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Infratech Management Consultants Ltd v PNG Ports Corporation Ltd [2017] PGNC 185; N6855 (18 August 2017)

N6855

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO 1239 OF 2007

INFRATECH MANAGEMENT CONSULTANTS LIMITED
Plaintiff

V

PNG PORTS CORPORATION LIMITED
Defendant

Waigani : Cannings J
2015: 4 November, 17 December,
2017: 18 August

CONTRACTS – consultancy agreement – progress claims – whether defendant breached contract by failing to pay progress claims – whether defendant breached contract by unilateral termination of contract without notice –variations to original contract – whether agreed and enforceable.

In November 2005 the plaintiff and the defendant entered into a contract under which the plaintiff was to provide engineering design services to the defendant for K934,604.00. The contract was to be completed within 18 weeks. It was not completed within that time. The plaintiff and the defendant blamed each other for the delay. There was at least one variation to the contract, under which it was agreed that the defendant would pay the plaintiff a further K99,693.75 for further services provided. The plaintiff alleges a second variation to the contract, under which it would be paid further amounts for further services; but this was disputed by the defendant. In the period from December 2005 to April 2007 the plaintiff rendered five invoices in the form of progress claims. The defendant paid all of the first invoice and most of the second, but failed to pay any of the third, fourth or fifth invoices, the total amount unpaid being K1,281,464.69. On 18 April 2007 the defendant unilaterally terminated the contract without prior notice. The plaintiff commenced proceedings against the defendant claiming debt and damages for breach of contract, in two respects: (1) failure to pay the full amounts due under the last four invoices; and (2) unlawful termination of the contract. A trial was conducted on the issue of liability.

Held:

(1) Each invoice was a reasonable claim for payment referable to the original contract and/or the two sets of variations agreed to by the parties; there being in fact and law a second set of variations agreed to by the parties. The defendant was liable in debt for breach of contract, constituted by its failure to pay the full amounts due under all invoices.

(2) The defendant terminated the contract wrongfully, in that (a) the defendant failed to act in accordance with any term of the contract allowing for termination; (b) the plaintiff was not in material breach of the contract; and (c) the cause of delay in completion of the contract was the defendant’s failure to comply with its contractual obligation to provide in a timely manner adequate technical information to the plaintiff to enable the plaintiff to complete the designs. The defendant was liable in damages for breach of contract (which were adequately pleaded in the statement of claim) constituted by its wrongful termination of the contract.

(3) The defendant is liable in debt and damages for breach of contract, and is liable to interest on debt and damages.

(4) The parties have a limited period within which to reach agreement on the amount of debt, damages and interest to which the defendant is liable, and on costs, failing which the court will decide whether to proceed to trial on assessment of debt, damages and interest or refer the case to mediation.

Cases cited

The following cases are cited in the judgment:

Bio-Normalizer (PNG) Ltd v CPL (2009) N3649
Kurumbukari Ltd v Enfi (PNG) Ltd (2012) N4704
Nivani Ltd v China Jiangsu International Ltd (2007) N3147

STATEMENT OF CLAIM

This was a trial on liability, the cause of action being breach of contract.

Counsel

D Mel, for the Plaintiff
A Chillion, for the Defendant

18^th August, 2017

1. CANNINGS J: This is a trial on liability for breach of contract. In November 2005 the plaintiff, Infratech Management Services Ltd, and the defendant, PNG Ports Corporation Ltd, entered into a contract under which the plaintiff was to provide engineering design services to the defendant in relation to overseas wharf extensions at the ports of Kimbe and Lae, for a price of K934,604.00. The contract was to be completed within 18 weeks after the due date of commencement, 16 January 2006.
   
2. The contract was not completed within the timeframe originally agreed. The plaintiff and the defendant blamed each other for the delay. The plaintiff argued that it was the defendant’s failure to provide adequate geotechnical information, which it was contractually obliged to provide, that caused the delay. The defendant argued that that was not a good excuse and that it was the plaintiff who had to provide that information. The defendant gave the plaintiff a geotechnical report relating to the Lae wharf design on 2 January 2007 and a geotechnical report relating to the Kimbe wharf design on 12 February 2007.
   
3. There was at least one variation to the contract, under which it was agreed that the defendant would pay K99,693.75 for further services provided by the plaintiff, being a catwalk for the Kimbe wharf and additional electrical services for the Lae wharf. The plaintiff alleges a second variation to the contract, under which it would provide further services and be paid additional amounts by the defendant, but this was disputed by the defendant.
   
4. In the period from December 2005 to April 2007 the plaintiff rendered five invoices, in the form of progress claims. The defendant paid all of the first invoice (K186, 920.80) and most of the second (it paid K319,826.36 of the total amount of the invoice, K325,132.80, a shortfall of K5,306.44). The defendant failed to pay any of the third, fourth or fifth invoices, the total amount unpaid (including the shortfall on the second invoice) being K1,281, 464.69.
   
5. On 18 April 2007 the defendant unilaterally terminated the contract without notice.
   
6. The plaintiff commenced proceedings against the defendant claiming debt of K1,281, 464.69 and general damages for breach of contract. The plaintiff pleads breach of contract in two respects:
   
   • (1) the defendant’s failure to pay the full amount due under the last four invoices; and
     
   • (2) the defendant’s unlawful termination of the contract.
     
7. A trial has been conducted on the issue of liability. There are three issues:
   
   1. Did the defendant breach the contract by its failure to pay the full amounts due under the last four invoices?
      
   2. Did the defendant breach the contract by terminating it unlawfully?
      
      3. What order should the Court make?
         
1. DID THE DEFENDANT BREACH THE CONTRACT BY ITS FAILURE TO PAY THE FULL AMOUNT DUE UNDER THE LAST FOUR INVOICES?
   
8. Two contentious matters must be resolved before determining this issue. First, whether there were two sets of variations to the original contract. And, if the plaintiff succeeds on that matter, secondly, whether the four invoices represent reasonable claims relating to the original contract and the variations.
   

Variations

9. I apply the principles set out by Lay J in the leading PNG case on contract variation, Nivani Ltd v China Jiangsu International Ltd (2007) N3147 (applied by Hartshorn J in Bio-Normalizer (PNG) Ltd v CPL (2009) N3649, and which I applied in Kurumbukari Ltd v Enfi (PNG) Ltd (2012) N4704):
   

• a contract, even a written one that makes no provision for variation, may be varied by agreement between the parties to the contract;
  
• an agreement to vary a contract may be express or implied;
  
• an implied agreement to vary a contract can arise by virtue of the conduct of the parties;
  
• if one party gives no specific instructions to the other party to perform additional works or services but stands by knowing that the other party is doing additional works or services and approves of what is being done, that amounts to an implied instruction to carry out those additional works or services, even if there has been no express agreement as to the price payable;
  
• the failure of the parties to agree on the price, does not relieve the employer of liability to pay a reasonable price for the additional works or services performed.
  

10. I find that the conduct of the parties gave rise to implied agreement to a second set of variations. I uphold the submission of Mr Mel, for the plaintiff, that agreement to a second set of variations can be reasonably inferred from:
    

(a) letters from the defendant to the plaintiff dated 6 September 2006, 5 February and 21 March 2007;

(b) a letter from the plaintiff to the defendant of 13 September 2006;

(c) a meeting of the parties on 30 January 2007.

11. It became apparent that the defendant was unable to comply with its obligation under the original contract to provide counterpart facilities such as office space, computers, printers, drafting and secretarial services and that the plaintiff would have to provide those facilities itself. I find that it was agreed, not expressly but impliedly, that the plaintiff would provide those facilities itself and that the additional costs involved would be borne by the defendant. It was also agreed that the plaintiff would incur additional costs due to the defendant’s failure to provide adequate geotechnical information to the plaintiff to enable it to complete its design of the extension works for the two wharves, and that those additional costs would ultimately be borne by the defendant.
    
12. A striking feature of the contractual relationship between the parties is that there was never any formal written contract executed. Though they agree on the existence of ‘the original contract’, it was not a written contract in the normal sense. It consisted of three documents: a written “terms of reference” issued by the defendant, the plaintiff’s written response to that document and the defendant’s written acceptance of the plaintiff’s written response. That trait of informality continued with the negotiations for variation of the original contract. There were no formal instruments of variation. It has therefore been a matter of piecing together the evidence presented, making findings as to the conduct of the parties and drawing reasonable inferences.
    
13. As to the evidence, most of it comes from the plaintiff. The defendant failed to make its witnesses available for cross-examination at the trial, and I upheld an objection to admission of most of the affidavits tendered. The only evidence for the defendant was:
    
    • the affidavit of its Chief Engineer, Mr Paul Sameli, who was not available for cross-examination – his version of events and assessment of which party was responsible for the protracted delay in completion of the design project, differed markedly from the version presented in the plaintiff’s evidence.
      
14. The plaintiff’s evidence consisted of:
    
    • five affidavits by its managing director, Mr Mark Flynn; and
      
    • two affidavits by its principal structural and maritime engineer on the design project, Dr Christopher Allan Grummitt – he emphasised the critical need for reliable geotechnical information to enable effective designs, to ensure that the wharf extensions would allow for efficient operations at the two ports and the risk of catastrophic failure of superstructures was minimised; and
      
    • oral testimony, including cross-examination, of Mr Flynn and Dr Grummitt.
      
15. The evidence of Mr Flynn and Dr Grummitt is naturally given more weight than the evidence of Mr Sameli as they were both subject to cross-examination. Both of them are qualified and experienced civil engineers. They were impressive witnesses. I was given no good reason to question the veracity of their evidence. I found that their version of events and their evidence of the difficulties encountered by the plaintiff in completing the contract more persuasive than the alternatives presented in the affidavit evidence of Mr Sameli.
    
16. I find that there was, as contended for by the plaintiff, a second set of variations agreed to by the parties and that they are enforceable variations and that they must be read as part of the contract between the parties. Under the second set of variations, it was agreed that:
    

• the time within which the plaintiff had to provide detailed designs for the two wharves was extended to a reasonable time after the defendant gave the necessary geotechnical information to the plaintiff; and
  
• the defendant was liable to pay the plaintiff a reasonable price for the additional time and costs involved in completing the contract.
  

17. Those additional costs fell into three categories:
    
    • (a) office space and related services;
      
    • (b) drafting services;
      
    • (c) extension of time claim.
      
18. I find that categories (a) and (b) are expressly pleaded in the statement of claim and supported by the evidence. As to (c), I consider it is adequately pleaded in the statement of claim and that it is a category of claim supported by the evidence.
    

Contentious invoices

19. The parties agree that the first two invoices relate to the original contract and that there is only a shortfall of K5,306.44 on the second invoice that is contentious. It is the third, fourth and fifth invoices that are most contentious. Their combined value is K1,281,464.69 – K5,306.44 = K1,276,158.25.
    
20. Having considered the persuasive evidence presented by the plaintiff, which carries considerably more weight than the evidence of the defendant, and the submissions of Mr Mel, which I find more persuasive than those of Mr Chillion for the defendant, I am satisfied that each of the third, fourth and fifth invoices was a reasonable claim for payments referable to the variations to the original contract agreed to by the parties.
    

Conclusion

21. It was an implied term of the contract (constituted by the original contract and the two sets of variations) that the defendant would pay invoices rendered by the plaintiff in the form of progress claims, in a timely manner. The defendant breached that term by failing to pay K5,306.44 in respect of the second invoice and by failing to pay any part of the amount of K1,276,158.25 in respect of the third, fourth and fifth invoices.
    
22. I find that the defendant is liable in debt for breach of contract, constituted by its failure to pay the full amounts due under all invoices.
    
2. DID THE DEFENDANT BREACH THE CONTRACT BY TERMINATING IT UNLAWFULLY?
   
23. The defendant terminated the contract without prior notice on 18 April 2007, on the ground of delay by the plaintiff in providing the detailed designs for the two wharf extensions. Having considered the competing evidence and the submissions of counsel, I am satisfied that the termination was wrongful and unlawful, in that:
    
    • (a) the defendant failed to act in accordance with any term of the contract allowing for termination;
      
    • (b) the plaintiff was not in material breach of the contract; and
      
    • (c) the cause of the delay in completion of the contract was the defendant’s failure to comply with its contractual obligation to provide in a timely manner necessary geotechnical information to the plaintiff to enable the plaintiff to complete the designs.
      
24. The defendant is liable in damages for breach of contract (which were adequately pleaded in the statement of claim) constituted by its wrongful termination of the contract.
    

3 WHAT ORDER SHOULD THE COURT MAKE?

25. As this was a trial on liability only, I will simply order that the defendant is liable in debt and damages and for interest on those sums, which will be subject to assessment. The question of costs will not yet be determined.
    

ORDER

(1) The defendant is liable in debt and damages for breach of contract, and is liable to interest on such debt and damages.

(2) The parties have, until 14 September 2017 at 9.30 am, when the proceedings will next be called for mention, within which to reach agreement on the amount of debt, damages and interest to which the defendant is liable, and on costs, failing which the Court will decide whether to proceed to trial on assessment of debt, damages and interest or to refer the case to mediation.

Judgment accordingly.
_____________________________________________________________
Steeles Lawyers: Lawyers for the Plaintiff
Kuman Lawyers: Lawyers for the Defendant