Nicholas v Saul [2021] PGNC 112; N8861 (31 March 2021)

N8861

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO. 894 OF 2018

BETWEEN
ROSEMARY NICHOLAS & JOHN NICHOLAS trading as Mavcon Civil Construction & Plant Hire Services
First & Second Plaintiff

AND:
GABRIEL SAUL in his capacity as District Administrator, Madang District Administration
First Defendant

AND:
MADANG DISTRICT DEVELOPMENT AUTHORITY
Second Defendant

AND:
JOSEPH DOPAR in his capacity as PROVINCIAL ADMINISTRATOR, Madang Provincial Administration
Third Defendant

AND:
MADANG PROVINCIAL GOVERNMENT
Fourth Defendant

Lae: Dowa AJ
2020: 25^th September & 23^rd October
2021: 17^th February & 31^st March

DAMAGES – assessment of damages following entry of default judgment – whether or not default judgment was regularly entered and whether the issue of liability can be revisited -if contract is unenforceable, whether plaintiff can be entitled to damages on quantum meruit basis - default judgment is set aside on the basis that the contract was entered into between two parties where one did not have the legal capacity – some heads of damages are dismissed for lack of pleading and for failing to particularise its claim – contract remains unenforceable but there is evidence the plaintiff incurred expenses prior to termination of contract – plaintiff is only awarded sum of money spent in securing the contract

Cases Cited:

Ace Guard Dog Security Services Ltd v Lailai (2004) SC757

Counsel:

P. Sawanga, for the Plaintiff
S. Maliaki, for the Defendants

DECISION

31^st March, 2021

1. DOWA AJ: This is a judgment on assessment of damages. Default judgment was entered against the Defendants on 17^th June 2019.

FACTS

2. The Plaintiffs instituted proceedings to recover damages against the Defendants for breach of contract for minor road works.

3. On 20^th June 2013, the Plaintiffs were awarded a contract for road works for the Mawan- Bigawa Road, Trans Gogol Local Level Government by the Madang District Development Authority for a contract sum of K500, 000.00. The contract was executed on 24^th June 2013 by the parties.

4. On 8^th July 2013, a part payment of K300, 000.00 by cheque was made to the Plaintiff for mobilisation. However, the cheque could not be banked or accepted by the bank due to discrepancies in the name of the Plaintiff.

5. On or about August 2013, the Defendants terminated the contract. The Plaintiffs allege, the termination of the contract was unlawful and is in breach of the terms of the contract.

6. As a result, the Plaintiffs instituted the current proceedings, seeking damages for breach of contract and other consequential claims. The Defendants defaulted in filing their defence and thus, default judgment was entered against the defendants on 17^th June 2019.

EVIDENCE

7. By consent the parties tendered into evidence their respective Affidavits without cross examination. The Plaintiffs rely on the Affidavit of John Nicholas sworn and filed 16^th June 2020, Exhibit P1. The defendants rely on the Affidavit of Bryan Kramer sworn 10^th and filed 11^th August 2020, Exhibit D1.

8. The parties filed written submissions followed by presentation of oral submissions on 23^rd October 2020. I reserved my ruling.

ISSUES FOR CONSIDERATION

9. In the course of drafting my decision, I noted the defence has raised substantial and threshold issues on liability relating to the Plaintiff’s capacity to contract and the legality of the contract. This raised the following issues:

1. What is the effect of default judgment, and
2. Whether the Court should revisit liability.

c) If the contract is found to be unenforceable, is the Plaintiff entitled to any damages on quantum meruit basis.

10. The parties have not addressed these issues properly. I recalled the matter on 17 February 2021 and raised these issues in Court. I directed both counsels to address the court on 19^th February 2021. On 19^th February 2021, the parties were not ready and requested adjournment. The Court adjourned the matter to 5^th March 2021.Again the parties were not ready, and the matter was adjourned to 15^th March 2021.When the matter returned on 15^th March 2021, the parties were again, not ready for the fourth time. The Court then directed the parties to file their respective submissions by 22^nd March 2021 and the matter was fixed for decision on 26^th March 2021. The parties, especially the Plaintiff was given ample time and opportunity to address the court on this issue but has not done that. I have decided to proceed with my decision as scheduled which I now deliver.

11. The law on the effect of default judgment is settled in this jurisdiction. A trial Judge must satisfy himself with the principles summarised in the cases; Coecon Ltd (Receiver Manager) v The National Fisheries Authority of PNG (2002) N2182, PNGBC v Jeff Tole (2002) SC 694, William Mel v. Coleman Pakalia (2005) SC790, and Albert v Aine (2019) N7772. In Albert v Aine, Kandakasi DCJ at paragraphs 7 & 8 of his Judgment said:

“7. Fourthly, the law on the effect of the entry of default judgment is clear. In Coecon Limited (Receiver/Manager Appointed) v. The National Fisheries Authority of Papua New Guinea (2002) N2182, I summarised the principles that govern an assessment of damages after the entry of default judgement in the following terms:

“A survey of the authorities on assessment of damages after entry of judgement on liability mainly in default of a defendant’s defence, clearly show the following:

1. The judgement resolves all questions of liability in respect of the matters pleaded in the statement of claim.
2. Any matter that has not been pleaded but is introduced at the trial is a matter on which the defendant can take an issue on liability.
3. In the case of a claim for damages for breach of contract as in this case, such a judgement confirms there being a breach as alleged and leaves only the question of what damages necessarily flow from the breach.
4. The plaintiff in such a case has the burden to produce admissible and credible evidence of his alleged damages and if the Court is satisfied on the balance of probabilities that the damages have been incurred, awards can be made for the proven damages.
5. A plaintiff in such a case is only entitled to lead evidence and recover such damages as may be pleaded and asked for in his statement of claim.”
   
8. The Supreme Court in PNGBC v. Jeff Tole (2002) SC694 adopted and applied this summation of the principles. Later, the decision of the Supreme Court in William Mel v. Coleman Pakalia (2005) SC790, did the same. Additionally, however, the Court in that case went further by noting several decisions of the National Court in which the principles were adopted and applied. It then added the following:
   

“Turning back to the issue raised above as to the role of the trial judge after entry of default judgment, we consider the following to be the correct approach:

the trial judge should make a cursory inquiry so as to be satisfied that the facts and the cause of action are pleaded with sufficient clarity;

if it is reasonably clear what the facts and cause of action are, liability should be regarded as proven;

only if the facts or the cause of action pleaded do not make sense or would make an assessment of damages a futile exercise should the judge inquire further and revisit the issue of liability.”

12. I adopt and apply the above principles to ensure that default judgment is in order.
13. The defendants’ lawyers submitted, as a preliminary issue, that the Plaintiff, Mavcon Civil Construction & Plant Hire Services, is not an incorporated entity and did not have legal capacity when it instituted the proceedings.

14. I note from the evidence filed by the directors of the Plaintiff that Mavcon Civil Construction & Plant Hire Services is only a business name. The evidence shows the Plaintiff Rosemary Nicholas as the co- owner of the business name Mavcon Civil Construction & Plant Hire Services. The certificate of registration annexed to the Affidavit of John Nicholas shows the registration of the business name expired on 25^th February 2012. There is no evidence that the registration was renewed. I accept that Rosemary Nicholas is entitled to sue in her own name or under the business name.

15. However, I note from evidence that the contracting parties the subject of these proceedings pose some difficulties. None of the names of the Plaintiffs appear as the contracting parties. The contractor was named as Mavcon Civil Contractor. There is no evidence that Mavcon Civil Contractor is a duly registered company or a business name. In the absence of evidence to the contrary, I am of the view that Mavcon Civil Contractor did not have legal capacity to enter into a contract for works. This is also evident from the letter written by John Nicholas to the Defendants dated 20^th August 2013, Annexure “F” to his Affidavit. Mr Nicholas requested the defendants to change the name on the cheque and the contract documents from Mavcon Civil Contractors to Mavcon Civil Construction & Plant Hire Services.

16. The law on legal capacity is settled in this jurisdiction. The case on point is Ace Guard Dog Security Services Ltd v Lailai (2004) SC757. The Supreme Court said at page 7 of the judgment and I quote:

“For these reasons, the Appellant is not an incorporated company and therefore without any legal personality. The law in this regard is clear. Counsel for the Respondent submits that consequence of the non-existence of the Appellant is fatal to the appeal. He relied on passage from Halsbury, 4th Edition, Vol 37, para 241:

"A corporation, whether incorporated by charter, statute or registration, or a company, whether incorporated by special statute or registered under the Companies Act, must sue or be sued in its corporate title or registered name, as the case may be. A corporation which has ceased to have any juristic existence cannot sue or be sued"

Counsel for the Respondents further rely upon the proposition that under its inherent jurisdiction a superior court of record has power to order the stay of proceedings in circumstances where the proceedings are instituted or continued without lawful authority by the plaintiff and in particular where the action was brought in the name of a non-existent company (Larzard Bros & Co v Midland Bank Limited [1933] AC 289)

We find that the Appellant is not incorporated as a company and therefore has no legal standing. It is therefore incompetent to institute the appeal.”

17. I consider the default judgment entered on 7^th June 2019 was based on the premise that the Plaintiffs’ claim for breach of contract was valid and enforceable. This is not the case. I am of the view that it would be improper to proceed with the assessment based on a default judgment obtained by the Plaintiffs who rely on a contract which was entered into by a party who lacked legal capacity.

18. I am inclined to revisit liability. I will therefore set aside the default judgment entered on 7^th June 2019.

19. What orders should I make? I note whilst there were legal defects, the Plaintiffs were genuinely involved. The Default Judgment is set aside only because of technical and competency reasons. On the other hand, the evidence shows the Defendants did execute the agreement for minor works for K500, 000.00. The contract was executed by John Nicholas and Rosemary Nicholas, the Plaintiffs, the latter, being the registered proprietor of the business name, Mavcon Civil Construction and Plant Hire Services. If I dismiss the proceedings on this technical and competency ground, it will prejudice the Plaintiffs who have done some work at the request of the Defendants. For this reason, I am reluctant to dismiss the claim for lack of capacity.

LEGALITY OF THE CONTRACT

20. The second point of contention, raised by the Defendants is that the contract was illegal, for the following reasons:

1. Non-compliance of Administrative Guidelines and Financial Instructions under the Public Finance Management Act.
2. Ambiguity in the terms of the contract.

100. Breach of the contract
     

NON- COMPLIANCE OF FINANCIAL INSTRUCTIONS

21. The Member for Madang, Bryan Kramer, gave detailed evidence for the Defendants. Amongst other things, Mr. Kramer states, that there was no record or register of any project Identification Document or project formulation document, for this project. This, he says, is a gross non- compliance of Administrative guidelines or financial instruction. This renders the contract illegal.

22. In my view, this is an internal administrative issue for the Defendants. It should not concern the Plaintiffs, provided the Plaintiffs enter the contract in good faith, although the Plaintiffs are expected to be aware of these requirements when doing business with Governmental Authorities. Besides, the Defendants have raised this issue very late in the proceedings.

LACK OF CLARITY IN THE TERMS OF THE CONTRACT

23. The Defendants submit that, for minor contract for works, the following documents should form the basis of the contract.

1. Contractor’s bid
2. Letter of acceptance

100. Quotations

4. Terms and conditions of the Contract
   

24. Ms. Maliaki submits that the letter for the bid for contract dated 15^th February 2013 shows the Plaintiff provided a quote for K339,200.00 and got the job for K500,000.00. The contract executed by the parties did not contain the actual terms and conditions of the contract. The disparity and lack of the terms make the contract irregular and void.

25. I agree with the submissions of counsel for the Defendants. The evidence
is lacking. The contract for works executed on 24^th June 2013 does not contain all the terms and conditions. It does not show the contract price for the works. It does not show the actual amount for the mobilisation etc. There is a clear discrepancy of the figures for the contract bid and the Letter of acceptance dated 20^th June 2013. The contract bid dated 15^th February 2013 shows the Plaintiffs bid for the Mawan to Olog Roadworks for a sum of K399, 200.00. The Letter of Acceptance for the bid quoted a contract sum or price of K500, 000.00. The contract document itself does not state the figure for the price. There is no explanation for the disparity in the contract price for the works. I find, the contract for works executed on 24^th June 2013, ambiguous, irregular and improper for this reason.

DISCREPANCIES IN THE CONTRACT

26. The Defendants submitted that there are discrepancies in the execution of the Contract for Works as to the names of parties, dates and executing authorities.

PARTIES

27. For the Plaintiff, the contracting party named was Mavcon Civil Contractors, a name that is different from the Plaintiff. The contract was executed under the company seal of Mavra Rent Accommodation Limited, a company that is different from the Plaintiffs’ business name. It was witnessed by the Plaintiffs, Rosemary Nicholas and John Nicholas. Despite the discrepancies and lack of capacity, I accept that the contract was signed by the Plaintiffs in the proceedings.

28. For the Defendant, the contract was signed by one Lawrence Pitor, the District Administrator. I accept that he was clearly authorized to execute the contract in his capacity as District Administrator.

DATES

29. I note the contract has two dates of execution. The Plaintiffs signed the contract on 24^th June 2013, whilst Lawrence Pitor, the District Administrator signed the contract on 29^th June 2013. In my view, the different dates of signing by the parties does not on its own affect the execution of the contract.

REASONS FOR TERMINATION

30. The contract for works was terminated in August 2013. There is no correspondences or evidence showing the exact date and reasons for termination. The evidence of John Nicholas by his letter dated 13^th August 2013 indicates that the contract was terminated in August 2013, when the Plaintiffs were unable to transact or cash the initial cheque of K300,000.00. The Defendants position seems to be that the contract was terminated when the Plaintiffs failed to commence the works within a reasonable time after the execution of the contract. Be that as it may, what is clear is that the contract contained the name of a party that did not exist. When the cheque was drawn in the name of Mavcon Civil Contractors it could not be negotiated. There is no evidence disclosing the reasons for a huge junk of the contract price being paid out without any work undertaken. Under the financial instructions, the usual amount fixed for mobilisation is 10% of the contract price. That would be about K 50,000.00 in the present case. The contract was faulty from the beginning.
It appears, when the Plaintiffs, by letter dated 13^th August 2013, requested for amendments to the name both in the contract, and the cheque, the defendants opted to terminate the contract.

CONCLUSION

31. I conclude from my findings that the contract for works was improper, null and void from the beginning for the following reasons:

1. It did not clearly state the terms and conditions.
2. Mavcon Civil Contractor was not a duly registered business name and had no legal capacity to contract.

100. Non-compliance of the minimum requirements of the Administrative Guidelines and Financial Instructions of the Public Finance Management Act.

32. For these reasons, the contract for works dated 24^th June 2013 is void and remains unenforceable.

WHAT ORDERS SHOULD THE COURT MAKE

33. Whilst the contract remains unenforceable, I note the Plaintiffs acted on the contract and incurred expenses prior to the termination. Should the Court award damages for those cost on the principle of quantum meruit?

34. Whilst the parties have not addressed this issue, I will proceed with my ruling as I have given both parties ample time and opportunity to address the court.

35. In the case Fly River Provincial Government v. Pioneer Health Services Limited (2003) SC705, the Supreme Court said, in appropriate cases, the Court can make alternative awards based on quantum meruit.

36. His Honour Kandakasi DCJ, in restating this principle in a recent case, National Broadcasting Corporation v Taison (2019) PGNC 266, N8083 said this at paragraph 46 of his judgment:

“The law on point as represented by the decision of the Supreme Court in Fly River Provincial Government v. Pioneer Health Services Limited (2003) SC705 is clear. A contract as in the present case, that has been arrived at in breach or without duly meeting the requirements of the PFMA is null and void ab initio and is thus unenforceable. Where such a contract has been performed in part, a claim based on the principle of quantum meruit may be possible, provided the private party contracting with the State or any of its entities is innocent of the breaches of the Act.

37. In the present case, there is evidence that the Plaintiffs took the initial steps in performing the contract. The Plaintiffs incurred expenses for the purchase of machinery, plant and for hire, mobilisation and labour. I am of the view that the Plaintiffs are entitled to be reimbursed part of the cost necessarily incurred in the initial performance of the contract.

38. What is or should be the amount? Apart from the contract price, the Plaintiffs are claiming the following consequential claims in the statement of claim:

1. K76,000.00 being for monies lost in returning equipment,
2. K14,000.00 for deposit made for a John Deere JD 8720 Grader

100. K200,700.00 Finance from Credit Corporation

4. K43,505.34 Monies for mobilisation
5. K43,100.00 Mobilisation cost for truck, vehicles, and plant hire
6. K7,200.00 wages for 6 employees
7. K40,000.00 cost involved for securing contract,
8. K94,080.00 loss of business for Dump trucks
9. K50,400.00 Loss of business for two excavators
   

CONTRACT PRICE

39. The evidence shows no work was done in part performance of the contract. One of the reasons for termination was due to delay which was conceded by the Plaintiffs. I therefore make no award.

K76, 000.00- KOMATSHU DOZER

40. The Plaintiffs allege, in reliance on the contract they paid K300, 000 to HBS Hire for a Komatshu Dozer, to use in the project. When the contract was terminated, they returned the Dozer which was redeemed less K76, 000.00. As a result, the Plaintiff suffered loss of K 76,000.00. In my view, the transaction between the Plaintiff and HBS is a private business arrangement, and the Defendant is not a party. I therefore refuse this claim.

K14, 000.00 FOR JOHN DEERE GRADER

41. The Plaintiff made a deposit of K14, 000.00 for the Grader to use in the project. Again, I find that this is a private business deal between the Plaintiff and HBS. The Defendant is not responsible. I reject this claim.

K200, 750.00 – CREDIT CORPORATION LOAN

42. The Plaintiffs allege they obtained a loan of K200, 750.00 to purchase equipment for the project. As the contract is terminated, they suffered loss.
The loan is a private business arrangement between Credit Corporation and the Plaintiffs. The Defendants are not a party and they are not responsible. I therefore reject this claim.

K43, 505.34 MOBILISATION COST

43. The Plaintiff claims this sum for expenses incurred after approval of the roadworks agreement. Mr Nicholas attaches relevant cheque butts for the expenses as listed at paragraphs 17 of his affidavit. Apart from the cheque butts, there is no other evidence like invoices and receipts for these expenses. Secondly, it is difficult to accept whether these expenses are for the mobilisation cost, or whether they are for their normal operations. In the light of these uncertainties, I will only allow for 40% of these expenses which amount to K 17,402.14. I will make an award for this sum only.

K43, 100.00 MOBILISATION COST

44. This claim is for mobilisation cost for a truck, vehicles and plant equipment. The Plaintiffs say it cost them K15, 000.00 for 2 x Nissan UD Trucks. It cost them K17, 600 moving an excavator and K10, 500 for hire of two vehicles transporting culverts. There is no evidence supporting this claim. Mr Nicholas deposed in his affidavit that the documents were lost, when he was robbed on or about 28^th October 2018. In the absence of the necessary invoices and receipts, I will allow only 30% of the claim, which is K12, 930.00. There shall be an award for K 12,930.00.

K7, 200.00 WAGES FOR SIX (6) EMPLOYEES

45. The Plaintiffs say they employed six (6) employees to be engaged in the project. He paid for the period up to termination totalling K7, 200.00. There is some evidence that these six (6) employees were paid. However, there is no clarity whether these employees were specifically engaged for the project or were they already existing employees. Due to the uncertainty, I will only allow 50% which amount to K3, 600.00.

K40, 000.00 COST INVOLVED IN SECURING CONTRACT

46. The Plaintiffs claim K40, 000.00 being for cost incurred in securing the works contract. However, the figure for this component of the claim was not specifically pleaded in the Statement of claim and no documents are produced. Nevertheless, I accept that the Plaintiffs did incur costs in bidding for a contract that did not materialise. In the absence of specific pleading and invoices, I will allow only 30% which is K 12,000.00.

LOSS OF BUSINESS

47. The Plaintiff claims K94,080 being for loss of business for forty-two (42) days when the Nissan UD Dump Trucks were engaged. Had it not been for moving the trucks to Madang, they would have earned income at the daily rate of K2,240 per day. I will reject this claim for the following reasons:

1. This claim was not specifically pleaded.
   
2. There is no evidence of ownership, registration details of the two vehicles. There is no evidence that the vehicles were on hire before they were taken out.
   

100. The Plaintiffs have failed to file Tax and Business Income details to show that the two vehicles were on hire and were making regular income.
     

K 25,200.00 LOSS OF BUSINESS FOR THE HIRE OF EXCAVATORS

48. The Plaintiff claims K 25,200.00 being for loss of business for fourteen (14) days when the two Excavators were left stranded in Madang. Had it not been for moving the machines to Madang, they would have earned income at the daily rate of K1800.00 per day. I will reject this claim for the following reasons:

1. This claim was not specifically pleaded.
   
2. There is no evidence of ownership, registration details of the two excavators. There is no evidence that the excavators were on hire before they were taken out.
   

100. The Plaintiffs have failed to file Tax and Business Income details to show that the two excavators were on hire and were making regular income.
     

CONCLUSION

49. In the end, I have rejected substantiable part of the Plaintiffs claim. I have only allowed a sum of K 45,932.14. I will make an award for this sum only.
INTEREST

50. The Plaintiff is entitled to interest, pursuant to section 4 of the Judicial Proceedings (Interest on Debts and Damages) Act 2015. The Plaintiff submits interest be calculated at 8%. Section 4(2) of the Act provides that any award for interest against the State shall not exceed 2%. This gives the discretion to the Court to fix a rate up to 2%. I am therefore inclined to award interest at 2%. Post judgment shall accrue at the rate of 2% after 30 days from date of judgment. Pre-judgment interest calculated at 2% on K 45,932.14 from date of filing of writ to date of judgment (970 days) is K 2,444.40. The total judgment is K 48,376.54.
COST

51. Cost is a matter of discretion. Generally, cost follow the event, that is, a successful party is entitled to cost. In the present case, the Plaintiff has been awarded a very small component of their claim. I will allow cost at 50%, after taxation.

ORDERS

52. The court orders that:

1. Judgment be entered for the Plaintiffs in the sum of K 48,376.54 inclusive of interest.
2. Post judgment interest shall accrue at the rate of 2% until settlement.
3. The Defendants shall pay 50% of the Plaintiffs cost after taxation.
4. Time be abridged

________________________________________________________________
Gamoga & Co. Lawyers: Lawyers for the Plaintiffs
Solicitor General: Lawyers for the Defendants