CBIP (PNG) Ltd v Landex Ltd [2016] PGNC 416; N6861 (21 March 2016)

N6861

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS No. 1153 OF 2012

BETWEEN:
CBIP (PNG) LIMITED
Plaintiff

AND:
LANDEX LIMITED
Defendant

Waigani: Injia CJ
2016: 29 February, 21^st March

CONTRACT - Claim for money had and received for the plaintiff - Money advanced for mobilization of Contract of service - Non performance - Frustration- Act of God-Cyclone - Whether liable

INTEREST ON JUDGMENT ON DAMAGES- Commercial rate - Discretionary - Delay in prosecuting simple claim for recovery of advance money paid - 3 years 4 months delay - unreasonable - Relevant consideration in exercise of discretion - Commercial interest rate at 12.5 awarded but reduced by 50% on account of delay in prosecuting the claim in Court.

Cases cited in the judgment:
Papua New Guinea Cases

Alotau Enterprises Ltd v Zuric Pacific Insurance Pty Ltd (1999) N1969
KL Engineering & Constructions (PNG) Ltd v Oamansar Forestry Products (PNG) Ltd (2002) N2250
Lawrence Sausau v PNG Harbours Board (2007) N3255
NCDC v Robert Oademo (2013) SC1260
PK Investments Limited v Mobil Oil New Guinea Limited (2015) SC1456
Yamanka Multi Services Limited v NCOC & Hebou Constructions Limited (2010) N3904

Overseas Cases

Baltic Shipping Company v Oillion [1993] CLR 344
Fibrosa Spolka Akeyina v Fairbaim Lawson Combe Barbour Ltd [1942] UKHL 4; [1942] 2 All ER 122
Hirji Muli v Cheong S.S. CO Ltd [1926] AC 497
Re Continental C&G. Rubber Co. Pty Ltd (1919) CLR.

Counsel:

I shepherd, for the Plaintiff
T Tape, for the Defendant

21^st March, 2016

1. INJIA CJ: The plaintiff's claim is for monies had and received for the use of the plaintiff pursuant to a construction contract entered into between the plaintiff and the defendant, the performance of which was frustrated by an unforeseen event, a cyclone, described as "an act of god". The main issue in the trial is whether the cyclone offers a complete defence to the claim.
   

Undisputed facts

2. There is no dispute that on or about 9^th October 2007, the parties entered into a contract, part written and part oral, for the defendant to carry out cut and fill works at Sumberipa Palm Oil Mill Project in the Oro Bay area, for the sum of K1.4 million. The defendant was based in Popondetta and the project site was accessible only by sea. On 20^th October 2007, the defendant entered into a contract with Cakara Alam (PNG) Ltd for the supply of earth moving machinery and equipments to the defendant for the project valued at K500,000.00. The plaintiff was not a party to this contract. On 6^th November 2007, the plaintiff on request advanced the sum of K600,000.00 to meet mobilization costs. The defendant loaded the machinery and equipments on a barge ready to set sail, when Cyclone Guba struck and devastated the Oro Province. A State of Emergency was declared. The barge containing the machinery was grounded. The ship never set sail forcing the plaintiff to complete the works without the defendant's involvement.
   
3. The plaintiff claims a refund of the advance paid on account of mobilization on the basis that there was total failure of consideration on the defendant's part. The defendant says it cannot be held liable for the consequences of a frustrating event that occurred by "an act of god".
   

Pleadings

4. The defence is contained in the Defence to the original statement of claim. However when the plaintiff filed and served its amended Statement of Claim following a Court order granting leave, the defendant did not file its Amended defence. That does not mean that the defendant cannot run its case on the defence to the original claim. It is taken that the defendant joins issue with the new matters pleaded in the amended statement of claim and can run its case on the original Defence. On this point, I agree with the statement of Hartshorn J found in Yamanka Multi Services Limited v NCDC & Hebou Constructions Limited (2010) N3904:
   

“. . . Order 8 Rules 51(5)(d) & (e) do not require an amended defence to be filed. The defence already filed has effect and any new claims in the amended statement of claim are taken to be denied."

5. The plaintiff accepts this position but says the matters pleaded in paragraphs 3, 4 and 5 of the Amended Statement of Claim have not been pleaded to, therefore they stand admitted by operation of 0 8 r 21. In my view, paragraphs 3,4 & 5 of the amended statement of claim plead matters that are not contested. The contract for K1.4 million for cut and fill works at Sumberipa Palm Oil Mill Project, the payment of K600,000 mobilization cost and the defendant's advice that the machinery and equipment had been loaded on to a barge and was ready to be mobilized for the project are facts pleaded in these paragraphs which are not contested by the defendant in the trial, so they can stand admitted for that purpose. The defendants defence of "an act of god" still remains an issue to be determined unaffected by these admitted facts. The plaintiff obviously has joined issue with the defendant on this defence even though it has not filed a reply to the defence.
   

Frustration of Contract by act of god

6. With regard to the merits of the defence, the defendant has produced evidence on the occurrence of a natural disaster of some significant proportion in the time in question. The plaintiff has not countered this evidence. None of the two deponents who filed affidavits countered this evidence. In the circumstances, I find that the performance of the contract was in fact frustrated by "an act of god".
   
7. An unforeseen event that is beyond the control of the parties that frustrates the performance of a contract terminates the contract as to its future performance: PK Investments Limited v Mobil Oil New Guinea Limited (2015) SC1456; also see English and Australian cases cited in the judgment: Hirji Muli v Cheong 5.5. CO Ltd [1926] 497 at 505, Re Continental C&G. Rubber Co. Pty Ltd (1919) CLR ... at pg 201, Fibrosa Spolka Akeyina v Fairbairn Lawson Combe Barbour Ltd [1942]2 All ER 122 at 140.
   
8. Where money is paid in advance to secure the provision of a service, the payee is entitled to recover the advance where there has been a total failure of consideration by the service- provider, even as a result of a frustrating event. The common law prior to 1943 is reflected in the Court of Appeal decision in Chandler v Webster [1904]1 K.B. 493 which held that advance payment for service was not recoverable if the contract was frustrated by an unforeseen event. In 1939, the law changed. The House of Lords overruled Chandler in the Spolka case. In the Spolka case, the respondent contracted with the appellant to deliver machinery and equipments from Leeds to Gydnia. The appellant paid 1,000 BGP as initial payment for the 1,600 BGP contract. Before the contract could be performed, Germany declared war on Poland and Gydnia came under German occupation. As a result, the contract could not be performed. The appellant sued for recovery of the payment. The House of Lords overruled the Chandler decision and held that a payee was entitled to a refund of the advance payment where there had been a total failure of consideration as a result of the frustrating event: for a summary, see Chitty on Contracts, Volume 1, 2008 Thomas Reuters (Legal) Limited, at para 23-072, at page, 1523.
   

9. In Spolka, the correct statement of the principle are found in the speeches of two of the seven (7) Lordships who delivered an unanimous decision. Lord Viscount Simon, at page 122, said:

"The claim by a party who has paid money under a contract to get the money back, on the ground that the consideration for which he paid it has totally failed, is not based upon any provision contained in the contract, but arises because, in the circumstances which have happened, the law gives a remedy in a quasi-contract to the party who has not got that for which he bargained. It is a claim to recover money to which the defendant has no further right because, in the circumstances which have happened, the money must be regarded as received to the plaintiff's use. It is true that the effect of the frustration is that, the contract can no further be performed, "it remains a perfectly good contract up to that point, and everything previously done in pursuance of it must be treated as rightly done"; but it by no means follows that the situation existing at the moment of frustration is one which leaves a party that has paid money and has not received the stipulated consideration without any remedy. To claim the return of the money paid on the ground of total failure of consideration is not to vary the terms of the contract in any way. The claim arises not because the right to be repaid is one of the stipulated conditions of the contract, but because, in the circumstances which have happened, the law gives a remedy."

10. Lord Atkin said at page 133:

"There was a total failure of the consideration for which the money was paid. In those circumstances, why would the appellants not be entitled to receive back the money paid, as money had and received to their use, on the grounds that it was for consideration which has wholly failed? I can see no reason why the ordinary law, applicable in such a case, should not apply. In such a case the person who made the payment is entitled to recover the money paid. That is a right which in no way depends upon the continued existence of the frustrated contract. It arises from the fact that the impossibility of performance has caused a total failure of consideration for which the money was paid."

11. Mr Shepherd for the plaintiff refers me to the Australian High Court decision in Baltic Shipping Company v Dillion [1993] HCA 4; (1993) 176 CLR 344, which refers to the Spolka case. The tourist cruise ship, the "Mikhail Lermantov" struck a shoal off the Cape Jackson on the tip of South Island in New Zealand and sank some 9 days after it left Sydney. The passengers had enjoyed the trip until its’ sinking and for that reason, the contract has been part-performed in good faith. Passengers were not allowed to succeed in a claim for a refund of the fare paid in advance, because there had been partial consideration given.
    
12. The House of Lords decision in the Spolka case is good law. I see no reason why those principles cannot be applied to the case at hand as part of the underlying law. Applying those principles to this case, there clearly has been total failure of consideration. I do not see any reason why the plaintiff should be denied its right to be refunded the advance payment it made to the defendant. The cyclone that frustrated the mobilization from taking place was unforeseen. However the defendant received the money and at no time made any effort to earn the money that it received from the plaintiff.
    
13. It is argued for the defendant that the defendant incurred costs in mobilizing for which it should retain the advance. In my view, the arrangement with Cakara Alam is one in which the plaintiff is not a privy to and it cannot be held to accept obligations under that contract. The contract between the plaintiff and the defendant was entered into on the parties' own terms, accepting each others' ability in terms of resources at their disposal to perform the contract. The defendant's contract with Cakara Alam defeated that understanding. The mobilization commenced but never took off the ground. In effect there was no mobilization in terms of assembling the plant and machinery on site ready to commence the cut and fill operation. In the circumstances there was complete failure of consideration.
    
14. There is also no evidence as to any action taken by the defendant to mitigate the loss. It appears the machinery and equipments were not retrieved from the barge to cut down on costs of storage. The defendant brought upon itself these costs that it is unfairly seeking to pass onto the plaintiff for something the plaintiff is not responsible for.
    
15. For these reasons, I find for the plaintiff. The defence, though established by the facts fails, in law for the reasons I have given.
    

Interest at Commercial Rate: Reduction on account of delay in prosecuting claim

16. With regard to interest, the plaintiff is seeking interest at a commercial rate at 12.5 from 31 October 2012 (when these proceedings were commenced) to the date of judgment: KL Engineering & Constructions (PNG) Ltd v Damansar Forestry Products (PNG) Ltd (2002) N2250; Alotau Enterprises Ltd v Zuric Pacific Insurance Pty Ltd (1999) N1969 (per Sevua J at 13.5), Associated Mills Ltd v Piunde Ltd (per Sakora J, at 12.5). The defendant opposes an award of interest at commercial rate because the contract was frustrated by an act of god and it incurred expenses in the process of mobilizing.
    
17. The award of interest, whether interest at the ordinary rate or commercial rate, is discretionary. Interest at a commercial rate is appropriate where the loss suffered is commercial in nature and the defendant is totally at fault in breaching the contract: KL Engineering & Constructions (PNG) Ltd v Damansar Forestry Products (PNG) Ltd, supra. Cash advance for a substantial amount in a commercial transaction of the sort in this case is one in which interest at the commercial rate will apply. The reasons given by the defendant are immaterial to the issue at hand.
    
18. However, the period for which interest should be awarded should be apportioned between the parties depending on the party that is at fault in delaying the prosecution of this claim in the Court. That is a relevant consideration in the exercise of the Court's discretion on award of interest. As I said In Lawrence Sausau v PNG Harbours Board (2007) N3255:
    

"The relevant period is specified in s 1(1) of (Judicial Proceedings (Interest on Debts and Damages) Act to be from the time the cause of action arose to the date of judgment. But the appropriate period within this period for which interest may be awarded is discretionary. In my view, any delay by the plaintiff in instituting judicial relief and delay in prosecuting the proceedings are certainly relevant considerations in determining the relevant period for which interest on the judgment sum may be paid. Where a plaintiff has unduly delayed the institution of proceedings or prosecuting the proceedings, the Court may apportion a relevant period for which interest is to be calculated and paid." (judgment, paragraph 15).

19. In NCDC v Robert Dademo (2013) SC1260, the Supreme Court canvassed the principles on award of interest on a judgment and affirmed the principles enunciated in the Lawrence Sausau case. The Supreme Court said the award of interest for the type of damage in question; the rate of interest; the amount of damage that should attract the interest whether for the whole or a part thereof; the period for which the interest is to be awarded whether for the whole or a part thereof; and, the kind of interest for that particular type of damage are all matters in the discretion of the Court. The delay by the parties in the timely disposition of the case; delay by the Court or judge in the delivery of its judgment; and, the interest of justice, fairness and equity are also relevant considerations to be taken into account in deciding on the apportionment of the amount of damages and the period for which interest is to be awarded.
    
20. Applying those principles to the case before me, I am satisfied the prosecution of this claim by the plaintiff who carries the burden of proof, has been unduly delayed. It has taken the plaintiff 3 years 4 months to prosecute what is clearly a simple case on the facts and the law, a claim which did not take long to be tried before me. I do not believe it is fair to reward the plaintiff interest at a commercial rate for the full period from the time of institution of these proceedings to the time of judgment. I will apportion this time evenly between the parties, and allow interest for 20 months at the commercial rate at 12.5%.
    

Entry of Judgment

21. For the foregoing reasons, I enter judgment for the plaintiff in the sum of K600,000.00 at 12.5% interest per annum for a period of 20 months plus costs.
    

_______________________________________________________________________
Ashurst Lawyers: Lawyer for the Plaintiff
Kandawalyn Lawyers: Lawyer for the Defendant