Walaun v Droaz [2017] PGNC 20; N6641 (13 February 2017)

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BREACH OF CONTRACT – contract to erect fence over residential property - money exchanged hands - fence not built - whether the money paid consisted of deposit only - was the contract varied - terms of the contract discussed - types of damages suffered - whether some of the relief similar - interest - applicable interest rate - section 4 and section 6 of the Judicial Proceedings (Interest on Debts and Damages Act) No. 15 of 2015 discussed

The plaintiff owned a residential block of land. He entered into a contract with the defendants for the defendants to erect a picket fence on his land. Before the contract commenced, the defendants provided the plaintiff with a quotation for the required work. Based on the said quotation, the plaintiff applied for a loan for a sum of K24, 500. The loan was approved and the plaintiff paid K24, 500 into the second defendant's bank account. The picket fence was not erected. The defendants said the K24, 500 was a deposit and not the full sum of the contract. The defendants said the actual cost was much higher and because the plaintiff did not pay an additional K15, 000 they had requested, they did not construct the fence.

Binnen Construction Ltd v. Hon Buka Goli Malai (2014) N5775
Evaluation Consult New Zealand Ltd v. The State (2016) N6219
Jacob Kewa v. Madang Provincial Government (2014) N5650
Kiku Plumbing Pty Ltd v. Enga Provincial Government [1993] PNGLR 439
Margaret Potane v. National Development Bank Ltd (No. 2) (2013) N5099
Paul Kaupa v. NCD (2009) N3750
Roy Malai v. Huang Wen Jung (2005) N6152

1. ANIS AJ: The plaintiff filed this proceeding on 19 October 2015. He seeks, amongst other things, the return of his money, that is, K24,500, which he said he advanced to the defendants to construct a picket fence on his block of land. He claims that his fence was never built. The defendants do not deny that they did not erect the fence but they deny that they are liable.

2. The trial was conducted and completed on 8 December 2016. Parties presented their written submissions on 14 December 2016. I reserved my ruling to a date to be advised.

4. During the trial, the plaintiff was the only witness called by his counsel to give evidence. He was cross-examined. The plaintiff also filed two (2) affidavits, which were tendered in Court as exhibits.

5. The defendants also called one (1) witness to testify in Court. He is the first defendant. The first defendant filed three (3) affidavits and he was cross-examined on them by the plaintiff's counsel. The defendants also filed an additional affidavit of one Alois Malori Junior. This witness did not appear to testify but his evidence was admitted without objection by the plaintiff. All the defendants' affidavits were tendered in Court.

Exhibit No.	Description	Dated & Date filed
P1	Affidavit of the Serrie Willie Walaun	30/11/16 01/12/16
P2	Affidavit of Serrie Willie Walaun	05/12/16 06/12/16
D1	Affidavit of James Popan Droaz	05/12/16 07/12/16
D2	Affidavit of James Popan Droaz	05/12/16 07/12/16
D3	Affidavit of James Popan Droaz	13/11/16 22/11/16
D4	Affidavit of Alois Malori Jnr	05/12/16 07/12/16

7. I note the submissions filed by the parties concerning the issues. I note that there is no material contest on the existence of a contract between the parties, that is, for the construction of a picket fence. The plaintiff paid K24,500 to the defendants to construct the fence. And I note that the defendants do not dispute receiving the money. The real issue, in my opinion, relates to what the parties had agreed to, when the consideration of K24,500 was paid. That is, whether it represented the full sum that was required under the contract or whether it was, according to the terms of the contract, to be treated as a deposit with additional payments to follow for the construction of the fence.

8. The second issue, which is based on an argument raised by the defendants, is this: Did the parties whether expressly or otherwise vary the terms of the original contract, namely, did the plaintiff agree to furnish extra money as per the various allegations raised by the defendants in their evidence and submissions?

9. I think the key evidence to the central issue is a letter dated 9 March 2012 (letter of offer), which was forwarded by the defendants to the plaintiff. I must also add that that is the only letter the plaintiff has acknowledged receipt of at the trial. It is located at Annexure "A" to Exhibit P1 and Annexure "A" to Exhibit D1. The letter reads in part:

"SUBJECT: PRICE QUOTATION - K24,500.00 CONSTRUCTION OF FENCING WORK LOT 1, SECTION 41, KINABOT

We are pleased to submit our lumpsum price quotation for the sum of K24,500.00 to undertake and carryout the completion work for the above project for your approval.

The provision of our price quotation are inclusive of the following scope of works intended to be carry out as follow;

Our anticipated duration period to complete the above work will be three (3) weeks upon the receipt of your deposit into the company's account to formalize our engagement of service. We will commence work immediately.

10. In my opinion, the said letter of offer constitutes the material terms of the contract to erect the picket fence. According to evidence disclosed by the parties, the plaintiff had relied on the letter of offer to secure a loan from the National Micro Bank's Lihir branch. The plaintiff was working at Lihir at that time with a company called Anitua Mining Services Ltd. It is not disputed that the K24,500 was released and paid directly into the second defendant's bank account with Westpac Bank (PNG) Ltd.

11. The first question I have is this: Did the K24,500 payment made by the plaintiff constitute a deposit or did it constitute the total sum, that was required under the contract to erect the picket fence? By reading the letter of offer in plain English, I would say that the payment of K24,500 constituted the full contractual sum that was required for the construction of the picket fence. In my opinion, there is ample evidence contained in the letter of offer itself, which confirms my interpretation of the particular term in the contract. The obvious evidence of course is located at paragraph one (1) of the letter of offer which reads We are pleased to submit our lumpsum price quotation for the sum of K24,500.00 to undertake and carryout the completion work (Underlining is mine).

12. I note that it was based on the said lump sum quotation issued by the defendants that the plaintiff had used to source funding from the National Micro Bank Ltd, to finance the contract. If the K24,500 was supposed to be a deposit, or a part-payment or an instalment, it would have, in my opinion, been captured in the letter of offer. That was however not the case here. Further, I also take into account the fact that the defendants, as evidence has revealed, did nothing between 9 March 2012 and 5 June 2012. That is a period of more than three (3) months, that is, whilst the parties were waiting for the loan to be approved. The defendants' conduct (i.e., their inaction), in my opinion, only goes to prove or strengthen the plaintiff's position that the K24,500 represented the full value of the contract as per the agreement.

13. Let me clarify one point in the letter of offer, which I think is important to avoid confusion. Paragraph 3 of the letter of offer partly states and I quote upon the receipt of your deposit into the company's account to formalize our engagement...(underlining is mine). I note that the said paragraph in the letter of offer did not state what the deposit was for and I also note that this was not clarified or addressed by the parties at the trial. Well, the defendants argued in their submissions that the K24,500 consisted of a deposit. However, my plain reading and understanding of the letter of offer is as follows: The defendants had requested the plaintiff to pay a lump sum of K24,500 for the defendants to erect the picket fence. The use of the term "deposit" at paragraph 3 of the letter of offer when read in its full context, in my opinion, simply refers to the deposit of the said lump sum payment of K24,500 which was to be paid into the defendants' bank account. To interpret the meaning of the use of term "deposit" differently would, in my opinion be wrong because it would change the intended message set out by the defendants in their said letter of offer. For example, if this Court was to interpret the use of the term "deposit" in the letter to mean that K24,500 constituted a part-payment of the contract, this would infringe paragraphs 1 and 2 of the letter of offer.

14. I therefore find that the sum of K24,500 was the total contractual sum the parties had agreed upon, to erect the picket fence.

15. The contract, in my opinion, was a simple one. The material terms, based on the evidence disclosed by the parties namely those contained in the letter of offer, were as follows:

(ii) The plaintiff was required to deposit the K24,500 into the bank account of the defendants;

16. The plaintiff paid K24,500 directly into the 2nd defendant's bank account. The plaintiff has established that. And as I have stated earlier in my judgment, the defendants do not dispute this fact.

17. Having paid the full sum, the plaintiff, in my opinion, had accepted the terms of the contract. Now, the next question I have is this: When did the plaintiff deposit the money into the defendants' bank account? I note that there is not much dispute about this fact either. I firstly refer to paragraph 6 of Exhibit P1 and paragraph 3 of Exhibit P2. The plaintiff therein states that he deposited the cheque of K24,500 directly into the 2nd defendant's Westpac Account on 5 June 2012. The defendants confirm this fact at paragraph 4 of Exhibit D1.

18. So did the defendants commence work immediately as required under the terms of the agreement? What does the evidence say? Well, based on the terms of the agreement and the fact that the plaintiff had paid the money on 5 June 2012, the defendants were supposed to complete the fence within three (3) weeks from 5 June 2012. The contract would have concluded on or about 26 June 2012. But as evidence has revealed, the fence was never erected. If we were to start counting from 5 June 2012 to the date of trial, that would constitute a delay of more than four (4) years. The position remains to this day, that is, not a single post or cement or fence was erected on the site.

19. Subject to my findings on the arguments raised in defence by the defendants which I will now address below, the defendants appeared to have clearly breached the terms of the contract in that they had failed to erect a picket fence before or by 26 June 2012, despite having received full payment from the plaintiff.

20. Let me consider the second issue: Did the parties whether expressly or otherwise vary the terms of the original contract, namely, did the plaintiff agree to furnish additional money as per the various allegations raised by the defendants in their evidence and submission?

21. The defendants claim they had sent various correspondences as well as contacted the plaintiff over the telephone to discuss their claim that they had incurred or estimated costs which had or was likely to exceed the K24,500. The defendants allege that based on these correspondences and telephone discussions, the plaintiff had agreed to provide further funding of K15,000 but had failed to do so which is why the defendants say they were unable to carry out the work.

22. This issue, in my opinion, requires careful consideration of the facts as presented by the parties both in their oral and written evidence. It would be a matter for this Court to decide who is telling the truth and who is not.

23. I note that the defendants' witness James Popan Droaz was examined and cross-examined in Court. He is the Managing Director and sole owner of the 2nd defendant. He attests to this fact. Evidence of that is also contained at Annexure "A" to Exhibit D3. He portrays himself in Court as a qualified or professional builder. I find his evidence impressive to a certain extent regarding his knowledge on construction or building. However, I note that here we are only concerned about building a simple picket fence on a small residential block of land at Kenabot in Kokopo. Despite the experience Mr Droaz claims to have, I find that he either possess a general lack of common sense on what was at stake at the material time or that he may have deliberately told lies to the Court in an attempt to protect himself and his company. Let me explain: Mr Droaz knew at that time that the plaintiff had tried his very best to secure a loan to finance the contract, which took about three (3) months before it was eventually approved. Evidence adduced by the plaintiff revealed that Mr Droaz had been following up constantly with the plaintiff regarding the K24,500. As soon as the money was paid directly into Mr Droaz's company's account on 5 June 2012, Mr Droaz, instead of getting on straight to work, claimed that he had written another letter dated 12 June 2012, just seven (7) days later, to the plaintiff telling him that the money was not enough and he wanted an additional K15,000. The plaintiff on the other hand gave evidence that after the money was paid, Mr Droaz had engaged himself in another project; that he was nowhere to be seen at the site; that he had avoided the plaintiff's numerous calls and nothing was done within the three (3) weeks leading towards the end of June 2012. In fact, the plaintiff claimed that Mr Droaz had virtually disappeared for months thereafter or after receiving the K24,500.

24. Mr Droaz attaches copy of the alleged letter dated 12 June 2012 as Annexure "B" to Exhibit D1. He alleges that he had sent the said letter to the plaintiff.

25. To me, this does not make logical sense. I will explain this: Firstly, it was Mr Droaz who on 9 March 2012 quoted the plaintiff the lump sum of K24,500 to construct the fence. Mr Droaz is an expert in the field as he has claimed and the plaintiff, based on Mr Droaz's expertise, had accepted Mr Droaz's quotation and had applied for the loan. From 9 March 2012 to 12 June 2012 is a total of three (3) months and two (2) days. During that period, evidence shows nil or no mention of any attempts whatsoever by Mr Droaz asking for additional money, or that he had re-evaluated the contractual sum and had discovered the price increase and had communicated that to the plaintiff. It would have made sense because that would alert the plaintiff to apply for any additional money that was required. The plaintiff gave evidence that Mr Droaz had been chasing him up regarding the K24,500 during the said waiting period. In other words, Mr Droaz was only looking forward towards receiving the K24,500. That is what the evidence adduced has implied, is it not? But when he finally receives the K24,500 on 5 June 2012, he allegedly writes another letter shortly after only to tell the plaintiff that he requires additional funding. Now, the plaintiff has strenuously denied ever receiving any of the letters, particularly the one dated 12 June 2012. I note that the letter of 12 June 2012 was not pleaded in the defendants' defence. I also note that the evidence of various other correspondences being sent by the defendants to the plaintiff only came to light or surfaced a day before the trial. They were all filed late and no sufficient time was given to the plaintiff to examine them in detail. Because the plaintiff has denied ever receiving them particularly the letter of 12 June 2012, it raises the question particularly of whether the alleged letter of 12 June 2012 was ever sent or ever existed at that time as alleged by the defendants.

26. I do not find Mr Droaz to be a truthful witness. I find common sense lacking in his evidence. I also find that his evidence does not make rational sense. I find that this witness gave evidence to try to portray a picture that he took or applied all the professional assistant that he could think of to construct a simple picket fence. In doing so, I find that he has exposed himself as an untruthful witness. We are talking about a simple picket fence here. This was not a contract to design a landscape or construct a permanent wall or a building. I do not think it is necessary and I find it odd that Mr Droaz would engage professional landscape engineers or even obtain a building permit to construct a simple picket fence. If these were however necessary, the defendants have failed to point these out to the Court either in evidence or through their submissions, that is, which regulations or law they were referring to here. But in any event, I note that whatever advice or things that were required, these were assumed to have been considered and included in the original contract.

27. I accept the plaintiff's evidence to be true and reliable. I also find his evidence to be rational. I find as a fact that the plaintiff never received the defendants' alleged letter dated 12 June 2012 or the other correspondences that were alleged to have been sent to him. I also reject the evidence by Mr Droaz where he said that he had discussed or informed the plaintiff regarding his alleged letter of 12 June 2012. I think it is also important to state here that during the plaintiff's examination and cross-examination, there may have been one or two occasions well after June 2012 where the Mr Droaz may have mentioned to him orally that he required additional funding to erect the fence. But I accept the plaintiff's evidence and claim that he rejected the suggestion and told Mr Droaz that he wanted the full refund of his money because Mr Droaz and his company had failed to erect the fence as agreed to.

28. I also note that the contractual term was for three (3) weeks. It expired on or about 26 June 2012. Therefore, any discussions or allegations made by the defendants after June 2012, were immaterial or served no purpose because the contractual term was up on or about 26 June 2012.

29. Rationally, what should have happened then is that the defendants should have renegotiated a new agreement with the plaintiff after the expiry of the original contract. If that had worked out then they would have had more time etc to erect the fence. In this case, the defendants failed to erect the picket fence within the required time as agreed. The defendants, instead of putting everything on halt and negotiate with the plaintiff, they continued as if the original contract was still valid or existed. The actions of the defendants in continuing as if the contract continued to exist, in my opinion, was where the defendants had fell into error. In other words, everything the defendants have done after June 2012 was not binding on the parties.

30. I find the plaintiff's evidence sound and credible. I accept his evidence. I reject the defendants' evidence and claims.

31. The defendants, in their written submission, stated as an issue for the Court to decide whether they had partly performed the contract. This, to me, looks like an attempt by the defendants to lodge a cross-claim against the plaintiff, which has not been properly pleaded.

32. But that aside, and when I look at the undisputed fact that not one cement was mixed, or a post or fence was erected during the three (3) weeks between 5 June 2012 to 26 June 2012 and even up to this day, it is quite extraordinary that the defendants would attempt to make such a claim.

33. The contract was for the defendants to erect a picket fence within three (3) weeks. Has that been done? The answer is "no". The contract was not for the defendants to do extensive shopping of materials and keep them somewhere or at a location. The defendants tend to think that this Court will accept such a claim (i.e., shopping for materials) as amounting to part-performance. This perception by the defendants is clearly a misconception.

34. The defendants may claim that they had spent money on experts or materials. But at the end of the day, they did not deny that they had failed to erect the picket fence. Again, not a single fence post or thing was erected on the plaintiff's premises. One must then ask this question: Where is justice there for the plaintiff?

35. For these reasons, I find this point raised by the defendants baseless. I also find it as an attempt by the defendants to abuse the Court process as it was not properly pleaded as a cross-claim.

37. The plaintiff seeks (i) the return of his money, (ii) damages for breach of contract, (iii) damages on quantum meruit basis (iv) damages suffered mentally, financially, emotionally and loss of dignity with stress, (v) interest and (vi) costs.

38. I find no difficulty in granting relief (i), (ii), (iv), (v) and (vi). I find that the plaintiff is entitled to and the defendants shall return the full value of the contract money of K24,500 that was advanced to them by the plaintiff. The said award will also be regarded or treated as an award for breach of contract. I think it is fair that I treat relief (i) and (ii) together that is by awarding the K24,500 sum in favour of the plaintiff.

39. Based on the plaintiff's evidence, there are, in my opinion, clear indications that the plaintiff was affected by the lack of actions by the defendants. Evidence showed numerous follow-ups made by both the plaintiff and his wife in-regard to the defendants' failure to perform the contract. I refer to Exhibit P1, Exhibit P2 and the plaintiff's oral testimony in Court. Evidence showed that Mr Droaz had been avoiding the plaintiff during the immediate months that followed after the money had exchanged hands. Given that the plaintiff had been based in Lihir at that time, the lack of action by the defendants to complete the fence and the numerous attempts made by the plaintiff to communication with the Mr Droaz, would have caused the plaintiff to suffer some form of stress or anxiety. Evidence also showed that when the plaintiff finished from his work at Lihir, he used his final entitlements to fully settle the loan of K24,500. This has no doubt affected him financially as well. I am therefore also satisfied that the plaintiff's claim for general damages for mental and financial stress have also been proven. I will make an award of K7,000 under this head of damage. I do so taking into account the awards held in the following cases: Roy Malai v. Huang Wen Jung (2005) N6152; Margaret Potane v. National Development Bank Ltd (No. 2) (2013) N5099; Jacob Kewa v. Madang Provincial Government (2014) N5650; Binnen Construction Ltd v. Hon Buka Goli Malai (2014) N5775.

40. I dismiss relief (iii). Damages based on quantum meruit is not an appropriate relief to be sought by the plaintiff herein given the fact that the parties had entered into a legally binding contract (See cases: Kiku Plumbing Pty Ltd v. Enga Provincial Government [1993] PNGLR 439; Paul Kaupa v. NCD (2009) N3750; Evaluation Consult New Zealand Ltd v. The State (2016) N6219).

41. An award of interest made by the Court is discretionary. The plaintiff has sought interest in the statement of claim.

42. Pursuant to section 4 the Judicial Proceedings (Interest on Debts and Damages Act) No. 15 of 2015 (JPA), the Court may set an appropriate interest rate. Let me set out section 4 which states:

(1) Subject to Section 5, in proceedings in a court for the recovery of a debt or damages, the court may order a rate as it thinks proper to be applied to the sum for which judgment is given interest, on the whole or part of the debt or damages for the whole or part of the period between the date on which the cause of action arose and the date of the judgment.

43. I note that the parties did not argue what interest rate this Court should consider or apply. The plaintiff did not plead an applicable rate in the statement of claim. Under the circumstances, I will exercise my power as provided for under section 4 of the JPA. I will apply an interest rate at 8% per annum to the judgment.

44. The first relief or award granted by the Court is the sum of K24,500. The cause of action arose from 26 June 2012 to the date of judgment, which is 13 February 2017. That will be a total of four (4) years, seven (7) months and 18 days. Interest at 8% per annum on K24,500 will be K1,960 per year.

45. Firstly, I multiply K1,960 by four (4) years to get K7,840. Secondly, I divide K1,960 by 365 days, which amounts to an interest rate of K5.37 per day. For purposes of calculating the interest herein, I will estimate 30 days for each of the seven (7) months. As such, I multiply 30 days by seven (7) months and add 18 days to get a total of 228 days. I multiply 228 days by K5.37 which equals K1,224.36. Lastly, I add K7,840 plus K1,224.36 to get a final interest sum of K9,064.36. I will add that to K24,500 to get K33,564.36.

46. Now, I am inclined to add and I will impose interest to be payable on the post judgment order that I will make. That is, unless the full judgment sum with the calculated interest is settled within 30 days from the date of the judgment, interested thereafter will accrue and will be met by the defendants. My decision is based on section 6 of the JPA, which reads:

(1) Subject to Subsections (2) and (3), where judgment is given or an order is made for the payment of money, interest shall, unless the court otherwise orders, be payable at the prescribed rate from the date when the judgment or order takes effect on such of the money as is, from time to time, unpaid.

(2) Where the judgment referred to in Subsection (1) is taken against the State, the rate of any interest under that subsection shall not exceed 2% yearly.

(3) Where, in proceedings on a common law claim, the court directs the entry of judgment for damages and the damages are paid within 30 days after the date that the direction is served, interest on the judgment debt shall not be payable under Subsection (1) unless the court otherwise orders.

48. I will award cost of the proceeding to the plaintiff. I do so accordingly and order that it be assessed based on the party/party costs scale, that is, in the event the parties fail to settle that through a compromise.

49. In regard to the first issue, that is, whether the K24,500 represented the full sum that was required under the contract or whether the K24,500 was, according to the terms of the contract, to be treated as a deposit with additional payments to follow, my answer is "the K24,500 represented the full value of the contract".

50. In regard to the second issue, that is, Did the parties whether expressly or otherwise vary the terms of the original contract, namely, did the plaintiff agree to furnish extra money as per the various allegations raised by the defendants in their evidence and submissions?, my answer is "no".

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National Court of Papua New Guinea

Walaun v Droaz [2017] PGNC 20; N6641 (13 February 2017)