Raikos Holdings Limited v Porche Enterprise Limited (2012) N4776

• Jurisdiction: Papua New Guinea
• Court: National Court
• Date: 24 August 2012
• Citation: (2012) N4776
• Docket Number: OS NOS 616 & 924 of 2006
• Year: 2012

Full Title: OS NOS 616 & 924 of 2006; Raikos Holdings Limited v Porche Enterprise Limited (2012) N4776

National Court: Cannings J

Judgment Delivered: 24 August 2012

CONTRACT—breach of contract—proof of breaches pleaded—whether contract lawfully terminated in accordance with terms of the contract as to termination—effect on enforceability of a contract executed on behalf of a company by persons who lacked actual authority to bind the company.

The plaintiff, a timber permit holder, and the defendant, a logging contractor, entered into a written contract called a logging and marketing agreement, under which the defendant was to develop the timber resources on the plaintiff’s timber rights purchase area and pay levies, remuneration and other benefits to the plaintiff. Thirteen months after commencement of the agreement the plaintiff, under the hand of persons describing themselves as its chairman, deputy chairman and managing director, issued a 14-day notice to show cause to the defendant, specifying various alleged breaches of contract. The defendant failed to respond and a month later the plaintiff gave notice of termination of the contract. In the meantime there was a dispute amongst various persons connected to the plaintiff as to shareholdings and directorships in the plaintiff. During the period of that dispute the plaintiff and the defendant entered into a second logging and marketing agreement, this one being approved and executed by a different group of the plaintiff’s shareholders and directors. That dispute was eventually resolved by a court order in separate proceedings declaring that the group that had approved and executed the first logging and marketing agreement (and issued the notice to show cause) had legitimate ownership and control of the plaintiff. In those circumstances the plaintiff has maintained the action for breach of contract against the defendant, relying on six alleged breaches of contract, and seeking a declaration that it had lawfully terminated the first logging and marketing agreement and that the defendant was liable in damages for breach of contract. The defendant denied any breach of contract and argued that the notice to show cause pursuant to the first logging and marketing agreement was defective and further, by a cross-claim, that the plaintiff was guilty of a breach of contract in relation to both logging and marketing agreements, making it liable for damages. The trial was on the issue of liability only.

Held:

(1) The defendant breached the first logging and marketing agreement in four respects.

(2) The first logging and marketing agreement was not lawfully terminated by the plaintiff; it was, however, terminated upon expiry of the timber permit.

(3) The second logging and marketing agreement was executed by unauthorised persons; and the defendant, having knowledge of the dispute as to ownership and control of the plaintiff, would reasonably be expected to know of the reasonable possibility that those persons were in fact unauthorised. Therefore the second logging and marketing agreement was a nullity.

(4) The defendant failed to prove that the plaintiff was in breach of either of the logging and marketing agreements. The cross-claim failed.

(5) Though it failed to take proper steps to validly terminate the agreement the plaintiff was entitled to damages for losses sustained as a result of the proven breaches of contract.

Cases cited

The following cases are cited in the judgment:

AGC (Pacific) Ltd v Woo International Pty Ltd [1992] PNGLR 100; Gawan Kuyan v Andrew Sallel (2008) N3376; Kui Valley Business Group Inc v Kerry Wamugl (2009) N3667; New Ireland Development Corporation Ltd v Arrow Trading Ltd (2007) N3240; Raikos Holdings Ltd v Tony Tai Tung Chi & Ors OS No 924 of 2006, 23.01.07; Royal British Bank v Turquand (1856) 119 ER 886; Sangara (Holdings) Ltd v Hamac Holdings Ltd (In Liquidation) [1973] PNGLR 504

STATEMENT OF CLAIM

This was the trial of an action for breach of contract.

1. CANNINGS J: The main question in this case is...