ICL (Malawi) Ltd v Attorney General (Department of Human Resources Management and Development) (Commercial Case No. 86 of 2014) [2016] MWCommC 502 (06 October 2016);

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IN THE HIGH COURT OF MALAWI
COMMERCIAL DIVISION BLANTYRE
REGISTRY COMMERCIAL CASE NO. 86 OF 2014
 
BETWEEN:
 
ICL (MALAWI) LTD……………………………………………………..PLAINTIFF
-and-
ATTORNEY GENERAL ( Department of Human Resources Management and Development) ………………………………………………………………………………DEFENDANT
 
CORAM
HON. RACHEL SOPHIE SIKWESE
Nampota; of Counsel for the Plaintiff
Kausi; of Counsel for the Defendant
Makombe; Official Court Interpreter
 
JUDGMENT
 
Sikwese J
Concise Statement of Facts and Issues
 
In 2010 when the parties in this case entered into a contract the subject matter of this case, the plaintiff was a sole registered provider of maintenance services for Fujitsu- Siemens Servers System in Malawi. The defendant contracted the plaintiff to maintain six servers installed at its DPSM Offices. The contract was to run for three years (2011 to 2013). The contract price was agreed as follows:
 
Payment Schedule
2011
 
Year 1
2012
 
Year 2
2013
 
Year 3
Totals
Totals
US$ 63 209-00
US$69 529-00
US$76 482-00
 
 
 
 
 
US$209 220-00
 
It was not in dispute that by the end of third year in 2013 only one server had been installed. It was also not in dispute that the plaintiff maintained the one server for the duration of the contract. What was in dispute was that the plaintiff demanded to be paid the full contract price at the end of the contract. The defendant objected to the demand and refused to pay the plaintiff. The issue before the court is to determine whether or not the plaintiff s demand can be entertained and whether if that is the case, the defendant should be ordered to pay the contract price?
 
The Law of Contract
 
The law of contract is concerned with legal obligations arising out of an agreement between two or more persons to do or to abstain from doing some act or acts, their intention being to create legal relations and not merely to exchange mutual promises. The agreement itself lays down precisely what each party had undertaken to do in order to say whether each had performed or not performed its part of the agreement. This agreement will contain statements some of which will be mere inducement s or representations while others will be terms of the contract. Where a statement forms a term of the contract, a court must consider the importance of that statement in the context of the contract as a whole. Not all of the obligations created by a contract are of equal importance. It is necessary for a court to distinguish the vital or fundamental obligations from the less vital, the expression condition being applied to the former and the expression warranty to the latter, Smith and Keenan's English Law, (ninth edition) ELBS/ Pitman 1990, London, at page187.
 
A condition is a vital term which goes to the root of the contract. It is an obligation which goes directly to the substance of the contract, or is so essential to its very nature that its non-performance may be considered by the other party as a substantial failure to perform the contract at all. A breach of condition gives a right of action for damages to the injured party, and if it is sufficiently serious, so as to defeat the object of the contract, it justifies the injured party in renouncing the contract altogether, Chance's Principles of Mercantile Law (revised edition) Westwood/, London.
A warranty on the other hand is subsidiary to the main purpose. It is an obligation non-performance of which does not have similar consequences as those in breach of a condition.
 
The terms and conditions of the contract under consideration were stipulated in the agreement exhibited as DW in the Trial Bundle, from page 87. The main clauses for purposes of determining this dispute appear in the preamble which stated that:
 
"Whereas the Employer is desirous that the Contractor execute Maintenance of Fujitsu­ Siemens Servers System installed at Department of Public Services Management Offices (hereinafter called the Works') and the Employer has accepted the Bid by the contractor for the execution and completion of such Works and the remedying of any defects therein for the sum of US$209 220-00 for a period of three years (hereinafter called the Contract price). The money will be paid on an annual basis" (see table above for the mode of payment). And clauses relating to performance and payment stipulated as follows:
 
Clause 3:
 
"In consideration of the payments to be made by the Employer to the Contractor as hereinafter mentioned, the Contractor hereby covenants with the Employer to execute and complete
 
the Works and remedy any defects therein in conformity in respects with the provisions of the Contract".
 
And Clause 4:
 
" The Employer hereby covenants to pay the Contractor in consideration of the execution and completion of the Works and the remedying of defects therein the Contract Price or such other sum as may become payable under the provisions of the Contract at the times and in the manner prescribed by the Contract".
 
In the Special Conditions of Contract which supplemented the General Conditions of Contract (GCC) the 'Works' consisted of: "Maintenance of Fujitsu- Siemens Servers, Storage, UPSs".
During trial the Court's attention was drawn to many other clauses in the contract and it was also referred to minutes of meetings and correspondence between the parties regarding performance of the contract and related matters. The Court was also referred to other materials for instance a contract of 2009 for unrelated subject matter whose relevance was not disclosed. In arriving at its decision, the Court considered all those issues but not all of them were relevant enough to be replicated in this analysis.
 
Breach of Contract
The plaintiff contended that the defendant was in breach of contract because they failed to fulfill a contractual obligation, namely, to pay for services rendered. In its submissions the defendant averred that the contract was frustrated by the fact that the subject matter which was installation of Fujitsu­ Siemens Servers System was never completed. Therefore there was no breach of contract as contended by the plaintiff. Nonetheless, the defendant conceded that they benefitted from the contract. They admitted that they needed the services of the plaintiff to maintain the system without which information regarding civil servants would be lost with dire consequences pertaining to salaries among others.
 
The Court considered the contract in its entirety and the testimonies of the parties during trial and holds that the defendant breached the contract by its failure to pay the plaintiff. The defendant was under a contractual obligation to pay the plaintiff for works done. Failure to pay constituted a fundamental breach of the contract.
 
Remedies for Breach of Contract
Several remedies are available to the injured party where a claim for breach of contract is sustained. These include (i) a right of action for damages at common law, (ii) a right of action on a quantum mentit, (iii) a right to sue for specific performance or for an injunction, (iv) a right to ask for rescission of the contract, (v) a refusal of any further performance by the injured party and (vi) a right at common law to deduct damages due in respect of breaches committed by the other party and, if sued, to set up against the plaintiff such breaches of contract in diminution or extinction of the price.
 
In the instant case although the contract was allowed to run its full course of three years, only partial performance was rendered to the defendant. Instead of installing and maintaining six servers only one serve was installed and maintained. Under the circumstances the law of contract provides that the plaintiff s remedy li5in an action on a quantum merttit.
 
Quantum Meruit
Where one of the parties to the contract has only partially carried out his obligations under the contract but the other party appears from his conduct to have accepted the benefit of the partial performance, the court may infer a promise to pay for the benefit received, see generally, Shaba t/ a Ga/era Minor Building Contractors v Ng'oma [2008]MLR (Com) 119. This was the situation that prevailed in the contract under consideration. The plaintiff was engaged to maintain six servers however only one server was maintained during the duration of the contract period. The defendant accepted and benefitted from the services rendered in respect of the one server. It is therefore found that the plaintiff has made out its case in respect of partial performance for which the defendant must be ordered to pay. The defendant is obliged to pay restitutionary damages.
 
Restitutionary Damages
The purpose of allowing the action in quantum meruit is to make sure that the plaintiff gets restitution for work done. The other purpose is to prevent the defendant from unjust gain. The measure of damages to apply depends on circumstances of each case. In the instant case the contract provided for a yearly payment for works performed in a year. The practice was that the plaintiff would prepare and issue an invoice and the defendant would make payment. In the first year of the contract such invoice was raised and payment was duly made for the whole amount for that year. In explaining the first payment, the defendant contended that this was in appreciation of the fact that the plaintiff had assisted the defendant in transferring data from the old system to a new system on a make shift arrangement. Further the plaintiff had assured the defendant that the remaining five servers would be installed and would be operational before the end of the contract period. It was on this understanding that payment for the first year was not contested. In subsequent years payment was contested because the quantity of works performed was not satisfactory.
 
Based on the mode of payment, the fact that the Contract Price was in relation to quantity of work performed over a specified period of time, it is just that the plaintiff be paid a sum of money on a pro rata basis. The Court orders that the defendant pay the plaintiff a sum of money equivalent to one­ sixth of the Contract Price for 2012 and one-sixth of the Contract Price for 2013. The sum of money shall be paid in equivalent Malawi Kwacha converted from the quoted United States Dollar values, at the ruling exchange rate applicable on the date of payment.
 
Penalty for Late Payment
This money should have been paid within 30 days after the defendant had received the final invoice. Any delays in payment would attract interest calculated from the date by which the payment should have been made up to the date when the late payment is made at the prevailing rate of interest for commercial borrowing and add normal absolute net adjustment of price differences, see clause 25.4 of the GCC.
 
Interest
The plaintiff claimed interest on the sums due to him. Section 11(a) (v) of the Court's Act gives the court jurisdiction to direct interest to be paid on debts. Interest may therefore be claimable when the sum recovered is in respect of a debt including a judgment debt, see generally, Gombwa v City Motors Ltd [1996] MLR 390 at 396. Interest is also recoverable where the contract specifically provides for payment of interest on any sums due. This was the case in this matter. As shown above the GCC provided for interest payable on late payments. This claim therefore succeeds. Interest to be calculated as stipulated in the contract.
 
The plaintiff also claimed ten percent on the claim from 30 January 2012 to the date when the claim would have been settled in full. The basis of this claim was not shown. Consequently it is disallowed. The plaintiff prayed for other alternative claims whose basis was not shown. They are disallowed.
 
Costs
Costs are in the discretion of the court. The usual principles of exercising discretionary powers judicially apply in this case. The norm being that the successful party is awarded costs. In the instant case the plaintiff has succeeded in the main cause. The plaintiff has on the other hand not succeeded in the claim for ten percent interest above bank lending. This Court will exercise its discretion in favour of awarding costs to the plaintiff. However these costs are reduced by five percent for the part of the claim that the plaintiff lost. The rationale is to discourage parties from overloading the Court with claims which cannot be justified. The Court wastes a lot of resources considering the merits of unjustified claims. This also applies to submissions whether oral or written whereby there is a tendency by some counsel to overload the Court with material irrelevant to the matter under consideration. This tendency is an abuse of court process as court's time is wasted on irrelevant issues.
 
In the Malawi legal system court time is very precious because the Judge- Litigant ratio is so wide that every available minute must be utilized to its maximum. This position is emphasized in O.1, r.2/ 2e of the High Court (Commercial Division) Rules, 2007, by providing that the Court shall deal with a commercial matter justly by allotting to it an appropriate share of the Court's resources while taking into account the need to allot resources to other cases. In giving effect to this overriding objective, this Court shall order or deduct costs from parties who abuse court's resources through lengthy but irrelevant claims, pleadings, examinations including cross examination and other evidentiary material, legal arguments and submissions.
The defendant is ordered to reimburse the plaintiff legal practitioner's fees.
 
Pronounced in Open Court this 6th day of October 2016 at High Court (Commercial Division)
 
___________________
Rachel Sophie Sikwese
JUDGE