Cameron Construction Ltd v Shorncliff (PNG) Ltd [2023] PGNC 39; N10138 (27 February 2023)

N10138

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO. 1131 OF 2011 (COMM)

BETWEEN:
CAMERON CONSTRUCTION LIMITED
Plaintiff

V

SHORNCLIFF (PNG) LIMITED
Defendant

Waigani: Anis J
2021: 8^th September, 15^th December
2023: 27^th February

CONTRACT –debt recovery action – premised on 2 contracts – main construction contract and sub-contract to the main contract – payments made for 21 invoices except for 1 which was invoice 22 – invoice rejected – whether the sub-contract was an assignment contract – assignment and sub-contract discussed - whether plaintiff can claim sum based on invoice 22 which is premised or calculated under Rise and Fall Claims which is under clause 70 of the main construction contract – considerations – ruling

Cases Cited:
Papua New Guinean Cases

Cameron Construction Ltd v Shorncliffe (PNG) Ltd (2019) N8073

Overseas Cases
Robson v Drummond [1831] EngR 312; (1831) 2 B & Ad 303
Humble v Hunter [1848] EngR 527; (1848) 12 QB 310 at 317
Johnson v Raylton, Dixon & Co. [1881] UKLawRpKQB 114; (1881) 7 QBD 438
Text:

Halsbury’s Laws of England, CONTRACT, 4^th EDITION, at para 337

Counsel:
N Kopunye, for the Plaintiff
K Gamoga, for the Defendant

DECISION

27^th February, 2023

1. ANIS J: This was a trial on liability and quantum. Parties tendered their evidence by consent without the benefit of cross-examinations. All the evidence, that is, affidavits that were tendered were given exhibit numbers. I heard the second leg of closing submissions on 15 December 2021 before I reserved my decision.

2. This is my ruling.

BACKGROUND

3. The material facts are not in dispute. The plaintiff and the defendant entered into a sub-contract on 17 June 2006 (the sub-contract). The sub-contract was signed after the defendant signed a major road construction contract (the main contract or CSTB 0612 contract) with the Independent State of Papua New Guinea (the State) in that year in 2006. The contract was funded by the State through the Asian Development Bank (No. 1709-PNG). The work was to upgrade the Okuk Highway at Chuave in Chimbu Province.

4. The main contract is quite thick with over 500 pages. The parties, by this proceeding, did not attach a full copy except extracted pages of the main contract that they consider relevant for this purpose. The extracted pages are contained in various annexures to Exhibit P1 (i.e., affidavit of Peter Cameron filed on 2 November 2011).

5. The State was named as the Second Defendant but had been removed as a party during the course of the matter leading up to trial. The State was not aware of the sub-contract between the defendant and the plaintiff, and it did not give its consent to the sub-contract. These facts are not contested herein.

6. So, the parties including the State had worked without any major issues during the tenure of the 2 contracts. What had transpired then after the signing of the 2 agreements, which is not disputed, may be summarized as follows. The plaintiff would carry out the work and invoice the defendant as per the terms of the sub-contract. The defendant would verify the invoices or work carried out by the plaintiff. If the defendant is satisfied, it would forward the costs or invoices to the State for payment. The State would pay the defendant accordingly based on the terms and conditions of the main contract. In the present matter, and say before the dispute started, a total of 21 invoices were forwarded by the plaintiff to the defendant to verify and submit to the State for payment. The defendant had the invoices verified. It submitted the costs under its name to the State for payment. The State fully paid the costs to the defendant, that is, costs that were premised on the 21 invoices that had been issued by the plaintiff to the defendant. In return, the defendant paid the plaintiff a total sum of K10,929,504.37.

7. The dispute the subject of this proceeding concerns the 22^nd or final invoice which was issued by the plaintiff to the defendant to verify and submit to the State for payment. The 22^nd invoice no. is 1162, and it is dated 1 March 2008 (invoice 22/ the final invoice) for a sum of K541,049,70. The issued final invoice, according to the plaintiff was for Rise and Fall Claims. This claim is permitted under clause 70 of the main contract. The defendant considered the invoice but refused to verify it. In other words, it rejected the final invoice. It also asked the plaintiff to forward the final invoice directly to the State for verification and payment. The State, when the matter was brought to its attention, also refused to pay the final invoice. It argued, amongst others, (i), that the plaintiff was not privy to the main contract, (ii), that it was not aware of the sub-contract and (iii), that it never gave its consent to the defendant to assign any work under the main contract. It also stated that if there was an issue concerning the main contract, then it was up to the defendant to refer the matter to arbitration, that is, as provided for under the main contract. The defendant, however, refused to adhere to the request by the plaintiff or the State to refer the matter to arbitration.

8. The plaintiff then filed this recovery proceeding on 30 September 2011. The plaintiff appears to rely on both agreements to make its claim. It seeks as relief, the following at para 52 of the statement of claim:

“(a) A Judgment against either Defendants for the principal sum of K541,049.70;

(b) Past interest on the debt of K541,049.70, calculated at K118.59 per day commencing 1/3/2008 to date of judgment;

(c) Interest on the Judgment Debt at the rate of 8% per annum from the date of the Order to date of payment; and

(d) Cost of this proceeding to be taxed, if not, agreed to between the parties.”

ISSUE

9. The main issue is legal. The issuance of invoice 22 by the plaintiff and the refusal to process and make payment by the defendant and the State, are not denied.

10. The plaintiff’s claim is premised on its purported legal interest in contract law under the legal concept assignment of contract. The plaintiff claims that the sub-contract constituted an assignment of the defendant’s interest in the main contract over to it. As such, it claims that it was entitled under clause 70 of the main contract, to make a claim and issue invoice 22 for Rise and Fall Claims; that it was on that basis that it issued invoice 22 which it claims it was entitled to.

EVIDENCE

11. I note the evidence that have been filed. I have given them exhibit numbers. The plaintiff filed 5 affidavits in total and the defendant 3. As stated earlier, the evidence were tendered without objections or cross-examinations.

SUB-CONTRACT

12. The sub-contract is attached as annexure C to Exhibit P1 (affidavit of Peter Cameron filed on 2 November 2011). However, the attachment does not attach the second page of the letter. A complete copy of the letter or the sub-contract is attached as annexure A to Exhibit D1 (affidavit of Alfred Yau filed on 18 September 2019). The sub-contract is written in a letter by the defendant which is dated 17 June 2006.

13. The main contents of the sub-contract reads:

“Further to our discussions we attach the subcontract Schedule on Rates, as agreed. This agreement is also conditional on the following:

• Cameron Construction Ltd (CC) must submit its claim to our supervising Engineer by the 24^th of each month.
• CC will only be paid by Shorncliffe for approved quantities as certified by the Employers Representative. No other payment will be made.
• Payment for each item is based on CC meeting the full obligation of the item within the conditions of contract and technical specifications. No extras claims from CC to Shorncliffe will be accepted if CC cannot meet these requirements for whatever reasons.
• Payment by Shorncliffe to CC will be made within 7 days of Shorncliffe receiving payment from the Employer.
• No external claims to the BOQ will be accepted by Shorncliffe unless approval in writing is given by Shorncliffe’s General Manager prior to the costs being incurred,
• In the event CC believes it has grounds for additional compensation this must be submitted to Shorncliffe’s General Manager. Shorncliffe will then with all due care assess the claim and if it believes it can be supported will present it to the Employer as a claim. If the claim is then paid by the Employer Shorncliffe will pass on payment of CC’s component of the claim to CC. If the claim is rejected then CC will not be entitled to any payment from Shorncliffe.
• The advance payment that is applicable to the contract will not be applicable to CC. However, subject to Shorncliffe having received the advance payment CC will be paid item 2.1 Mobilisation within 7 days of Shorncliffe’s acceptance that the mobilisation has been completed.
• CC is liable for liquidated damages at 0.1% of its subcontract price per day with a limit of 10% of its subcontract price. Shorncliffe reserves the right that after notification to CC in writing it can remove whatever works it deems necessary to remove from CC and undertake these works itself in order to limit the extent of any potential LD’s. In this case CC will not be paid for works completed by Shorncliffe.
• In accepting this subcontract CC is committed to completing this subcontract in full. Shorncliffe will have entitlement to seek costs if CC is unable to complete the subcontract.

Shorncliffe signed the Letter of Acceptance on the 4^th May 2004. At the time of this letter no Letter of Delegation has been received by Shorncliffe. Shorncliffe has however verbal advice that a pre-start meeting will be held on Tuesday 20^th June. Shorncliffe will advise of the outcome.

Shorncliffe is interested in establishing a working relationship with Cameron Construction Ltd and as such look forward to a mutually beneficial Contract. Should you require any further information, please contact the undersigned.” (Underlining mine)

WHICH CONTRACT IS APPLICABLE?

14. So, the plaintiff is suing the defendant. The State is no longer a party. And so, I ask myself this. Which contract is the plaintiff asking this Court to consider in the present proceeding?

15. The plaintiff is relying on the concept assignment of contract as the basis for making its claim against the defendant, which premised on clause 70 of the main contract re Rise and Fall Claims. Clause 70 is titled, Changes in Cost and Legislation. The extracted page of the main contract containing clause 70.1 is attached as annexure M to Exhibit P1. It reads:

“Price Adjustment

The amounts payable to the Contractor and valued at base rates and prices pursuant to Sub-Clause 60.1(d), (e), and (f) shall be adjusted in respect of the rise or fall in the cost of labor, Contractor’s Equipment, Plant, materials and other inputs to the Works, by the addition or subtraction of the amounts determined by the formulae prescribed in this Clause.”

16. I note the parties’ submissions on this.

17. With respect, I note that the plaintiff is not specific with its assignment claim. If the plaintiff is alleging that the sub-contract is the actual assignment contract agreement, then there is simply no basis for this, and I would dismiss the claim. This is simply because the sub-contract and its terms and conditions are expressly clear as stated above herein. It is not an assignment of the defendant’s rights and obligations under the main contract, but rather, it is a sub-contract between the plaintiff and the defendant.

18. This Court, in granting the State’s application to remove itself as a party to the proceeding, in Cameron Construction Ltd v Shorncliffe (PNG) Ltd (2019) N8073, stated at para 15:

15. With these, my finding is this. I cannot see any document or evidence that shows or demonstrates the likelihood of a binding contractual relationship between the plaintiff and the second defendant. The plaintiff’s contractual relationship appears clearly to be with the first defendant, that is, pursuant to the sub-contract. The plaintiff’s own evidence proves these. I note that counsel for the first defendant has also confirmed the different relationships, that is, of the plaintiff, the first defendant and the second defendant.

19. There are of course the exceptions to the Doctrine of Privity of Contracts. One of the common law exceptions is assignment of choses in action which may be made by the conduct of the parties or by operation of law. This was however not argued by the plaintiff. And I must say that without submissions in this regard, the Court’s role is not to speculate or make decisions that are based on speculations.

20. And I make the following additional observations. If it is the case, or if I am to accept this claim of alleged assignment of contract, then I have these queries. Why is it that during the term of the 2 contracts, the plaintiff was submitting all its invoices, not directly to the State, but rather, to the defendant for verification and payment? Or why is it that the plaintiff had only been dealing with the defendant and not the State during the tenure of the 2 contracts? Why did the plaintiff not inform the State from the very start that it had been assigned the main contract by virtue of the sub-contract and that the State should only or directly deal with it? Why did it had to wait all this time and only where when invoice 22 was rejected by the defendant, that it is making this claim on assignment of contract? I observe that the conduct of the plaintiff, in my view, does not appear to support its arguments and claim.

21. Also, strictly observing the principle, privity of contact, which I had found earlier to not exist between the plaintiff and the State, the plaintiff, I observe, had, or has a relationship with the defendant which was or is premised on the sub-contract. Invoice 22, I observe, was rejected by the defendant because it was issued premised on clause 70 of the main contract. The plaintiff was not a party to the main contract. This issue was settled after I had ruled on the removal application by the State.

22. This leads me to this one issue which I must decide on, which is this: whether the sub-contract constituted an assignment of the main contract. I note that I have answered that above herein including findings on the conduct of the parties in regard to the subcontract, that is, they do not support the submission or proposition on assignment of contract.

23. Secondly, if it was the case (i.e., assignment of contract), clause 4.1 of the main contract does not recognize an assignment such as this as claimed by the plaintiff. Rather, the main contract would treat the sub-contract or assignment as illegal or void because it is not disputed that the defendant did not obtain the consent or permission of the State before it entered into the sub-contract with the plaintiff. See case: Robson v Drummond [1831] EngR 312; (1831) 2 B & Ad 303. Part of para 337 of Halsbury’s Laws of England, CONTRACT, 4^th EDITION reads:

As a rule a party to a contract cannot transfer his liability under that contract without the consent of the other party. This rule applies both at common law and in equity and is generally unaffected by statute.

24. The cited cases for these were: Robson v Drummond (supra), Humble v Hunter [1848] EngR 527; (1848) 12 QB 310 at 317 and Johnson v Raylton, Dixon & Co. [1881] UKLawRpKQB 114; (1881) 7 QBD 438. Generally speaking, an assignment of contract may be defined as a legal clause or term that allows for one party of a contract to transfer its rights, obligations, and responsibilities therein, to a third party. It is also imperative in such situations, that the other party (i.e., the party whose contracting partner is trying to offload or assign its rights and obligations to a third party) gives its consent to the intended assignment.

25. As for the present case, the general rule however is not necessary as the main contract expressly states under clause 4.1 that the other party’s consent (in this case, the State) is required if one of the parties (in this case, the defendant) to the main contract intends to assign its obligations. And it is not disputed that the defendant did not obtain such a consent from the State. However, I do note the defendant’s argument which is that it had sub-contracted with the plaintiff and that there was no assignment involved.

26. Let me elaborate. The sub-contract between the plaintiff and the defendant is what it is, a subcontract. It is expressed as such in the defendant’s letter to the plaintiff dated 17 June 2006 and I have set that out above herein. There is no clause in the sub-contract that assigns the defendant’s rights and obligations in the main contract to the plaintiff. The defendant, by the sub-contract, engaged the plaintiff to perform work under the main contract that it had with the State. Evidence adduced shows that the plaintiff may have been the only contractor who was performing the work that was assigned to the defendant under the main contract. That may very well have been the case. However, the plaintiff cannot claim what it thinks or says it deserves but rather what it had negotiated or contracted for. In this case, the plaintiff was clearly bound by the sub-contract and its terms and conditions and not the main contract.

27. Let me also say this. It is not disputed that invoice 22 was issued by the plaintiff to the defendant premised on clause 70 of the main contract, that is, it included the calculations of its costs that are based on Rise and Fall formulae. By that fact alone, it means that the plaintiff’s invoice may not be a valid invoice from the start. The plaintiff is not privy to the main contract. It is a sub-contractor and was bound by the sub-contract. It has no interest, right or authority to issue such an invoice directly to the defendant or to the State to request or demand payment.

28. Clause 70 could only be invoked by the parties to it which were the defendant and the State. The same would apply for arbitration and other clauses in the main contract. They do not apply to or affect the plaintiff.

SUMMARY

29. For these reasons, I find the claim to be without merit and therefore it must be dismissed.

COST

30. An award of cost in this type of claim is discretionary. I will order cost to follow the event on a party/party basis to be taxed if not agreed.

ORDERS OF THE COURT

31. I make the following orders:

1. The proceeding is dismissed in its entirety.
2. The plaintiff shall pay the defendant’s cost of the proceeding on a party/party basis which may be taxed if not agreed.
3. Time for entry of these orders is abridged to the date and time of settlement by the Registrar of the National Court which shall take place forthwith.
   

The Court orders accordingly
________________________________________________________________
Kopunye Lawyers: Lawyers for the Plaintiff
Gamoga Lawyers: Lawyers for the Defendant