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National Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
WS No. 52 OF 2020
BETWEEN
NEO’S CONTRACTORS LIMITED
Plaintiff
AND
MONETERY LIMITED
Defendant
Waigani: Linge AJ
2022: 2nd November
DAMAGES – assessment of damages - following entry of summary judgment – claim undefended – pleadings and plaintiff’s evidence uncontroverted
The plaintiff is a nationally owned company involved in electrical and related works and was managed by a foreign national of Philippines origin who while being the Manager of the plaintiff, registered the defendant company as a local company and fraudulently purchased real estate property notwithstanding that the two directors and shareholders are both foreigners including himself contrary to the IP Act 1992. Following registration as proprietor, the defendant then obtained a Foreign Enterprise Permit Certificate to operate in Papua New Guinea. Fraud was also extended to defendant’s activities including use of plaintiff’s funds to purchase materials to erect a building and to accumulate assets by false pretence of buying the property for the plaintiff. It took advantage of its original registration as a local company when in fact the director and shareholder were foreigners. The claim is for the expenses fraudulently obtained and used by the defendant company and for the title of the property transferred to it.
Held:
1 Liability has already been proven as a result of the entry of summary judgment of 30 July 2021.
2 The claim is made out as it has been shown that the pleadings are clear, facts are clear, cause of action is clear and sufficient evidence on the balance of probability without mitigation.
3 The original title and transfer instrument were tainted by fraud and thus the cancellation of the original title and transfer instrument of the Malolo Estate by the Registrar of Titles and to register the plaintiff as proprietor in its stead.
Cases Cited:
Kalang Advertising Limited v Visvanathan Kuppusamy (2008) SC924
Wasis v Elias (2016) SC1485
PNGBC v Jeff Tole (2002) SC694
William Mel v Coleman Pakalia & Ors (2005) SC790
Coecon Ltd v National Fisheries Authority (2002) N2182
Desmond Huaimbukie v James Baugen (2004) N2589
Nakikus Horope v Peter Baki (2011) N4423
Opi v Telikom PNG Ltd (2020) N8290
Rimbunan Hijau v Ina Enei (2007) SC1605
Mudge v Secretary for Lands [1985] PNGLR 387
John v Nomenda (2009) N3851
Papua Club Inc v Nusam Holdings Ltd No.2 (2004) N2603
Mangobe v Estate of Late Mokola Kamiali (2022) N9582
Counsel:
Mr. Rex Kasito, for the Plaintiff
No appearance for the Defendant
RULING
21st November, 2022
1. LINGE AJ: The National Court entered summary judgment for the plaintiff with damages to be assessed on the 30 July 2021 pursuant to Order 10 Rule 9A (15) (2) of the National Court Rules. The defendant had failed to appear in court and also failed to comply with Court Orders.
2. The Court also ordered that if the defendant continued to show lack of interest in appearing or take steps to defend this proceeding, the assessment of damages and other reliefs will proceed on the basis of the affidavit evidence filed by the plaintiff and the declaratory orders will be granted if a case is made out at the trial of assessment.
3. The defendant had not taken any steps to appear nor to defend this cause of action following the order of 30 July 2021. This is my ruling after trial of assessment of damages conducted on the 2 November 2022.
Facts
4. The plaintiff is a nationally owned company involved in electrical and related works and was managed by a Reymon Castillo of Philippines origin.
5. While being the Manager of the plaintiff, Reymon Castillo registered the defendant company as a local company on the 4 August 2014 to carry on business in Papua New Guinea. The defendant company had the same two directors and shareholders who were Reymon Castillo and his wife, Theresa Castillo, who is also from the Philippines.
6. On the 11 August 2014 the defendant company executed a contract of sale for the purchase of and obtained the title to land described as Allotment 11 Section 149, Boroko, State Lease Volume 219 Folio 250 (“the Malolo Estate”).
7. The title of the Malolo Estate property was transferred to the defendant company which was registered as a local company on 24
October 2015. On the 28 October 2015 the defendant company then obtained a Foreign Enterprise Permit Certificate to carry on business
in Papua New Guinea.
8. The plaintiff alleges that the defendant company was fraudulent in its activities in purchasing the Malolo Estate property. It
used funds from the plaintiff company to purchase the land and buy materials to erect a building by false pretence of buying the
property for the plaintiff.
9. The fraudulent purchase and activities were undertaken under the defendant’s name when it had not been issued a Foreign Enterprise Certificate to carry on business in PNG. It took advantage of its original registration as a local company when in fact the director and shareholder were foreigners.
10. The plaintiff also claims that the defendant company was using the plaintiff’s funds to pay for the defendant’s business activities and to accumulate assets.
11. The claim is for the expenses fraudulently obtained and used by the defendant company and for the title of Malolo Estate to be transferred to it.
Evidence
12. The plaintiff relies on the affidavits referred to in the Notice of Intention to Rely filed on the 13 October 2022:
(a) Affidavit of Neo Osanno sworn and filed on 30 June 2021;
(b) Affidavit of Janeth Yandawai filed on 30 June 2021;
(c) Affidavit of First Constable Cliff Meo filed on 30 June 2021; and
(d) Affidavit of Samuel Si-I sworn and filed on 22 September 2021.
Submission
13. Mr Kasito submits that this assessment follows the Court order of 30 July 2021 when judgment was entered for the plaintiff with damages to be assessed. He submits that the pertinent Order resolves all questions of liability pleaded in the Statement of Claim. The issues resolved include:
(i) breach of the law in particular s.3 Investment Promotion Act 1992 which defines ownership of a local enterprise to be more than 50% owned by citizens;
(ii) breach of s.25 Investment Promotion Act 1992 which deals with foreign enterprises not to carry on business without a Foreign Permit Certificate;
(iii) the fraudulent acts undertaken by the defendant to enter in sales contracts and obtaining title to the Malolo Estate;
(iv) fraud by use of plaintiff’s funds to operate the defendant company;
(v) corporate fraud perpetrated by the defendant company.
(vi) dishonest and unethical in its activities.
14. Counsel submits that the evidence supports the Statement of Claim which clearly sets out the facts and the cause of action and the particulars of fraud in relations to the sales and obtaining title to the Malolo Estate and in using plaintiff’s fund to run the defendant’s activities.
15. In particular Mr. Kasito submits:
(a) The defendant company was registered as a local company when it was not owned by nationals or citizens
(b) The defendant entered into an agreement to purchase and obtained title to a property without having a Foreign Enterprise Permit Certificate to allow it to carry on business in Papua New Guinea.
(c ) The defendant is not exempted under s26 of the IP Act as it is not a religious or educational or non-profit organization.
(d) The effect is that the court has jurisdiction to declare the contract of sale of land and the consequent transfer of title as unlawful and void.
16. Mr. Kasito submits that there is credible evidence, and that an assessment will not be a futile exercise. He submits for the relief inclusive of declarations sought under paragraph 18 of the Statement of Claim to be granted.
Consideration
17. It is settled law in this jurisdiction that when a default judgment is entered, the facts as pleaded and the legal consequences in as far as establishing the cause of action as pleaded must be regarded as proven.
18. A plethora of cases have applied this principle on assessment of damages after default. In Coecon Ltd v National Fisheries Authority N2182 (2002) Kandakasi J (as he then was) at pp.13 and 14 expounded on the principle and identified five (5) elements:
“A survey of the authorities on assessment of damages after entry of judgment on liability mainly in default of a defendant’s defence clearly show the following:
1 The judgment resolves all questions of liability in respect of the matter pleaded in the Statement of Claim.
2 Any matter that has not been pleaded but is introduced at the trial is a matter on which the defendant can take an issue on liability.
3 In the case of a claim for damages for breach of contract as in this case, such a judgment confirms there being a breach as alleged and leaves only the question of what damages necessarily flow from the breach.
4 The plaintiff in such a case has the burden to produce admissible and credible evidence of his alleged damages and if the Court is satisfied on the balance of probabilities that the damages have been incurred, awards can be made for the proven damages.
5 A plaintiff in such a case is only entitled to lead evidence and recover such damages as may be pleaded and asked for in his Statement of Claim.”
19. Subsequent cases have applied and adopted the five (5) principles including PNGBC v Jeff Tole (2002) SC 694 and Desmond Huaimbukie v James Baugen (2004) N2589.
20. The Supreme Court in William Mel v Coleman Pakalia (2005) SC790 when discussing assessing damages and judges’ roles following an entry of default judgment expressed the following:
“The trial judge should make a cursory inquiry so as to be satisfied that the facts and the cause of action are pleaded with sufficient clarity. If it is reasonably clear what the facts and cause of action are, liability should be regarded as proven.
Only if the facts or the cause of action pleaded do not make sense or would make an assessment of damages a futile exercise should the judge inquire further and revisit the issue of liability.”
21. In Nakikus Horope v Peter Baki (2011) N4423 Thomson AJ considered the cases and summarized as follows:
“The duty of the Court following an interlocutory judgment is clear. The Supreme Court in William Mel v Coleman Pakalia & Ors... has confirmed the principles set out in the earlier cases including Coecon Ltd v NFA & Ors (supra). The judgement resolves all questions of liability in respect of the matters pleaded in the Statement of Claim.
The judge must consider the Statement of Claim and satisfy himself that the facts and the cause of action are pleaded with sufficient clarity.
If the pleaded facts or cause of action do not make sense or would make an assessment of damages futile, the judge can revisit the issue of liability.
If the facts and cause of action have been clearly pleaded, liability is regarded as proven.
Any matter that has not been pleaded that is introduced at trial is a matter on which the Defendants can take issue on liability.
The Plaintiff has the burden of producing admissible and credible evidence, and is only entitled to lead evidence and recover such damages as were pleaded in the Statement of Claim”
22. I find the summary by Her Honour to be most useful as a matter of general application. In my view in so far as the application of the principle in assessment of damages is concerned, majority of cases have dealt with or relate to assessment of damages after entry of default judgment and judgment by consent.
23. The assessment in this instance relates to entry of summary judgment pursuant to Order 10 Rule 9A (15)(2) of the National Court Rules otherwise the Listing Rules 2005. The purpose of the inauguration of the Listing Rules is inter alia to clarify and improve the Court’s ability of quick, fair and cheap disposal of civil cases. Clearly the Court is authorized to summarily dispose of proceeding. Logic dictates that the principle applicable in assessment of damages after entry of default judgment and judgment by consent can be extended to entry of summary judgment for failure to comply with court orders in terms of the above Rules.
24. In that respect I agree with and adopt the ruling of Shepard J in Opi v Telikom PNG Ltd (2020) N8290 when he stated at 17:
“Although the preponderance of the cases referred to above relate to the principles applicable to assessment of damages after entry of default judgment and judgment by consent, logic dictates that these principles should apply equally to cases such as where summary judgment has been entered with damages to be assessed pursuant to Order 10 Rule 9A (15)(2)(c) NCR for failure by a defendant to comply with prior directions of the Court.
25. I am satisfied that the Statement of Claim pleaded with clarity the facts and the cause of action that the defendant had been incorporated in breach of the Investment Promotion Act (the IP Act) and had undertaken an activity of entering a contract of sales of land without obtaining Foreign Permit Certificate, also in breach of the I P Act.
26. The evidence contained in the affidavit of Neo Ossano paragraphs 10 – 32 and annexures “B” and “C” filed on the 30 June 2002 supports the facts or circumstances of corporate fraud. Corporate fraud has been defined by investopedia.com as referring to “illegal activities undertaken by an individual or company that are done in a dishonest or unethical manner. Often, this kind of business fraud is designed to give an advantage to the perpetrating individual or company. Corporate fraud schemes go beyond the scope of an employee’s stated position and are marked by their complexity and economic impact on the business, other employees, and outside parties.”
27. The defendant company was registered as a local company with IPA on the 4 of August 2014 and had two foreign directors and shareholders. On the 11 August 2014 that purported local company executed a contract of sale for the Malolo Estate.
28. Title of the property transferred to defendant company on 24 October 2014. On 28 October 2015 that purported local company then obtained its certificate permitting a Foreign Enterprise to Carry on Business.
29. The activities and actions undertaken by the defendant is contrary to Sections 3 and 25 (2) of the IP Act 1992 which defines “national enterprise” as; “national enterprise means an enterprise more that 50% of which is owned directly or indirectly by a citizen, unless the control exercisable in law or by any agreement between the shareholders, or by agreement between the shareholders or the enterprise and a third party, or in practice, in maintained by a person other than a citizen” and Section 25(2) reads, “Subject to Section 26, a foreign enterprise shall not carry on business, unless a certificate has been granted under this Part.” Section 26 deals with exemption of religious, charitable, educational and other social groups.
30. I am satisfied that the actions of the defendant are also unlawful and void by virtue of section 41A of the IP Act which states that foreign enterprises without certificate entering into any contract will be unlawful and void. Section 41 A, which reads:
“Where a contract, agreement or understanding is entered into between a foreign enterprise and another enterprise and-
that foreign enterprise had not been issued a certificate at the time at which the contract, agreement or understanding was entered into; or
the subject matter of the contract relates to business activities outside of the nature of the activities for which the foreign enterprise is certified to carry on business,
the court may, on the application of that other enterprise or of the Authority, declare the contract unlawful and void.”
Assessment
31. The general principles for assessment are settled. A passage in the headnotes in Peter Andoi t/a Rai Coast Electrical Services v Modilon General Hospital & Ors [2018] N7199, aptly summarized the law as:
“The general principles for assessment of debt are the same as those for assessment of damages; the plaintiff has the onus of proving his losses, it is not sufficient to rely on assertions in the statement of claim; corroboration of a claim is required; the fact that debt cannot be assessed with certainty does not necessarily relieve the wrongdoer of the necessity of paying some amount of debt.”
32. I have considered the pleading in particular the relief inclusive of declarations sought under paragraph 18 of the Statement of Claim and the evidence and conclude that assessment is not a futile exercise.
A. General Damages
Losing out of existing business
33. There is ample evidence of the fraudulent activity of the defendant, the owner Mr. Reymon Castilo was reported to the Fraud Squad on or about 5 September 2019 and was also investigated by the Immigration and Citizenship Authority. It would seem to me that as a direct result of these investigation and referral, Reymon Castillo left employment which consequently had an effect on the plaintiff company resulting in the business partners cutting off ties with the plaintiff company.
34. One such business partner was Edai Town Development Ltd who had a good business relationship with the Defendant from 2016 up until 2020 when it decided to withdraw its business arrangement as soon as Reymon Castillo ceased employment.
35. The loss of business directly flowed from Reymon Castillo’s fraudulent activities in steering the defendant and which resulted in him ceasing employment with the plaintiff and this affected the relationship between plaintiff and Edai Town Development Ltd. A good business relationship would have existed during the period 2016 to 2020. For example, Edai Town Development Ltd had generated revenue payment to the plaintiff four (4) years previously at an annual rate of K235, 615.16 totaling K942, 460.64.30 calculated as per annum as follows:
K235, 615.16 per annum x 4 = K942,460.64
36. I note the evidence of Samuel Si-I, the Administration Manager that the business relationship between the plaintiff and Edai Town Development Ltd would have gone on for another 2 – 3 years. The calculation would take this into account:
K235, 615.16 x 3 years -= K706, 845.48
There is no evidence to disprove the claim or to mitigate the loss or damage.
B. Losing out on Expert/Specialized Workers.
37. As a result of the owner of the defendant company ceasing employment with the plaintiff, certain specialists which included Electricians Supervisor and a Technicians and Trade Coordinator also resigned from the plaintiff company. The plaintiff lost out on experienced and specialist persons, and they be entitled to some form of compensatory amount that would reasonably be incurred to replace them.
The claim is not properly made out and the claim of K30, 000.00 is refused.
C. Special Damages
38. For Special damages, I consider the definition in McGregor on Damages: “The principle of pecuniary loss which constitutes special damages is loss to the claimant of a contract, of an employment or of business, whether existing or intended.”
39. In the present case, the defendant used plaintiff’s funds through fraud to pay other parties for services rendered to the defendant and further for defendant’s assets and properties. This is pleaded in paragraph 14 of the Statement of Claim. The payments were:
40.. The defendant had not adduced evidence to disprove or mitigate the loss or damage hence the amount of K7, 379.00.
D. Exemplary damages
36. I consider Rimbunan Hijau v Ina Enei (2007) SC1605 awarded exemplary damages of K150,000.00 and Amet CJ expressed the view that exemplary damages may come into play “whenever the defendants conduct is sufficiently outrageous to merit punishment, as where it discloses malice, fraud, cruelty, insolence and the like”
37. The Managing Director of the Defendant, Mr. Castillo was responsible for the plaintiff’s losing business. He was fraudulent in his actions. His abuse and misuse of the plaintiff’s funds for his fraudulent gains and subsequent investigation and exit had caused financial problem to the plaintiff.
38. I consider his actions outrageous, especially as he was given full control of the resources and funds of the plaintiff. He is insolent as shown by his ability to grab the plaintiff’s fund at Kina Bank and run despite the authority by the plaintiff to stop the funds. I therefore consider exemplary damages of K 100,000.00.
E. Malolo Estate
39. The entry of judgment on the 30 July 2021 has determined that fraud as pleaded and supported by evidence of purchase, transfer and registration of the Malolo Estate in the name of Monterey Limited is void and illegal.
40. The law is settled and protects a registered proprietor under the principle of indefeasibility of title, Section 33 (1) (a) of the Land Registration Act provides an exception whereby a fraudulent title can be nullified: Mudge v Secretary for Lands [1985] PNGLR 387.
41. In John v Nomenda (2009) N3851, Makail J, a case in which a National Housing Corporation property was obtained through the Give Away Scheme and title of the property was disputed on grounds of fraud. The court found that fraud was involved and following the ruling in Papua Club Inc v Nusam Holdings Ltd No.2 (2004) N2603.
42. On the strength of the Courts broad equitable supervisory powers under s.155(4) of the Constitution, and in the exercise of such powers I will invalidate the title issued to Monterey Limited which was issued by fraud and to correct the anomaly and to order the surrender and the re- issue by the Registrar to the plaintiff.
43. I hold the original title and transfer instrument to be tainted by fraud. Therefore, I will order cancellation of the original title and transfer instrument for the Malolo Estate property by the Registrar of Titles and to register the plaintiff instead. The Court does have jurisdiction to make this type of order to correct anomalies. The Court after all is an inherent court with broad equitable supervisory powers allowed by s155(4) of the Constitution.
Interest
44. Interest has its basis from Judicial Proceedings (Interest on Debts and Damages) Act. Section 1 reads:
“(1) Subject to Section 2, in proceedings in a court for the recovery of a debt or damages the court may order that there be included in the sum for which judgment is given interest, at such rate as it thinks proper, on the whole or part of the debt or damages for the whole or part of the period between the date on which the cause of action arose and the date of the judgment.
45. In Mangobe v Estate of Late Mokola Kamiali (2022) N9582 the Court awarded the conventional rate of interest in a contract situation where parties have contractually agreed on rate is 8%. The plaintiffs claimed the commercial interest rate of 22% but no evidence was led by plaintiffs. The Court therefore applied the convention rate of 8% per annum interest where parties have not contractually agreed to an expressed rate to be applied to any damages awarded by the court.
46. The formula the Court should use for prejudgment interest is:
D x IR x (N/365) = I where;
D is the amount of special interest
IR is percent rate of interest per annum
N is number of days expressed as a percentage of year and
I is the amount of interest.
47. I do not consider any special circumstances to deviate from the norm and will award the 8% interest to commence from whence the filing of the cause of action to the date of judgment. Further, post judgment interest of 6% is allowed to run from date of judgment to date of full payment of judgment sum.
48. In the end I find as follows:
(a) Liability has already been proven as a result of the entry of summary judgment of 30 July 2021.
(b) The claim is made out as it has been shown that the pleadings are clear, facts are clear, cause of action is clear and sufficient evidence on the balance of probability is made out without mitigation.
Order
5 General Damages of K706,845.4
6 Special Damages K7,379.00
7 Exemplary Damages of K 100,000.00
9 Costs to be paid by the defendant
10 Time is abridged to the time of settlement of the Order.
Ordered Accordingly
__________________________________________________________________
Rex Kasito Lawyers: Lawyers for the Plaintiff
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URL: http://www.paclii.org/pg/cases/PGNC/2022/536.html