N8668
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS (COMM) NO. 1188 OF 2019

BETWEEN:
CLINTON CAPITAL PARTNERS PTY LIMITED
Plaintiff

V

KUMUL PETROLEUM HOLDINGS LIMITED
First Defendant

AND
HON. WILLIAM POWI, as Governor of Southern Highlands Province
Second Defendant

AND
SOUTHERN HIGHLANDS PROVINCIAL GOVERNMENT
Third Defendant

AND
HON. PHIILIP UNDIALU, as Governor of Hela Province
Fourth Defendant

AND
HELA PROVINCE
Fifth Defendant

AND
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Sixth Defendant

Waigani: Anis J
2020: 2nd & 8th December

NOTICE OF MOTION – seeking dismissal as a party to the proceeding or alternatively removal as a party – Order 12 Rule 40(1) and Order 5 Rule 9 – National Court Rules – reason – want of privity of contract – consideration - exercise of discretion

Cases Cited:

Soka Toligai v. Sir Julius Chan (2012) N4842
Ben Maoko v. Kevin Ling (2008) N3293
Barra Amevo and Bari Investments t/a Kainantu Pharmacy, Lennie Aparima and Orito Aparima (1998) N1726
Christian Life Centre v Associated Mission Churches of PNG & Others (2002) N2261

Counsel:

S Gor, for the Plaintiff
N Kopunye, for the First Defendant
M Ninkama, for the Second and Third Defendants
R Uware, for the Sixth Defendant

RULING

8th December, 2020

1.	ANIS J:  Three (3) notice of motions returned before me on 2 December 2020.  I dealt with the first 2 and adjourned the 3rd to a later date. 

2.	The first notice of motion was by the 6th defendant.  It was filed on 27 October 2020.  It sought, amongst others, orders for it to be removed as a party to the proceeding.  The notice of motion was not contested, so I granted leave to the 6th defendant to be removed as a party to the proceeding with no order as to cost.

3.	I then proceeded to hear the 1st defendant’s notice of motion.  It was filed on 27 September 2020.  The 1st defendant seeks dismissal of proceeding against it, or alternatively, for orders for it to be removed as a party to the proceeding.  I heard the matter and reserved my ruling to a date to be advised.  Parties have been notified so I will rule on it now.

BACKGROUND 

4.	The plaintiff’s cause of action is to enforce a contract which it claims it had with the defendants.  The contract is dated 7 November 2016, and it was to review a Vendor Finance Proposal offer that had been made by the 1st defendant to the 3rd and 5th defendants.  The contract was worth $2.8 million USD in total.  The plaintiff claims that it performed the contract, but to date, has not received full payment for its services.  A major term of the contract, the plaintiff claims, is that the 1st defendant is the person that is responsible to pay the full sum of $2.8 million USD.  It pleads that the 1st defendant had made an initial payment of $150,000 USD, which it says was the only payment made to date.  In conclusion, the plaintiff pleads that the defendants owe it a total sum of $2,650,000 USD plus damages, interests, and costs.

5.	The 1st defendant filed a defence denying the claim.  It alleges, amongst others, that it is not privy to the contract.

6.	This has led to the present notice of motion by the 1st defendant.

MOTION

7.	The main relief the 1st defendant seeks in its notice of motion are, and I quote:

1.	Pursuant to Order 12 Rule 40(1) and Order 5 Rule 9 of the National Court Rules:
(i)	the Plaintiff’s claim against the 1st Defendant be dismissed on the grounds that the claim is barred pursuant to the principles of privity of contract;
(ii)	the 1st Defendant be removed as a Defendant in the proceedings herein.
2.	The Plaintiff to pay the 1st Defendant’s costs of this application on a solicitor/client basis.

ISSUES

8.	The main issues, in my view, are (i), whether there is privity of contract between the plaintiff and the 1st defendant, (ii), whether the pleadings in the statement of claim pleads a valid cause of action against the 1st defendant that is recognized under law including pleading of any exceptions to the doctrine of privity of contract, (iii), whether the plaintiff can rely on evidence that does not have the backing of the pleadings to allege new facts to support a possible cause of action against the 1st defendant, and (iv) whether the 1st defendant is a necessary party to the proceeding.

THE CONTRACT

9.	The contract, based upon which this claim is being brought, is marked as Annexure B to Randolf Clinton’s affidavit filed on 14 October 2020.  It consists of a letter dated 7 November 2016, which is written on the letterhead of the 5th defendant, but sent jointly by the 3rd and 5th defendants, to the plaintiff (contract/letter).  It is alleged that the content of the letter contains the terms of the contract.  Some notable features of the letter are as follows.  The letter, although written on the letterhead of the 5th defendant, is said to be written jointly by the governors of the 2 provinces, that is, the 5th defendant, which is the Hela Provincial Government, and the 3rd defendant, which is the Southern Highlands Provincial Government.  The letter appears to be signed by the governors of the 2 provinces who are named as 2nd and 4th defendants respectively.  The letter appears to bear the signatures of the parties to the contract, namely, the plaintiff and the 2 governors who represent the 3rd and 5th defendants.

10.	It is not disputed that the 1st defendant was not a party to the contract.

11.	The letter reads in part as follows:

The Southern Highlands and Hela Provincial Governments would like to mandate Clinton Capital Partners to conduct a review of the Vendor Finance proposal submitted by Kumul Petroleum Holdings Limited, and any other proposal that is currently on offer in relation to the exercising of the 4.27% Kroton Equity on and behalf of the relevant stakeholders.

We are writing to confirm the terms upon which Clinton Capital Partners has been engaged in respect of this mandate.
……
Payment:  We will pay Clinton Capital Partners US$300,000 as a retainer (upfront) to complete this review.  In addition, should any of the stakeholders accept (as a group and/or as individual stakeholders) the Vendor Finance proposal or, any other proposal that you identify, inclusive by the Hela or Southern Highlands Provincial Governments, Clinton Capital Partners will be paid in addition to its retainer a sum of US$2.5m as a performance fee.

All payments will be made on our behalf by Kumul Petroleum Holdings Limited within 30 business days from signing this mandate in respect to the retainer and, within 30 business days of any stakeholder accepting the Vendor Finance proposal or any other proposal that you identify in respect to the performance fee.
……
(Underlining mine)

LAW - PRIVITY OF CONTRACT

12.	The 1st defendant’s main argument is that there is no privity of contract between itself and the plaintiff.  I have heard submissions from the parties.  Let me begin by setting out the principle or doctrine, privity of contract.  

13.	Justice Hartshorn in Soka Toligai v. Sir Julius Chan (2012) N4842, restates the principle with references to case law.  His Honour said and I quote:

5.  Pursuant to the doctrine of privity of contract, “…. no person can sue or be sued on a contract unless he or she is a party to it: Dunlop Pneumatic Tyre Co Ltd v. Selfridge & Co Ltd [1915] AC 847. The doctrine of privity means a contract cannot as a general rule confer rights or impose obligations arising under it on any person except the parties to it.” : Christian Life Centre v. Associated Mission Churches of PNG & Ors (2002) N2261, per Lenalia J.

6.  Other decisions in this jurisdiction have considered and ruled pursuant to the doctrine of privity of contract: PNGBC v. Barra Amevo & Ors (1998) N1726, The Papua Club Inc v. Nusaum Holdings Ltd (No. 2) (2004) N2603 and Ben Maoko v. Kevin Ling (2008) N3293.

14.	Justice Cannings in Ben Maoko v. Kevin Ling (2008) N3293, said, and I quote:

6.  The doctrine of privity of contract is a common law principle that has been adopted as part of the underlying law of Papua New Guinea. Sevua J explained it in PNGBC v Barra Amevo and Bari Investments t/a Kainantu Pharmacy, Lennie Aparima and Orito Aparima (1998) N1726: 

The doctrine of privity of contract is that, as a general rule, a contract cannot confer rights or impose obligations arising under it on any person except the parties to it. The scope of the doctrine means only that a person cannot acquire rights, or be subjected to liabilities, arising under a contract to which he is not a party.

7.  In Christian Life Centre v Associated Mission Churches of PNG & Others (2002) N2261 Lenalia J stated: 

In the law of contract, a contract creates rights and obligations only between the parties to it. A contract does not confer rights on a stranger nor does it impose any obligations on the same. It is a fundamental principle of common law, that no person can sue or be sued on a contract unless he or she is a party to it:  Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847.  The doctrine of privity means a contract cannot as a general rule confer rights or impose obligations arising under it on any person except the parties to it.

15.	I note that the exceptions to the principle include (i), collateral contract and the sale of defective goods, (ii), where an agent is involved, (iii), trusts, (iv), restrictive agreements, (v), negligence, (vi), assignment, and (vii), where it involves insurance companies – third-party insurance.

CONSIDERATION

16.	The parties acknowledge that the 1st defendant was not a party to the contract.  So as a start, I will begin by considering the pleadings.  I note that the plaintiff did not plead an exception to the doctrine of privity of contract in its statement of claim against the 1st defendant, where it could rely on in this instance or where it could rely on to make a valid claim against the 1st defendant.

17.	When I consider the pleadings and the terms of the contract, it appears that the plaintiff is banking on the terms of the contract, and in particular, the term that states that and I quote, All payments will be made on our behalf by Kumul Petroleum Holdings Limited within 30 business days from signing this mandate in respect to the retainer and, within 30 business days of any stakeholder accepting the Vendor Finance proposal or any other proposal that you identify in respect to the performance fee.  The plaintiff makes this argument to oppose the present application.  The plaintiff’s said position is also pleaded in its Reply to the First Defendant’s Defence, which was filed on 23 April 2020.

18.	To me, what this clause means can be explained in this way.  The contract consists of a letter which was sent by 3rd and 5th defendants to the plaintiff.  In that letter, the 2 defendants, amongst other things, notify the plaintiff that they will be liable to pay for the plaintiff’s services.  They then also notify that the plaintiff that all the payments will be made on their behalf, by a third party, namely, the 1st defendant.  In signing the agreement, the plaintiff accepts the terms as proposed by the 3rd and 5th defendants.  So, what we have is an agreement where the plaintiff has signed, amongst others, based upon promise or undertakings made by the 2 defendants that actual payment will be made by a third party whom the plaintiff will have no control of or over.  Presumably, the plaintiff may have been under the impression that there were some binding arrangements in place between the 2 defendants and the 1st defendant.  If there were, I note that they were not materialized into any evidence, defence or counter claim in this proceeding by the 3rd and 5th defendants against the 1st defendant where I could have regard to.  The defendants who are represented, I note, support the contentions of the plaintiff against the present application by the 1st defendant.  However, counsel has not provided any evidence or relevant submissions in rebuttal.  As a result, what we have, in my view, is this.  There is no privity of contract that exists between the plaintiff and the 1st defendant.  No exception is pleaded, and the plaintiff’s agreement was with the 3rd and 5th defendants only.  The 1st defendant has no obligation to the plaintiff, pursuant to the contract.  The proposed or intended method of payment in the contract, it seems, was merely made known to the plaintiff.  The source where the money is to come from to pay the plaintiff was something that was left, it seems, pursuant to the contract, to the 3rd and 5th defendants to sort out internally or otherwise, to ensure payment is made to the plaintiff.  The obligation to pay, according to the contract and as expressly pleaded therein, always remains with the 3rd and 5th defendants.

19.	It is appropriate to state the undisputed evidence of a payment that was made by the 1st defendant to the plaintiff.  The payment was for $150,000USD.  It was made to pay half of the upfront payment of $300,000USD that was agreed to between the parties to the contract.  The 1st defendant admits that it made the said payment.  It argues, amongst others, that it had no obligation under the contract to make the payment, and that it had done so based on other terms it had with the 3rd and 5th defendants.  The plaintiff argues otherwise.  It submits that the 1st defendant was bound by the contract to make the payment, and it had done so in this case. 

20.	Given my findings, I will say this.  I uphold the argument by the 1st defendant that there was no legal obligation under the contract for it to make the partial payment of $150,000USD.  I cannot see how the plaintiff is entitled to enforce the contract against the 1st defendant for the balance of the contract, that is, apart from the 3rd and 5th defendants, and I say so primarily on the basis that the 1st defendant is not a party to the contract.

21.	The plaintiff has provided recent evidence, through the affidavit of Mr Clinton filed on 27 November 2020, to say that the 1st defendant was very much aware of the contract or the payment arrangements.  The affidavit also appears to raise serious corruption allegation that is made against the managing director of the 1st defendant.  Without (i) any legal foundation such as exceptions to the principle of privity of contract, and (ii), without any defence or counter-claim filed by the 3rd and 5th defendant against the 1st defendant that is based on an existing arrangement that the 2 defendants may have against the 1st defendant to pay the plaintiff as per the contract, I consider this evidence to be of less significance.  In regard to the serious accusation made, I will repeat what I have said to counsel in Court which is that there are processes, both in civil and criminal, whereby the plaintiff may pursue to raise such claims.  I must say that I find it quite mischievous for the plaintiff to slip in or file its latest affidavit at a very last minute before the hearing where it raises serious allegations against the managing director of the 1st defendant.  I note that I did over-rule objection made by the 1st defendant in relation to the use of the said affidavit.  But I must say that it is not a good practice and it should not be repeated by counsel for the plaintiff.  Serious allegations or accusations should be properly raised so that sufficient time is given to the party accused, to respond, or otherwise, it should be raised at an appropriate forum. 

SUMMARY

22.	In the end, I will grant the 1st defendant’s notice of motion.  I will dismiss the plaintiff’s claim against it.  Because of my decision, it is not necessary to consider the other issues herein.

COST

23.	Awarding cost in this instance is discretionary.  The 1st defendant submits that cost should be awarded on a solicitor/client basis.  I note the submissions of the parties.  My view is this.  I decline to make such an award for the reason that no forewarning has been given by the 1st defendant to the plaintiff, that it would be seeking costs on such a scale if in the event that its application is successful. 

24.	I will order cost to follow the event on a party/party basis which may be taxed if not agreed.

REMARK

25.	I note that after my ruling, what would remain would be the plaintiff’s notice of motion for default judgment.  I will hear that after I give my final orders herein.

ORDERS OF THE COURT

26.	I make the following orders:

1.	The proceeding against the first defendant is dismissed.

2.	The plaintiff shall pay the first defendant’s cost of the proceeding on a party/party basis which may be taxed if not agreed.

3.	Time for entry of these orders is abridged to the date and time of settlement by the Registrar of the National Court which shall take place forthwith.

The Court orders accordingly. 
________________________________________________________________
Fiocco & Nutley Lawyers: Lawyers for the Plaintiff
Kopunye Lawyers: Lawyers for the First Defendant
Harvey Nii Lawyers: Lawyers for the Second and Third Defendants
Solicitor General: Lawyer for the Sixth Defendant