N11174
PAPUA NEW GUINEA
[NATIONAL COURT OF JUSTICE]

WS NO. 1749 OF 2019

BETWEEN
HELA ROADS JOINTS VENTURE LTD
 Plaintiff

AND
DAVID WEREH, in his capacity as Secretary for DEPARTMENT OF WORKS AND IMPLEMENTATION
First Defendant

AND
 THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Second Defendant
  
WAIGANI: MAKAIL, J
16 NOVEMBER 2022; 14 MARCH 2025   

ASSESSMENT OF DAMAGES – Entry of default judgment – Repudiation of contract of services – Claim for road rehabilitation works – Unpaid services – Assessment of damages – Special damages – Costs and expenses incurred in performance of contract – Loss of profit – Proof of – Corroboration of – Award of damages

Cases cited
Yange Langa & Ors v The State (1995) N1369
Albert Baine v The State (1995) N1335 
Kopung Brothers Business Group v Sakawar Kasieng [1997] PNGLR 331

Counsel
Mr A Konena for the Plaintiff
No appearance for Defendants 

JUDGMENT
1.	MAKAIL J: The plaintiff sues the defendants for repudiation of contract of services arising from road rehabilitation works.  It alleges that it carried out road rehabilitation works, rendered its bills but they remained unpaid.  Further, the defendants failed to terminate the contract and engaged in repudiatory conduct by engaging third party contractors to perform the work and services required to be performed under the contract. On 10th December 2020, default judgment was entered against the defendants for failing to file a notice of intention to defend and defence. 

2.	The matter came for pre-trial hearing on assessment of damages.  The plaintiff appeared.  None of the defendants appeared.  The Court directed that trial will be by affidavits with no cross-examination of witnesses.  Written submissions shall be filed and served by the parties and a decision will follow suit.  If the parties agree to settle the matter out of Court, parties are at liberty to apply to the Court to endorse a consent order.  The latter did not occur, and having received and read only the plaintiff’s written submissions, this is the judgment of the Court.

Plaintiff’s Evidence

3.	 The plaintiff relies on the following:

(a)	affidavit in support of Sean Keane sworn on 27th May 2020 and filed on 19th June 2022,
	
(b)	affidavit of Andrew Pini sworn on 9th September 2022 and filed on 12th September 2022, and	

(c)	supplementary affidavit of Andrew Pini sworn on 8th November 2022 and filed on 10th November 2022.	

4.	Based on the affidavit in support of Sean Keane (supra), I find these are the uncontroverted facts:

•	on 26th January 2016, the plaintiff and the first defendant entered into a contract under which the plaintiff was engaged by the defendants to upgrade and seal section of the Highway from Nogoli to Komo Station in Hela Province.

•	following the signing of the contract, the plaintiff commenced mobilisation and partly performed the work and services as provided under the contract.

•	on 15th August 2017, about 1 year and 6 months after the date of signing the contract, John Kaio, the project director of the first defendant wrote to the plaintiff indicating the defendants’ intention to terminate the contract on the basis that there is no Government funding available for the road works and intended to engage a third party to perform the work under the contract.  

•	Mr Kaio advised the plaintiff that:

o	a new funding arrangement has been negotiated with ExxonMobil PNG Limited (“ExxonMobil”) under the Transport Infrastructure Tax Credit Funding Agreement (“TITCFA”).  Pursuant to its finance and policy requirements, ExxonMobil required the work to be undertaken under a new contract.

o	however, the defendants are planning to use the Hides Gas Development Corporation Limited (“HCDC”), who is the other joint venture partner of the plaintiff.  Mr Kaio also advised the plaintiff that the contractors and original scope of work would not change except the source of financing, which will be provided by ExxonMobil under the TITCFA.  The defendants would engage the plaintiff under the new contract with TITCFA finding from ExxonMobil which is ultimately the second defendant’s funds through tax credits to carry out the road works on the same length of road from Nogoli to Komo Station and is conditional on the plaintiff agreeing to indemnify the defendants against any costs arising from the termination of the contract.

•	on 31st August 2017 and on 5th September 2017, respectively, the plaintiff wrote to the defendants advising that it would waive its rights to compensation associated with the termination of the contract, on the basis that the plaintiff is awarded a new contract with ExxonMobil to undertake the same scope of work and under the same terms and conditions as in the initial contract and/or alternatively the plaintiff is compensated.

•	between 12th September 2017 and 8th November 2017, the first defendant made a recommendation to the Central Supply and Tenders Board (“CSTB”) to terminate the contract pursuant to Clause 15.5 of the General Conditions of the contract, that ExxonMobil require the work to be undertaken under their form of contract and are willing to award the works to HGDC, the joint-venture partner of the plaintiff and that the first defendant informed the State Solicitor that the CSTB in its Meeting No. 15/2017 unanimously resolved and approved the termination of the contract and sought an urgent Legal Clearance and subsequent Notice of Termination signed by the Governor General.

•	on 31st January 2018, the plaintiff wrote to the defendants advising that the second paragraph of Clause 15.5 of the contract which the defendants relied on to terminate the contract states that:

“The employer shall not terminate the contract under this sub-clause in order to execute the works himself or to arrange for the works to be executed by another contractor.”

•	since the defendants elected to terminate the contract with the plaintiff and engage HGDC, it breached this term of the contract, although the defendants never formally terminated the contract.  

•	the plaintiff also advised the defendants that it would seek damages for the non-recovered costs incurred and the loss of profit and opportunity associated with the termination of the contract.

•	while the defendants admitted in their letter dated 12th February 2019 that they are liable for entitlements and costs expended by the plaintiff under Clause 19.6 (a) to (e) of the contract, negotiations to settle the claim and payment of damages were unsuccessful.

•	eventually, by a letter dated 24th October 2019 the plaintiff gave notice to the first defendant that if the contract conditions were not met, including formal termination of the contract by the first defendant with payment of entitlements to the plaintiff, then the plaintiff would proceed to terminate the contract for breach of contract and seek a commercial resolution of outstanding entitlements.

•	the first defendant failed to respond to the plaintiff’s letter of 24th October 2019.  This prompted the plaintiff to give 14 days’ notice to the first defendant that the plaintiff terminates the contract pursuant to Clause 16.2 and/or Clause 15.5 of the contract and makes a claim for damages for breach of contract, or alternatively, for quantum meruit for work done and services and material provided.

Repudiation of Contract

5.	Based on the above findings, I further find that the doctrine of repudiation of a contract applies.  This is where one party communicates, either by words or actions their intention not to fulfil the obligations in the contract, giving the other party the right to terminate it.  The primary remedy for repudiation of contract is damages.  

6.	It follows that I accept the plaintiff’s submissions that damages will be awarded to compensate the plaintiff for the defendants’ failure to terminate the contract and in breach of the contract, failed to perform the contract, and engaged in repudiatory conduct by engaging separate third-party contractors to perform the work and provide the services set out in the contract in place of the plaintiff.  

Heads of Damages

7.	The plaintiff seeks damages under the following heads of damages:

(a)	costs and expenditure incurred in performance of the contract (including a deduction of K3,000,000.00 for an interim payment received on 17th April 2017) as particularised in the letter from the plaintiff to the first defendant dated 15th July 2019 – K5,974,425.04.

(b)	loss of profit on unperformed work due to the breaches of the contract (17.57% on value of works not performed less HGDC 50% share foregone by HGDC under the joint venture – K6,618,947.39.

8.	In my view, these heads of damages are special damages and require strict proof.  The Court will expect the plaintiff to adduce evidence to corroborate the costs and expenditure incurred ion the performance of the contract and, for loss of profit on unperformed work due to the breaches of the contract.

9.	Also, it is trite law that as default judgment has been entered against the defendants, it does not relieve the plaintiff in this case from proving its loss, and even when the trial is conducted ex parte as in this case or where the defendants in this case have failed to file responding affidavits to contest the plaintiff’s claim for damages.  The plaintiff still bears the onus to prove its damages by credible evidence: Yange Langa & Ors v The State (1995) N1369. Applying these principles to this case, I make the following further findings:  

Costs and expenditure incurred in performance of the contract

10.	I note the particulars of the plaintiff’s claim for costs and expenditure are set out in the plaintiff’s letter to the first defendant dated 15th July 2019 which is marked Annexure “C” to the affidavit of Sean Keane (supra).  The plaintiff submits that it is entitled to recover the costs and expenditure incurred in the performance of the contract pursuant to Clause 16.4 and Clause 19.6 of the contract.

SPNG Costs Project Specific Costs 

11.	The plaintiff claims a sum of K2,829,453.62 which it submits is costs directly incurred in the performance of the contract.  I have read a copy of the  Costs Register Summary enclosed to the letter dated 15th July 2019 marked as Annexure “L2” to the affidavit of Sean Keane (supra) and note it sets out the categories of costs, in particular – accounting fees, bank fees & charges, computer expenses, donations, fee licences and permits, insurance, motor vehicles, office stationary & courier, professional & placement fees, rent of premises, repair & maintenance – general, telephone & internet, training, travel & accommodation, staff related expenses and wages.

12.	To corroborate the sum sought, the plaintiff produces relevant invoices and supporting documents which may be found at Annexures “A” to “O” to the supplementary affidavit of Andrew Pini (supra): Albert Baine v The State (1995) N1335 and Kopung Brothers Business Group v Sakawar Kasieng [1997] PNGLR 331.

13.	I have also read the relevant invoices and supporting documents at Annexures “A” to “O” to the supplementary affidavit of Andrew Pini (supra) who reviewed the costs and expenditure of the plaintiff and am satisfied that the plaintiff has proved the sum sought.  I award the sum of K2,829,453.62.

HRJV Project Specific Costs 

14.	The plaintiff claims a sum of K2,233,500.00 which it submits is costs directly incurred in the performance of the contract. I have read a copy of the breakdown of the costs incurred enclosed to the letter dated 15th July 2019 marked as Annexure “L2” to the affidavit of Sean Keane (supra) and Annexures “P”, “Q” and “R” to the affidavit of Andrew Pini (supra) who reviewed these costs and expenditure and am satisfied that the plaintiff has proved the sought sum.  I award the sum of K2,233,500.00.

Work Performed for a Fixed Period

15.	The plaintiff claims a sum of K3,911,471.42 which it submits is costs incurred in respect to work performed by it. I have read copies of documents annexed as “S” to “AA” to the supplementary affidavit of Andrew Pini (supra).  I am satisfied that the plaintiff has prepared the work and submitted to the first defendant, but the first defendant failed to pay for the work undertaken by the plaintiff for the amounts specified under Table 1 – Contract Price of the contract found at Schedule of Payment at Annexure “Y” to the supplementary affidavit of Andrew Pini (supra).  I am further satisfied that the plaintiff has proved the sought sum.  I award the sum of K3,911,471.42.

Costs paid and received by the Plaintiff

16.	The plaintiff concedes that the defendants paid, and it has received a sum of K3,000,000.00 in April 2017 as part payment for the work done by it.  Given this, this sum is deducted from the total sum awarded under the head of damages for costs and expenditure incurred in performance of the contract.

Summary of Awards

17.	The following is a summary of the awards:

(a)	SPNG Costs project specific costs incurred as per	K2,829,453.62
attached breakdown and substantiation
(b)	HRJV project specific costs incurred as per 		K2,233,500.00
breakdown

(c)	Work performed as per attached breakdown 		K3,911,471.42
breakdown

(d)	Total 								K8,974,425.04

(e)	Less payment of K3,000,000.00 received 		K3,000,000.00
in April 2017						____________

(f)	Outstanding sum 						K5,974,425.04
_____________

18.	I award a total sum of K5,974,425.04 under this head of damages.

Loss of profit on unperformed work due to the breaches of the contract

19.	The plaintiff submits that it is entitled to an award of loss of profit for the unperformed work under Clause 16.4(c) of the contract and seeks a sum of K6,618,947.39.  I have read the letter from Kramer Ausenco dated 28th April 2022 which is annexed to the affidavit of Andrew Pini (supra) which refers to the rate of 17.57% profit margin as reasonable.  I note that Mr Pini has reviewed the calculation of the profit margin and verified that it is correct.  Mr Pini corroborates the loss of profit.  I am satisfied that the sum sought is not inflated or overgenerous, but reasonable given that the plaintiff has been put out of business.  I am satisfied that the plaintiff has proved the sum sought and award the sum of K6,618,947.39 under this head of damages. 

Summary of Total Judgment Sum 

20.	The total judgment sum is:

(a)	Costs and expenditure			K5,974,425.04
	
	(b) 	Loss of Profit on Unperformed Work	K6,618,947.39
							
								_____________
	
Total 							K12,593,372.43
								_____________	

21.	I award a total judgment sum of K12,593,372.43.

Interest 

22.	The plaintiff seeks interest at the rate of 2% per annum from 19th November 2019 being the date of termination of the contract to the date of final settlement of the judgment sum pursuant to Sections 4(2) and 6(2) of the Judicial Proceedings (Interest on Debts and Damages) Act, 2015.

23.	While I agree with the plaintiff that the applicable rate of interest is 2% per annum because the State is a party pursuant to Sections 4(2) and 6(2) of the Judicial Proceedings (Interest on Debts and Damages) Act, 2015, I will apply the conventional formular on award of interest, this being, interest is awarded at the rate of 2% per annum on the total judgment sum of K12,593,372.43 from the date of issue of writ of summons of 17th December 2019 to date of final settlement pursuant to Sections 4(2) and 6(2) of the Judicial Proceedings (Interest on Debts and Damages) Act, 2015.

Costs 

24.	As the unsuccessful party in this litigation, the defendants shall pay the plaintiff’s costs of and incidental to these proceedings, to be taxed, if not agreed.

Order

25.	The Court orders that:

1.	Judgment is entered against the defendants in the total sum of K12,593,372.43.

2.	Interest is awarded at the rate of 2% per annum on the total judgment sum of K12,593,372.43 from the date of issue of writ of summons to the date of final settlement pursuant to Sections 4(b) and 6(b) of the Judicial Proceedings (Interest on Debts and Damages) Act, 2015.

3.	The defendants shall pay the plaintiff’s costs of and incidental to these proceedings, to be taxed, if not agreed.
________________________________________________________________
Lawyers for plaintiff: O’Briens Lawyers 	 			
Lawyer for defendants: Acting Solicitor General