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National Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
WS NO. 1339 OF 2017
BETWEEN
JAY L W CONTRACTORS LIMITED
Plaintiff
AND
COVEC PNG LTD
Defendant
Waigani: Linge A J
2021: 13th, 18th & 23rd November
CONTRACT – Breach of Contract – International Federation of Consulting Engineers (FIDIC) Contract – Sub-Contract Agreement – Complimentary Agreement – Performance delay.
Jay L W Contractors Limited executed a Sub - Contract with Covec (PNG) Ltd on the 21 August 2012 to undertake all temporary and permanent Works on the 13 kilometers of Laiagam-Porgera Road portion of the Okuk Highway in Enga Province. The 13 km of road works under the Sub-Contract is a portion of the 65 kilometres of road works under the Main Contract between the State and Covec (PNG) Ltd. The scope of work was reduced to 7.25 km under the Complimentary Agreement with consequential reduction of subcontract value to K14,999,670.00 from K26,860,035.72; the balance of 5.741km valued at K11,860,365.72 being retained by Covec (PNG) Ltd. Jay L W Contractors Limited completed the reduced component of the works under the Sub-Contract and the Complimentary Agreement and claims outstanding contractual payments and damages due to it under the Sub-Contract and the Complimentary Agreement. Covec (PNG) Ltd also filed a cross claim alleging liquidated damages and additional costs.
1. JLW is entitled to General Damages, Part A and Part B as pleaded in the Amended Statement of Claim as highlighted in this ruling.
2 JLW is entitled to Special damages as pleaded in as far as it is legally permissible and directly relates to this proceeding plus relevant interest and costs.
3 Covec is entitle to its cross claim and liquidated damages.
Cases Cited:
Papua New Guinean Cases
Bio Normalizer (PNG) Ltd v CPL (2009) N3649
Board of Management v Moses Sariki (2013) N5446
Curtain Bros (Qld) Pty Ltd v PNG [1993] PNGLR 285
Kurumbukari Ltd v Efi (PNG) Ltd (2012) N4704
Lee v Burua (2003) N2404
Nivani Ltd v China Jiangsu International Ltd (2007) N3147
Reference by East Sepik Provincial Executive (2011) SC1154
Supreme Court Reference No.4 of 1980, [1982] PNGLR 65
Overseas Cases
Brightside Kilpatrick Engineering Services v Mitchel Construction (1973) Limited
Geary, Walker & Co. Ltd v W Lawrence & Son, (1986) HBC (4th edit) Vol.2 P.382 CA
Counsel:
Mr R. Lains, for the Plaintiff
Mr R. Kasito, for the Defendant
3rd May, 2022
Background
4. The Main Contract was for 65 Kilometres of road works in the contract value of K169,923,783.61. Covec `performed the said contract on behalf of its parent company, CRC. The Main Contract adopts the International Federation of Consulting Engineers (FIDIC) terms of contract, and the duration of the said main contract was 24 months or up to 9 March 2014.
Facts
6. JLW commenced work on the 11 September 2012 being 21 days after execution of the Subcontract and its anticipated completion date
was the 11 September 2014. JLW mobilized its equipment and personnel onto the project site and on the 15 September 2012 Covec paid
K 799,325.60 as Mobilization money to JLW. By then delay started to creep in due to several factors which are the subjects of disputes
and cross claim.
7. On the 10 July 2014, JLW and Covec entered into a Complimentary Agreement (hereinafter the “Complementary Agreement”) to basically mitigate the losses that were allegedly caused by JLW’s continuous delay. Under the Complimentary Agreement, the scope of work to be undertaken by JLW was reduced from 13 kilometres to 7.25 kilometres with consequential reduction of subcontract
value to K14,999,670.00.
8. Covec retained 5.741 kilometres of contract works originally sub-contracted to JLW on the stretch of Road starting at Section CH 7 + 259.7-CH 13+000 valued at K11,860,365.72 and new completion date of the subcontract was confirmed as the 30 December 2014.
9. JLW did not complete the subcontract on or by the 30 December 2014 and a Meeting was convened on the 14 April 2015 wherein Covec stepped in and took over the subcontract to practical completion on the 5 September 2015 and the Taking over Certificate issued.
10. JLW filed this proceeding claiming outstanding contractual payments and damages due to it under the Sub-Contract and the Complimentary Agreement. Covec on the other hand issued its cross claim for liquidated damages and additional costs.
Evidence of Parties
Plaintiff
11. Plaintiff evidence consists of the following sworn affidavits:
1. Jacob Jim filed 16 April 2018.
2. Jacob Jim filed 27 July 2018.
3. Jacob Jim filed 15 May 2019.
4. John Gundy filed 1 July 2020.
5. Luke Niap filed 1 October 2020.
6. Eddie Wi filed 23 September 2020.
7. Jacob Jim filed 26 July 2021
12. Defendant evidence consists of sworn:
1. Affidavit of Shi Ding filed 4 May 2018.
2. Affidavit of Shi Ding filed 4 June 2018.
3. Affidavit of Lai Xiang Lo filed 11 June 2019.
4. Affidavit of Lai Xiang Lo filed 30 August2019.
5. Affidavit of Lai Xian Lo filed 18 December 2020.
6. Affidavit of George Guo sworn and filed 18 December 2020. 7. Affidavit of Lai Xiang Lo filed 28 July 2021.
8. Affidavit of Cang Shan sworn and filed 26 July 2021.
9. Affidavit of Lai Xiang Lo filed 6August 2021
Submissions of Counsels
Part A
13. Counsels’ submissions are made specifically under the various Heads of claims emanating from the Sub-Contract, the Complimentary Agreement, and the pleadings. That is, the claims relate to alleged withholding of contractual dues and entitlements due to JLW by Covec. The Main Contract also provide useful references and background to the various heads of claims. The Cross claim filed by Covec against JLW for liquidated damages and additional costs it incurred after it took over the remaining works on the 14 April 2015 is also considered.
Interim Payment Certificate (IPC)
14. Progress claims are provided for in Sub-clause 25 of the General Conditions of the Sub-Contract. The Clause stipulates that progress claim with necessary documentation are to be submitted by the Sub-Contractor on the 28th day of each month to the Head contractor for certification and then onward for signing by the Engineer. Claims become payable upon
signing by the Engineer in accordance with the agreed payment procedure.
15. Mr. Lains for JLW submits that the Covec had submitted 22 progress claims. Of these, claims referred to as Interim Payment Certificate (IPC) 1-21 had been certified and approved for payment to JLW in the sum of K7,637, 201.72 of which K 6,339,671.32 had been paid. Counsel submits that IPC 22 in the amount of K 2,117.82 has not been settled and thus must be added to the unpaid giving a total unpaid claim of K1,297, 530.40.
16. Mr. Kasito for Covec confirms that the certified and approved amount for payment before the final completion is K 7,637,201.72. However, he submits that JLW is entitled to receive a final completion payment of only K532,026.88.
Retention
17. Mr. Lains for JLW submits that Retention payment is provided for under Clause 26 of the Sub-Contract. The rate stipulated is 5% which is the same percentage rate as prescribed in the Head Contract and is deducted from each progress
payment and retained to be paid out in two (2) installments on Taking Over Certificate or practical completion, and the other 2.5% to be released when the Defects Liability Period expired, and the Employer had certified that all defects notified to the Head Contractor or the Sub-contractor before the end of the
period have been corrected and the Employer has issued the performance certificate. Both dates have since lapsed.
18. Mr. Kasito for Covec conceded that apart from Clause 26 of the General Conditions of Sub-contract, Clauses 6 and 7 of the Special Conditions...Schedule B, also allows for 5% deduction in each progress payment due to the Subcontractor. Hence, it is not in dispute that the amount of retention payment is K381,860.09 payable in two installments on the 15 March 2015 and 5 September 2015. He submits that the retention money be subjected to Covec’s cross claim for additional costs incurred in taking over and completing the subcontracted road works.
Variation
19. Variation costs are provided for in the General Conditions of Sub-Contract, Sub-clause 23, where such variation may be initiated by the Engineer at any time. The clause stipulates further that the contractor shall not make
any alteration or modification until approval is obtained by the Employer and Engineer and that unapproved variation of work by the
Sub-contractor will not be paid.
20. Mr. Lains of Counsel for JLW submits that the evidence which has not been displaced by Covec is that due to landship between CH 7.0 km to CH 13.0 km JLW had to do excessive earthworks which necessitated additional costs. JLW followed due processes to submit its variation works in accordance with the General Conditions of Sub-contract for certification/approval by Covec and for ultimate payment by the Employer in the amount of K2,895,653.01.
21. He also submits that although there was initial refusal by Covec to endorse the variation claim, the evidence in Exhibit “P1” is that following representation to the Engineer by JLW, a meeting between both parties, ADB and the Consulting Engineers took place and agreed for a joint survey to be conducted which actually took place, and the outcome was the resolution for variation payment to be made. However, Covec still claims it did not receive the Variation payment from the Employer.
22. Counsel for JLW contends that his client had to resort to the Court on the 18 May 2018 and obtained Court Order directing Covec to produce evidence of payment made to it by the State when it was revealed that Variation payment of K 18,500,675.47 had been made by the State to Covec. He submits that the variation claims by JLW of K2, 895, 653.01 must be considered and be paid out of the variation amount Covec had received.
23. Mr. Kasito of Counsel for Covec submits that Clauses 23 and 24, General Conditions to the Sub-Contract clearly allows for a process to be followed which is that such claims must be forwarded to the Project Superintendent by the main contractor and in this case the claim by JLW was not approved by Project Superintendent when submitted through Covec.
24. Counsel submits further that the Variation claim that was approved and paid to Covec was solely for additional works rendered by Covec on the 9 bridges along Laiagam-Porgera road, extension of width of road from 5.5 meters to 7.5 meters by Covec, work on the Covec / Lorma Construction Ltd section of the Road and for administrative financing of relevant experts’ costs as administered by Covec but JLW was not included.
Rise and Fall Claim
25. JLW is permitted to claim for Rise and Fall pursuant to Sub-clause 7, General Conditions of Sub-Contract. It stipulates that when and where price adjustment should, in the opinion of the Subcontractor be applied, the Subcontractor
shall submit an application with supporting documents to the Head contractor. JLW did submit a claim in the sum of K1,289,888.31
which remains outstanding. This is pleaded in Further Amended Statement of Claim and deposed to in evidence.
26. Mr. Lains of counsel for JLW submits that Employer paid Covec as Rise and Fall Claim of K10,610,660.25 for the entire 65-kilometer road project on the 16 March 2017. JLW contends it is entitled to the 13 kilometer of the road project as per the Subcontract. He further submits that Covec was not transparent as it failed to facilitate JLW’s Rise and Fall claim or at least allow JLW the same latitude. He submits this is a breach of the General Conditions of Sub-Contract, Sub-clause 7
27. Covec did not plead its position in its amended Defence but filed affidavits and tries to lead evidence during trial which was objected to by Counsel as having no foundation in the pleading.
Demobilization
28. Counsel for JLW submits that this Demobilization claim, and mobilization claim are fixed by the Minutes of the Sub-Contract Meeting of 20 May 2012, which forms part of the Subcontract. The amount fixed for Demobilization Mr. Lains submits is K325,760.00.
29. He also submits that the evidence Covec attempted to adduce in Exhibit “D 9” are not evidence based on facts but submissions to dispute the amount and to mislead the Court. This is evident in Covec’s recourse to a formular for subtracting advance payment on a monthly basis whereas Demobilization costs is a stand-alone payment.
30. Mr. Kasito for Covec concedes that K 325, 760.00 is the fixed cost for demobilization as per Minute Meeting of 20 May 2012. However, he submits that the JLW is not entitled to the full amount as it did not complete full mobilization and was overpaid by K158,258.93 when it received the K 799,325.60 mobilization payment. He submits that the K 325,760.00 demobilization amount be reduced to K261,979.93.
31. Mr. Lains of Counsel for JLW submits that this claim arose from Covec’s pleadings in defence wherein it conceded that JLW is entitled to uncertified costs for drainage and earth works under IPC 22. He submits for JLW that it is entitled to a claim for uncertified money classified as Net Current Certificate in the third column of the table filed in the Covec’s pleading in defence in the amount of K258,048.97.
32. Counsel confirms that the claim relates to uncertified costs for drainage and earth works under IPC 22 totaling K154,327.97 comprising of K 122,882.40 for balance of earthworks uncertified in IPC 22, and K 31,445.57 for balance of drainage works uncertified in IPC 22.
33. Mr. Kasito of Counsel for Covec submits that as there is no evidence to show how the figure had been arrived at under IPC No. 22 but admits that JLW is entitled to uncertified costs for drainage and earth works under IPC 22 in the amount of K154,327.97.
Advance Payment
34. Mr. Lains of Counsel for JLW submits that this is provided for in Clause 14.2 of FIDIC Contract. Counsel submits that when on the 17 April 2012 the Employer/State paid Covec the advance payment of K16,923,783.61
which is the equivalent of 10% of Contract price of K169,923,783.61 it did not pay JLW its portion.
35. JLW claim is that as per the Sub-contract value of K26,860,035.72 it is entitled to 10% or K2,686,003.57 of the Contract Value for the 13 km portion of the road it was sub-contracted to do. Mr. Lains however concedes that the Sub-contract, Schedule B, Additional clause 5 stipulates that advance payment is not applicable therein however, he submits that JLW was asked by Covec to pay the Performance Security, a prerequisite for receiving Advance payment and therefore, is entitled to be paid advance money.
36. Counsel for JLW also submits in the alternate that the payment of K799,325.60 on the 15 September 2012 as Mobilization Money may be considered as a portion of advance payment as it was used for movement of machinery logistics and start-up, leaving an unpaid amount due to JLW in the sum of K 1,886,677.97.
Part B
Payment under the Complimentary Agreement.
37. The only head of claim under the Complimentary Agreement is the Claim for Balance of the Contract Price in the sum of K7,362,468.28. Mr. Lains for JLW submits that this claim emanates from pleadings pursuant to the Further Amended Statement of Claim which was generally denied by Covec in its Further Amended Defence. Numerically, the claim is the balance of the Subcontract value.
38. Mr. Lains submits that:
(i) JLW completed its portion of 7.259 km of road works, and it is entitled to the contract value of K 14,999.670.00 as sanctioned under the Complimentary Agreement: and
(ii) Since Covec only certified and approved K7,637,201.72 worth of contract, JLW is entitled to the difference between the contract value and the certified and approved amount being the Balance of the Contract Price of K 7, 362, 468.28.
39. Mr. Kasito of counsel for Covec submits that JLW claim for balance of sub-contract in the amount of K7,362,468.28 is misconceived on the basis that the subcontract was a lump sum contract and that JLW can only be paid for the quantity of works it performed and is certified to be correct by the Project Superintendent in consultation with State. It contends that JLW abandoned the subcontract only to be taken over by Covec on the 14 April 2015 and the latter undertook the works to practical completion in September 2015.
40. Specifically, Mr. Kasito submits that the K 7,362,468.28 is incorrectly claimed on assumption using the reduced price of the subcontract of K 14,999,760.00 minus the cumulative certified contract amount of K 7,637, 201.72. He submits that this head of claim must fail.
41. JLW further claims general damages and special damages as follows:
General Damages
(a) K1.5 million for injury to its reputation.
(b) K 1million as aggravated damages.
(c ) Loss of Business
(i) K 3,206, 793. 93 losses occasioned by retention of 5.74 km of road work by Covec.
(ii) K 5, 948,338.20, missing out on Pangu-Niugu Road contract.
(iii) K8, 922, 507.30, missing out on Baiyer-Lumusa Road contract.
(d) K 93, 185.48, Penalty interest paid to FIFL.
(e) K 12,967.00, Penalty interest paid to Westpac Bank.
Special Damages
(a) K 81,711.81 Liquidator’s Fees.
(b) K 27, 500.00 Petitioner’s Legal Fees.
(c ) K 150, 000.00 Legal Fees for Hardy & Stocks.
Cross claim
42. Covec’s crossclaim filed on the 22 October 2019 pleads in its verified defence claiming JLW lack of ability to move the
work and delays thereof giving rise to breach of subcontract. It contends that the Complimentary Agreement which reduced the scope of work and subcontract amount was entered into on the 10 July 2014 following that breach by JLW. Further,
it claims that JLW did not complete by the 30 December 2014 and abandoned the sit and upon taking over the works on the 14 April
2015 Covec performed the remaining contract to practical completion on the 5 September 2015.
43. Covec obtained Extension of time and claims that, that due to short space of time being 5 months to complete, Covec had to increase the number of machineries, equipment, work force and the sealing works for the 7.259 km of the road resulting increased costs to completion, now Cross claim in the following:
(a) liquidated damage of K 3,734,917.83; and
(b) additional incurred costs of K 1, 992, 482.99.
Finding of Facts
44. On the 17 April 2012 the Employer/State paid Covec the advance payment of K16,923,783.61 which is the equivalent of 10% of Contract
price of K169,923,783.61.
45. The Minutes referred to as the 2012 Minute Meeting of 20 May 2012 is binding on Covec and JLW.
46. On the 21 August 2012 Covec and JLW entered into the Sub-Contract for works on 13 km of the Laiagam to Porgera road project. The Sub-Contract value was K26,860.035.72 and completion date was to be 9 March 2014.
47. On the 10 July 2014, JLW and Covec entered into the Complimentary Agreement. The Complimentary Agreement reduced the scope of work on the 13 km of the Laiagam road works to be undertaken by JLW to 7.25 km, or to the contract value of K14,999,670.00. The remaining 5.741 km of road works valued at K11,860,365.72 was retained by Covec. Completion date was re-scheduled to the 30 December 2014.
48. On the 14 April 2015 by agreement in a meeting Covec stepped in to complete the works to practical completion, originally scheduled for 30 December 2014 finally issued on the 5 September 2015.
49. Covec had certified and approved K7,637,201.72 worth of contract of which K6,339,671.32 had been paid as IPC 1-21.
50. On the 16 March 2017 State paid K10,610,660.25 to Covec for price adjustments or as Rise and Fall payment, to cover for price adjustments inclusive of extension of time related costs for whole contract.
51. Pursuant to Court order of the 18 May 2018, obtained by JLW directing Covec to produce evidence of payment made to it by the State, it was discovered that an amount of K18,500,675.47 had been paid by the State/Employer to Covec as variation works component.
LEGAL CONSIDERATION
52. The legal basis for the various heads of claims in this proceeding are founded principally in the Sub-Contract and the Complimentary Agreement both written contracts, executed between Covec and JLW on the 21 August 2012 and 10 July 2014 respectively. The Main Contract was between the State and China Overseas Engineering (PNG) Limited and undertaken by Covec on its behalf, which itself is based on
the FIDIC Conditions of Contract for Building and Engineering Works Designed by the Employer, 2005 Edition.
53. There is no direct contractual link or privity of contract between the State, the Employer and JLW, the Sub-contractor. However, there are contractual terms from the Main Contract that are incorporated by reference and inference in the subcontract. The certifying role of employer and its agents and its impacts are crucial in the proceeding herein.
54. The various claims by JLW must be identifiable contractual claims under either the Sub-Contract or the Complimentary Agreement. The principle embodied in this Subcontract is that of a Lump sum contract under which a single price or contract price is quoted based on plans and specifications or complete scope of work and costs of the entire project.
55. The various contract claims for consideration are categorized under Part A, Part B and Part C (Damages) and the Cross Claim.
Part A
Retention Money
56. The Sub-Contract provides for Retention money to be deducted against subcontract payments, The relevant provisions are Special Conditions, Schedule B clauses 6 and 7 and Clause 26 of the General Conditions of Sub-contract. Clause 26 specifically states that retention will be deducted against subcontract payments at the same rate as that deducted in
the Head Contract. The rate of 5%, is provided in Schedule B clauses 6 of the subcontract and by reference to the Head Contract, Sub-Clauses 14.3 and 14.9. It is deducted from each progress payment and retained to be paid out on Taking Over Certificate or practical completion and the other half or 2.5% is to be released when the Defects Liability Period expired, and the Employer (State) certified that all defects notified to the Head Contractor or the Sub-contractor before the end
of the period have been corrected and the Employer has issued the Performance Certificate.
57. In this case, the 5% retention money is deducted from each progress payment (IPC’s 1-22) all totalling K7,637,201.72 which has been certified for payment to JLW under the Subcontract. In Geary, Walker & Co. Ltd v W Lawrence & Son, (1986) HBC (4th edit) vol.2 p.382 CA a case dealing with retention payment, the Court held the retention payment to be in the same proportion of the subcontract to the main contract sum. There was by implication a pro rata amount of retention by reference to the main contract payment mechanism.
58. I adopt the same consideration here and so the 5% retention amount of K381,860.09 pleaded in the Amended Statement of Claim and as adduced in evidence is due to JLW in two installments, linked to the Taking -Over Certificate on the 5 March 2015 and at the end of the Defects Liability Period on the 5 September 2015 respectively; both payments are now well past payment dates.
Uncertified Money
59. This claim arises from the Amended Statement of claim and Covec’s pleadings in defence. It is classified as Net Current Certificate in the amount of K258, 048.97. JLW has adopted the amount in the pleading in defence to be its claim as uncertified moneys.
60. No evidence is adduced on how JLW arrived at the tabulated amount it claimed in the amended Statement of claim. Covec also has not disproved by evidence the claim for uncertified money by JLW. In the end the pleadings stand not displaced.
61. Counsel for JLW cited cases on the settled principle of law that he who asserts must prove, Supreme Court Reference No.4 of 1980, [1982] PNGLR 65; Reference by East Sepik Provincial Executive (2011) SC 1154; Board of Management v Moses Sariki (2013) N5446.The circumstance here is that the claim is not disputed by Covec, but only the amount payable. I accept the admission by Covec that JLW is entitled to uncertified costs for drainage and earth works under IPC 22 comprising of K122,882.40 for the balance of earthworks uncertified in IPC 22 and K31,445.57 for balance of drainage works uncertified in IPC 22 giving a sum of K 154,327.97 which amount I consider is the appropriate amount under the circumstances.
Demobilization
62. The starting point in determining payment under this head of claim is the Minutes of Sub- Contract Meeting of 20 May 2012 (the Minutes) as the basis for certifying Mobilization payment under the Sub-Contract. The Minutes is an integral part of the subcontract. The payment of K799,325.60 Mobilization payment made on the 15 September 2012 was based on
and authorized by the Minutes.
63. Demobilization costs, also emanates from the Minutes that provide the basis for its calculation and payment. Both parties agree that the amount as per the Minutes is K325,760.00. However, Counsel for Covec submits that JLW did not complete mobilization and that an overpayment by K158,258.60 occurred during mobilization payment which should be deducted from the demobilization payment. This submission runs counter to the evidence that the demobilization costs is fixed by virtue of the Minutes of Sub-Contract Meeting of 20 May 2012.
64. Mobilization in lump sum contract parlance, is dedicated to the preliminary costs of the contract. Specific preliminaries costs may relate to items such as site set up costs, welfare facilities, plant and machinery and traffic management. Undertaking these activities require much planning and can represent major capital outlay so an upfront payment is preferred by a contractor. The other option where a client is able to start, within its own capital and to include these costs within its first interim payment invoice. Similarly, demobilization costs in a lump sum contract that caters for winding down and relocation and is fixed into the contract cost.
65. In this case, I have considered the submission of Counsel for Covec to vary the demobilization costs, but accept the amounts for mobilization and demobilization as being properly considered and fixed and must stand alone and not to be disturbed. I consider Kandakasi J ruling in Lee v Burua (2003) N2404 at p.13 wherein His Honour states, “The law clearly is, where a transaction is evidenced or set out and concluded in a document, the document should speak for itself. No oral or extrinsic evidence can be called and or allowed to either add or subcontract from what is stated in a document.” In Curtain Bros (Qld) Pty Ltd v PNG [1993] PNGLR 285, the Supreme Court at p.293 stated the position as “where parties have embodied the terms of the contract in a document, the general rule is that “verbal evidence is not to be allowed to be given...so as to add or subtract from, or in any manner to vary or qualify the written contract”
66. I will not allow any subtraction from JLW’s demobilization payment claim of K325,760.00.
Variation
67. The General Conditions of Sub-Contract Sub-clause 23, provides for variation that may be initiated by the Engineer at any time prior to issuing of Taking-Over Certificate for the Works.
The Sub-Contract specifically states that the subcontractor shall not make any alteration or modification until approval is obtained from the Employer
and Engineer. JLW had submitted its variation claim for earth works it undertook due to landslip between CH.7 km to CH 13.0 km. It
submits that it followed due processes in accordance with the said Clause 23, General Conditions of Sub-contract but the variation remains unapproved.
68. The evidence shows initial refusal by Covev to endorse the variation claim and later following representation by JLW and meeting with Covec, ADB and the Consulting Engineer, a joint survey by all parties was conducted and agreed for the claim to be referred for approval and payment but despite this, Covec still did not pay maintaining that it did not receive the Variation payment from the Employer.
69. I take judicial notice of the Court order of 18 May 2018 which directed Covec to produce evidence of payment made to it by the State. The ensuing discovery of payment of K 18, 500,675.47 by the State/Employer to Covec to cater for variation claims. It seems to me that Covec had not been forthright with JLW when it maintained that it had not received payment for variation costs when in fact it had been proven wrong upon discovery of documents by JLW as confirmed by Department of Works.
70. The apparent stance of not facilitating approval by the Project Superintendent/Engineer effectively fails to take into account the earth works JLW undertook due to land slip between CH.7 km to CH 13.0 km. JLW’s variation claim should not have negative impact on the variation or additional works and services rendered by Covec on the 9 bridges along Laiagam-Porgera road, extension of width of road from 5.5 meters to 7.5 meters by Covec, work on the Covec/Lorma Construction Ltd section of the Road and for administrative financing of relevant experts’ costs as administered by Covec. JLW only seeks to be included in the mix for variation payment like the other subcontractor and the Head contractor.
71. The law in relation to variation in this jurisdiction is summarized by Lay J in Nivani Ltd v China Jiangsu International Ltd (2007) N3147 which was followed in Bio Normalizer (PNG) Ltd v CPL (2009) N3649 and applied in Kurumbukari Ltd v Efi (PNG) Ltd (2012) N4704, that:
“(i) A contract, even a written one that makes no provision for variation, may be varied by agreement between the parties;
(ii) An agreement to vary a contract may be express or implied;
(iii) An implied agreement to vary a contract can arise by virtue of the conduct of the parties.
if a party gives no specific instructions to the other to perform additional works or services but stands by knowing that the other
party is doing additional works or services and approves of what is being done, that amounts to an implied instruction to carry
out additional works or services, even if there has been no express agreement as to the price payable; and
(iv) the failure of the parties to agree on the price, does not relieve the employer of liability to pay a reasonable price for
the additional works or services performed.”
72. The Court held that the conduct of the parties gave rise to an implied agreement to a second set of variations. It concluded for the plaintiff that agreement to a second set of variations can be reasonably inferred.
73. In this case, although the Variation submitted by JLW was originally unapproved by Covec, I take cognizance of the passage from the judgement I was referred and that is, the failure of the parties to agree on the price, does not relieve the employer of liability to pay a reasonable price for the additional works or services performed, and secondly, I accept the evidence that K 2,895,653.01was subsequently agreed upon including Covec after a joint survey but not paid.
74. Without discounting the additional or variation to the scope of work undertaken by Covec, I accept the evidence that JLW undertook additional works for earth works due to land slip between CH.7 km to CH 13.0 km which is measured to the value of K 2,895, 653.01 and submitted to Covec for certification and approval. There is no evidence to dispute that such earthworks were not performed by JLW, nor the additional earth works were outside the scope of the subcontract.
75. An agreement to vary a contract may be expressed or implied by virtue of the conduct of the parties. Here JLW undertook additional earth works due to land slip between CH.7 km to CH 13.0 km and Covec stood by, this amounts to an implied instruction to carry out additional works even if there has been no express agreement as to the price for the variation. I am not persuaded to exclude JLW from the payment of its variation claim.
Interim Payment Certificate (IPC)/Progress Claim
76. The General Conditions of Sub-Contract, sub clause 25 allows for progress payments to be submitted by JLW on the 28th of each month in a format acceptable to the Covec, prior to inclusion in the next Interim Payment Certificate (IPC). Total progress claims referred to as Interim Payment Certificate (IPC) 1-21 which had been certified and approved for payment to JLW is K7,637,201.72.
77. Evidence confirmed that JLW had received K6,341,789.14 as payments for certified IPCs 1-21and balance of claim certified and approved but unpaid is K 1, 297,530.40 which is inclusive of unpaid IPC 22 claim of K2, 117.82.
78. Covec confirms that the certified and approved amount for payment before the final completion is K7,637,201.72. I accept this amount of K 1, 297,530.40 as it is consistent with amount submitted by JLW, to which the amount of K2, 117.82 being IPC 22 is to be added. I refuse the submission by Mr. Kasito of Counsel for Covec for the final completion payment of K532,026.88.
Rise and Fall
79. The General Conditions of Sub-Contract Sub clause 7, provides for price adjustments and requires the sub-contractor to submit an application and supporting documents to the Head Contractor
and then to the Engineer and Employer for approval. JLW Rise and Fall claim is legitimate under the subcontract and JLW pleads the claim in its Further Amended Statement of Claim. Covec had not traversed
or denied this head of claim in its Amended Defence and is not entitled to lead evidence in its defence.
80. JLW had submitted its application seeking price adjustments which it is entitled to do based on its consideration with supporting documents for a claim of K 1,289,888.31. There is no evidence that Covec submitted the claim to the Engineer for approval. I find no evidence as to the reason why Covec did not submit the application for approval by the Engineer.
81. The evidence of payment of K 10,610,660.25 to Covec contained in the affidavit by Xiao Long Lai “D2” for the defendant as Rise and Fall claim, to cover for price adjustments inclusive of extension of time related costs for whole 65-km contract. I consider that JLW’s claim for Rise and Fall claim must be included, it is entitled to it as of right under the Subcontract.
82. The refusal by Covec to submit the application to the Engineer is without any justifiable reason and has no foundation in its pleading in its Amended defence nor in evidence.
Advance Payment
83. Clause 14.2 of the International Federation of Consulting Engineers for Building & Engineering Works 2005 Edition, (FIDIC) adopted as the Main Contract, the State as the Employer is obliged to pay “as interest free loan for mobilization when the contractor submits a guarantee.” Clearly the sole purpose for advance payment under the Main Contract is as interest free loan for mobilisation and start up work under the contract provided that the Performance Security also known as security deposit is paid. Covec was paid the 10% advance contract payment of K16, 992, 378.36 on the 17 April 2012.
84. The Sub-Contract specifically exclude advance payment in Clause 5, Section III, Special Conditions of Subcontract, Schedule B, wherein it states, “advance payment is not applicable to this sub – contract”. The clause is certain and unambiguous and JLW is bound by this clause even though it is inconsistent with the purpose of advance payment,
being for mobilisation as envisaged in Clause 14.2 of the Main Contract. That provision is not binding on the parties to the subcontract as there is no privity of contract.
85. This poses a question as to the basis for the payment of mobilization money of K 799,325.60 on the 14 September 2012. It is not
properly articulated by JLW however, it may be considered as the first Interim Payment Certificate (IPC) 1. On the other hand, the evidence shows that the amount was used to mobilize equipment and machines plus personnel on the
project site to commence work and thus may be regarded as pseudo advance payment.
86. The payment of Performance Security of K2.68 million is security for performance or a security deposit for due performance of the subcontract which is refundable after completion and is not purely a prerequisite or condition precedent for receiving advance payment as contended by JLW.
87. I will not lean towards a finding for JLW as I am not persuaded to ignore the clear intent and certainty of Clause 5, Section III, Special Conditions of Subcontract, Schedule B. Also, Clause 49 of the General Condition of the Subcontract is succinct in that in the event of inconsistency between the Main Contract and the Subcontract, the subcontract prevails.
Part B
Payment of Balance of subcontract under the Complimentary Agreement.
88. This claim by JLW for K7, 362, 468.28 as the balance of the subcontract amount is pleaded in the Further Amended Statement of
Claim. The Complimentary Agreement reduced the scope of work to be undertaken by JLW from K13 km to 7.259 km with corresponding reduction of the contract value from
K26,860,035.72 to K14,999,670.00. The subcontract balance of 5.741 km or K11,860,365.72 is retained by Covec. The K7, 362, 468.28
claim is the difference between K14,999.670.00 and combined approved IPC of K 7,637, 201.72.
89. I accept that there was delay by JLW to complete its allotted 7.259 km of the road works by the 30 December 2014 and on the 14
April 2015 by agreement Covec took over and undertook sealing for the remaining 3 months to 24 July 2015 enabling practical completion
on the 5 September 2015. The issue for my consideration is whether JLW is entitled to the K 7,362,468.28 it claims as aforesaid.
90. There is no evidence that JLW ceased to perform its sub contractual obligation when Covec assumed part of the works after agreement
of 14 April 2015. The evidence is that JLW continued to undertake earthworks on the 7.259 km portion of the Laigam-Porgera road during
the extended period. For example, it is in evidence that due to massive land slide JLW had to undertake earthworks to rectify the
damage. For that JLW is entitled to the benefit of its contractual performance I would think.
91. As the Head Contractor, Covec was in a superior position to JLW and that it was able to assign part of the subcontract by way of a Complimentary Agreement and the Agreement of 14 April 2015 unto itself pursuant to Clause 30 of the General Conditions to the Sub-Contract, which stipulates in part, “ In the event that the programme is delayed for any reason by the Subcontractor, the Head Contractor reserves the right to assign part or whole of the works to be executed by others. Any such work then completed shall form part of the Subcontractor’s order and/or contract. Any additional expenses incurred to complete the above works shall be deducted from the payment due to the subcontractor,”
92. While this seem to be logical and contractual, I am not assisted by counsel as to proper apportionment of contractual costs. Counsel for JLW submits that the additional costs incurred by Covec after the takeover should be deducted from the K11,860,365.72 worth of contract Covec has taken back. Covec on the other hand submits that the claim is based on wrong assumptions.
93. I conclude that both parties continue to undertake road works right up to practical completion. For JLW it is entitled to contractual payment for the quantity of works it undertook on part of the Laigam Porgera road. Non certification by Covec and effectively withholding of K7,362, 468.28 balance of contract is tantamount to keeping the windfall and may be considered as unjust enrichment on the part of Covec.
Part C
94. On the further claims by JLW for general damages and special damages, I consider these require better articulation and rebuttals by Counsels.
General Damages
(a) K1.5 million for injury to its reputation.
(b) K 1million as aggravated damages.
(c) Loss of Business
(i) K 3,206, 793. 934, occasioned by retention of 5.74 km of road work by Covec.
(ii) K 5, 948,338.20, missing out on Pangu-Niugu Road.
(iii) K8, 922, 507.30, missing out on Baiyer-Lumusa Road.
(d) K 93, 185.48, Penalty interest paid to FIFL.
(e) K 12,967.00, Penalty interest Westpac Bank.
Special Damages
(a) K 81,711.81 Liquidator’s Fees.
(b) K 27, 500.00 Petitioner’s Legal Fees.
(c ) K 150, 000.00 Legal Fees for Hardy & Stocks.
Conclusion
94 This case illustrates an onerous situation a subcontractor can find himself. Terms of the subcontract are usually couched favorably
to the benefit of the main contractor. For example, the main contractor may only be prepared to undertake certain work, limit his
obligations to certify payment claims from the subcontractor and limit his exposure by part paying the subcontractor. To that extent
he may vary essential terms or exclude from the subcontract certain contractual benefits that accrue to him under the Main Contract.
95. It is trait that the Main Contract and the Subcontract are separate contracts, however, where a certain essential term pertaining to a contractual benefit, like advance payment is excluded in the subcontract, Courts are placed in a quandary of resolving such an apparent deliberate act. For example in Brightside Kilpatrick Engineering Services v Mitchel Construction (1973) Limited, [1975] 2 Lloyds Report 493 the Court was required whether to stay to arbitration as per the Arbitration Act as per the terms of the subcontract and the Court decided that “the words should be construed such that the subcontract should be consistent with the terms of the main contract...” Here the deliberate exclusion of advance payment Clause 5, Section III, Special Conditions of Subcontract, Schedule B and the prevailing effect of the subcontract over the Main Contract in the event of inconsistency as stipulated in Clause 49 of the General Condition of the Subcontract are clear manifestation.
96. Also, I find the delay in the certification of the Interim Payment Certificate especially in the early stages has greatly slowed performance of the subcontract works. The withholding of certification and approval of lodged claims by Covec impacted on the ability of JLW to perform in a timely manner.
97. The claim of incompetency on the part of JLW by Covec must be weighed against the foregoing factors. It seems to me that Covec deliberately by action and/or inaction curtailed and jeopardized JLW’s ability to deliver under the Subcontract and Complimentary agreement. The evidence suggests a contractual relationship between Covec and JLW that was not ad item from the beginning.
98. A crucial term of the subcontract is Clause 1, Special Conditions of Subcontract, Schedule B which require the Head Contractor, Covec to make payment to the subcontractor within 7 days of after receipt of payment from Employer, the State.
Cross claim
99. The cross claim by Covec relates to cost of works which it spent in completing the part of the subcontract it took over from JLW. As a lump sum contract, the Subcontract has fixed contract price and the subcontract including any assignee is bound by the agreed contract sum, save for any approved variation,
100. On the 14 April 2015 Covec stepped in to complete the works and undertook the work for the remaining 3 months to July 2015. It claims that due short space of time it had to increase its manpower, number of machines and equipment by hiring from other companies and purchasing of added materials.
101. This cross claim by Covec is additional to the contract benefits which accrue to it under the Complimentary Agreement for the 7.259 km of road construction taken over by Covec in the amount of K11,860,365.72 and works performed pursuant to Agreement
of 14 April 2015.
102. The crossclaim by Covec is pleaded in its Cross claim and evidence led for liquidated amount of K3, 734,917.83 and additional
incurred costs of K 1, 992, 482.99. Obviously, this must be considered together with the claim for unpaid contractual entitlement
by JLW.
Order
102. Finally, considering all of the above and in view of the array of heads of claims and the cross claim, I rule as follows:
_________________________________________________________
Hardy & Stocks Lawyers: Lawyers for the Plaintiffs
Kasito Lawyers: Lawyers for the First Defendants
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