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Binnen Construction Ltd v Malai [2014] PGNC 120; N5775 (21 October 2014)

N5775

PAPUA NEW GUINEA
IN THE NATIONAL COURT OF JUSTICE

WS NO 288 OF 2012

BINNEN CONSTRUCTION LIMITED
Plaintiff

V

HON BUKA GOLI MALAI, MEMBER FOR MADANG OPEN, CHAIRMAN, JOINT DISTRICT PLANNING & BUDGET PRIORITIES COMMITTEE
First Defendant

LAWRENCE PITOR, MADANG DISTRICT ADMINISTRATOR
Second Defendant

THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Third Defendant

CANNINGS J

Madang: 23 October 2013, 10 September 2014
Waigani: 21 October 2014

DEBT AND DAMAGES – assessment – after entry of default judgment – breach of contract – oral contract for provision of road construction work – defendants' failure to honour invoices.

The plaintiff claimed that it entered into a contract with the first and second defendants (a member of Parliament and a district administrator) to upgrade a road, that it completed the contract and that the defendants, including the third defendant, the State, failed to pay all invoices it rendered. The plaintiff sued for the debt due and for damages for breach of contract. The defendants failed to file a defence and default judgment on liability was entered against them. This was a trial on assessment of debt and damages. The plaintiff sought three categories of relief: (a) debt of K772,536.52 in respect of the balance of unpaid invoices; (b) damages in respect of interest incurred on a loan it obtained to purchase equipment, K649,000.00; (c) general damages for pain and hardship, K10,000.00, a total claim of K1,431,535.52. Only the State defended the matter, arguing that the issue of liability should be revisited due to defects in the pleadings and the State should be found not liable; but in the event that the State remains liable, nothing should be awarded due to lack of evidence to support the claims.

Held:

(1) The effect of the default judgment was that the facts and cause of action pleaded in the statement of claim are presumed to have been proven, and are only revisited if they do not make sense or would make an assessment of damages a futile exercise (William Mel v Coleman Pakalia (2005) SC790). Here, the facts pleaded were clear, as were the causes of action relied on, so the issue of liability was not reconsidered.

(2) The Court awarded: (a) debt of K772,536.52, the full amount of the unpaid invoices, (b) nothing for interest incurred on purchase of equipment, (c) damages of K10,000.00 for pain and hardship, a total amount of debt and damages of K782,536.52.

(3) In addition, interest on the total amount of debt and damages was awarded, calculated at the rate of 8% per annum from the date of service of the writ to the date of judgment (a period of 2.5 years), a sum of K156,507.30, resulting in a total judgment sum of K939,043.82.

Cases cited

The following cases are cited in the judgment:

Coecon Ltd (Receiver/Manager Appointed) v National Fisheries Authority (2002) N2182
Dennis Marus v Kimbe Urban Local-level Government (2007) N5021
Fly River Provincial Government v Pioneer Health Services Ltd (2003) SC705
Hadley v Baxendale (1854) 9 Exch 341
Jeffery Balakau v Sir Arnold Amet (2013) N5313
Kumagai Gumi Co Ltd v National Provident Fund Board of Trustees (2006) SC837
National Capital District Commission v Yama Security Services Ltd (2005) SC835
Niugini Civil & Petroleum Ltd v West New Britain Development Corporation Ltd (2008) N3292
Panga Coffee Factory Pty Ltd v Coffee Industry Corporation Ltd (1999) SC619
PNG Aviation Services Pty Ltd v Geob Karri (2009) SC1002
Rodao Holdings Ltd v Sogeram Development Corporation Ltd (2007) N5485
Tetley v The Administration (1971) No 647
Victoria Laundry v Newman [1949] 2 KB 528
William Mel v Coleman Pakalia (2005) SC790

TRIAL

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

Counsel

D F Wa'au, for the plaintiff
S Phannaphen, for the third defendant

21st October, 2014

1. CANNINGS J: This is an assessment of debt and damages for breach of contract, following entry of default judgment. The plaintiff, Binnen Construction Limited, claims that in December 2007 it was engaged by the first and second defendants to upgrade the Four Mile-Bawan Road, Madang Province. At that time the first defendant, Buka Goli Malai, was the Member for Madang Open and Chairman of the Madang Joint District Planning and Budget Priorities Committee, and the second defendant, Lawrence Pitor, was the Madang District Administrator. The plaintiff claims that it completed the contract and that the first and second defendants failed to pay all invoices it rendered. The plaintiff sued those defendants, as well as the third defendant, the State, for the debt due and for damages for breach of contract. The defendants failed to file a defence and default judgment on liability was on 23 November 2012 entered against them.

2. The plaintiff seeks three categories of relief:

(a) debt of K772,536.52 in respect of the balance of unpaid invoices;

(b) damages in respect of interest incurred on a loan it obtained from Credit Corporation Ltd to purchase equipment, K649,000.00;

(c) damages for pain and hardship, K10,000.00, a total claim of K1,431,535.52.

3. Only the State defended the assessment, arguing that the issue of liability should be revisited due to defects in the pleadings and the State should be found not liable; but in the event that the State remains liable, nothing should be awarded due to lack of evidence to support the claims.

4. The first issue is whether to revisit the issue of liability. If that issue is decided against the State, the court will assess the amount of debt and damages due to the plaintiff.

SHOULD LIABILITY BE REVISITED?

5. The effect of the default judgment is that the facts and cause of action pleaded in the statement of claim are presumed to have been proven, and are only revisited if they do not make sense or would make an assessment of damages a futile exercise (William Mel v Coleman Pakalia (2005) SC790).

6. Mr Phannaphen, for the State, submitted that the Court should revisit the issue of liability and find that the State is not liable, for these reasons:

• the cause of action was not pleaded with sufficient clarity: the pleading is so vague the defendants have been left guessing whether the cause of action is unpaid debt or breach of contract;
  
• it is not clear whether the purported contract at the centre of the case was an oral contract or in writing;
  
• it is not clear what the terms of the contract were, and in particular what the value of the contract was;
  
• the statement of claim does not plead any facts that would enable the court to conclude that the contract, if it exists, was lawfully entered into, in that: no mention is made of compliance with the public tender requirements of the Public Finances (Management) Act and the value of the purported contract (which the statement of claim pleaded was approximately K1 million) was beyond the legal capacity of the first and second defendants to award, the result being that the contract is void and unenforceable (Panga Coffee Factory Pty Ltd v Coffee Industry Corporation Ltd (1999) SC619, Fly River Provincial Government v Pioneer Health Services Ltd (2003) SC705, National Capital District Commission v Yama Security Services Ltd (2005) SC835).
  

7. I reject those submissions. The statement of claim, though not precisely pleaded, adequately discloses causes of action in debt and breach of contract. I agree that it is not expressly pleaded whether the contract was in writing and what its terms were. However, it is reasonably to be inferred that the pleading is that:

• there was an oral contract entered into by the first and second defendants,
  
• its terms included that the plaintiff would upgrade and rehabilitate the road,
  
• the first and second defendants would be invoiced a reasonable sum for doing so, and
  
• they would honour the invoices within a reasonable time after being rendered.
  

8. I agree that it is questionable whether the procedures followed by the parties in entering the contract complied with the Public Finances (Management) Act and whether the first and second defendants had legal capacity to enter the contract and bind the State. Those would certainly seem to have been arguable defences. But no defence has been filed and the State ought not be permitted to raise these arguments now. The default judgment will not be set aside. I will now assess the amount of debt and damages.

ASSESSMENT OF DEBT AND DAMAGES

(a) Unpaid debt

9. This is a claim for debt as distinct from damages. It is important to maintain that distinction (Kumagai Gumi Co Ltd v National Provident Fund Board of Trustees (2006) SC837, Niugini Civil & Petroleum Ltd v West New Britain Development Corporation Ltd (2008) N3292, Jeffery Balakau v Sir Arnold Amet (2013) N5313).

10. Mr Phannaphen submitted that the plaintiff should be awarded nothing as there is no evidence that there was any amount agreed between the plaintiff and the first and second defendants as to what the plaintiff would be paid. He submitted (as he did in support of the argument as to revisiting the issue of liability) that the purported contract was illegal and unenforceable and nothing can be awarded for debt or damages said to have arisen out of it. The plaintiff should have made an alternative claim in quantum meruit, but it hasn't, so it should be awarded nothing. If the court is intent on making some award to the plaintiff it should award a nominal sum of 5% of the amount claimed, as in Dennis Marus v Kimbe Urban Local-level Government (2007) N5021.

11. I am unpersuaded by those submissions. The plaintiff has proven on the balance of probabilities that it rendered three invoices to the first and second defendants in early 2008 to the total value of K992,536.52 and that after some part-payments the amount of K772,536.52 remains outstanding. I note that, included amongst the evidence of the plaintiff, are three letters in support of payment of the invoices addressed to the Office of Rural Development. These letters are from the second defendant (dated 24/5/08), the then Provincial Administrator Joseph Dorpar (28/5/08) and the Acting District Administrator (22/7/08).

12. I am satisfied on the strength of that evidence that the invoices are genuine and that the amount claimed is reasonable and that the work was actually done to the required standard. I award the amount claimed, K772,536.52.

(b) Damages in respect of interest on loan

13. The plaintiff claims special damages for interest of K649,000.00 that it incurred in respect of a loan it obtained from Credit Corporation Ltd for the purchase of earth working equipment. The argument is that if the contract had not been breached, the plaintiff would have been able to repay the loan in a timely manner and avoid this large amount of interest.

14. I uphold Mr Phannaphen's submission that the evidence in support of this claim is defective. The plaintiff has not adduced the loan agreement. It relies on a series of statements regarding a loan account, which is not in the plaintiff's name. For this reason, the plaintiff will be awarded nothing.

15. If the evidence had been satisfactory it would have remained a difficult task for the plaintiff to convince the court that it was entitled to anything. The general principle that the purpose of an award of damages is to put the innocent party in the same position, as far as money can do, as if the guilty party had not committed a wrongful act, is qualified substantially in the case of assessment of damages for breach of contract. The innocent party only gets the amount of its actual losses that were reasonably foreseeable at the time the contract was formed. What is taken to have been reasonably foreseeable at the time the contract was formed depends on two things:

• the sort of knowledge that any reasonable person would be expected to have; and
  
• knowledge of special circumstances outside the ordinary course of things.
  

16. Those principles emerge from the leading British cases on damages for breach of contract, Hadley v Baxendale (1854) 9 Exch 341 and Victoria Laundry v Newman [1949] 2 KB 528, which have been applied in PNG in, for example, Tetley v The Administration (1971) No 647, Coecon Ltd (Receiver/Manager Appointed) v National Fisheries Authority (2002) N2182 and PNG Aviation Services Pty Ltd v Geob Karri (2009) SC1002.

17. The question would have been: was the extra interest on the loan an extra loss that was reasonably foreseeable at the time the contract with the defendants was formed? No. It would have been concluded that this claim is too remote. Nothing would have been awarded.

(c) Damages for pain and suffering

18. It sounds unusual for a company to claim damages for its 'pain and suffering' but this is actually a valid claim. Whenever a company is the victim of a breach of contract it inevitably costs the company time and corporate energy coping with the consequences of the breach and for such things it is entitled to be compensated in damages (Rodao Holdings Ltd v Sogeram Development Corporation Ltd (2007) N5485).

19. I award the amount claimed, K10,000.00, which, in a case where the breach (constituted by the failure to pay the invoices in a timely manner) has continued for six years, is a modest and reasonable sum.

Summary of assessment

20. The following amounts are awarded:

(a) debt of K772,536.52 +

(b) zero for interest incurred on purchase of equipment +

(c) damages of K10,000.00 for pain and hardship.

Total amount of debt and damages = K782,536.52.

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 will be calculated in respect of the period from the date of service of the writ to the date of this judgment, a period of 2.5 years, by applying the formula D x I x N = A, where: D is the total amount of debt and damages awarded, I is the rate of interest per annum, N is the appropriate period in years and A is the amount of interest. Thus K782,536.52 x 0.08 x 2.5 = K156,507.30.

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. I apply that rule of thumb here. The plaintiff has repelled the argument that it be awarded nothing, it is therefore the successful party and will be awarded its costs.

ORDER

23. The Court orders that:

(1) the defendants shall pay to the plaintiff a total amount of debt and damages of K782,536.52 plus interest of K156,507.30, being a total judgment sum of K939,043.82; and

(2) the defendants shall pay the plaintiff's costs of the proceedings on a party-party basis which shall, if not agreed, be taxed.

Judgment accordingly.
__________________________________________________________
Meten Lawyers: Lawyers for the Plaintiff
Solicitor-General: Lawyer for the Third Defendant