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Pacross Ltd v Rouna Development Ltd [2009] PGNC 16; N3648 (20 February 2009)

N3648

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS 14 OF 2007

BETWEEN:

PACROSS LIMITED
Plaintiff

AND:

ROUNA DEVELOPMENTLIMITED
First Defendant/Cross Defendant

AND:

SILVER PLATE LIMITED
Second Defendant/ Cross Claimant

Waigani: Hartshorn J.
2008: 22nd October,
2009: 20th February

CONTRACT - Termination - no provision for - whether could be terminated on reasonable notice – existence of implied term in agreement to terminate – first defendant did terminate agreement on reasonable notice

CONTRACT - Injunction - whether cause of frustration of contract - injunction capable of being an event which changes nature of outstanding contractual rights and obligations of parties – first defendant to refund to cross claimant initial sum paid to return to position they were in before agreement

Facts:

Pacross Ltd and Rouna Development Ltd agreed that Pacross would purchase scrap metal at Rouna’s premises. Pacross alleges that Rouna breached the agreement by terminating it. Pacross commenced this proceeding seeking specific performance, damages and injunctive relief against Rouna. Pacross obtained interlocutory injunctive relief against Rouna. Silver Plate Limited alleges that it agreed with Rouna to purchase scrap metal at Rouna’s premises but that the injunctive relief obtained by Pacross has prevented that agreement being performed. Silver Plate joined the proceeding as second defendant and issued a cross claim against Rouna seeking amongst others, damages.

Held:

1. ‘In a commercial arrangement of indefinite duration, the Court will readily imply a term that the arrangement was able to be terminated by either party on reasonable notice, if not at will.’ Lawfund Australia Pty Ltd v. Lawfund Leasing Pty Ltd & Ors [2008] NSWSC 144 and Crawford Fitting Co v. Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438 adopted and applied.

2. There was an implied term in the agreement between Pacross and Rouna for it to be terminated on reasonable notice being given by either of them. Rouna had terminated the agreement after giving reasonable notice to Pacross and in so doing had not breached the agreement.

3. As the performance of the agreement between Silver Plate and Rouna was frustrated by an injunction that was not issued as a result of the fault of either party and for which there was no provision in the agreement, Silver Plate and Rouna are discharged from their obligations under the agreement. Codelfa Construction Pty Ltd v. State Rail Authority of NSW [1982] HCA 24 adopted and applied.

Cases cited:

Papua New Guinea Cases:

Nil

Overseas Cases:

BP Refinery Pty Ltd v. Hastings Shire Council (1977) 52 ALJR 20
Codelfa Construction Pty Ltd v. State Rail Authority of NSW [1982] HCA 24
Crawford Fitting Co v. Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438
Lawfund Australia Pty Ltd v. Lawfund Leasing Pty Ltd & Ors [2008] NSWSC 144,
Regate v. The Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 KB 592
Software Link (Australia) Pty Ltd v. Texada Software Inc [2005] FCA 1072

Counsel:

Mr. N. Kubak, for the Plaintiff
Mrs. G. Elai, for the First Defendant Cross Defendant
Mr. A. Jerewai, for the Second Defendant Cross Claimant

20 February, 2009

1. HARTSHORN J: Pacross Ltd (Pacross) and Rouna Development Ltd (Rouna) agreed that Pacross would purchase scrap metal at Rouna’s premises. Pacross alleges that Rouna breached the agreement by terminating it. Pacross commenced this proceeding seeking specific performance, damages and injunctive relief against Rouna. Pacross obtained interlocutory injunctive relief against Rouna.

2. Silver Plate Limited (Silver Plate) alleges that it agreed with Rouna to purchase scrap metal at Rouna’s premises but that the injunctive relief obtained by Pacross has prevented that agreement being performed. Silver Plate joined the proceeding as second defendant and issued a cross claim against Rouna seeking amongst others, damages. I will consider the claim between Pacross and Rouna first.

Pacross and Rouna

3. It is not disputed that there is no provision contained in the written agreement between Pacross and Rouna for its determination, or that Rouna terminated the agreement.

4. Pacross pleads that it is implied in the agreement that an innocent party can terminate the agreement because of a substantial breach by the other party and then on proper notice after reasonable attempts to rectify the breach have failed. Pacross has not committed a substantial breach and therefore Rouna was not entitled to terminate the agreement as it did.

5. Rouna pleads that there was no such implied term, no substantial breach and that it was entitled to terminate the agreement on reasonable notice as the agreement had been performed. Alternatively, as there is no start or termination clause and no agreement as to quantum, the agreement is void for uncertainty.

Issue

6. The major issue is whether Rouna is liable to pay damages for breach of the agreement.

7. Counsel for Pacross submitted that it was implied in the agreement that an innocent party could terminate the agreement following a substantial breach of the agreement by the other party and that such termination would take place upon proper notice and after reasonable attempts to rectify the breach had failed. He cited the Privy Council decision of BP Refinery Pty Ltd v. Hastings Shire Council (1977) 52 ALJR 20 which set out conditions that must be satisfied before a term is implied in a contract. At p. 26 it was stated:

"In their (Lordships) view, for a term to be implied, the following conditions (which may overlap) must be satisfied: 1) it must be reasonable and equitable; 2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; 3) it must be so obvious that ‘it goes without saying’; 4) it must be capable of clear expression; 5) it must not contradict any express term of the contract."

8. Counsel for Rouna submits that as to the term being obvious, the relevant time for considering this is when the contract was entered into, Regate v. The Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 KB 592. As the intention of Rouna was not to sell all the scrap metal on its premises to Pacross, such a term was not obvious to Rouna.

9. In earlier English cases, there had been recognition that a contract which contained no provision for its determination could be determined by reasonable notice. This approach has been followed in the Courts of Australia especially in relation to agreements of a commercial nature. The following cases make reference to some of those English authorities:

10. In Software Link (Australia) Pty Ltd v. Texada Software Inc [2005] FCA 1072, Ryan J. quoted the following from Crawford Fitting Co v. Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438, 443-4:

‘When the question arises whether a commercial agreement for an indefinite period may be terminated, the answer depends upon whether the agreement contains an implied term to that effect: Winter Garden Theatre (London) Ltd v. Millennium Productions Ltd [1948] AC 173 at 205; Martin-Baker Aircraft Co Ltd v. Canadian Flight Equipment Ltd [1955] 2 QB 556 at 581; Australian Blue Metal Ltd v. Hughes [1963] AC 74 at 97; Decro-Wall International SA v. Practitioners in Marketing Ltd [1971] 1 WLR 361 at 371, 376; [1971] 2 All ER 216 at 224, 229 and Barro Group Pty Ltd v Fraser [1985] VicRp 59; [1985] VR 577 at 583-584, 585. The existence of the term is a matter of construction. But the question of construction does not depend only upon a textual examination of the words or writings of the parties. It also involves consideration of the subject matter of the agreement, the circumstances in which it was made, and the provisions to which the parties have or have not agreed: Re Spenborough Urban District Council’s Agreement [1968] Ch 139 at 147.

After noting, at 443, authority to the effect that there is no presumption of permanency in the case of an indefinite commercial agreement but if there is it is in favour of termination and not perpetuity, his Honour went on to observe, at 444, 445 and 448;

‘Whether a contract is terminable on reasonable notice instead of at will also depends upon the existence of an implied term: Winter Garden Theatre (London) v Millennium Productions Ltd (at 206); Martin-Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd (at 581); Australian Blue Metal Ltd v. Hughes (at 99). That question is determined by the circumstances existing at the date of the contract: Australian Blue Metal Ltd v. Hughes (at 99). However, the reasonableness of the period of notice depends upon the circumstances existing when the notice is given: Winter Garden Theatre (London) Ltd v. Millennium Productions Ltd (at 199-200); Australian Blue Metal Ltd v Hughes (at 99); WK Witt (WA) Pty Ltd v. Metters Ltd and General Industries Ltd [1967] WAR 15 at 23-24; Decro-Wall International SA v Practitioners in Marketing Ltd (at 370; 224; 376-377; 229; 381; 234).’

11. In the New South Wales Supreme Court case of Lawfund Australia Pty Ltd v. Lawfund Leasing Pty Ltd & Ors [2008] NSWSC 144, Brereton J. considered that Crawfords case (supra) was authority to the effect that:

‘In a commercial arrangement of indefinite duration, the Court will readily imply a term that the arrangement was able to be terminated by either party on reasonable notice, if not at will.’

12. The above authorities are persuasive in this jurisdiction. I respectfully adopt the principles referred to in Crawford’s case (supra) in considering the agreement between Pacross and Rouna.

Whether implied term to terminate

13. Here, the subject matter of the agreement is the sale and purchase of scrap metal. Essentially it is a contract for the sale of goods. There is no evidence as to the circumstances in which the agreement was made. Mr. Subramaniam for Pacross deposes that the agreement was for all the scrap metal within Rouna Quarry. Mr. Lutschini for Rouna in his evidence stated that there was never any agreement as to the duration of the agreement or as to termination. He also stated that he understood that if a third party offered a higher price for the scrap metal, then Rouna’s management could accept such an offer. This suggests a belief that the agreement with Pacross was able to be terminated.

14. In this regard I note that in an email put into evidence by Mr. Subramaniam that was sent to Mr. Lutschini, Mr. Subramaniam states that:

"We had anticipated that with our existing agreement with you, should any other offers for the metal come to you, that we would be informed and given an option or new offer that would allow us to continue to take the metal."

15. To my mind this envisages a likelihood that the agreement was able to be terminated. Given the above, that there is no presumption as to permanency but if there is it is in favour of termination, I am satisfied that there was an implied term in the agreement to terminate.

Whether terminable on reasonable notice or at will

16. As to the circumstances existing at the date of the agreement, Mr. Subramaniam deposes that 16 shipping containers were placed at Rouna’s premises. The scrap metal was to be placed in the containers. If the agreement was to be terminated then, Pacross would require some period of time to remove the containers and redeploy staff. I am satisfied therefore that there was an implied term that the agreement could be terminated on reasonable notice being given.

Reasonable notice

17. As to the circumstances that existed at the time that notice of termination of the agreement was given, in an email to Mr. Subramaniam annexed to his affidavit, Mr. Lutschini states that 5 containers remained at the quarry. Pacross would require time to move those containers from the premises and to redeploy staff. The amount of notice given in the email for Pacross to cease operations is 11 days from the date of the email. To my mind, that is sufficient time to organise the removal of the containers and to redeploy staff.

18. Consequently, I find that there was an implied term for either Pacross or Rouna to terminate the agreement between them on reasonable notice being given and that Rouna did terminate the agreement on reasonable notice. Pacross has failed in its case against Rouna.

Cross claim

19. As to the cross claim by Silver Plate against Rouna, Silver Plate pleads amongst others that the agreement between it and Rouna cannot be performed due to the restraining order taken out by Pacross against Rouna on 11th January 2007 and entered on 12 January 2007.

20. Silver Plate further pleads that by reason of that Court Order, it has suffered loss and damage. Silver Plate has not pleaded that the actions of Rouna in anyway were responsible for the loss and damages that it alleges that it has suffered.

21. Rouna in defence to the cross claim pleads that the agreement between Silver Plate and Rouna was not rescinded or terminated, that it has not breached that agreement, that the cross claim is dependent upon Pacross’ claim, that any claim for damages by Silver Plate for the frustration of the agreement should be made against Pacross.

22. As to the agreement between Silver Plate and Rouna being frustrated, the case of Codelfa Construction Pty Ltd v. State Rail Authority of NSW [1982] HCA 24 is authority to the effect that an injunction is capable of being an event which changes the nature of the outstanding contractual rights and obligations of the parties from those that the parties could reasonably have contemplated at the time of the execution of the agreement to such an extent, that it would be unjust to hold them to the terms of the contract. This is subject to the injunction not being issued as a result of the fault of either party and for which there is no provision in the agreement. In such cases both parties should be discharged from further performance.

23. Here, the injunction was granted by the Court upon the application of Pacross. The effect of the injunction was to prevent Rouna from selling any scrap metal to Silver Plate or to perform any of its obligations under the agreement. The injunction and its continuation were opposed by Rouna and Silver Plate. Rouna maintained that it had validly terminated its agreement with Pacross and my finding in this regard vindicates this position. In any event, as mentioned, Silver Plate has not pleaded that its loss and damage were because of any actions of Rouna.

24. I am satisfied that the performance of the agreement between Silver Plate and Rouna, that was only valid until 30th June 2007, was frustrated by the injunction and consequently, subject to one outstanding issue, Silver Plate and Rouna are discharged from their obligations under the agreement. The outstanding issue is that Silver Plate paid a deposit of K85,250.00 to Rouna. To return the parties to the agreement to the position they were in before entering the agreement, Rouna should refund that sum and pay interest from 30th June 2007 until payment.

Orders

a) The plaintiff's claim against the first defendant is dismissed and the interlocutory order made on 11th January 2007 and entered on 12th January 2007 and any extension thereof is discharged.

b) The plaintiff is to pay the first defendant's costs of the proceedings to the first defendant.

c) The first defendant cross defendant and the second defendant cross claimant are discharged from their obligations under the agreement between them dated 20th December 2006.

d) The first defendant cross defendant is to pay to the second defendant cross claimant the sum of K85,250.00 together with interest from 30th June 2007 until payment on that amount at 8% per annum.

e) The first defendant cross defendant and second defendant cross claimant are to pay their own costs of and incidental to the cross claim.

f) The first defendant is at liberty to apply before me for an assessment of damages on the plaintiff's undertaking as to damages filed on 10th January 2007.

_________________________________________

Norbert Kubak & Co Lawyers: Lawyers for the Plaintiff
Pacific Legal Group: Lawyers for the First Defendant/ Cross Defendant
Jerewai Lawyers: Lawyers for the Second Defendant/Cross Claimant