Home | Databases | WorldLII | Search | Feedback National Court of Papua New Guinea

Matio v Gogol Reforestation Co Ltd [2013] PGNC 197; N5442 (13 December 2013)

N5442

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO 282 OF 2012

BRUNO DENFOP
Plaintiff

V

WU-JUI MARIO
First Defendant

GOGOL REFORESTATION CO LTD
Second Defendant

JANT LTD
Third Defendant

Madang: Cannings J
2013: 16 August, 6 September, 18 October, 13 December

LAW OF EMPLOYMENT – written contract of service – extension of contract after expiry of period specified in contract: Employment Act, Section 22 (contract period)

CONTRACTS – whether a contract of employment entered into between a company and an employee is enforceable in the event that the person who signed the contract on behalf of the company was not authorised to do so – rule in Turquand's case – principles of agency

The plaintiff was employed by the second and/or third defendants from 1991 to 2010. The second defendant is a subsidiary of the third defendant and the first defendant was a manager of the second and/or third defendants. During most of that period the plaintiff was employed pursuant to written contracts of employment. There were other periods when he was employed under oral contracts of employment and one period when he formed a company and his company was contracted to provide his services to the second and/or third defendants. In November 2010 the defendants ceased paying him any salary or payments for his services. Though no formal notice of termination of employment was given to him, that was the time his employment was in fact terminated, and it was not renewed after that. In March 2012 the plaintiff commenced proceedings against the defendants, claiming damages for breach of contract. The defendants filed a defence, denying liability, and a trial was conducted, which addressed the issue of liability. The plaintiff based his case on the alleged breach of two contracts: (1) a contract between him and the second defendant entered into on 25 May 2006, which he claims was unlawfully terminated on 31 August 2009; and (2) a contract between him and the third defendant entered into on 1 October 2010, which he claims was unlawfully terminated in November 2010. The defendants argued they did not breach either of those contracts as (1) the 25 May 2006 contract expired on 24 May 2008 and the plaintiff was paid his final entitlements under it (and later re-engaged); and (2) the 1 October 2010 contract was defective and unenforceable as it was not properly executed by all responsible persons in the third defendant.

Held:

(1) The 25 May 2006 contract was a two-year contract that was deemed under Section 22(2) of the Employment Act, upon expiry of the period specified in it, to have been extended for an unspecified period. The contract had not expired when the notice of termination was given on 31 August 2009. However, the contract provided for either party to terminate it on one month's notice and that provision was complied with by the second defendant. There was no breach of contract.

(2) The 1 October 2010 contract was signed by a responsible officer of the third defendant on behalf of the third defendant and he was properly regarded as an agent of his principal, the third defendant, who was acting within the scope of his ostensible authority in executing the contract. Further, the rule in Turquand's case (Royal British Bank v Turquand [1856] EngR 470; (1856) 119 ER 886) applies, in that the plaintiff, who was acting in good faith and without reasonable grounds for suspicion that the first defendant lacked or needed further authority to enter into a binding contract, was not to be affected by any actual irregularity or impropriety in the internal regulation of the company. The contract was binding on the third defendant and enforceable by the plaintiff, who proved that the third defendant failed to terminate it in accordance with its provisions. The plaintiff proved breach of that contract.

(3) It was declared that the defendant was not in breach of the 25 May 2006 contract, but was in breach of the 1 October 2010 contract, and that the plaintiff had established, in regard to the latter contract, a cause of action in breach of contract and ordered that the question of all other relief to be granted be referred to an accredited mediator for mediation in accordance with the ADR [Alternative Dispute Resolution] Rules.

Cases cited

The following cases are cited in the judgment:

Raikos Holdings Ltd v Porche Enterprise Ltd (2012) N4776
Royal British Bank v Turquand [1856] EngR 470; (1856) 119 ER 886
Vulupindi v Gideon (2006) N3925

STATEMENT OF CLAIM

These were proceedings in which the plaintiff sought to establish liability in damages for breach of two contracts of employment.

Counsel

B Tabai, for the plaintiff
B B Wak, for the defendants

13th December, 2013

1. CANNINGS J: The question in this case is whether any of the defendants is liable in breach of contract to the plaintiff, Bruno Denfop.

2. Mr Denfop is a forester by profession. He was employed by the second and/or third defendants from 1991 to 2010. The second defendant is a subsidiary of the third defendant and the first defendant was a manager of the second and/or third defendants. During most of that period the plaintiff was employed pursuant to written contracts of employment. There were other periods when he was employed under oral contracts of employment and one period when he formed a company and his company was contracted to provide services to the second and/or third defendants. In November 2010 the defendants ceased paying him any salary or payments for his services. Though no formal notice of termination of employment was given to him, that was the time his employment was in fact terminated, and it was not renewed after that. In March 2012 the plaintiff commenced proceedings against the defendants, claiming damages for breach of contract. The defendants filed a defence, denying liability, and a trial was conducted, which addressed the issue of whether any of them is liable.

3. At the trial it was clarified that the plaintiff based his case on the alleged breach of two contracts:

(1) a contract between him and the second defendant entered into on 25 May 2006, which he claims was unlawfully terminated on 31 August 2009; and

(2) a contract between him and the third defendant entered into on 1 October 2010, which he claims was unlawfully terminated in November 2010.

4. The defendants argue they did not breach either of those contracts as:

(1) the 25 May 2006 contract expired on 24 May 2008 and the plaintiff was paid his final entitlements under that contract (and later re-engaged), so by 31 August 2009 all their obligations under that contract had been discharged; and

(2) the 1 October 2010 contract was defective and unenforceable as it was not properly executed by all responsible persons in the third defendant.

ISSUES

5. Three issues arise:

(1) Has the plaintiff established a cause of action regarding the 25 May 2006 contract?

(2) Has the plaintiff established a cause of action regarding the 1 October 2010 contract?

(3) What orders should the court make?

1 HAS THE PLAINTIFF ESTABLISHED A CAUSE OF ACTION REGARDING THE 25 MAY 2006 CONTRACT?

6. This contract was for a period of two years. It was to expire on 24 May 2008. The plaintiff claims that under clause 10 of the contract, the defendants were required to give him three months notice prior to the expiry of the contract if it desired to renew the employment contract. Instead he continued working for the company after the expiry of the contract. The plaintiff claims that this was a breach of clause 10 of the contract. The plaintiff further claims that the provisions of Section 22(2) (contract period) of the Employment Act 1978 applied. Section 22(2) states:

Where an employee under a contract of service made under Section 19(a) is permitted by an employer to continue his employment after the expiry of the period specified in the contract of service, the contract shall be deemed to be extended, on the same terms and conditions, for an unspecified period.

7. On 31 August 2009, the plaintiff was issued a notice of intention to terminate the contract. The notice stated "that your contract already expired but instead of renewing" the contract of employment, the company wanted to engage him as a subcontractor which will be more beneficial to him. The notice said termination would be effective from 1 November 2009.

8. I uphold Mr Tabai's submission that the contract of employment executed on 25 May 2006 had not expired as stated in the notice. Instead it continued as provided for under Section 22(2) of the Employment Act 1978. However the contract itself provided that either party could terminate it by giving one month's notice. Clause 11 (termination of contract) states:

Either party may terminate this contract with one (1) month notice in writing of intentions to do so, and the employment shall terminate on the expirations of the said notice.

9. The company gave the plaintiff more than one month's notice. Accordingly there was no breach of the contract of employment of 25 May 2006.

2 HAS THE PLAINTIFF ESTABLISHED A CAUSE OF ACTION IN BREACH OF CONTRACT REGARDING THE 1 OCTOBER 2010 CONTRACT?

10. After termination of the plaintiff's employment contract of 25 May 2006, the plaintiff formed the Madang Reforestation Company Ltd and entered into a sub-contract agreement with the second defendant. This agreement was signed on 1 March 2010. The agreement provided that the second defendant would engage Madang Reforestation Company to carry out reforestation work in its project areas or other areas that the company had an interest in. This arrangement did not last long.

11. On 1 October 2010 the plaintiff entered into another written contract of employment with the third defendant. This contract was signed "for and behalf" of Jant Ltd [the third defendant] and GFC Ltd [the second defendant] by a person described as "Mr Pui Yiu Ng (Stoney), MHC & GRC Manager". According to the contract the plaintiff was now the log supervisor. His salary was K300.00 per fortnight or K7,800.00 per annum. That was K800.00 per fortnight less than his salary under the 25 May 2006 contract. After two fortnights' salary in performance of the employment contract, the plaintiff did not receive any more salary, effectively meaning that he had been terminated by the defendants. No notice of intention to terminate the contract was given in accordance with clause 14 of the contract.

12. The defendants now say that that contract was defective as it was not executed properly by all the responsible persons in the company. When the defect was realised the third defendant exercised its power to terminate the contract as the management regarded the contract as null and void. Mr Wak for the defendants submits that the 1 October 2010 contract is therefore unenforceable.

13. I reject Mr Wak's submission. I find that the 1 October 2010 contract was signed by Mr Pui Yiu Ng (Stoney), MHC & GRC Manager, who was a senior manager of the third defendant and properly regarded as an agent of his principal, the third defendant, who was acting within the scope of his ostensible authority in executing the contract (Vulupindi v Gideon (2006) N3925). Further, the rule in Turquand's case (Royal British Bank v Turquand [1856] EngR 470; (1856) 119 ER 886) applies, in that the plaintiff, who was acting in good faith and without reasonable grounds for suspicion that the person who signed on behalf of the company lacked or needed further authority to enter into a binding contract, was not to be affected by any actual irregularity or impropriety in the internal regulation of the company (Raikos Holdings Ltd v Porche Enterprise Ltd (2012) N4776).

14. The contract was binding on the third defendant and enforceable by the plaintiff, who has proved that the third defendant failed to terminate it in accordance with its provisions. The plaintiff has proven breach of this contract.

3 WHAT ORDERS SHOULD THE COURT MAKE?

15. The plaintiff would appear to be entitled to damages for breach of the 1 October 2010 contract. However, rather than making an order to that effect and going through the process of setting the matter for trial on assessment of damages, I think it would be beneficial to all parties to attempt mediation of the remaining areas of dispute. I am not in a position to make orders that would bring these proceedings to finality. The most appropriate course of action is for the court to declare the positions of the parties regarding the claims of breach of contract and to refer all remaining areas of dispute, including orders that would determine the proceedings and the costs of the proceedings, to mediation.

16. Under the ADR Rules the National Court is empowered by Rule 5(2), of its own motion, to order mediation for a resolution of any part of any proceedings provided that at the time of considering whether to order mediation it has regard to the factors prescribed by Rule 5(3). I have had regard to those matters. I consider that: (a) mediation will not result in prejudice to the rights of either party; (b) it is reasonably within the ability and power of both parties to comply with a mediation order; (c) mediation will not entail substantial work for either party; (d) the nature of the relief sought lends itself to mediation; (e) a mediation at Madang can be set up very soon and this should be convenient to both parties; (f) neither party has expressed opposition to the prospect of mediation; (g) mediation has not yet been attempted and it should be attempted at least once before consideration is given to setting down a trial; (h) neither party loses the right to have remaining areas of dispute tried in court; and (i) it is in the interests of justice to attempt mediation as a method of resolving disputes such as this. I will therefore declare the positions of the parties on the questions of liability determined by the trial and refer, by a separate mediation order, all remaining areas of dispute, including costs of the proceedings, to an accredited mediator.

ORDER

(1) It is declared that the plaintiff has, in respect of the contract dated 25 May 2006, failed to establish a cause of action against any of the defendants.

(2) It is declared that the plaintiff has, in respect of the contract dated 1 October 2010, established a cause of action in breach of contract against the third defendant.

(3) The question of appropriate orders and declarations that will determine these proceedings by addressing all remaining areas of dispute, including costs of the proceedings, shall be referred to an accredited mediator in accordance with the ADR Rules and a separate mediation order.

Judgment accordingly.
____________________________________________
Tabai Lawyers: Lawyers for the Plaintiff
Kunai & Co Lawyers: Lawyers for the First Defendant