Madang Shipping & Stevedoring Agencies Ltd v Celso [2011] PGNC 327; N4294 (13 May 2011)

N4294

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO 927 OF 2000

MADANG SHIPPING & STEVEDORING AGENCIES LIMITED
Plaintiff

V

PETE C CELSO
First Defendant

RD FISHING (PNG) LIMITED
Second Defendant

Madang: Cannings J
2010: 24 May,
2011: 13 May

CONTRACT – oral agreement for provision of services – dispute as to duration of contract – circumstances in which contract could be terminated – whether reasonable notice of termination was an implied term of the contract – assessment of damages.

The plaintiff entered into an oral contract with the second defendant for the provision of stevedoring services, with payments made on a tonnage basis. After two years the second defendant terminated the contract without notice. The plaintiff claimed damages of approximately K2 million for breach of contract on the ground that the parties had agreed that the contract would run for 20 years and no provision was made for early termination.

Held:

(1) The plaintiff failed to prove that the contract was to run for 20 years; the better view of the terms of the contract being that the duration was indefinite.

(2) In a commercial arrangement of indefinite duration the Court will readily imply a term that the arrangement was able to be terminated by either party on reasonable notice. Such a term should be implied here.

(3) In the circumstances of this case the period of reasonable notice was one month. As no notice was given there was a breach of contract to that extent.

(4) Damages should be restricted to the amount of income that would have been received by the plaintiff in the notice period (which according to the statement of claim was K9,000.00) discounted by 50% due to the failure of the plaintiff to mitigate its losses and the lack of evidence as to the extent of its losses.

(5) Damages were assessed at K4,500.00 plus interest of K4,212.00, being a total judgment sum of K8,712.00.

Cases cited

The following cases are cited in the judgment:

Cheong Supermarket Pty Ltd v Pery Muro [1987] PNGLR 24
Jonathan Mangope Paraia v The State (1995) N1343
Pacross Limited v Rouna Development Limited (2009) N3648
PNG Aviation Services Pty Ltd v Geob Karri (2009) SC1002

STATEMENT OF CLAIM

This was a trial on liability and assessment of damages for breach of contract.

Counsel

J Lai, for the plaintiff
I R Shepherd, for the defendants

13 May, 2011

1. CANNINGS J: The plaintiff, Madang Shipping & Stevedoring Agencies Ltd, and the second defendant, RD Fishing (PNG) Ltd, entered into a contract under which the plaintiff provided stevedoring services to the second defendant. It was an oral contract negotiated by Madang Shipping's managing director, John Sigara, and RD's managing director, Pete Celso (the first defendant). It was agreed that RD would pay Madang Shipping at the rate of K8.50 per tonne of frozen tuna loaded and unloaded from its fleet of vessels. The contract commenced operation on 27 August 1997 and was terminated by RD on 12 September 1999 without prior notice to Madang Shipping.

2. Aggrieved by termination of the contract, Madang Shipping, in 2000, commenced proceedings against RD, claiming damages of approximately K2 million for breach of contract on the ground that the parties had agreed that the contract would run for 20 years and that no provision was made for early termination. The National Court in 2006 determined that RD was liable, with damages to be assessed, but RD successfully appealed to the Supreme Court against that decision and the case has returned to the National Court for retrial. Four issues arise:

1. What were the terms of the contract?
   
2. Are the defendants liable in breach of contract to the plaintiff?
   
3. If liability is established, what damages, if any, should be awarded to the plaintiff?
   
4. Should an award of interest be made in favour of the plaintiff?
   

1 WHAT WERE THE TERMS OF THE CONTRACT?

3. The court heard oral evidence from Mr Sigara that the duration of the contract was 20 years and that this had been agreed at a meeting between him and several of RD's managers at Siar in 1997. He said that the main reason Madang Shipping was willing to agree to the low rate of K8.50 per tonne being offered by RD was the long-term nature of the agreement. An affidavit by Mr Sigara to that effect was admitted into evidence.

4. Against that evidence stands an affidavit by Mr Celso who states that Madang Shipping was never offered a 20-year contract and that it was made clear to Mr Sigara from the very beginning that the arrangement would be only temporary until RD constructed its own wharf, which it did, with the project being completed in the third quarter of 1999. Mr Celso says that he encouraged Madang Shipping to enter into negotiations with landowner groups from the Vidar Plantation area and form a joint venture to provide stevedoring services for RD. However, that did not happen, so when RD shifted its operations to the newly constructed wharf in 1999 it was necessary, by virtue of its obligation to provide spin-off contracts to local groups, to enter into a new stevedoring contract with a landowner group and to terminate the arrangement with Madang Shipping.

5. I prefer the evidence of Mr Celso. The evidence shows that RD commenced operations in 1997 and was using Madang Harbour as a temporary base, pending completion of its new wharf at Vidar. It is very difficult to believe that in these circumstances RD would have entered into a 20-year contract, let alone a loosely-worded oral agreement arising out of a meeting, of which no written record was made.

6. Madang Shipping has therefore failed to prove that the contract was to run for 20 years. The better view is that the contract was for no fixed period, ie of indefinite duration. That raises the issue of what provision was made for termination of the contract. As there is no direct evidence on this issue, it is appropriate to invoke the general principle of contractual interpretation that in a commercial arrangement of indefinite duration the Court will imply a term that the arrangement was able to be terminated by either party on reasonable notice (Pacross Limited v Rouna Development Limited (2009) N3648). Such a term should be implied here, especially as the contract continued to the mutual benefit of the parties for more than two years before being terminated by RD. On the facts available, I consider that a reasonable period of notice was one month.

2 ARE THE DEFENDANTS LIABLE IN BREACH OF CONTRACT TO THE PLAINTIFF?

7. Yes. RD concedes that it, in fact, gave no formal notice to Madang Shipping. It argues that Madang Shipping knew all along that its services would be terminated once the new wharf was commissioned. However, I consider that some element of formality was required. I find that RD breached the contract by terminating it without giving one month's notice to Madang Shipping. This finding applies only to the second defendant, RD Fishing (PNG) Ltd. It does not apply to the first defendant, Mr Celso, who was not a party to the contract with Madang Shipping.

3 WHAT DAMAGES SHOULD BE AWARDED TO THE PLAINTIFF?

8. When assessing damages in contract the court seeks to put the injured party in the position it would have been in but for the breach of contract. The object is to put the plaintiff in the same position as if the contract was performed or, at least, not breached (PNG Aviation Services Pty Ltd v Geob Karri (2009) SC1002). Given the nature of the proven breach, I consider that damages should be restricted to the amount of income that would have been received by the plaintiff in the notice period of one month. According to the statement of claim this was K9,000.00. However this figure should be discounted by 50% due to the failure of the plaintiff to provide any evidence of mitigation of its losses and the dearth of evidence as to the extent of its losses. Mr Shepherd, for RD, submitted that the court could justifiably award the plaintiff nothing. However, the fact that damages cannot be assessed with certainty does not relieve the wrongdoer of the necessity of paying damages. Where precise evidence is available the court expects to have it. However, where it is not, the Court will do the best it can (Jonathan Mangope Paraia v The State (1995) N1343). Here, a reasonable inference can be drawn from the oral evidence of Mr Sigara and from the affidavit evidence of Mr Celso that Madang Shipping would have been paid at least the monthly sum referred to in the statement of claim. I therefore assess total damages at K4,500.00.

4 SHOULD AN AWARD OF INTEREST BE MADE?

9. In the statement of claim the plaintiff claimed interest under the Judicial Proceedings (Interest on Debts and Damages) Act Chapter No 52. Section 1(1) is the appropriate provision. As Bredmeyer J pointed out in Cheong Supermarket Pty Ltd v Pery Muro [1987] PNGLR 24, it confers a four-fold discretion on the Judge: (1) whether to grant interest at all; (2) to fix the rate; (3) to grant interest on the whole or part of the debt or damages for which judgment has been given; and (4) to fix the period for which interest will run. I exercise that discretion in the following way:

1 A plaintiff should in the normal course of events receive interest. There is nothing that takes this case out of the ordinary in that regard. The Court will order that interest be included in the sum for which judgment is given.

2 The conventional rate of interest is 8%. In view of current economic conditions in the country I think 8% is the proper rate of interest.

3 Interest should be payable on the whole of the sum for which judgment is given.

4 The appropriate period is the whole of the period between the date on which the cause of action arose and the date of the judgment. The cause of action arose on the day the contract was terminated without notice, 12 September 1999. The date of judgment is 13 May 2011. The appropriate period, for the sake of mathematical convenience, is 11.7 years.

10. I calculate the amount of interest by applying the following formula:

• D x I x N = A
  

Where:

• D is damages;
• I is the rate of interest;
• N is the numbers of years;
• A is the amount of interest.
  

Thus:

• K4,500.00 x 0.08 x 11.7 = K4,212.00.
  

COSTS

11. The general rule is that costs follow the event, ie the successful party has its costs paid for by the losing party on a party-to-party basis. The question of costs is a discretionary matter. In view of the amount of damages claimed by the plaintiff, approximately K2 million, both sides have had a victory of sorts. It is appropriate in these circumstances that they pay their own costs.

ORDER

(1) The second defendant is liable in breach of contract to the plaintiff, who has established that he is entitled to damages.

(2) The second defendant shall pay to the plaintiff damages of K4,500.00, plus interest of K4,212.00, being a total judgment sum of K8,712.00.

(3) The parties shall bear their own costs.

(4) Time for entry of the order is abridged to the date of settlement by the Registrar which shall take place forthwith.

Orders accordingly.
____________________________
Thomas More Ilaisa Lawyers & Attorneys: Lawyers for the Plaintiff
Blake Dawson Lawyers: Lawyers for the Defendants