N7699

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS 1584 of 2014

BETWEEN:
MERIDIAN MOTORS LIMITED
Plaintiff

AND:
BOROKO MOTORS LIMITED
Defendant

Waigani: Hartshorn J.
2017: 21st, 22nd, June
2018: 1st October

Trial

Cases Cited:
Papua New Guinea Cases

Common Constructions Ltd v. TSC Contractors (PNG) Ltd (2017) N6681 

Overseas Cases

National Carriers Ltd v. Panalpina (Northern) Ltd [1981] AC 675 
Dalkia Utilities Services Plc v. Celtech International Ltd [2006] EWHC 63 (Comm) 
Eminence Property Developments Ltd v. Heaney [2010] EWCA Civ 1168
Spar Shipping AS v. Grand China Logistics Holding (Group) Co. Ltd [2015] EWHC 718 (Comm)

Counsel:

Mr. I.R. Molloy and Mr. I. Shepherd, for the Plaintiff
Mr. M. Goodwin, for the Defendant

1st October, 2018

1. HARTSHORN J: The plaintiff Meridian Motors Limited (MML) and the defendant Boroko Motors Limited (BML), entered into a commercial lease of part of a property owned by MML (premises). The lease was dated and commenced on 1st July 2011 and was for a term of five years (Lease). 

2. On 19th March 2014 BML purported to terminate the Lease due to the alleged repudiation of the Lease by MML, and vacated the premises. MML claims amongst others, unpaid rent and damages from BML. BML cross claims against MML and seeks damages for amongst others, breach of contract.

Whether there was repudiation of the Lease by MML

3. BML claims that MML repudiated the Lease by unilaterally attempting to vary the terms of the Lease by:

a)	writing and notifying that MML’s company secretary had added his 	signature to the Lease;

b)	including a new page containing a “Market Review Date” clause; and
	
c)	failing to have an authorised officer of MML confirm in writing that the purported variation to the Lease had been removed and that the original Lease was operable.

4. As a consequence of this alleged repudiation, BML claims that it was entitled to terminate the Lease.

5. MML claims that it did not repudiate the Lease and it affirmed the Lease by its actions. It submits that BML’s claim of repudiation is a mere contrivance.

Law

6. BML submits that the contractual doctrine of repudiation and its remedies applies to a lease and relies upon National Carriers Ltd v. Panalpina (Northern) Ltd [1981] AC 675 at 702 to 703 and 716, and that a breach or pattern of breaches of sufficient seriousness is required for an affirmative answer: Photo Production v. Securicor Transport Ltd [1980] 1 AC 827 at 849. MML did not take issue with the doctrine of repudiation being applicable to a lease. A perusal of National Carriers Ltd (supra) confirms that the doctrine of repudiation may be so applicable. 

7. In regard to conduct entitling an innocent party to treat a contract as being at an end, in Common Constructions Ltd v. TSC Contractors (PNG) Ltd (2017) N6681 at [10], I reproduced the following passage from Spar Shipping AS v. Grand China Logistics Holding (Group) Co. Ltd [2015] EWHC 718 (Comm) in which Popplewell J at [96], after referring to numerous authorities including Photo Production Ltd v. Securicor Transport Ltd [1980] AC 827 said:

“(1) There are essentially three categories of conduct by one party to a contract which may entitle the innocent party to treat the contract as at an end, namely (a) a total or partial failure to perform obligations which have fallen due, (b) conduct which evinces an intention not to perform future obligations when they fall due, and (c) impossibility to perform future obligations when they fall due created by the defaulting party’s own act. The first is actual breach. The second and third, commonly termed renunciation and self induced impossibility respectively are the two forms of anticipatory breach.
(2) In the absence of any relevant contractual or statutory provision, the innocent party’s right to treat the contract as terminated will depend upon whether the term breached is to be categorised as a condition, warranty or an innominate term. Any breach of a condition will entitle the innocent party to terminate the contract. Only a sufficiently serious breach of an innominate term will do so, often expressed as one which goes to the root of the contract or one which deprives the innocent party of substantially the whole benefit of the contract. The expression repudiatory breach is sometimes used to cover only a breach of an innominate term, in distinction to a breach of condition; sometimes it is used to cover both. I shall use it to cover both.
……..
(3) Where there is a repudiatory breach or renunciation, the innocent party is entitled to elect to terminate the contract. If he does so, the consequence is that (a) each party is relieved from its obligations to render any further performance under the contract; and (b) the innocent party is entitled to damages for loss caused by the breach, which includes loss flowing from the termination. For the purpose of assessing damages, it is the defaulting party’s repudiatory breach or renunciation which is regarded as the cause of the termination, not the innocent party’s election to terminate.”

8. Then at [208(1)]:

“Conduct is repudiatory if it deprives the innocent party of substantially the whole of the benefit he is intended to receive as consideration for performance of his future obligations under the contract. Although different formulations or metaphors have been used, notably whether the breach goes to the root of the contract, these are merely different ways of expressing the “substantially the whole benefit” test: Hong Kong Fir at 66, 72; The Nanfri at 778G-779D”

9. Further, in Chitty on Contracts, 29th Edition, Vol 1 [24-018], the test for repudiation is stated as:

“If one party declares his inability to perform some, but not all, of his obligations under the contract, then the rights of the other party to treat himself as discharged depends on whether the non-performance of those obligations will amount to a breach of a condition of the contract or deprive him of substantially the whole benefit which it was the intention of the parties that he should obtain from the obligations of the parties and the contract then remaining unperformed.”

10. In Eminence Property Developments Ltd v. Heaney [2010] EWCA Civ 1168 at [61], Etherton LJ said:

“So far as concerns repudiatory conduct, the legal test is simply stated, or, as Lord Wilberforce put it, “perspicuous”. It is whether, looking at all the circumstances objectively, that is from the perspective of a reasonable person in the position of the innocent party, the contract breaker has clearly shown an intention to abandon and altogether refused to perform the contract.”

Consideration

11. In regard to whether MML’s actions constituted a repudiation of the Lease, BML claims that MML unilaterally attempted to vary the terms of the Lease by forwarding a copy of the Lease to BML informing of the addition of the signature of MML’s company secretary, but whilst doing so MML did not disclose that the copy of the Lease that was forwarded did not include a new page 15. That new page 15 included a “Market Review Date” clause which had not been agreed between the parties. Further, BML submits that the facts indicate that MML failed to unequivocally retract the unilateral addition of the new page 15 and the new “Market Review Date” clause. Despite oral indications that it would, BML claims that MML continually failed to delete the new page 15 from the Lease and failed to have an authorised officer of MML confirm in writing that it was removed and that the Lease as signed contained the only terms on which the Lease was operable.

12. From a consideration of the evidence, it is not disputed that Mr. Noel Rajan, a director of BML, received an email from Ms. Margaret Grangary dated 21st August 2013. In that email, Mr. Rajan was informed that:

“As per your phone conversation with Mr. Tulloch regarding the proposed insertion of Page 15 of the lease, regarding the review to market, please disregard as it is not acceptable to your group. The original Page 15 remains un-halted in the lease document.
For Mr. Rob,”

13. In his affidavit evidence Mr. Rajan deposed amongst others, that this email referred to the earlier meeting that he had with Mr. Tulloch regarding the proposed insertion of page 15 of the Lease Agreement, regarding the review to market clause and advised him, “to disregard page 15 of the Lease Agreement since it was not acceptable to the Defendant.” Mr. Rajan then deposes that he did not consider that Ms. Grangary, as an administrative assistant, had the authority or position with MML to make such a statement, and he placed no reliance upon it. In his cross examination evidence Mr. Rajan claimed that he did not understand what was meant by “un-halted” and that he could not remember whether he enquired of anyone at MML concerning the content of the email from Ms. Grangary.

14. I find Mr. Rajan’s evidence unconvincing given that he had a meeting with Mr. Tulloch concerning the Lease, that the email ended with “For Mr. Rob,” and the alleged importance of this issue to BML. That Mr. Rajan is unable to remember whether he made enquiries of anyone at MML, particularly of Mr. Tulloch, as to the veracity of the content of this email and whether it was sent with the authority of Mr. Tulloch, is indicative to my mind, of the email confirming what Mr. Rajan had discussed with Mr. Tulloch and what Mr. Rajan believed was the position of MML. 

15. Further in a letter dated 31st October 2013, BML’s lawyers wrote to MML and repeated the view that BML had informed them was what BML believed was MML’s position. They stated amongst others, that clarification had been reached and that: “a) there is to be no rental review to market clause;”. Mr. John Uthmann of MML then wrote “Agreed” next to paragraph a) and “No Change” next to paragraph b) which concerned a proposed name change to the lessee.

16. In my view, adopting the wording of Etherton LJ in Eminence v. Heaney (supra), when all of the circumstances as portrayed in the evidence are considered objectively, and specifically the content of the email above to which I have made reference, a reasonable person in the position of BML would not conclude that MML had clearly shown an intention to abandon and altogether refused to perform the Lease. This is indicated as BML’s view in its lawyers’ letter referred to above. At the very best, it may be said that there was some confusion and that MML was indecisive in conveying its message that the original Lease continues, but I am satisfied that the conduct of MML did not evince an intention not to perform future obligations when they fell due or an intention not to be bound by the terms of the original Lease. As Clarke J. said in Dalkia Utilities Services Plc v. Celtech International Ltd [2006] EWHC 63 (Comm) at [134]:

“… a mixed message lacks the necessary clarity to constitute a repudiation.”

17. Further, even if MML’s conduct did evince an intention not to be bound, it did not evince an intention to perform in such a manner as would deprive BML of substantially the whole benefit of the Lease.

18. Consequently, I am not satisfied for the above reasons that MML’s conduct constituted a repudiation of the Lease. BML was not entitled to terminate the Lease as it purportedly did on the basis that MML had repudiated the Lease.

Mitigation of damages

19. The next issue I consider is MML’s obligation to mitigate its loss caused by the vacation of the premises by BML. Pursuant to clause 16(e) of the Lease:

“If the Lessee vacates the Premises whether with or without the Lessor’s consent, the Lessors shall be obliged to take reasonable steps to mitigates (sic) its damage and to endeavour to lease the Premises at the reasonable rent and on reasonable term. The Lessors entitlement to damages shall be assessed on the basis that the Lessor should have observed the obligation to mitigate damages contained in this paragraph.”

20. BML submits that the evidence shows that MML has failed to mitigate its loss as required by clause 16(e) of the Lease and the underlying law. BML submits that MML was seeking to rent the premises at a rental that was significantly higher than the market rental at the time in 2014. In addition, MML rejected two offers to rent the premises, both offers being at the top end of the market. BML submits that MML failed to take reasonable steps to lease the premises at a reasonable rent for a reasonable term. 

21. MML submits that it initially informed prospective lessees or sub-lessees that the rent was K160,000 to K180,000 per month at the request of Mr. Rajan whilst BML was still in possession of the premises, as BML wanted to recoup some of its expenditure. After BML vacated the premises, MML made reasonable attempts to re-let the premises by advertising the premises and listing the premises with three real estate agents. The asking price for the rental was K140,000 per month which was less than the rent that BML was to pay in 2014. MML was negotiable as to the rent, but none of the real estate agents informed MML that the asking price was too high.

22. Further, MML, acted reasonably in refusing offers from two prospective tenants as the activities they wished to conduct on the premises were likely to cause substantial damage to the premises. It was not the case of MML refusing reasonable offers merely on inadequate rental grounds during the unexpired term of the Lease with BML, submits MML.

Law

23. MML submits that the onus of proving that a plaintiff did not take reasonable steps to mitigate is clearly upon the defendant: Commercial Leases in Australia, W.D. Duncan 4th Ed at [13.40]:

“The duty to mitigate loss is constituted by the taking of reasonable steps to reduce the loss payable by the lessee in damages. The standard is not high. The lessor would not be under any obligation to do anything other than what might be expected to be done in the ordinary course of business, as it is the lessee who has brought about the loss.”

24. BML did not submit that the law was not as set out above.

25. From a consideration of the evidence, I am not satisfied that BML has proved on the balance of probabilities that MML did not take reasonable steps to lease the premises at a reasonable rent for a reasonable term. That MML placed the premises with three real estate agents and advertised the premises to my mind is the course of action that would be undertaken in the ordinary course of business to rent a premises or property. There was no obligation upon MML to rent the premises notwithstanding that a proposed rental by a lessee would lead to the premises sustaining substantial damage as a consequence of the rental activity. That two offers to rent the premises were received is indicative that MML’s efforts in marketing the premises for rental, met with some success. Further, MML was entitled to rely upon the fact that none of the real estate agents with whom the premises had been placed, informed MML that the rental that it was seeking was too high. BML’s submissions on this point are rejected.

MML’s claim for rent

26. MML’s claim for unpaid rent is pleaded in its statement of claim and as set out and deposed to by Mr. Ramaswamy Vijaya Raghaven, the company secretary of MML. Mr. Raghaven was cross-examined but his evidence as to the amounts of rent payable under the Lease and his calculations of the rent and interest owing were not disputed. Mr. Rajan in cross examination agreed that BML had fallen behind in its payment of rent and that no rental was paid after BML vacated the premises. I am satisfied that MML has properly made out its case for the rent claimed and the interest at 20% per annum pursuant to clause 19 of the Lease.

Repair, restoration

27. MML claims that the premises were left in a state of disrepair when BML vacated the premises. MML’s evidence is contained in the affidavit of Mr. Uthmann and was not challenged.

28. Pursuant to clause 8(g) of the Lease:

“Upon vacating the Premises, the Lessee agrees if requested by the Lessor, to put the Premises in the condition satisfactory to the Lessor. In the event that the Lessor is required to put the Premises to the condition satisfactory to the Lessor, the Lessee agrees to reimburse the Lessor for all cost incurred by the Lessor in putting the Premises to the satisfaction to the Lessor.”

29. MML claims that it required BML to put the premises in a satisfactory condition by letter dated 30th October 2014 according to the estimate attached to that letter. The estimate was the first quotation and was for K412,000. BML admits receiving an estimate for that amount and apart from a reference in Mr. Rajan’s oral evidence, BML has not disputed that the work the subject of the estimate was required or that the cost was reasonable. Further, submits MML, BML did not have anyone on its behalf inspect the premises, after it vacated the premises, to provide a separate assessment of the cost involved in complying with MML’s request. 

30. In the absence of evidence to the contrary, I am satisfied that MML has satisfactorily made out its claim for the cost of placing the premises in a satisfactory condition.

31. Given the above, and being satisfied that MML did not commit any breach under the Lease with BML, and in the absence of submissions on behalf of BML on the other issues pleaded in its cross claim, the cross claim should be dismissed and judgment should be entered for MML. It is not necessary to consider the other submissions of counsel.

Orders

32.   The orders of the Court are:

a)	The cross claim is dismissed;

b)	Judgment is entered for the plaintiff on its statement of claim against the defendant and the defendant shall pay to the plaintiff as follows:

i)	The sum of K221,001.00 being for the Rent as set out in paragraphs 12 and 13 of the statement of claim;

ii)	The sum of K1,197,801.00 being the amount as set out in paragraph 23 of the statement of claim;

iii)The sum of K412,000.00 being for the costs of putting the Premises in the condition satisfactory to the plaintiff as set out in paragraphs 29 and 30 of the statement of claim;

iv  Damages being for rent for the unexpired term of the Lease from January 2015 pursuant to clause 16(b) of the Lease;

v)	Interest at the rate of 20% per annum pursuant to clause 19 of the Lease;

c)	The defendant shall pay the costs of the plaintiff of and incidental to this proceeding on a party party basis;

d)	Time is abridged.
__________________________________________________________________
Ashurst Lawyers: Lawyers for the Plaintiff                                         
O’Briens Lawyers: Lawyers for the Defendant