Super Builders Ltd v Binkzhu Art Gallery [2021] PGNC 248; N8945 (27 July 2021)

N8945

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS 301 OF 2018

BETWEEN
SUPER BUILDERS LIMITED
Plaintiff/Cross Defendant

AND
BINKZHU ART GALLERY
Defendant/Cross Claimant

Waigani: Thompson J
2021: 8^th & 27^th July

CONTRACT LAW – BREACH – effect of breach – purpose of damages to put claimant in same position as if contract not breached – assessment of damages flowing from breach
Counsel:

Mr. R. Mulina, for the Plaintiff
Mr. R. Obora, for the Defendant

27^th July, 2021

1. THOMPSON J: This is a claim by the plaintiff for monies owing by the defendant, pursuant to a written agreement for the fit-out of a shop in the Vision City Mall (“VCM”).
   
2. The defendant was a small business which designed and manufactured PNG jewellery, artefacts and crafts (“the owner”). The owner gave evidence that he wished to expand his business so that he could increase its profitability. He had discussions with VCM and with the plaintiff in 2016, and was offered a shop in the VCM which was bigger than he needed, but he was persuaded that the bigger size would mean bigger profits for him. He signed a lease with VCM for monthly rental payments of K25,300.00, and was due to commence occupation as soon as the existing occupants moved out and a new fit-out was completed.
   
3. The owner said that he wanted a high quality fit-out for his gallery which was appropriate for the display of his high quality gold and silver jewellery. The plaintiff was an architectural consultant in the business of providing designs and project management services. Its Managing Director (“MD”) gave several designs and quotations to the defendant, which were rejected as being too expensive and unaffordable. On 5 September 2016 the plaintiff provided a written quotation for the shop fit-out in the sum of K164,160.00, which included K101,295.00 for the supply of items from overseas. It was a term of the quotation that the “Construction Duration and Installment will take no more than ten weeks”. This was provided with a Contract Agreement also prepared by the plaintiff, in the sum of K174,160.00, which included a further design fee of K10,000.00, and on 6 September 2016 the parties signed that Agreement. The plaintiff/contractor was described as the “Architect Contractor and Contractor for shop fit-out work” for the defendant/owner at the VCM.
   
4. The English wording in the Agreement was not entirely clear. It listed the respective responsibilities of the contractor and owner. The contractor was responsible for inter alia, project management, “project purchasing activities including time and material contracts, purchasing ... of installation and departmental equipment purchases”. It is not clear what these terms meant. It was the contractor’s responsibility to have a construction period of ten weeks. The owner was responsible for, inter alia, furnishing consulting services not provided by the contractor. There was no specific mention in the Agreement of electrical work.

5. In view of the unsatisfactory nature of most of the evidence produced by both parties, it became apparent only after the evidence was completed, that there was not a true meeting of the minds in relation to the Agreement. The plaintiff believed that the completion date did not apply because of various external factors. The defendant believed that he was paying for a high-quality and all-inclusive fit-out, which was not reflected in the Agreement. After relations broke down between them, these matters were unable to be resolved, and legal proceedings were issued.

6. Pursuant to a term of the Agreement, the defendant immediately paid K80,000.00 by way of a Bank Cheque to the plaintiff on the same date, 6 September 2016. It was an Agreed Fact between the parties that work was to be completed within ten weeks of the date of the Agreement.

7. The MD said that work could not commence until the fit-out plans were approved by the NCD Planning Department and the Building Board. The MD prepared architectural drawings for the fit-out, which included a Lighting and Switches Layout, which were signed by both parties. There is no evidence of when these drawings were submitted to the NCD, but they were approved by the NCD on 3 May 2017.

8. The plaintiff ordered items from China, which the MD said usually took between 4-6 weeks to arrive in PNG, and said that he could not start work until they arrived. The MD also said that he could not start work until the existing tenant had moved out of the shop. There was no evidence of when the tenant moved out, although an email from VCM said that the tenant would be moving out at the end of February 2017.

9. The MD said that the plaintiff commenced work on the fit-out, on 19 May 2017.

10. The MD said that in June 2017, the owner asked for an extra room to be set up inside the gallery, and a quotation was provided on 16 June 2017 for K12,397.00.

11. In response to the owner’s queries about the electrical work, the MD told him that all the electrical and mechanical work was the owner’s responsibility, and further, that it could only be performed by Vision City’s own internal company, Vision Mechanical and Electrical Limited (“VMEL”), and no other persons were permitted to do the work. It is not known if this was a term of the defendants’ lease with VCM. The defendant accepted a quotation from VMEL on 21 June 2017 for the installation of the lighting and adjustments to the air conditioning and so on, in the sum of K38,060.00. The quotation stated that light fittings would not be provided, and the existing air conditioning boxes and diffusers would be re-used.

12. The fit-out was completed on 5 August 2017, and VCM gave the keys to the defendant, who was then obliged to commence paying the monthly rentals. However, the gallery shop did not open for business on that date. The owner objected to the standard of work which had been done. He said that the items supplied were cheap and of low quality. In relation to jewellery display busts, they were made of low-quality material which attracted dust and would quickly wear out, and they were too high to fit inside the display cases. The defendant had to order high quality leather busts in replacement, at a cost of K2,725.00. The floor tiles were loose, which the owner said caused people to slip after entering through the door. The lighting in the showcases was loose, revealing messy silicone and glue. The glass tops of the display cases were not level, all the corners had been cut, leaving wide gaps, and none of them had locks.
They were too narrow to hold the display busts supplied by the plaintiff. These defects were not rectified, and the defendant had to order eight replacement showcases from VMEL, at a cost of K22,000.00. When these further works were completed, the defendant finally commenced opening his business on 01 October 2017, having been paying rent since 5 August 2017.

13. The plaintiffs’ position was that, pursuant to the Agreement of 6 September 2016, the defendant was required to pay K174, 160.00 of which K80,000.00 was paid, leaving a balance of K94,160.00. The plaintiff further claimed K6,500.00 for a “Hoarder”, and K12,397.00 for a Variation, making a total claim of K113,057.00. After a credit of K5,000.00 for tiles, the plaintiff claims K108,057.00 plus interest and costs.

14. The defendant’s position is that, since the Agreement of 6 September 2016, he has paid K80,000.00 to the plaintiff, and has incurred further liability to pay K38,060.00 for the electrical work, K22,000.00 for the showcases, and K2,725.00 for the display busts, making a total of K142,785.00. In addition, he has paid K50,600.00 for two months rent before the gallery was opened, and has lost income for the year before the gallery opened. The defendant therefore cross-claims for K92, 165.00 plus interest and costs.

15. The primary issue concerns breaches of the Agreement, alleged by both parties.

16. It was an Agreed Fact, and it was agreed in the evidence of both parties, that the contractor’s obligation that “construction period will take ten weeks” meant ten weeks from the date of signing the contract on 6 September 2016. This was consistent with the owner’s obligation to “pay K80,000.00 down-payment ... after the contract has been sign (sic) on 6 September 2016”. If there was any ambiguity in the commencement date for the work, it would be resolved against the plaintiff, as the agreement was drafted solely by the plaintiff. However, it was not in dispute that the contractual obligations took effect from the date of signing the agreement on 6 September 2016, and it was agreed that the work was to be completed within ten weeks from that date.

17. This meant that the fit-out was to be completed by 20 November 2016. The fit-out was not completed until 5 August 2017, and as there was then a dispute over the quality of the work, the replacement fit-out was not completed until 01 October 2017.

18. The defendant complied with its obligation to make the immediate down-payment of nearly half of the contract sum. The defendant assumed that the plaintiff would comply with its obligation to complete the work within ten weeks.

19. The owner says that he was not told that the electrical work was not included in the contract sum, and if he had known that it would cost another K38,000.00 to do the agreed fit-out, he would not have accepted the quote or signed the Agreement. He says that he was not told that the supply of items from overseas would take 4-6 weeks, or that the work would not commence until NCD planning permission was given. Whether this was due to the contractor’s failure to inform the owner, or the owner not understanding the information given to him, is not clear. The contractor, however, was aware of these matters, but nevertheless specifically included a term in the contract that the work would be done in ten weeks. The contractor must therefore have assumed, based on his fourteen years of experience, that he could obtain the items and the approvals and carry out the work, in the time specified by him in the Agreement.

20. The time for performance of the contract was plainly an important requirement. While waiting for the fit-out, the owner was operating from a small kiosk in the VCM. He said that this was not consistent with the nature of the business of designing and selling high quality gold and silver jewellery and artefacts. While the owner earned some income from kiosk sales in this period, it was not the income which he expected to receive by opening in the high-class environment of his expensively fitted-out gallery. Time was therefore very important to him.

21. The plaintiff submitted that it was an implied term of the Agreement that the completion date was subject to delays caused by third parties. This was not pleaded. In any event, it was the plaintiff who prepared the Agreement, and it did not put in that term. It put in a term for a specific completion time which left no room for implying a different term which would directly conflict with the actual term. There was no evidence that the defendant intended that the completion date could be extended by delays. On the contrary, a longer time would have been, and was, prejudicial to him. This submission is rejected.

22. The MD’s evidence was that the failure to comply within time, was due to factors beyond the plantiff’s control, namely, the tenants not moving out, the time for items to be delivered from China, and the delay in NCD approval. However, these were all matters well within the plaintiffs’ knowledge and experience.

23. The matter of NCD Planning, is not entirely clear to this court, as it is not clear why NCD Physical Planning approval was said to be required in the first place. The plaintiff submitted that under the Building Act, approval was required for buildings. However, ‘buildings’ are defined to mean structures which provide structural support. Nothing in the internal shop fit-out provided structural support to the VCM building. Under Parts V1 and V11 of the Physical Planning Act, planning permission is required for development. However, “planning permission” is defined to mean approvals for development, including for the use of a building for a non-permitted use, a change in land zoning, or a subdivision. “Development” is defined to mean carrying out building operations, but excludes carrying out work for the alteration of a building affecting only the interior of the building. The alteration of an internal shop fit-out is prima facie not a development, and does not require planning permission.

24. Nevertheless, the issue was not raised in the pleadings, and I will proceed on the basis that NCD Planning approval was in fact required. The plaintiff was in the business of doing such fit-out work, and knew the time it could take to obtain approval. Despite this, the plaintiff specifically included a ten-week completion period in the Agreement. It was therefore the plaintiff who knew of and accepted the risk of any delay which could affect the completion period. As it transpired, there was delay. Whether this was due to any or all of those stated factors, the risk of that delay was known and accepted by the plaintiff when it prepared and signed the agreement, and required the defendant to comply with immediate effect. The plaintiff did not ask to vary the agreement by changing the completion date, at any time after its signing.

25. I find that by failing to complete the fit-out within ten weeks, the plaintiff breached an important term of the contract. The legal consequences of this breach, need to be determined.

26. As stated in Chitty on Contracts, 25^th ed, p.876, the breach of a contract gives rise to a cause of action for damages. It may also, but not always, give a discharge from further liability under the contract. When considering damages, the object is to put the claimant in the same position as if the contract had not been breached but had been fully performed (PNG Aviation Services Pty Ltd v Geob Karri and ors (2009) PGSC 24).

27. As further stated in Chitty pp763-782, the general rule is that a party to a contract must perform exactly what he agreed to do. If an issue arises as to whether his performance was sufficient, the court must construe the contract to ascertain the nature of the obligation, and determine if the actual performance measured up to that obligation.

28. The obligation to complete in ten weeks was important to the defendant, whose position was clearly known to the plaintiff. The plaintiff’s actual performance of this obligation did not measure up to the contractual obligation by a significant margin, in that the work took ten to twelve months instead of ten weeks to complete.

29. The evidence did not show that the defendant treated itself as discharged from the contract, although the defendant certainly did not accept the other alleged breaches. In addition to the breach by delay, the defendant alleged breaches of the obligations to supply items and perform work to the required standard. It appears that the plaintiff rectified the defective tiling work, but did not rectify the items supplied or constructed, so that the defendant had further items supplied and constructed by third parties, at further cost.

30. The MD gave evidence that some of the delay was caused by the owner’s failure to agree to the quoted electrical work. Several quotations had actually been given by VMEL to the plaintiff as far back as July 2016, when the plaintiff was anticipating getting the contract, but there is no evidence that they were given to the defendant. The documents show that a quote was first given to the owner on 20 June 2017, seven months after the agreed completion date. After review, a final quote was accepted on 4 July 2017. A period of two weeks is not an unreasonable time, particularly when the supply of items was said to take 4-6 weeks, and the NCD approval took eight months. This two-week period did not cause or contribute to the delay in completing the work by 20 November 2016.

31. The other factors said by the MD to have caused the delay, namely, the eviction of the tenant, the supply of overseas items, and the NCD approval, were not matters within the defendant’s control. They were not breaches of any contractual obligations of the defendant. Those factors were risks which were well known to the plaintiff, who prepared the Agreement and who could have put in a clause making the completion period dependent on those factors. This was not done, and the plaintiff must be liable for the failure to perform as agreed.

32. The plaintiff’s breach did not entirely discharge the defendant from all its obligations under the agreement. The work was completed, albeit late, so that the issue is whether or not the work measured up to the agreed standards.

33. The evidence does not show when the showcases were received from China and installed into the shop after work started in May 2017. In view of the fact that the Agreement did not show any specific requirements for the high quality sought by the defendant, it would have been prudent for him to have attempted to sort this out before completion. There appears to have been a breakdown in communications between the two parties, each of whom had English as a second language, and a lack of clarity in ensuring that what the defendant wanted, was reflected in the documents.

34. The Agreement is silent on the specifics of the quality of work and some of the materials. The plaintiff said that it completed the work in accordance with the designs. I cannot find reference in the designs to the quality or size of the display busts. In relation to the showcases, the plaintiff said that it had cut the glass tops to allow the defendant to put in more LED lights, but there was no evidence of the defendant requesting this. The plaintiff produced a photograph which was said to be of the completed work. It did not show the joints of the showcases or the corners of the glass tops. The defendant produced photographs showing the cases with the corners cut off and with gaps. The plaintiff said that the showcases fitted together as per the designs, but that the defendant moved them in a way which was not designed. This issue was not resolved by the evidence. The owner did not directly reply to the MD’s evidence that the showcases had been constructed in accordance with the approved design.

35. Under the Agreement, K164,116.00 was payable for the “Fit-out and supplies and Installation”. According to the Quotation provided with the Agreement, of that figure, “supply overseas items costs” was K101,295.00, and excluded the ceiling, painting and tiling installation. A substantial part must have been the cost of supplying the showcases. It is reasonable to infer from the price that the showcases would not be cheap quality. Their design was included in the approved plans, and it appears that the plaintiff partly changed the design by cutting the glass tops. There was insufficient evidence to show if this could have been rectified, or if it meant that the showcases had to be replaced.

36. I conclude that parts of the showcases were not in accordance with the approved plans, which was a breach of the Agreement. The evidence is sufficient to show only that some amount should be allowed for the cost of rectifying the defect, but not for replacing the showcases at a cost of K22,000.00. The design shows that the showcases were to be made of plywood, so it is reasonable to infer that the glass counter tops would be a substantial part of the total cost. I will allow approximately one-third of the replacement cost in the sum of K7,500.00, for rectifying the defect.

37. There was no evidence that the plaintiff had to provide display busts of a certain quality or height. There is insufficient evidentiary basis for a finding that the display busts supplied by the plaintiff were in breach of a contractual obligation for a higher quality or different size. The defendant has not shown that this cost of K2, 725.00 was caused by a breach of the Agreement.

38. In relation to the “Hoarder”, this was not referred in the Agreement or the drawings, and it was not requested by the defendant. The plaintiff has not shown any obligation on the defendant to pay K6,500.00.

39. In relation to the electrical work, it was unfortunate that neither the Agreement nor the drawings made it clear that electrical work was not included, and could only be done by MVEL. Nevertheless, there is no evidentiary basis for a finding that the cost of the electrical work was included in the Agreement. The defendant has therefore not shown that this extra cost of K38, 060.00 was caused by a breach of the Agreement.

40. In relation to the Variation, there was no evidence that it was requested by the defendant, and no clear evidence of any work which was done. A quotation prepared by the plaintiff stated that “the client shall issue a PO upon confirmation and acceptance of this quote”. No PO was issued by the defendant, and so the quote was not accepted. The plaintiff has not shown any obligation on the defendant to pay the quoted sum.

41. This leaves the issue of assessing the damages which flow from the delay.

42. The plaintiff had not requested discovery or production of documents from the defendant. The defendant did not produce records of his actual income before and after the business started operating from the VCM shop. Nevertheless, there was evidence from which it can be inferred that his business was profitable. The owner was in sufficiently good financial standing with his bank to enable him to obtain a Bank Cheque for K80,000.00, as well as to make the further payments to VCEM for the electrical work, replacement show cases and so on, in addition to K25,300.00 per month for rent to VCM.

43. If the plaintiff had performed the contract, the defendant would have moved in and commenced operating his business and receiving income from 20 November 2016, and also would have begun paying K25,300.00 per month rent. He actually began paying rent on 5 August 2017, and moved in and commenced his business on 01 October 2017. The defendant lost income for 10.5 months, but in relation to the lease, he saved 8.5 months’ rent.

44. As the Supreme Court said in NCDC v Yama Security Services Ltd & Anor (2017)PGSC 34):

“The purpose of damages is compensatory. Of course, a court must do the best it can on the evidence adduced to quantify a loss, but there must be some evidentiary foundation for that quantification”.

45. The defendant has not provided accounting records to show his income before and after the business began operating in VCM (see Graham Mappa v PNG Elcom (1995) PNGLR 170). However:

There are occasions in the course of making an assessment of damages when a judge is required to adopt a figure which is little more than a guess, when the evidence for adopting a particular figure is very thin, but it would be wrong to use the paucity of evidence as a reason to value that head of damages at zero.(Nivani v China Jiangsu International (PNG) Ltd (2007) PGNC 46.)

46. The defendant has provided uncontested evidence to show that he must have been making an income which was sufficient to satisfy his bank and landlord that he was able to pay for the fit-out and the lease payments out of his monthly income. He provided a bank cheque for K80,000.00, made numerous substantial payments for further work, and paid K50,600.00 in rentals, before he was able to commence his bigger business and generate a bigger income. I find that the evidence is sufficient to show that the defendant would have been earning an amount in excess of K25,300.00 per month, which would have been sufficient to pay for other expenses such as staff wages, in addition to the rent.

47. I find that this evidentiary foundation is sufficient to quantify the defendant’s monthly income as being a minimum of K25,300.00. His loss for 10.5 months would therefore have been a minimum of K265,650.00. His lease payments for 8.5 months would have been K215,050.00. His nett loss may therefore be assessed at K50,600.00. When K7,500.00 is added for the loss from the defective work, the defendant’s total loss is K58,100.00.

48. Against that, if the contract had been fully performed, the defendant would have to pay the outstanding balance of the contract price, of K94,160.00.

Conclusion

49. The parties signed an Agreement by which K174,160.00 was to be paid by the defendant to the plaintiff for the agreed work in the agreed time. The plaintiff breached the contract, thereby entitling the defendant to an award of damages, which is to be quantified on the basis of restoring the parties to the position they would have been in, if not for the breach. In order to restore the defendant to the position it would have been in if not for the breach, I find that an award of damages of K58,100.00 would be adequate compensation, prior to a set-off for the plaintiff’s entitlements.

50. Pursuant to the statement of claim, the plaintiff has shown that under the Agreement, it is entitled to payment of K94,160.00 from the defendant.

51. Pursuant to the cross-claim, the defendant has shown that it is entitled to damages of K58,100.00 from the plaintiff.

52. Pursuant to O 8 r 26 and O 8 r 41 (2), as well as to the common law principles on assessment, the defendant’s entitlement is to be set-off against the plaintiff’s entitlement, leaving a sum of K36,060.00 owing to the plaintiff by the defendant. In relation to costs, it is relevant that each party has succeeded in establishing part of each claim against the other party.

53. I therefore make the following orders:

(1) Judgement is entered for the plaintiff against the defendant in the sum of K36,060.00.

(2) Interest is payable at the rate of 8% per annum from the date of judgement, on such sum as may remain owing, pursuant to the Judicial Proceedings (Interest on Debts and Damages) Act.

(3) Each party is to pay its own costs.
___________________________________________________________________
Mordelai & Associates Lawyers: Lawyers for the Plaintiff
Raymond Obora Lawyers: Lawyers for Defendant