N7372

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS 732 of 2014

BETWEEN
EDA CORPORATION LIMITED
Plaintiff

AND
NATIONAL CAPITAL DISTRICT COMMISSION
First Defendant

AND
TOAMI KULUNGA in his capacity as the Commissioner of Police, ROYAL PAPUA NEW GUINEA CONSTABULARY
Second Defendant

AND
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Third Defendant

Waigani: Polume-Kiele J
2017: 4 May, 9 June
2018:  6 July

PRACTICE AND PROCEDURE- Claim for breach of contract – for loss of profits and damages; breach of constitutional rights (general and exemplary) plus interest and costs

Cases cited

Post Puma Ltd v Yama Security Services Ltd ((unreported) 26/07/2001) SCA No. 80 of 2000) 
Wilson Thompson -v- National Capital District Commission & Anor (2004) N2686,

Counsel:

Mr H Leahy, for the Plaintiff
Mr M Mukwesipu, for the First Defendant
Ms C Kuson, for the Second and Third Defendants

RULING

6 July, 2018

1.	POLUME-KIELE J:	 Trial on this matter was conducted 4 May 2017. Submissions were made by parties on 9 June 2017. I now hand down my ruling on liability and damages.

Background facts
  
2.	The Plaintiff claims that it had signed a Lease agreement with the First Defendant, the National Capital District Commission (the “Lease Agreement”) for the lease of the property described as “Ela Beach Sea Park Kiosk, Sea Park” situated on Portion 2013, Granville for a term of 5 years with an option for renewal. The lease commenced on the 1st of January 2011.

3.	However this lease was unlawfully terminated by the first defendants thus resulting in his claims for damages against the first defendant and against the second and third defendants for exemplary damages for breaches of constitutional rights.

4.	It was a term of the lease agreement that a monthly rental for the property was agreed at a sum of K5, 000.00 plus GST and the base annual rental was assessed at a sum of K60, 000.00 plus GST and an annual increase by CPI.  It was also a term of the lease that termination date shall be the last day of the five year term, or at a date where the tenant breaches the lease agreement.

5.	In March 2014, the First Defendant terminated the Lease.

Plaintiff’s evidence

6.	During trial of the matter on 4 May 2017, the managing director of the plaintiff, Mr Raymond Wang gave evidence (oral and sworn). The plaintiff says that he was in occupation of the premises under a lawful agreement to lease the land from the first defendant where he conducted a business in running a restaurant, supermarket and sea park. Mr Wang says that the premises was advertised through a public tender upon which he applied and submitted a proposal to run a restaurant business on the premises. The plaintiff then moved into the premises. 

7.	The plaintiff says further that on the 20 June 2011, it obtained a building permit to carry out “renovation works” to the existing premises at Portion 2031” at some cost to the plaintiff. This renovations was necessary to make the premises more habitable for a business operation. The plaintiff in this regard had operated a Fast Food business called “Kenmaity Fried Chicken” or ‘’KMC” at the premises.

8.	Mr Wang gave evidence that there is no real dispute as to ownership of the land. The dispute is in relation to the termination of the lease by the first defendant which has left the plaintiff out of pocket and with no business operation to run. Besides, the first defendant with the assistance of the second and third defendants had also demolished the premises with all his trade in stock. These actions had basically left the plaintiff suffering loss of profit, loss of stock in trade and breaches of his constitutional rights to peaceful enjoy of the premises and to conduct business. Mr Wang also gave evidence that he was also not given any alternative options by the first defendant of the lease of a new premises or promise of a new premises for rental to continue with its business operation despite his attempts at discussing such options.

9.	Due to the inaction of the first defendant, the plaintiff remained on the property hoping that an alternative place would be found for him to relocate to. However, to his dismay, on the morning of 14 March 2014 at about 7 am, members of the police forcefully moved into the property and carried out demolition exercises which had greatly impacted its business operation and had in fact put the plaintiff out of business.

10.	As these exercises were being carried out, he went to the NCDC office to enquire as to why the police were at the Ela Beach Kiosk which Mr Wang said that he was not informed of the demolition or when it was to take place.

11.	Overall, the plaintiff says that he has a licence to trade when commenced in 2009 and the fee is about K500.00 per year. He has a licence for the restaurant (Exhibit 11- dated 24th November 2012 for the plaintiff) and that he had complied with all the requirements under the lease and had done some developments to the premises for which he is yet to be reimbursed. However now that the premises has been demolished, he seeks damages for breach of contract, and his constitutional rights and loss of business and profits.

The Defendants’ evidence

12.	The first defendant’s evidence consist of a number of affidavits, first (Exhibit D No.8) is the affidavit of Lari Raula sworn 18/11/15 and filed 19/11/15. Exhibit D No.6 is the affidavit of Leslie Alu sworn and filed 30 June 2016. Ms Patricia Solon-Mesa and Ms Lari Raula also gave oral testimony during trial.  

13.	During trial, it became apparent that the Director of the plaintiff company (Edasave Corporation Ltd) has a number of alias but his formal name is Chang En’ Wang but he had identified himself as Raymond Wang.  Chang “En” Wang now currently resides at Erima, National Capital District. He had given evidence that he is a co-owner of the plaintiff company with his wife.  But these proceedings are pursued with the agreement of the co-owners.

14.	The second plaintiff (CNZ Trading) another tenant is a company owned by Mr Wang’s brother). The plaintiffs entered into a lease of the Ela Beach Kiosk for purposes of running a restaurant only (Clause 3 – Permitted use, trading hours, after-hours access (Item 13).

15.	Whilst it is true that the parties had entered into a lease arrangement. The first defendant says that it had exercised its rights under the lease arrangement and gave notice under Clause 23 to the plaintiffs to vacate the property because the first defendant wanted to develop the area. The first defendant says that under Clause 23 notice was given to the plaintiff to vacate the property on the 23rd of November 2013 (Exhibit 10).

16.	Furthermore, the plaintiff had been notified by the first defendants that it intended to carry out major construction works on the land around the Ela Beach Area, including the premises the subject of this claim. The plaintiff however, ignored these notices and continued to remain on the property. Consequently, the police had to move in to assist the first defendant to remove the plaintiff from the premises.

17.	The demolition of the premises was in line with the purposes of constructing the Ela Beach Ring Road which is now in existence and other developments within and surrounding the Ela Beach area.

18.	The defendants say that their actions were in compliance with the terms of the lease agreement agreed and executed between the parties. The plaintiff in this instance, had deliberately ignored the notices given and chosen to remain on the property thus contributing to his own detriment (although no arguments were made in support of this proposition).

19.	The second and third defendants in this case supports the arguments of the first defendants in principle.

Issues for determination

20.	In order to determine whether the defendants are liable for the damages claims, a perusal of the terms and conditions of the Lease Agreement will be done to determine what the obligations and rights are imposed on the parties. To do that, I will firstly consider the following:

(i)	 whether any of the terms entitles any of the parties to the agreement to sever themselves from their obligations?; and

(ii)	whether such actions gives a right to compensation under law?

Law

21.	The Lease Agreement clause 23 provides as follows:

“23 Neither party shall be liable to the other, or be in default under the terms of this Agreement, for failure to observe or perform any provision of this Agreement for any reason or cause which could have with reasonable diligence be controlled or prevented by the party in question, including strikes, lock outs, labour disputes, criminal activity, acts of God, acts of government or their agencies, fire, flood, storm, riots, power shortages or power failure, war, sabotage. The party relying on the provisions of sub - clause 23. 1 shall give to the other, notice of its inability to observe or perform, and the reasons therefore.”

Further, Clause 19.2 provides for Severability. It states:

“If any term or condition of this lease or the application of any term or condition to any person or circumstance is or becomes illegal, invalid, or unenforceable in any jurisdiction, it will be severed and none of the remaining terms and conditions will be affected”

Consideration of the claim

22.	In this present case, the parties both agree that they had entered into a valid lease agreement (Items 1 and 4) and it commenced on the 1st of January 2011 (Item 9) for a term of 5 years (Item 10). It was also agreed that the month rent rate is a sum of K5000 per month plus GST (Item 6A) and the annual rate is at a sum of K60, 000.00 plus GST (Item 7B).  It was also agreed that the rents will increase annually by CPI (Item 8). The property was to be used only as a restaurant and no other (Item 13).

23.	In addition to the formal arrangement for leasing of the property and the rental payable, the parties agreed to further arrangements, which obligates each party to do certain things with each other’s approval and or acknowledgement. These being that all approved infrastructure erected by the plaintiff (Item 17) on the premises and adjoining land will be owned by the first defendant (Item 18). Similarly, if the lease is terminated before the first five (5) year period, the first defendant will reimburse the plaintiffs their unrecovered portion of the upfront infrastructure costs (Item 19).

24.	I also must add that the lease agreement also included a clause for “termination” which incidentally states (Item 11) and I read: “Termination Date shall be the last day of the initial five (5) year term, or at a date where the Tenant breaches the lease agreement. It is also necessary to state here that the premises the subject of this proceedings is also adequately identified (Item 5) “All that part of the kiosk and surrounding 2 metres around the kiosk”.

25.	Apart from the lease agreement, the plaintiff also has claim against the Second and Third Defendants for breaches of his human rights. The plaintiff alleges that the agents and or servants of the second and third defendants had demolished his property a consequence of which he has lost his business. The plaintiff says that he is entitled to claim damages for business losses and profits for the balance of the lease agreement and exemplary damages for breach of its human rights under the Constitution.

26.	I gather from the introduction of evidence during trial of the matter, although there was a lease arrangement between the parties; it is apparent to the plaintiff that the first defendant had bigger plans for the development of the Ela Beach areas and its surrounds. The issues as to when this became known to the plaintiff is not in evidence. But it appears that at early as 3rd of October 2012, the defendants had notified the public of its plans to construct the Paga Hill Ring road.  I understand that by then, the plaintiff would have been very much aware that this developments would in effect directly affect the plaintiff’s business operation and the Lease Agreement with the plaintiff.

27.	Evidence adduced by the parties also confirmed that by October 2012, the first defendant had been in discussion with developers for the construction of the Paga Hill Ring road and the Ela Beach waterfront and in fact had been given notice to vacate the premises on the 13th of November 2013. Hence, the decision is not one of a surprise. Sufficient notice period had been given (one month). The plaintiffs should have by then made arrangements to vacate the premises and secured its stock in trade (if any still on the premises) and taken steps to re-locate for purposes of continuing with its restaurant business operations. 

28.	In Post Puma Ltd v Yama Security Services Ltd (unreported) 26/07/2001) SCA No. 80 of 2000) the Court held that contracts which provided for a payout of the balance of the contract if the contract is terminated earlier, amounts to penalties.  Given that, the Courts will not uphold such a clause. This is because, apart from these kinds of provisions not fixing an actual loss, they go against the fundamental principle of the freedom of the contracting parties to opt out of contractual obligations at the instance of one of the parties or by mutual agreement when it becomes difficult to be in a contract. The Court in that case went on to say at (pp. 4-5) that:
“Damages in contract are awarded to compensate a party for loss or injury not to penalize.  Damages are awarded to put the injured party in the same position, as it would have been had the contract not been breached, and it is the duty of the Court to satisfy itself that a sum to be held over a party to enforce a contract.  A Plaintiff claiming under a contractual provision for liquidated damages must show that the agreement represents a genuine pre estimate by the parties of the actual loss that will be occasioned if the contract terms are met.  But if the provisions can be seen to be essentially a threat over a party to secure performance of the contract, the provision will be a penalty and unenforceable”. 
29.	Hence in situations where a claim is for the balance of a contract, the courts have long held that:
“...Because the purpose of a penalty is to ensure compliance rather than to truly compensate, agreements for sums found to be penalty will not be enforced, and the party claiming damages will be properly and adequately compensated by an award of actual assessed loss.  Further, if there be provision in an agreement for a sum or sums payable on breach wholly out of proportion to the breach. (sic) The Courts will hold such provision a penalty, as unconscionable, and unenforceable. ‘A Plaintiff cannot recover the sum stated in a contract if he has not in fact suffered such loss.’ (Law of Contracts Cheshire & Fifoot 2nd Ed. 767).’’

30.	Similarly, the court have also stated that a court dealing with a contract having such a provision has the duty to:

“… enquire into the matter and determine whether the provision in the contract represents a genuine pre-estimate of the damages that will occur in the event of breach, as opposed to whether the sum designated is in reality a penalty to be imposed if the contract is not carried through.”

31.	Furthermore, in the case of Wilson Thompson -v- National Capital District Commission & Anor (2004) N2686, the National Court did address this aspect of a contract and provided some guidance as to how an assessment of damages by reference to the relevant period of notice can be determined. In the case, the Court stated:
“…the law does look up to the period of notice to measure an unlawfully terminated employee’s damages.  The relevant period of notice is the one the contract provides for or one imposed by legislation such as the Employment Act in the absence of any agreement of the parties to the contrary.  A number of cases in this jurisdiction confirm that position.  An example of that is the case of Appa v Wama [1992] PNGLR 395.
32.	Applying these principles to the present case, the plaintiff’s claim is for the balance of the term of the contract and reimbursement for the cost of renovation plus breaches of constitutional rights. 
33.	Noting that notice to terminate was given on the 13th of October 2013; it is accepted that the one month period expired on or about the 30th of November 2013. This means that the lease had terminated on the 30th of November 2013. Therefore any claims for damages and or outgoings issued from the 1st of December 2013 to the expiry of the term of the lease which is the 30th of December 2015, amounts to penalty and thus any claim for the balance of the contract is misconceived. The Courts will hold such provision a penalty, as unconscionable, and unenforceable. ‘A Plaintiff cannot recover the sum stated in a contract if he has not in fact suffered such loss” (see Post Puma Ltd v Peter Yama (supra). 
34.	In applying the law to the present case, the parties are at liberty to terminate the contract upon giving notice to each other under Clause 19.2 of the Contract. So if there is any damages that the plaintiff would have suffered, it had sat on its rights and therefore has suffered consequences to its detriment. 

35.	The plaintiff had known of the defendant’s intention to further develop this area. This meant that there existed an imminent risk of having to demolish the Ela Beach Kiosk to make way for the Paga Hill Ring road. This is because the Ela Beach Kiosk premises sits squarely in the path of the Paga Hill Ring road. 

36.	It also is apparent that this had triggered a response from the plaintiff where in his evidence he states that he took actions or steps to mitigate his loss (if any) by talking to certain persons at the first defendant’s office where an offer was made to relocate. Whilst I note that the plaintiff in his evidence says that he did take steps to mitigate his loss, the issue as to whether or not the first defendant was under a legal obligation to offer alternative premises, was not really argued by the parties. Hence, I don’t see where or how he could have relied on the first defendant to assist to find alternative premises for rental? I consider that view a bit too much to expect in the scheme of things.

37.	The first defendant in its evidence states that it had given the plaintiff sufficient notice (23rd November 2013) to vacate the premises. Clause 23.1 of the Lease Agreement allows for this notice. In this regard, the plaintiff had between October 2012 and 23rd November 2013 over a period of 1 year one month to do something about relocating his business operations but he however sat on his rights under the lease.  

38.	The first plaintiff in this case, failed to mitigate his loss, there was no negotiation with the first defendants for the costs of renovations to the premises nor was there any negotiation between October 2012 and March 2014 for the mitigated loss when the police moved in and commenced demolition of the premises.

39.	The first defendant owes no duty to offer alternate premises for the conduct of the plaintiff’s business, which is a matter for the plaintiff nor was it under any obligation to make any arrangements with the plaintiff in relation to the relocation of his business.

Freedom from search and entry – Section 44

40.	Aside from the claim for breach of contract, the plaintiff also claims for damages for breaches of his constitutional rights, s 44. 

44	“No person shall be subjected to the search of his person or property or to entry of his premises, except to the extent that exercise of that right is regulated or restricted by a law-
That makes reasonable provision for a search or entry –
Under an order made by a court; or
Under a warrant for a search issued by a court or judicial officer ........; or
…; or
…; or
…
…
That complies with Section 38 (general qualifications on qualified rights.”

41.	Having regard to the above provisions in the Constitution, and the evidence of the first plaintiff, I find that the first and second plaintiffs do not meet the requirements prescribed under s 44 of the Constitution. In that they are not persons capable of having their constitutional rights protected. It is plain that the first and second plaintiffs’ claims are frivolous and vexatious. Consequently, no reasonable cause of action is disclosed against the defendants. 

42.	I now consider the next matter to determine whether the plaintiff has proven on the balance of probabilities his damages? Having already accepted that the purpose of an award of damages is to put the innocent party in the same position as he was prior to the breach and in light of this proposition, the Court has determined that the innocent party only gets the amount of his actual losses that were reasonably foreseeable at the time the contract was formed. 

43.	In this present case, I accept that the plaintiff here is only entitled to get the amount of his actual losses and that would be the reasonably foreseeable and that is the amount of the cost of renovations to the premises which he says has remained unpaid at the material time that the notice of termination was given on the 13th of October 2013. However, there is no evidence as to how much the renovations cost and when it was done. 

44.	Given these lack of evidence, the court is satisfied that the plaintiffs have not proven on the balance of probabilities that it has suffered damages for which an award can be made. 

Orders of the Court

(i)	No reasonable cause of action is disclosed against the defendants.

(ii)	Costs follow the event, costs to be taxed if not agreed

______________________________________________________________
H J Leahy Lawyers: Lawyers for the Plaintiff
Mukwesipu Lawyers: Lawyers for the First Defendant
Solicitor General: Lawyers for the Second & Third Defendants