Raikos Holdings Limited v Porche Enterprise Limited (2012) N4776

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

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

N4776

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

OS NOS 616 & 924 OF 2006

RAIKOS HOLDINGS LIMITED

Plaintiff

V

PORCHE ENTERPRISE LIMITED

Defendant

Madang: Cannings J

2012: 16 February, 9, 16, 21, 23 March, 24 August

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.

Counsel

T Anis, for the plaintiff

S Toggo, for the defendant

24 August, 2012

1. CANNINGS J: The main question in this case is whether either of the parties to a contract has committed a breach of contract giving rise to liability to pay damages. The plaintiff, Raikos Holdings Ltd, a timber permit holder, and the defendant, Porche Enterprise Ltd, a logging contractor, entered into a written contract on 25 February 2005 called a logging and marketing agreement. The plaintiff agreed to make available its timber resources and the defendant was obliged over ten years to develop the resources on the plaintiff’s timber rights purchase area in the Rai Coast District of Madang Province and pay levies, remuneration and other benefits to the plaintiff.

2. On 20 March 2006, 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 why the contract should not be terminated to the defendant, specifying numerous alleged breaches of contract. The defendant failed to respond and on 6 April 2006 the plaintiff gave notice of termination of the contract.

3. On 30 November 2006, the plaintiff’s timber permit, No 12/18, expired, and this had the effect under clauses 6 and 22.4 of the logging and marketing agreement of the agreement being terminated on the same date. A declaration to that effect was made in an earlier ruling on various motions relating to the present proceedings (Raikos Holdings Ltd v Tony Tai Tung Chi & Ors OS No 924 of 2006, 23.01.07).

4. 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, dated 31 January 2007, this one being approved and executed by a different group of the plaintiff’s shareholders and directors. The dispute between the different factions of the plaintiff was resolved by a court order on 26 May 2008 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 (Gawan Kuyan v Andrew Sallel (2008) N3376). The defendant continued to conduct timber operations on the Rai Coast TRP until September 2011.

5. In those circumstances the plaintiff has maintained the action for breach of contract against the defendant, relying on six alleged breaches of contract. It seeks an order that the defendant is liable in damages to it for breach of contract and a declaration that it lawfully terminated the first logging and marketing agreement. The defendant denies any breach of contract and argues 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 is guilty of breach of contract in relation to both logging and marketing agreements, making it liable for damages. The trial was on the question of liability only. The following issues arise:

1 Was there any breach of the first logging and marketing agreement by the defendant?

2 Was the first logging and marketing agreement lawfully terminated by the plaintiff?

3 What is the status of the second logging and marketing agreement?

4 Has there been any breach of contract by the plaintiff?

5 What declarations and orders should the court make?

1 WAS THERE ANY BREACH OF CONTRACT BY THE DEFENDANT?

6. The plaintiff alleges that the defendant breached the following terms of the first logging and marketing agreement:

· clause 10.1, which obliged both the plaintiff and the defendant to comply with the provisions of various Acts of the Parliament;

· clause 11, which obliged the defendant to arrange public liability insurance within 30 days of an approval date;

· clause 16.2, which obliged the defendant to pay to the plaintiff an amount calculated at the rate of K10.00 per cubic metre of logs by which the actual volume sold failed to meet the minimum volume prescribed by schedule 2 of the agreement;

· clause 18, which obliged the defendant to prepare and submit returns to the PNG Forest Authority and to provide monthly reports to the plaintiff on any deviation from the forest working plan, details of the sale of logs and sawn timber and changes in trade conditions;

· clause 20, which obliged the defendant after consultation with the plaintiff to submit a training and localisation plan to the Department of Labour and Employment for approval and to give preference to suitably qualified personnel from the permit area;

· clause 21, which obliged the defendant on behalf of the plaintiff...