SC2803
PAPUA NEW GUINEA
[SUPREME COURT OF JUSTICE]

SCA NO 77 OF 2023 (IECMS)

BETWEEN
HBS (PNG) LIMITED 
  Appellant

AND
CHINA CIVIL ENGINEERING CONSTRUCTION CORPORATION (PNG) LTD 
Respondent

WAIGANI: MAKAIL J, BONA J, FRANK J
 24 SEPTEMBER 2024; 6 NOVEMBER 2025  

SUPREME COURT – Appeal from dismissal of proceedings – Breach of contract – Whether there was an enforceable contract – Sub-contract – Supreme Court Act – Section 16 

SUPREME COURT – PRACTICE & PROCEDURE – Notice of contention – Matters of proof – No findings made – Discretion – Supreme Court Rules – Order 7, rule 29 

Facts

This is an appeal against the judgment of the National Court dismissing the proceedings by the appellant on the ground that the subcontract agreement between the parties was null and void because there was no head contract executed between the respondent and the National Airports Corporation (“NAC”).  The appellant argued that it had a binding and enforceable subcontract with the respondent because the respondent offered and it accepted the offer in consideration for a fee in the sum of K92,499,695.00 to undertake specific work on the Jackson’s International Airport Terminal in preparation for the coming Asia Pacific Economic Cooperation (“APEC”) meeting in November 2018. The performance of the subcontract anticipated the execution of a head contract between the respondent and the NAC. The appellant argued that notwithstanding this, the respondent allowed it to move on site and mobilise building materials including assembling of staff and incurred costs.  The respondent argued that it is not liable for the costs because it did not secure and execute the head contract with the NAC.

Held:

1.	Clause 1 of the subcontract does not lend support to the National Court’s finding that the subcontract is not a standalone contract but that it is subject to a head contract.  Moreover, none of the clauses in the subcontract is expressed as being subject to and conditional to a head contract between the respondent and the NAC.

2.	The subcontract was a standalone contract and binding and enforceable between the appellant and respondent because the elements of a contract of an offer, acceptance and consideration were proven whereby the respondent offered and the appellant accepted the offer in consideration for a fee in the sum of K92,499,695.00 to undertake specific work on the Jackson’s International Airport Terminal (“the Project”) in preparation for the coming APEC meeting in November 2018 pursuant to clause 1 and clause 2 of the subcontract.
	
3.	One of the fundamental terms of the subcontract in clause 10.1 was that time was of essence and the parties agreed to perform their respective obligations to complete the project under the subcontract.  The second fundament term of the subcontract in clause 10.3 was that the commencement date of the subcontract was on or before Friday 30th March 2018 and the project must be completed on or before Sunday 30th September 2018.  

4.	The conduct of the parties, in particular, the respondent in allowing the appellant access to the site and mobilising the materials and assembling of staff because time was of essence to the completion of the subcontract constitutes performance of the subcontract.  Moreover, it reinforces the parties’ intention to be bound by the subcontract.  Consequently, the subcontract can be correctly characterized as a standalone subcontract.   

5.	The appellant has established that the National Court erred in law and fact in finding that the subcontract was not a standalone contract but subject to and conditional to a head contract between the respondent and the NAC.  

6.	The appeal was upheld, and the judgment and orders of the National Court were quashed, the proceedings were reinstated,  judgment on liability is entered against the respondent for breach of subcontract and remitted to the National Court for trial on assessment of damages before the next available judge other than the trial judge pursuant to Section 16 of the Supreme Court Act.

Cases cited
Nil

Counsel
Mr W Miningi, for appellant
Mr E Asigau, for respondent

JUDGMENT

1.	BY THE COURT: This is an appeal against the judgment of the National Court made on 28th April 2023 dismissing the proceedings by the appellant styled WS No 130 of 2020 on the ground that the subcontract agreement (“Subcontract”) between the parties was null and void because there was no evidence of a head contract between the respondent and the National Airports Corporation (“NAC”).

BACKGROUND FACTS

2.	 The appeal can be decided on these short facts; that the appellant, a construction company whose operating out of Lae, entered into a subcontract with the respondent on 20th March 2018 to undertake specific work on the redevelopment of Jackson’s International Airport (“the Project”).

3.	The project was time-sensitive because it must be completed in time for the upcoming Asia-Pacific Economic Cooperation (“APEC”) meeting in November 2018.

4.	The subcontract referred to a head contract between the respondent and the NAC for the overall project.

5.	The appellant alleges that while the subcontract referred to a head contract, the respondent did not disclose to it that the head contract with the NAC was not executed.  Because of this, it did not know and went ahead to mobilise building materials to ship from Lae to Port Moresby including assembling of a team of workers and incurred costs.

6.	When the subcontract fell through, it sought reimbursement of its costs of mobilisation including unpaid salaries for its workers.

7.	On the other hand, the respondent contends that it did inform the appellant not to undertake the project as it was still negotiating the head contract with the NAC at the material time.  Without waiting, the appellant went ahead and mobilised building materials from Lae to be transported to Port Moresby including assembling of a team of workers to start work and incurred costs for mobilisation and unpaid salaries for its team of workers.

GROUNDS OF APPEAL

8.	The appellant advanced five grounds.  These may be summarised as follows:

(a)	the trial judge erred in fact and law by finding that the subcontract agreement between the appellant and respondent on 20th March 2018 was null and void because the head contract between the respondent and the NAC was non-existent.

(b)	the trial judge erred in law and fact by finding that the terms and conditions of the subcontract agreement were premised on the existence of the head contract and consequently, dismissed the proceeding on the basis that there was no head contract.

(c)	The trial judge erred in law by finding that the subcontract agreement was null and void because there was no head contract between the respondent and NAC.

(d)	The trial judge erred in law by failing to enter judgment for the appellant for the relief sought by the appellant in the prayer for relief to the statement of claim.

(e)	The trial judge erred in law by failing to award damages as sought by the appellant.

NOTICE OF CONTENTION 

9.	The respondent relies on a notice of contention filed on 10th May 2024.  Pursuant to this notice, the respondent accepts the trial Court’s decision to dismiss the proceedings, but seeks the Supreme Court’s discretion to make additional findings which were wrongly omitted by the trial Court on the following grounds under Order 7, rule 29 of the Supreme Court Rules:

(a)	the appellant is not a duly incorporated company.
(b)	the appellant failed to plead the ground(s) of breach of contract.
(c)	the appellant failed to plead that it was an implied term of the subcontract that it was subject to the execution of a head contract.
(d)	 the appellant did not perform any of the work under the subcontract between the appellant and respondent.
(e)	the pleading was deficient and lacked particulars to support a claim for damages.
(f)	the evidence adduced by the appellant was insufficient and inadequate to prove the claim and judgment in the sum of K3,923,382.90 or for any damages.

ISSUES

10.	At the heart of the allegations in Grounds one, two and three is the issue of liability and they bring up two issues:

(a)	whether the subcontract was a stand-alone contract, and it was open to the appellant to sue for its breach, or

(b)	whether the subcontract was subject to a head contract.

11.	Grounds four and five bring up the question of damages.

NATIONAL COURT FINDINGS

12.	We note that the National Court relied extensively on clause 1 of the subcontract to rule that there was no evidence of a head contract between the respondent and the NAC.  The National Court read clause 1 to mean the subcontract was not a standalone contract, but subject to a head contract.  Because there was no evidence of a head contract tendered before it, it held that the subcontract was “null and void”.

WHETHER THE SUBCONTRACT IS A STANDALONE CONTRACT

13.	At [25] of its written submissions before us, the appellant advances four grounds in support of the proposition that the subcontract is a standalone contract as follows:

“The SC Agreement stands as a separate and valid contract between Appellant and the Respondent for the following reasons:

(i)	Independent Contract: The SC Agreement was duly executed by both parties, outlining obligations for each.  It made references to the head contract, but these references did not render it contingent on the head contract’s existence.

(ii)	Performance: Both parties-initiated work under the SC Agreement, demonstrating its validity and mutual understanding.  For instance, the Appellant was allowed by NAC and the Respondent to occupy the site to undertake preliminary works for the Projects.

(iii)	No Condition Precedent: No clause in the SC Agreement stated performance was conditional upon the head contract’s execution.

(iv)	 Misrepresentation: The Respondent did not disclose the head contract’s pending status, leading the Appellant to believe it was finalized.  This is confirmed in the Appellant’s Affidavit evidence.”

14.	The appellant argues that the respondent breached the subcontract when there was no expressed provision or condition in the subcontract that the performance of the subcontract was conditional to the execution of a head contract with the NAC and further, failed to pay its costs.  Contrary to the National Court’s finding, it argues that the subcontract was not subject to and conditional upon the respondent executing a head contract with the NAC.  For these reasons, the National Court erred in law and fact when it held that the subcontract was null and void.  

15.	The respondent argues that no error of law and fact can be attended to the finding by the National Court because clause 1 of the subcontract is expressed as being subject to a head contract.  Where parties had expressed in the subcontract that it is subject to a head contract, it is an expression of the parties’ intention to delay the performance of the subcontract until the head contract is executed.

16.	We consider that where parties have a dispute in relation to their rights and obligations under a contract, the first place the Court will look at are the terms of the contract.  In this case, we refer to clause 1 of the subcontract which may be located at page 34 of the Appeal Book.  Clause 1 states:

“SUBCONTRACT WORK: The Works comprise engineering design, procurement and constructions for the Port Moresby (Jackson) International Airport Apron Redevelopment and Associated Works Project-Stage 1.  The works generally, but are not necessarily limited to, provision of all project management, design personnel, site engineering, off-site & on-site supervision, skilled & unskilled labour, materials (except materials, designated as supplied by the Owner), services, plant & equipment, consumables, tools, transport, accommodation and all other items that are necessary for establishment on Site and execution of the Works all in accordance with Scope of Works, the Technical Specifications, Approved for Constructions Drawings, other documents included in the Contract and all other requirements of the Contract.”

17.	We reject the respondent’s submissions.  Our reading of clause 1 does not lend support to the National Court’s finding that the subcontract is not a standalone contract but that it is subject to a head contract.  Moreover, none of the clauses in the subcontract is expressed as being subject to and conditional to a head contract between the respondent and the NAC.

18.	On the contrary, we are of the view that the subcontract is a standalone contract and binding and enforceable between the appellant and respondent because the elements of a contract of an offer, acceptance and consideration were proven whereby the respondent offered and the appellant accepted the offer in consideration for a fee in the sum of K92,499,695.00 to undertake specific work on the Jackson’s International Airport Terminal (“the Project”) in preparation for the coming APEC meeting in November 2018 pursuant to clause 1 and clause 2 of the subcontract.  We are satisfied that the parties intended to be bound by the subcontract.
	
19.	One of the fundamental terms of the subcontract in clause 10.1 was that time was of essence and the parties agreed to perform their respective obligations to complete the project under the subcontract.  The second fundament term of the subcontract in clause 10.3 was that the commencement date of the subcontract was on or before Friday 30th March 2018 and the project must be completed on or before Sunday 30th September 2018.  Consequently, it was necessary for the parties to comply with these terms of the subcontract to complete the project in time for the coming APEC meeting in November 2018.  

20.	But before we address the question of performance of the subcontract, we address the respondent’s notice of contention at [9(b)] (supra) and its strong submissions that the appellant failed to plead the ground(s) of breach of contract.  Contrary to the respondent’s claim, we are satisfied that at paragraphs 4 to 11 of the statement of claim located at page 11 of the Appeal Book, the appellant sets out the essential terms of the subcontract which included the particulars of the specific work in engineering design, procurement and construction of the Jackson’s International Airport Apron Redevelopment, the subcontract value of K92,499,695.00 and importantly, that pursuant to clause 10.6(sic) of the subcontract, time was of essence for the parties and clause 10.3, that the construction shall commence on or before Friday 30th March 2018.

21.	Finally, that on 20th March 2018 the respondent instructed the appellant to commence work by, interalia, mobilising staff and equipment on site, undertake the required design and consultation work and establish the site office and that by letter dated 23rd March 2018 to the appellant, the respondent advised the appellant to take possession of the site establishment area and the appellant accordingly, complied with the respondent’s instructions.  However, at paragraphs 14 and 15 of the statement of claim at page 12 of the Appeal Book, on 29th March 2018 the respondent advised the appellant to stop work and the appellant accordingly, complied.  

22.	The appellant reinforces these allegations in the opening submissions of its trial counsel at the first paragraph of the transcript of the hearing on 22nd March 2022 on page 243 of the Appeal Book as follows:

“If your Honour looks briefly at the statement of claim, it is straight forward.  The claim is effectively for works performed under a subcontract agreement and unfortunately the contract had to be terminated, and the plaintiff’s claim is effectively for mobilising equipment and personnel to site and undertake preparatory works like engaging engineers, architects. etcetera.”

23.	Further, at parts of the fifth and sixth paragraphs of the same transcript at pages 244 and 245 of the Appeal Book, the trial court counsel reinforced this proposition as follows:

“…….For some reasons, there were discussions between National Airports Corporation and the defendant that the defendant would be given the project for the redevelopment of the National Airports Corporation – sorry, for the Jacksons International Airport.  So, what then happened was once – and the plaintiff was engaged as a subcontractor to the main contractor which is the defendant and for some reasons, the defendant took it that the contract would be issued.” (Underlining added).

24.	The trial court counsel continued:

“And what is even odd – and I will repeat this in my submissions – is that even the National Airports Corporation said, look, it is okay, go ahead and give access to the site, we give you approval to go and set up within the international airport area.  However, subsequently, the contract was not awarded to the defendant, the defendant then told the plaintiff to stop works.  So, the plaintiff had to stop works.  So, the plaintiff’s claim is for mobilisation from Lae to Port Moresby getting its equipment on the ship, et cetera, recruiting employees, engaging architects and engineers to do all the designed, et cetera, for that period within which the defendant had instructed it to undertake works under the subcontract agreement.”

25.	At the second paragraph of the same transcript on page 245 of the Appeal Book, this submission prompted the trial judge to ask:

“Well, if it was subject to a main contract and if there is no main contract, so what is the argument there?”

26.	At the third paragraph of the same transcript on page 245 of the Appeal Book, the trial court counsel responded:

“That is the defendant’s defence.  The defendant’s defence is, look, this subcontract was subject to and conditional upon us signing a main contract or the head contract with the National Airports Corporation.  So, because we never signed a head contract, everything fell through and therefore you are not entitled to any damages for mobilisation, et cetera.  We will deal with that in my submissions,”

27.	Of course, the trial counsel’s submissions are backed by evidence which we note included the following:

(a)	affidavit of Jason Zoller sworn and filed on 16th February 2021 – exhibit “P1”;
(b)	affidavit of Jason Zoller sworn and filed on 16th February 2021 – exhibit “P2”; and
(c)	affidavit of Jason Zoller sworn and filed on 24th February 2021 – exhibit “P3”.

28.	In exhibit “P1”, annexure “B” is a copy of a Contract Note from the appellant to the respondent dated 22nd March 2018 requesting access to the project site.  Annexure “B” states in part:
	
“HBS request access to the Owner’s property, in particular, the proposed Laydown Area and the area in the vicinity of the proposed Terminal Building for the purpose of Mobilisation and Establishment.

A marked-up drawing has been attached for CCECC to notify Owner.

Please advise when this request has been submitted and the response from the Owner.”

29.	The request is necessary because the project site owner is the NAC.  Annexure “D” to exhibit “P1” is the approval granted by the respondent to the appellant in a letter dated 23rd March 2018.  Annexure “D” states in part:

“………we have already received response from NAC granting approval to CCECC to take possession of the site establishment areas, as demarcated in the drawing attached.

You are hereby notified of the requirements to remain within the site establishment area.

Any works outside this area on the airside shall be under escort of the Airport Safety Officer (ASO).  You shall also ensure to observe all statutory, NAC and Project OHS&E and Security Requirements outlined in the contract.” (Underlining added).

30.	At paragraph 16 of exhibit “P1”, the appellant “mobilised staff and equipment to the Site, took possession of the Site Office and undertook the required works, mostly preparatory works.”  

31.	At paragraph 17 of exhibit “P1” Mr Zoller further states that the appellant and respondent “were in constant communication on HBS performing the works” which is reinforced by numerous letters exchanged between the parties between 22nd March 2018 and 24th March 2018.  Significantly, in a letter dated 24th March 2018 at annexure “I” to exhibit “P1”, the respondent requested the appellant to provide to it six plans, one of which was a Design Management Plan. On the same date, in a letter dated 24th March 2018 at annexure “J” to exhibit “P1”, the respondent requested the appellant to provide a Mobilisation Plan and asked when the appellant will mobilise to the site.  

32.	For the respondent’s defence, the account by Mr Lin Hongxin in his affidavit marked as annexure “D1” does not refute the account by Mr Zoller.  Moreover, at paragraph 15 of exhibit “D1”, Mr Hongxin acknowledged that time was of essence where he states that the respondent “was concerned that leaving the subcontract arrangements with HBS on hold would only cause delays to the PMIA Project once the NAC and CCECC had agreed to terms.”

33.	At paragraphs 11 and 12 of exhibit “P3” at page 171 of the Appeal Book and paragraphs 30 to 43 of exhibit “P1” at pages 53 to 54 of the Appeal Book, Mr Zoller denies Mr Hongxin’s account that the parties understood and accepted that the performance of the subcontract was subject to and conditional on the respondent executing a head contract with the NAC.  On the other hand, Mr Zoller’s account that the respondent allowed the appellant to move on site and mobilise materials including assembling of workers to start work is uncontroverted.  As we have pointed out at [31] (supra), the mobilisation included preparation and submission of various plans which Mr Zoller speaks of in exhibit “P1”.
34.	Similarly, the respondent’s contention that it did inform the appellant not to undertake work on the project because it was still negotiating the head contract with the NAC is unsupported by evidence and contrary to overwhelming account that the respondent did inform and allow the appellant to start work.  Conversely, while the appellant asserts that the respondent did not disclose to it that the head contract with the NAC was not executed, Mr Zoller’s account in exhibit “P1” does not support this assertion. 

35.	In our view, the conduct of the parties, in particular, the respondent in allowing the appellant access to the site and mobilising the material and assembling of staff because time was of essence to the completion of the subcontract constitutes performance of the subcontract.  Moreover, it reinforces the parties’ intention to be bound by the subcontract which we uphold. On the other hand, if the respondent intended that the performance of the subcontract was subject to and conditional upon its execution of a head contract with the NAC, it should have advised the appellant to wait.  For these reasons, we uphold the appellant’s submissions that the subcontract can be correctly characterized as a standalone subcontract.  

36.	Our view is fortified by the absence of an expressed term or condition of the subcontract that says that the subcontract was subject to and conditional to a head contract and further, the absence of a term which provides that until a head contract is executed, each party assumes liability for any costs incurred in performing the subcontract.  Additionally, termination clause 14.2 and clause 14.4 provided an exit option for either party from being bound by the subcontract if performance is frustrated because for instance, a head contract could not be executed as had occurred here.  Consequently, it is not necessary for the appellant to plead it in the statement of claim and the respondent’s submissions that it was an implied term of the subcontract that the subcontract was subject to and conditional to a head contract is without merit.

LEGAL CAPACITY OF THE APPELLANT

37.	As to the respondent’s notice of contention that the appellant is not a duly incorporated company, this contention raises the question of legal capacity of the appellant to sue and be sued in its corporate name and style under Section 15 and Section 16 of the Companies Act.  We note that the appellant did not take it up at the trial and the National Court made no finding on this question.  Significantly, the appellant was not put on notice that the respondent was going to object to its legal capacity to sue and did not adduce evidence in the form of its certificate of incorporation to counter this contention.  Additionally, at paragraph 1 of its Defence at page 16 of the Appeal Book, the respondent merely did not admit the capacity of the appellant and in the Statement of Agreed and Disputed Facts and Issues at pages 179 to 180 of the Appeal Book, did not make it an issue for trial. Accordingly, we consider that it is unfair and a denial of natural justice for the respondent to take this point up before us.  Also, we consider that if the proceedings are reinstated and remitted to the National Court for rehearing, justice will be served if the parties are given the opportunity to address this question.  For these reasons, it is not necessary for us to make a finding on this question.

PLEADINGS ON BREACH OF CONTRACT AND IMPLIED TERM OF SUBCONTRACT

38.	As to the respondent’s notice of contention that the appellant failed to plead the grounds(s) of breach of contract and that it was an implied term of the subcontract that it was subject to the execution of a head contract, we have addressed them at [20], [21], [35] and [36] (supra).

PLEADINGS BEING DEFICIENT AND LACKING TO SUPPORT CLAIM FOR DAMAGES

39.	As to the respondent’s notice of contention that the pleadings are deficient and lacked particulars to support a claim for damages and that the evidence adduced by the appellant was insufficient and inadequate to prove the claim and judgment in the sum of K3,923,382.90 or for any damages, as the Court’s power under Order 7, rule 29 (supra) is discretionary, it is not necessary for us to rule in these questions.  On the other hand, in the exercise of our discretion under Section 16 of the Supreme Court Act, we refer these questions to the National Court to address at the trial on assessment of damages.  

40.	Similarly, it is not necessary for us to rule on the grounds identified at [8(d)] and [8(e)] (supra) because they go to the question of damages which can be taken up by the respondent at the trial on assessment of damages.

CONCLUSION

41.	We are satisfied that the appellant has established that the National Court erred in law and fact in finding that the subcontract was not a standalone contract but subject to and conditional to a head contract between the respondent and the NAC.  In the exercise of our discretion under Section 16 of the Supreme Court Act, we uphold the appeal, quash the judgment and orders of the National Court of 28th April 2023, reinstate the proceedings WS No 139 of 2020, enter judgment on liability for breach of subcontract and remit the proceedings to the National Court before the next available judge other than the trial judge for trial on assessment of damages on a date to be fixed. Finally, we order the respondent to pay the appellant’s costs of the appeal, to be taxed, if not agreed.

ORDER

42.	The final terms of the order of the Court are:

1.	The appeal is upheld. 
 
2.	The judgment and orders of the National Court of 28th April 2023 are quashed.

3.	The proceedings WS No 139 of 2020 be reinstated, and judgment on liability for breach of subcontract is entered against the respondent and the proceedings be remitted to the National Court before the next available judge other than the trial judge for trial on assessment of damages on a date to be fixed.
 
4.	The respondent shall pay the appellant’s costs of the appeal, to be taxed, if not agreed.
________________________________________________________________
Lawyers for appellant: Bradshaw Lawyers
Lawyers for respondent: Pacific Legal Group Lawyers