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Leeway East Enterprise Ltd v Danaben [2013] PGNC 2; N4951 (30 January 2013)

N4951

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO 563 OF 2009

LEEWAY EAST ENTERPRISE LIMITED
TRADING AS MARLOW SHIPPING
First Plaintiff

JACOB SARENG
Second Plaintiff

V

DANIEL DANABEN IN HIS CAPACITY AS MANAGER
OF BINNEN SLIPWAY LIMITED
First Defendant

BINNEN SLIPWAY LIMITED
Second Defendant

MADANG DEVELOPMENT CORPORATION
Third Defendant

MADANG PROVINCIAL GOVERNMENT
Fourth Defendant

Madang: Cannings J
2012: 5 October, 23 November,
2013: 30 January

DAMAGES – breach of contract for repair of income-earning asset – claims for special damages, general damages, business losses – need for plaintiff to corroborate claims – plaintiff awarded damages, plus interest

The first plaintiff engaged the second defendant to repair its motor vessel for a fixed sum. The repairs were not carried out to the plaintiffs' satisfaction so they commenced proceedings, claiming damages for breach of contract. Liability was established by entry of default judgment. There was a trial on assessment of damages. The plaintiffs sought special damages of K3,416,900.00, general damages of K100,000.00 and business losses of K4,462,873.00, a total claim of K7,979,773.00, plus interest and costs.

Held:

(1) The plaintiffs failed to adduce sufficient evidence to support most of the claims.

(2) The court awarded zero special damages, zero general damages and K50,000.00 for business losses, a total of K50,000.00 plus interest of K23,120.00, being a total judgment sum of K73,120.00.

(3) The parties were ordered to bear their own costs as the bulk of the plaintiffs' claim was misconceived and unsupported by the evidence.

Cases cited

The following cases are cited in the judgment:

Albert Baine v The State (1995) N1335
Bal Bar v Maima Kora (2008) N3290
Coecon Ltd (Receiver/Manager Appointed) v National Fisheries Authority (2002
Dobiam Kope v Tourism PNG Ltd (2010) N4138
Graham Mappa v ELCOM (1992) N1093
Hadley v Baxendale (1854) 9 Exch 341
Jonathan Mangope Paraia v The State (1995) N1343
Kopung Brothers Business Group v Sakawar Kasieng [1997] PNGLR 331
Martin Piaore v Ian Barr (2009) N3786
Pius Pup v Joseph Kupo (2010) N3897
PNG Aviation Services Pty Ltd v Geob Karri (2009) SC1002
PNGBC v Jeff Tole (2002) SC694
Rodao Holdings Ltd v Sogeram Development Corporation Ltd WS No 521 of 2001, 23.02.07
Tetley v The Administration (1971) No 647
Victoria Laundry v Newman [1949] 2 KB 528
William Mel v Coleman Pakalia (2006) SC790
Yooken Paklin v The State (2001) N2212

TRIAL

This was a trial on assessment of damages for breach of contract.

Counsel

T M Ilaisa, for the plaintiffs
B Tabai, for the defendants

30 January, 2013

1. CANNINGS J: This is an assessment of damages for breach of contract following entry of default judgment. The contract was between the first plaintiff Lee Way East Enterprise Ltd ("Leeway") and the second defendant Binnen Slipways Ltd ("Binnen") for the repair of a 14.5-metre wooden passenger-cargo boat, MV Relax, owned and operated in the waters of Madang Province by Leeway. Other parties are the second plaintiff Jacob Sareng (a director and manager of Leeway), the first defendant Daniel Danaben (the manager of Binnen), the third defendant Madang Development Corporation (which owns and controls Binnen) and the fourth defendant Madang Provincial Government (which owns and controls Madang Development Corporation).

2. Leeway engaged Binnen to repair MV Relax, which was unseaworthy due to its running aground on the Rai Coast in April 2005. The contract was constituted by an oral agreement between Mr Sareng and Mr Danaben and acceptance by Leeway of a written quote by Binnen to repair the boat for K30,000.00, which was required to be paid up-front together with an outstanding bill for K18,000.00 that Leeway had with Binnen. Pursuant to that agreement Leeway paid Binnen K48,000.00 and the boat was slipped (put on a slipway) in preparation for repair. That happened on 19 December 2006, which is the date on which the contract was entered into. Those are the undisputed facts. As to what happened after the boat was slipped there are two versions of events.

WHICH VERSION OF EVENTS FORMS THE BASIS OF ASSESSMENT OF DAMAGES?

3. The plaintiffs in their statement of claim allege that Binnen, despite agreeing to complete the repairs within three months, exhausted the funds in two weeks and did not commence repairing the boat until July 2007, only after the plaintiffs supplied parts and materials worth K81,121.00, and did not complete the work, which was done in an incompetent, unprofessional and inefficient manner, until 1 March 2008. An affidavit by Mr Sareng was adduced in evidence in support of those allegations. He deposed that he took out a bank loan and sold personal assets including his family home and motor vehicles to raise funds for the parts and materials. He also purchased a new engine for the boat and paid the wages of Binnen's employees to speed up the work.

4. The defendants say through affidavits by Mr Danaben and Binnen's Technical Supervisor Daniel Tariowai that the actual cost of repairs was much more than the original quote of K30,000.00. When the boat was slipped it was realised that the keel was badly damaged. They deny misapplying any of the K48,000.00 upfront payment. Mr Tariowai said that Mr Sareng was advised to pay more money but he chose to supply materials instead, so Binnen had to wait for him to provide the materials before work resumed; and that was what caused the delay. When the boat was floated the propeller shaft could not be aligned with the engine as it was bent. Mr Sareng provided a new shaft and arranged for his own people to work on the engine. Binnen only worked on the structure of the boat. Binnen did the work diligently and professionally and the boat was un-slipped on 27 December 2007.

5. Because default judgment has been entered it is not appropriate to revisit the question of liability unless a cursory examination of the facts and cause of action pleaded in the statement of claim reveals that they do not make sense or would make an assessment of damages a futile exercise (William Mel v Coleman Pakalia (2006) SC790). I consider that the facts and the cause of action have been pleaded with sufficient clarity, so it is not appropriate to revisit the question of liability. That means the plaintiffs' version of events, to the extent that the facts and cause of action were pleaded, are regarded as proven. Damages will be assessed on the basis that Binnen breached the contract by not carrying out the repairs within three months and not completing the work, which was done in an incompetent, unprofessional and inefficient manner, until 1 March 2008.

THE CLAIM

6. The plaintiffs claim three categories of damages:

• special damages of K3,416,900.00;
• general damages of K100,000.00; and
• business losses of K4,462,873.00,
  

being a total claim of K7,979,773.00, plus interest and costs.

1. SPECIAL DAMAGES
   

7. Mr Ilaisa for the plaintiffs submitted that this claim comprises two broad components:

(a) particular claims totalling K509,400.00; and
(b) reconstruction costs K2,907,410.00.

(a) Particular claims

These are:

8. Special damages are intended to compensate the innocent party for loss or damage incurred that is not presumed by the law to have been incurred. It is a special sort of damage that must be expressly pleaded and proved (PNGBC v Jeff Tole (2002) SC694, Bal Bar v Maima Kora (2008) N3290, Martin Piaore v Ian Barr (2009) N3786, Pius Pup v Joseph Kupo (2010) N3897, Dobiam Kope v Tourism PNG Ltd (2010) N4138). None of the claims (i) to (vi) was expressly pleaded in the statement of claim. I reject all of them for that reason, and there are other reasons they must be rejected:

(i) The sum of K48,000.00 is the upfront payment that Leeway paid to Binnen to get the boat slipped and the repair work done. It does not represent any damage that flowed from the breach of contract. Besides that, K18,000.00 of that sum had nothing to do with the repair contract. It represented an outstanding debt that Leeway owed Binnen.

(ii) The sum of K115,490.00 is said to be the amount outstanding on a loan of K70,000.00 that Mr Sareng and his wife took out with Bank South Pacific in 2004 for the purpose of "completion of refitting and reconstruction of workboat" (presumably MV Relax). The argument is that Mr Sareng could not service the loan, which resulted in a substantial accumulation of interest, because of the breach of contract by Binnen, which led to MV Relax not generating revenue in 2007. The argument overlooks the fact that there was no contractual relationship between Mr Sareng and Binnen. The contract was between Leeway and Binnen. The person entitled to damages flowing from the breach of contract is the person – Leeway – which was a party to the contract.

(iii) It is submitted that the plaintiffs paid K75,000.00 in wages and rations to Binnen's workers to get them to work on the boat as Binnen had no money to pay them. However there is no credible evidence to support this claim. The written submission of Mr Ilaisa cites paragraph 20(d) and annexure M of Mr Sareng's affidavit as evidence, but paragraph 20(d) is simply a statement that 'I was forced under the circumstances to start selling my personal assets to raise funds to pay wages to Binnen Slipway's employees to work on my boat because Binnen Slipways had no money to pay its employees', and annexure M is a spreadsheet with a reference to the figure of K75,000.00. Such statements are of negligible probative value. Even if there were evidence that K75,000.00 was paid to workers, the plaintiffs would be hard pressed in proving that this was expenditure that flowed as a natural consequence of the breach of contract. The innocent party only gets the amount of his actual losses that were reasonably foreseeable at the time the contract was formed (Hadley v Baxendale (1854) 9 Exch 341, Victoria Laundry v Newman [1949] 2 KB 528, Tetley v The Administration (1971) No 647, Coecon Ltd (Receiver/Manager Appointed) v National Fisheries Authority (2002) N2182). This was not a reasonably foreseeable loss.

(iv) It is submitted that Mr Sareng had to divert "family savings" of K150,000.00 to meet the unforeseen repair costs. There is no credible evidence to support this claim and even if there were it would not be regarded as expenditure that flowed as a natural consequence of the breach of contract. It was not a reasonably foreseeable loss.

(v) It is submitted that the plaintiffs spent K21,000.00 on electrical wiring for the boat. There is no credible evidence to support this claim and even if there were it would not be regarded as expenditure that flowed as a natural consequence of the breach of contract. It was not a reasonably foreseeable loss.

(vi) It is submitted that K100,000.00 was spent on a new Cummins Diesel engine for the boat. There is no credible evidence to support this claim and even if there were it would not be regarded as expenditure that flowed as a natural consequence of the breach of contract. It was not a reasonably foreseeable loss.

(b) Reconstruction costs

9. It is submitted that the plaintiffs spent a total of K2,907,410.00 reconstructing the vessel. This claim is rejected for three reasons. First, it is not pleaded in the statement of claim.

10. Secondly there is no credible evidence to support the claim. Indeed it is an incredible claim. There is annexed to Mr Sareng's affidavit a survey report on MV Relax prepared by Charles Buai, Marine Surveyor, Department of Transport, Madang, dated 13 April 2005, expressing the view that the vessel was unseaworthy and of no value and should be grounded and sunk and that to reconstruct it to make it seaworthy would cost K1.5 million. Then there is a statement in Mr Ilaisa's submission that the vessel was sold in 2008 for K400,000.00. Why would the plaintiffs sell a vessel that had just been reconstructed at a cost close to K3 million for a price of only K400,000.00? I find it impossible to believe that the K2,907,410.00 figure is genuine. Mr Buai's estimate was that K1.5 million was required to make the vessel seaworthy. That is a little over half of what the plaintiffs say was spent on it. This does not make sense.

11. Thirdly, if my scepticism is ill-founded and the plaintiffs did spend K2,907,410.00 reconstructing the vessel, this expenditure was not a natural consequence of the breach of contract. The contract was for repair of a limited number of items. This is evident from Binnen's quote, dated 7 July 2006, which stated:

12. And there was an important rider in the final paragraph of the quote:

Please take note, this is only the quotation, actual prices of materials, labour other items quoted will actually change and it would be the burden of the boat owner to meet. [sic]

13. When assessing damages in contract the court seeks to put the injured party in the position that party would have been in but for the breach of contract. The object is to put the plaintiff in the same position as if the contract was performed (PNG Aviation Services Pty Ltd v Geob Karri (2009) SC1002). If this contract had been performed according to its terms the very limited repairs covered by the quote of 7 July 2006 would have been completed by 19 March 2007 and the work would have been done professionally and diligently. The vessel would not have been reconstructed. The contract did not require that it be reconstructed. And there is no credible evidence – and it defies logic to suggest – that the vessel had to be reconstructed because of the delay in having it repaired. The evidence suggests that before it was slipped on 19 December 2006 the vessel was unseaworthy. The true extent of the repairs required only became apparent after it was slipped.

Conclusion re special damages

14. Nothing is awarded. Nothing was pleaded and there is no credible evidence to support any components of the claim for special damages.

2 GENERAL DAMAGES

15. It is submitted that Mr Sareng suffered severe stress, hypertension and heart failure and that he was forced to retire from his position as a Magistrate. I reject this claim for two reasons. First, the report by Mr Sareng's physician, Dr C Kalana, dated 7 September 2010, adduced in evidence in support of the claim for K100,000.00 damages, states that Mr Sareng "developed severe hypertension complicating to heart failure" in late 2009. But the breach of contract occurred in March 2007. The vessel was sold in 2008. There is no causal connection between the breach of contract and Mr Sareng's medical condition.

16. Secondly, as pointed out earlier Mr Sareng was not a party to the repair contract. The innocent person eligible for an award of damages for inconvenience and frustration caused to it by the breach of contract is the person that was a party to the contract (Rodao Holdings Ltd v Sogeram Development Corporation Ltd WS No 521 of 2001, 23.02.07). In this case the innocent person was Leeway, not Mr Sareng. Nothing is awarded for general damages.

3 BUSINESS LOSSES

17. Mr Ilaisa's written submission argues for an award of K4,462,873.00. I have found this part of the submission unfathomable. It is not clear where this figure comes from. The amount claimed for business losses in the statement of claim is K5,482,304.00, a discrepancy of more than K1 million. Why is this so? Mr Sareng in his affidavit deposes that "the plaintiffs suffered financial loss of K17,750,000.00". That is another incredible figure. Mr Sareng annexes to his affidavit a set of accounts for Leeway for 2005, 2006 and 2007, purporting to have been prepared by Triset Management Consultants Ltd of PO Box 163 Madang. The actual author of the reports is not identified and it is natural to wonder whether the person is a registered public accountant. The accounts are unaudited and there is no indication that they have been checked by or forwarded to any lawful authority such as the Internal Revenue Commission. This necessarily reduces their probative value (Graham Mappa v ELCOM (1992) N1093).

18. For the financial year ended 31 December 2007 it is reported that "the net profit/(loss) of the company (operation of MV Relax) after provision for income tax was K3,217,135.00" [sic]. Quite apart from the fact that it seems incredible that the company would be able to generate such a massive net profit after spending what was claimed to be almost K3 million reconstructing the vessel, it must be observed that the plaintiffs' case is predicated on the vessel being slipped on 19 December 2006 pursuant to a contract that required the repairs to be completed by 19 March 2007 and a breach of contract being committed by the repairer in that the vessel was not un-slipped until 1 March 2008. The vessel was not operating in 2007. The balance sheet shows that it was Leeway's principal fixed asset so how could it generate a profit? In his affidavit Mr Sareng deposes by reference to the accounts that MV Relax was able to make a profit of K3,217,135.00 in 2007. The accounts are obviously false as during the year 2007 the MV Relax was on the slipway. The evidence of Mr Sareng is also false. I conclude that the accounts relied on to support the business losses being claimed are devoid of credibility.

19. At this juncture, in view of the deficiencies in the evidence, it is appropriate to call upon some pertinent principles for assessment of damages:

• The plaintiff has the onus of proving its loss on the balance of probabilities. It is not sufficient to make assertions in a statement of claim and simply expect the court to award what is claimed. The burden of proving a fact is upon the party alleging it, not the party who denies it (Yooken Paklin v The State (2001) N2212).
  
• Corroboration of a claim is usually required and the corroboration must come from an independent source (Albert Baine v The State (1995) N1335, Kopung Brothers Business Group v Sakawar Kasieng [1997] PNGLR 331).
  
• The fact that damages cannot be assessed with certainty does not necessarily relieve the wrongdoer of the necessity of paying damages. Where precise evidence is available the court expects to have it. However, where it is not, the Court must do the best it can (Graham Mappa v ELCOM (1992) N1093, Jonathan Mangope Paraia v The State (1995) N1343).
  

20. The claim for business losses in this case is extravagant. There is no corroboration of the claim. So what should the court do? Award nothing? I think this is a case where such an approach could well be justified. On the other hand I must take into account that the plaintiff has established a breach of contract and has proven that the vessel was on the slipway earning no income from 19 March 2007 to 1 March 2008. Ultimately I think it is in the interests of justice to draw upon the last principle cited above: the fact that damages cannot be assessed with certainty should not relieve the wrongdoer, in this case, Binnen, of the necessity of paying damages. Precise evidence is not available and the court will do the best it can. Having considered all the evidence the best that can be done is to make an intuitive assessment of business losses: an amount that the court, having weighed the evidence and the circumstances of the case, considers reasonable and realistic in all the circumstances. I award the sum of K50,000.00.

SUMMARY OF DAMAGES ASSESSED

1 Special damages: 0

2 General damages: 0

3 Business losses: K50,000.00

being a total amount of K50,000.00.

INTEREST

21. Interest will be awarded at the rate of 8 per cent per annum on the total amount of damages under Section 1(1) of the Judicial Proceedings (Interest on Debts and Damages) Act Chapter No 52. Interest is calculated from the date on which the cause of action accrued, 19 March 2007, to the date of this judgment, a period of 5.78 years, by applying the following formula:

• D x I x N = A
  

Where:

• D is the amount of damages assessed;
• I is the rate of interest per annum;
• N is the appropriate period in numbers of years;
• A is the amount of interest.
  

Thus K50,000.00 x 0.08 x 5.78 = K23,120.00.

COSTS

22. The general rule is that costs follow the event, ie the successful party has its costs paid for by the losing party on a party-to-party basis. In this case there is no clear winner. The plaintiffs have on the one hand succeeded in obtaining an award of damages but on the other hand have succeeded in convincing the court that only 0.62% (K50,000.00 out of K7,979,773.00) of its claim had merit; 99.38% of the claim was without merit. The defendants have succeeded in showing that the vast bulk of the claim had no evidentiary basis and was misconceived. In these circumstances it is appropriate that the parties bear their own costs.

ORDER

23. The Court orders that:

(1) the defendants pay to the plaintiffs damages of K50,000.00 plus interest of K23,120.00, being a total judgment sum of K73,120.00; and

(2) the parties shall bear their own costs.

Judgment accordingly.
_____________________________________________________
Thomas More Ilaisa Lawyers & Attorneys: Lawyers for the Plaintiffs
Tabai Lawyers: Lawyers for the Defendants