of three to six months before the date of expiry of the lease was inconsequential. It is true that until the trial WPCC had not taken issue with the lateness of the request. But I fail to see how this sets up an estoppel against WPCC which would prevent it relying on Chemica's clear, and conceded, failure to make its request within the prescribed period. Mr Cooke said in evidence that it was an "oversight", which would seem a rather polite way of describing a serious lack of diligence on the part of those in the company responsible for managing its commercial leasing arrangements. Giving a written request to renew the lease within the prescribed period is essential to operation of any obligation on the part of WPCC to renew the lease. Whichever way the facts are decided, Chemica has failed to establish a breach of contract by WPCC.

2 HAS CHEMICA ESTABLISHED A CAUSE OF ACTION BASED ON HARSH AND OPPRESSIVE CONDUCT BY WPCC?

9. When I quizzed Mr Toggo, for Chemica, as to the jurisdictional basis of this part of the claim he said that it was based on Section 41 (proscribed acts) of the Constitution. This was not surprising. Section 41 plays an important role in the basic rights provisions of Division III.3 of the Constitution. It proscribes and gives protection against seven sorts of acts. Even if done under a valid law and notwithstanding anything to the contrary in any law, an act is unlawful if it is, in the particular case, harsh, oppressive, not warranted by the requirements of the particular circumstances, disproportionate to the requirements of the particular circumstances, not warranted by the requirements of the particular case, disproportionate to the requirements of the particular case, or is otherwise not in the particular circumstances reasonably justifiable in a democratic society having a proper regard for the rights and dignity of mankind. The leading case on interpretation and application of Section 41 is SCR No 5 of 1985; Raz v Matane [1985] PNGLR 329. The Supreme Court (Kidu CJ and Kapi DCJ; Amet J dissenting) held that Section 41 does not create a basic right, as such, and is not enforceable under Section 57 of the Constitution but is enforceable under Sections 23 or 155(4) of the Constitution. Section 41 is by virtue of Section 34 (application of division 3) of the Constitution capable of protecting a company (Kamit v AUS-PNG Research & Resources Impex Ltd (2007) N3112). The prohibitions it imposes and the obligations it creates can be incorporated into a contract (Sukuramu v NBPOL (2007) N3124, Petrus & Gawi v Telikom PNG Ltd (2008) N3373). What was surprising, however, about this part of Chemica's case was that Section 41 was not mentioned in the statement of claim or in the written submissions relied on at the trial. It has been inadequately pleaded and therefore must be rejected.

10. If it had been properly pleaded the claim would still be rejected, for three reasons. First, clause 1 of the lease, which provides that 'none of the covenants or powers implied in a lease by virtue of any Act shall apply to or be implied in this lease except insofar as they are expressly included in the covenants contained in this lease', would prevent the duty to comply with Section 41 being implied as a term of the contract. Secondly, this is a commercial lease between two companies in more or less equal bargaining positions, which would make it inappropriate to invoke Section 41. Thirdly, in all the circumstances, my assessment is that WPCC has acted reasonably and responsibly, not harshly or oppressively or in any other way contrary to the standards of Section 41. Chemica has only itself to blame for the predicament in which it finds itself. It failed to address the legitimate concerns of the landlord and then failed through a lack of diligence on its part to exercise the option for renewal within the time prescribed in the lease. No cause of action under Section 41 of the Constitution has been established.

3. REMEDIES
   

11. Neither cause of action has been established so no relief can be granted and the proceedings must be dismissed. Costs will follow the event.

ORDER

(1) All claims for relief by the plaintiff are refused and the proceedings are entirely dismissed.

(2) Costs of the proceedings shall, subject to any orders for costs in interlocutory proceedings, be paid by the plaintiff to the defendant on a party-party basis, to be taxed if not agreed.

(3) Time for entry of the order is abridged to the date of settlement by the Registrar which shall take place forthwith.

Orders accordingly.
____________________________

Daniels & Associates Lawyers: Lawyers for the Plaintiff
Rageau Manua & Kikira Lawyers: Lawyers for the Defendant