Speko Investment Ltd v Shell Papua New Guinea Ltd [2001] PGNC 60; N2140 (16 July 2001)

N2140

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

WS 1442 OF 1999

BETWEEN

SPEKO INVESTMENT LTD

First Plaintiff

PEANDUI KOYATI

Second Plaintiff

SHELL PAPUA NEW GUINEA LTD

Defendant

WAIGANI: SALIKA, J
16th July, 2001

CONTRACT – What is a Contract – Representations by letters – Conduct of parties – Contract – Breach of Contract – Breach of representations – Defendant liable

Counsel:

Mr. Powes Parkop: Lawyer for the Plaintiffs

Mr Andrew Bemau: Lawyer for the Defendant

SALIKA, J: In a Statement of Claim filed on the 28th December 1999, the Plaintiff claimed that they entered into an agreement with the Defendant whereby the Defendant would assist them set up a Service Station at Portion 2185, Milnch of Granville.

In the alternative the Plaintiff contends that the defendant did represent to them that it would assist them set up a Service Station at Portion 2185, Milnch of Granville if they secured the title over the land. The total value of assistance offered was K70, 000.00. The Plaintiffs claim they relied on the representation by the defendant and that they had reasonable expectation that the defendant would honour its commitment.

The Plaintiff contends further that the defendant has breached the agreement or its representation when it failed to assist them. They also seek special damages and cost.

The Defendant admits to having discussions with the Plaintiffs to develop the said land for the purpose of putting up a Service Station if they had title to the land. The Defendant however, denies it ever reached any agreement with the plaintiffs. It contends that the discussions or negotiations entered between it and the Plaintiffs were merely discussions and negotiations to assist the Plaintiffs set up the Service Station. It says that those discussions or negotiations were not binding on the parties and denies breaching any agreement. The defendant further denies that the representations could lead to a cause of action.

At the trial the Second Plaintiff gave evidence on behalf of himself and the First Plaintiff while Mr. Charles Amini the Retail Manager of the Defendant’s Company gave evidence for the defendant.

The evidence is that the Second Plaintiff approached SKT Associates Limited to lure Shell to help set up a Service Station on the land. At the time the Second Plaintiff only had a license to operate on the land. After meeting with AKT Associates the Second Plaintiff was introduced to WILLIAM LAMUR who was the Retail Sales Manager for Shell then. Mr. Lamur on behalf of Shell expressed a keen interest in helping to build a Service Station on the land.

At that meeting the Second Plaintiff was told that Shell would be interested in helping to develop the land if he had a registered title to the land. The Second Plaintiff on the interest shown by Shell went about applying for title to the land. It took him over 2 years to secure title over the land. In the meantime Shell had written to the Second Plaintiff and put to him 3 options that he could explore in relation to leasing and operation of the site as a Service Station. The options were: -

"1. DEALER OWNED AND OPERATED

Under this option, you spend the money yourself on the improvement and our only involvement would be in the provision of tanks, pumps, signage and possibly engineering design and supervision which would cost over K100,000. Your own investment on the service station would be nothing less than K250,000 excluding the mini-supermarket.

Shell will then have to sign a Sales and Purchase Agreement with yourself for a term dependant upon the length of time we are able to recover our costs, which would be about seven years. To assist you with the financing of the project, we will negotiate a rebate to help recoup your expenditure on the basis that you are the dealer yourself.

2. SHELL COMPANY LEASE/CONTROL

Under this option, Shell takes out a long term lease on the block, normally twenty (20) years. The landlord ensures that proposed zoning and Town Planning approvals are obtained before Shell signs the lease. Shell puts up the improvement and pays the landlord a yearly lease rental. (Nil development cost contribution by the landlord). Shell appoints a dealer and the dealer pays Shell a monthly rental based on the yearly estimated volume and the facilities on site. This rental is adjusted yearly. Nil rebates paid to anyone on this option.

3. LANDLORD BUILDS AND LEASES OUT

On this option, the landlord builds the service station himself. He does not operate the site, but leases it out to Shell. Shell does not contribute towards the development cost except maybe engineering design. The landlord buys the pumps off Shell. A rebate is negotiated and Shell also pays a monthly lease rental tot he landlord."

Those options were put to them on 11th September 1991. The Second
Plaintiff on the 28th October, 19991 wrote to Shell. He referred to the two letters written to him by Shell and wrote: -

"We have examined the three options that you have offered with respect to leasing and operation of the site.

We wish to inform you that the Directors of our company have resolved to take the first option which is "Dealer owned and operated."

We have spoken to our Bankers who have indicated their support for the proposal on the attached letter.

In addition to the terms of the first option, we are prepared to sign a sales and purchase agreement for a period of twenty (20) years which would be renewable.

Meanwhile, could you please arrange a reply to this letter confirming your agreement to our acceptance of the first option as offered.

As the subject land has now been gazetted for tender, could you kindly prepare a site plan or an engineering design for the proposed development and compile any other information that you consider relevant to be presented to the land board in a months time".

Shell did the engineering designs to help the Plaintiffs to secure title to the land. This is evidence of Shells commitment to the representations made to the plaintiffs.

On 24th February 1992, Shell wrote to the second Plaintiff and said: -

"In the event that you obtain all necessary approval, Shell will be interested on assisting you with the said improvement in terms of engineering design, provision of dispensing equipment and signage to the value of approximately K70, 000.00."

In the meantime the Plaintiffs application for the title to the subject land was being considered and it took the Lands Department a long time to process the Plaintiffs’ applications for a lease. The lease was granted on the 13th January 1993. After the grant of the lease the Plaintiffs on the 16th April 1993 wrote to Shell saying: -

"I refer to your letters dated 3rd June 1991, 11th September 1991 and 24th February 1992, regarding the subject piece of land.

We are now pleased inform you that the subject land has now been granted to our company.

We now wish to proceed with the development plans for the land. We therefore wish to inform your company that the Directors of our company have chosen the 2nd option which is "Shell Company Lease and control.

Our only interest in the site operations will be to operate the tyre service and mini supermarket/hotfood bar which we could build at our own cost in accordance with Shell design and specifications, or which Shell could build and sell back to our company.

Meanwhile could you please arrange a reply to this letter and arrange for a formal lease agreement to be negotiated and signed at an earliest possible date."

The defendant did not reply the Plaintiffs letter and interest in the project on the part of the defendant began to wane. There appeared to have been no communication between the plaintiffs and the defendant although the plaintiffs said they tried to talk to officials of Shell but were unsuccessful in their attempts. Then on 11th December 1994 the plaintiffs wrote to Shell in the following terms: -

"I refer to your letter of 24th February, 1992. As you are aware, your offer contained in the second paragraph has been accepted.

All necessary approvals have been obtained. The cost of obtaining these approvals have been considerable. We now require Shell to assist with the improvement including provision of dispensing equipment, engineering design and signage to the value of approximately K70,000.00.

Kindly advise when Shell is likely to proceed on the basis of our acceptance of Shells terms of agreement."

Nothing eventuated for a while even though the plaintiffs tried to get Shell to help.

On the 2nd February 1995, Shell wrote back to the Plaintiff, in the following terms: -

"As discussed we are not prepared to lease the block from you for a full scale service station development. We will supply you the tanks and pumps as per our commitment to the value of K70, 000.00 if you develop the site. We will assist you with the design and provide you appropriate signage. The installation of our equipment and its maintenance is at our cost. I trust this explains our position."

The Plaintiffs replied the defendant’s letter on the 6th February 1995 saying: -

"I refer to your letter dated 2nd February 1995. We are interested in building a service station on the subject land at our cost. "In accordance with your offer," we are anxious to make arrangements for finance to meet all other costs except for design, signage, tanks, pumps and the cost of installation and maintenance. What we need at this stage however is a formal comprehensive offer from Shell covering all aspects of the proposal including among other things; A) A reseller agreement, B) Design and costing which separates those items and costs that Shell is responsible for from those which Speko will meet, C) Rebates if any. Could you also indicate a possible time-table for this Project and the extent of assistance if any that Shell would offer when we apply for; A) Approvals from relevant Government Authorities, B) Bank Finance. I await your rely."

On the 24th March 1995 the Second Plaintiff rang Mr. Richard Maru of Shell to follow up on his letter of the 6th February 1995. Mr. Maru advised that despite his submission to proceed with the planned development his boss advised that the land area was too small and that Shell now had a policy only to build large service stations and that Shell was not prepared to invest on the subject land. This shattered the hopes of the plaintiffs. The original commitment for a full scale service was watered down by the change of attitude and policy by the defendant.

The Plaintiffs evidence is that Shell never came good with its offer of help in the amount of K70, 000.00 and left him high and dry so to speak having come that far. After that discussion on the telephone with Mr. Maru the plaintiffs had to do something to meet their loan payments and other expenses. The second plaintiff approached Mobil Oil who agreed to help but only to a reduced operation of 3 pumps and a mini supermarket. The plaintiffs say they had no option but to accept Mobil’s offer of a reduced operation, so that they would be in a position to meet their loan repayments.

The second plaintiff said he obtained a loan of K21, 487.46 from the ANZ Bank to pay for the land title registration. He said he used Shells letters of commitment as guarantee to obtain the loan.

It is thus on the strength of those letters and sequence of events that the plaintiffs claim damages. They claim breach of agreement and or a breach of representation. They claim that their conduct in getting the land title secured and the defendants representations by its letters amounted to an agreement. The defendant denies the letters amount to any agreement. The defendant says that the letters were only offers of assistance and by their nature were not binding. Mr. Charles Amini gave evidence of the process involved in getting the defendant to engage in other similar ventures. He was not directly involved in this case. In this case it appears from the evidence that the following facts were not disputed: -

(1) That there were negotiations between the defendant and the plaintiffs to setup a service station at Portion 2185, Milnch of Granville (Erima/Moitaka)
(2) The defendant did express its willingness to help the plaintiffs to set up a service station.
(3) The Defendant put 3 options to the plaintiff to choose from once the service station was establish
(4) The offer of assistance by the defendants to the plaintiff was on the basis that if the plaintiff secured title to the land, the defendant would be interested to assist him in terms of engineering design, provision of dispensing equipment and signage to the value of K70,000.00
(5) The plaintiffs did apply and were granted the State lease to the land.
(6) The plaintiffs advised the defendant of the acquisition of title to

the property and advised of their acceptance of option 1 put to them earlier by the defendant.

(7) By letter dated 2nd February 1995 the defendant was not prepared to lease the block from the plaintiff for a full scale service station but that they would supply the tanks and pumps as per the defendants initial commitment to the value of

K70, 000.00 if the plaintiffs developed the site.

(8) The defendant did not assist the plaintiffs as promised.
(9) After the defendant failed to help, the plaintiffs sought help from Mobil Oil who helped them set up the service station on a lesser scale.
(10) The Service Station set up is of lesser capacity to the one the plaintiff intended to build with the help of the defendant.

The issues for the Court to consider are: -

(a) Whether there was a Contract
(b) If there was, did the defendant breached the Contract
(c) What are the plaintiffs damages if any

(a) Whether there is a Contract.

Osborns Concise Law Dictionary defines a contract as

"An agreement enforceable at Law. An essential feature of contract is a promise by one party to another to do or forbear from doing certain

specified acts. The offer of a promise becomes a promise by acceptance. Contract is that species of agreement whereby a legal obligation is constituted and defined between the parties to it."

For a contract to be enforceable there must be: -

(a) Capacity to contract
(b) Intention to contract
(c) Consensus ad idem (agreement as to the same thing)
(d) Valuable consideration
(e) Legality of purpose
(f) Sufficient certainty of terms

A contract may be in writing, verbal or implied. Where a party bases its claim on a contract the claim rises and falls depending on whether or not there is a contract. This is the primary issue, which must be determined at this stage.

No issue arises as to capacity to contract in this matter. In this case evidence shows there was a clear intention to contract. I arrive at this finding because of the behaviour of the parties and the various correspondences and telephone conversations the parties had.

The parties in this case were in agreement as to what they wanted and that was a fully operational service station. There was to be valuable consideration. There was legality of purpose. The only ingredient that was not clear was the sufficiency of the certainty of the terms. The plaintiffs contend that there was sufficient certainty of the terms while the defendant says there was no certainty of the terms. I have alluded to the evidence earlier. The plaintiffs wanted to establish and operate a service station on the said land. The defendant was interested in helping them if they had title to the land. The plaintiffs obtained title to the land. The defendant was still interested in helping to establish the service station even though it had taken almost 2 years to obtain the title. The defendant had given 3 options to the plaintiffs as to how the service station could be operated. The Plaintiffs opted for options one and then later option two. Even in February of 1995 the defendant was still committed to helping the plaintiffs set up the service station although they were not prepared to lease the block for a full-scale service station development. Then all of a sudden in March 1995 the defendant had a change of heart and told the plaintiffs that it would not help because the land for the proposed service station was too small. The size of the land was never an issue until the 24 March 1995.

While these negotiations were going on the plaintiff had expended a lot of money, time and effort in trying to bring into being the service station. They had obtained a loan of over K21, 000.00 and were preparing with their bankers for another loan to develop the land. The evidence in this case shows that the representations by the defendants affected the conduct of the plaintiffs. The Defendant’s representations made the plaintiffs to apply for title to the land and in so doing, they had to obtain a bank loan to finance the title application and the purchase of the title. The plaintiffs obtained the land which is a valuable commodity in itself but the purpose for which it was obtained was not realised as planned.

In the end the Defendant frustrated its representations because the land was too small. The reason that the land was too small in my view simply put the integrity and the genuineness of the representations into question. I say this because initially there was no issue of the size of the land. The size of the land ought to have been a key factor with title to the land, yet while the title was a major concern at the outset size was not. The Size and title of the land in my view, both ought to have been subjects of concern at the outset as they were pertinent matters.

The language used in the final letter from the defendant to the plaintiffs in my view is sufficient for me to conclude that there was an agreement by the defendant to expend K70, 000.00 for design, signage tanks, pumps and cost of installation and maintenance. That offer was accepted as the plaintiffs were now going to make other financial arrangements to meet all other costs. While this was going on concern about the size of the land came into play and terminated all discussions and plans and effectively terminated the agreement.

I am satisfied that there was an offer by the defendants to spend K70,000.00 on the project, which offer was accepted by the plaintiffs. The K70, 000.00 was never paid when the defendant terminated the deal by coming up with another excuse. The plaintiffs in my view were genuine in their efforts to set up a service station. Those efforts were frustrated by the conduct of the defendant.

Having found that there was an offer and acceptance I find there was a binding contract but that contract was frustrated by the defendant. I therefore find the defendant liable. I order that damages be assessed.
___________________________________________________________________
Lawyer for the Plaintiffs : Powes Parkop Lawyers
Lawyer for Defendant : Posman Kua Aisi