Pinpar Developer Pty Ltd and Rimbunan Hijau (PNG) Ltd v TL Timber Development Pty Ltd (2006) N3075

• Jurisdiction: Papua New Guinea
• Judge: Gavara–Nanu, J
• Judgment Date: 09 August 2006
• Citation: (2006) N3075
• Docket Number: WS 1088 of 1996
• Court: National Court
• Year: 2006
• Judgement Number: N3075

Full Title: WS 1088 of 1996; Pinpar Developer Pty Ltd and Rimbunan Hijau (PNG) Ltd v TL Timber Development Pty Ltd (2006) N3075

National Court: Gavara–Nanu, J

Judgment Delivered: 9 August 2006

N3075

PAPUA

[p1]

[p1]

[p2]

[p2] NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

WS 1088 OF 1996

BETWEEN:

PINPAR DEVELOPER PTY LTD

First Plaintiff/First Cross-Defendant

AND:

RIMBUNAN HIJAU (PNG) LTD

Second Plaintiff/Second Cross-Defendant

AND:

T. L TIMBER DEVELOPMENT PTY LTD

Defendant/Cross-Claimant

Waigani: Gavara-Nanu,J

2004: 6, 7, 8 & 19 October

9 November

2006: 9 August

CONTRACT LAW - Agency – Implied agency – Relationship and conduct of parties - Objective test - Servants and agents of a company defined – Privity of contract - Conduct of a subsidiary company – Liability of the parent company.

CONTRACT LAW - Logging and Marketing Agreement – Parties to the Agreement –Logging company - The Contractor – Landowner company - The Permit Holder - Contractor formulating the Agreement without any real involvement of the Landowner company – Contractor telling the landowners to sign the Agreement - Illiterate servants of the Contractor signing the Agreement – Such servants having no capacity to explain the Agreement to the landowners- Contractor having the skill, expertise and the equipment for the timber project - Contractor having advantage over the landowners- Unconscionable conduct by the Contractor- Equitable fraud.

FORESTRY ACT – Forestry Act, 1991, s. 46 – Legislative scheme and structure – Mandatory legislative requirements to be strictly complied with – Respect for resource owners’ rights a mandatory statutory requirement – Interests of the resource owners paramount.

PNG FOREST AUTHORITY – Forestry Act, 1991, ss.5, 6, 7 & 8 – Duty to protect rights and interests of the Permit Holders – Duty to enforce the Forestry Act.

CONTRACT LAW - Logging and Marketing Agreement – Constant flagrant breaches of the Agreement by the Contractor- No remedy for the Contractor.

COMPANY LAW - Parent company – Control of a subsidiary company by the parent company – Pre-requisites to such control – Corporate veil – Circumstances in which corporate veil may be lifted.

PRACTICE & PROCEDURE – Res judicata – Relitigation of issues already decided on merit – Final decision – Abuse of process.

CONTRACT LAW – Duty to mitigate damages – A legal obligation – Failure in not taking reasonable steps to mitigate damages – Reduction in damages awarded.

The cross-claimant, a landowner company and the Permit Holder engaged the first cross-defendant as the Contractor to develop its timber project. The two officers of the first cross-defendant who signed the Logging and Marketing Agreement (‘the LMA’) with the landowners had difficulty understanding and speaking English. Those two officers only attended their first brief meeting with the landowners then had no further dealings with the landowners and the timber project. The LMA was signed between the first cross-defendant and the cross-claimant. The landowners signed the LMA because they were told by the two officers of the first cross-defendants to sign it. The landowners were still concerned with the LMA.

At the time the first cross-defendant signed the LMA, it was not yet registered. It was registered two days after signing the LMA.

The first cross-defendant was a subsidiary of the second cross-defendant. All the subsequent meetings and negotiations between the first cross-defendant and the cross-claimant regarding the logging operations and a draft Sawmill Agreement were held between the officers of the second cross-defendant and the landowners at the head office of the second cross defendant.

The first cross-defendant and the second cross-defendant had same registered office and company Secretary. Some of their Board members were same.

The first cross-defendant had no office and staff of its own. All its affairs were ran and managed by the second cross-defendant and its two other subsidiaries. They also carried out all the obligations for the first cross-defendant under the LMA.

Held:

(i) The first cross-defendant was agent of the second cross-defendant; and that it was purposely incorporated to give it a corporate status so that it could execute the LMA for the second cross-defendant to do logging business. The second cross-defendant was the undisclosed principal of the first cross-defendant.

(i) The second cross-defendant was the parent and the controlling company which ran and managed all the affairs of the first cross-defendant.

(i) There was element of fraud in the conduct of the cross-defendants and that their conduct in telling the landowners to sign the LMA which was formulated by the cross-defendants, with no or little involvement, if any, by the landowners was unconscionable. Odata Ltd –v- Ambusa Copra Oil Mill Limited and National Provident Fund Board of Trustee NZ106 – adopted and applied.

(i) There was constant breach of the LMA by the cross-defendants. In that regard, the landowners had legitimate concerns, which they tried to raise, but were ignored by the cross-defendants.

(i) The legislative scheme and structure as reflected in s. 46 of Forestry Act, 1991 provides for all parties dealing with resource owners to respect the rights of the resource owners. These rights were embodied in the LMA, but were totally disregarded by the cross-defendants as “not important”. In those circumstances, the second cross-defendant should not have the protection of its corporate veil; and it should be lifted, so that it does not avoid its legal obligations. C.B.S Inc. and C.B.S Records Australia Limited and Bali Merchants Pty ltd –v- Ranu Investments Pty Ltd [1978] PNGLR 66 – adopted and applied.

(i) The PNG Forestry Authority has the duty to protect the rights and interests of the Permit Holders and or the resource owners; and to ensure that the requirements of the Forestry Act, 1991, are fully complied with by the Contractors or the developers.

(i) The second cross-defendant is bound by the actions of the first cross-defendant and is vicariously liable to the cross-claimant(ii) (iii)

Cases cited:

Papua New Guinea Cases

Alotau Enterprises Pty Ltd –v- Allen Enterprises Pty Ltd and Zuric Pacific Insurance Corporation N1969.

C.B.S Inc. and C.B.S Records Australia Limited and Bali Merchants Pty Ltd –v- Ranu Investments Pty Ltd [1978] PNGLR 66.

KL Engineering and Constructions (PNG) Limited –v- Damansara Forest Products (PNG) Limited & Ors N2250.

Kora Gene –v- Motor Vehicles Insurance (PNG) Trust [1995] PNGLR 344.

Michael Yaipupu –v- Tourism Development Corporation N2258.

Odata Limited v. Ambusa Copra Oil Mill Limited and National Provident Fund Board of Trustees N2106.

Papua Club Inc.-v- Nusaum Holdings Limited & Ors N2603.

Pinpar Development Pty Limited v- Timbers Development Pty Limited N1857.

Rainbow Holdings Pty Ltd v. Central Provincial Forest Industries Pty Ltd [1983] PNGLR 34.

Tolom Abai and 765 others –v- The State N1402.

Overseas Cases

Albazero (1975) 3 W.L.R 491.

Bromley –v- Ryan [1956] 99 CLR 362.

Commonwealth Bank of Australia –v- Amadio [1983] 151 CLR 447.

Firestone Tyre and Rubber Co. v. Llewellin [1975] W.L.R 464.

Gilford Motor Co. Ltd v- Horne (1933) Ch. 935.

Heatons Transport (St Helens) Ltd v. Transport and General Workers’ Union [1972] 3 All ER 101; [1973] AC 15.

Holdsworth v- Caddies (1995) W.L.R 352.

Industrial Equity Ltd v. Blackburn (1977) 137 C.L.R 567.

Jamal –v- Moolla Dawood Sons & Co. [1916] A.C 175.

Littlewoods Stores V. I. R. C. (1969) 1 W.L.R 121.

Lloyds Bank Ltd –v- Bundy [1974] 3 All ER 754.

Midland Silicones Ltd v- Scruttons Ltd [1962] 2 W.L.R 186.

Re Darby (1911) 1 K.B 95.

Re FG (Films) Ltd [1953] 1 W.L.R 483.

Smith, Stone & Knight Ltd v- Birmingham Corporation [1934] 4 All E.R 116.

Stroms Bruks Actie Bolag –v- John and Peter Hutchinson [7405] A.C 515

Counsel:

J. Shepherd, for Cross-Defendants.

S. Soi, for Cross-Claimant.

1. GAVARA-NANU, J: By a writ of summons issued on 11 November, 1996, the first plaintiff/ first cross-defendant (‘the first cross-defendant’) claimed damages against the defendant/cross-claimant (‘the cross-claimant’) for K751, 280.00 for breach of the Logging and Marketing Agreement (‘the LMA’) between them. The LMA was in respect of the Ormand Lako Timber Permit Area, which was executed on 24 November, 1992; with the first cross-defendant as the Contractor and the cross-claimant as the landowner company and the Permit Holder. The Timber Permit No. 3-30 for that timber project was issued on 19 January, 1990 for a period of 10 years (Ex. ‘A’).

2. The first cross defendant’s claim was based on cl.34 of the LMA, under which it was agreed that the first cross-defendant would build and finance a sawmill in the Timber Permit Area (‘the TPA’) and that the cross-claimant would repay the first cross-defendant for the cost of the sawmill in three years.

3. Clause 34 is in these terms:

34. SAWMILL.

The sawmill shall be entirely owned by the Permit Holder (100% equity). The Contractor shall help finance and set-up the sawmill for the Permit Holder. The total costs incurred in the setting up of the sawmill shall be repaid to the Contractor in three (3) years time without interest. The schedule for payment and other terms and conditions of the sawmill shall be detailed in a separate Management and Marketing Agreement for sawmill by the Permit Holder and the Contractor. The Contractor...