SC2118
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

SCA NO. 76 OF 2019

BETWEEN:
KEAM INVESTMENTS LIMITED
Appellant

AND:
TOYOTA TSUSHO (PNG) LIMITED trading as ELA MOTORS
First Respondent

AND:
WESTPAC BANK (PNG) LIMITED
Second Respondent

Waigani:  Gavara-Nanu J, Cannings J, Logan J.
2021:  11th June
	
APPEAL - Purchase of vehicle -  Lease agreement between the appellant  and the second respondent (bank) - Second respondent providing loan to the appellant to purchase vehicle - Motor vehicle dealer (first respondent) providing vehicle to the appellant -  Vehicle needing repairs  - Motor vehicle dealer doing repairs at the request of the appellant - Motor vehicle dealer repairs at its own costs - Warranty - Repairs inspected by the appellant - Vehicle delivered to the appellant - Appellant taking possession - Vehicle used for a period of time.  

APPEAL - Damages - Goods Act, Chapter 251 - Appellant claiming damages for breach of contract under the Goods Act - Decision of the primary court - Goods Act, inapplicable - No contract under Goods Act - Claim for damages dismissed – Cross-claim by the second respondent (second defendant) successful against the appellant (plaintiff) – Parties ordered to pay their own costs - Appeal dismissed - Costs to follow the event.

APPEAL - Cross-appeal by the second respondent against an order that the parties pay their own costs - Discretion of the court – Usual position that costs follow the event – National Court Rules, Order 22, rule 11 -  Primary court erred in not ordering costs to follow the event - Cross-appeal against the appellant and the first respondent - Cross-appeal against an order for the parties to pay their own costs – Cross-appeal allowed - Second respondent/cross-appellant's costs to be paid by the appellant and first respondent on 50/50 basis.   

Cases Cited: 
Papua New Guinea Cases

Francis Kunai v. PNG Forest Authority (2018) N7570
First Assistant Secretary Department of Prime Minister v. Michael James  Leahy & Or (1981) N311 (L) 
Hilary Singut v. Commissioner of Police (2008) SC910
Jonny Suagu v. Ken Ngangan (2018) N7376
K.L.Engineering and Constructions (PNG) Ltd v. Damansara Forest Products (PNG) Ltd (2002) N2250
Keam Investment s Limited v. Toyota Tsusho (PNG) Ltd, trading as Ela Motors Motors and Westpac Bank (PNG) Ltd (2019) N7859
Keith Reid v. Murray Hallam and Allcad Pty Ltd (1995) N1337
National Provident Fund Board of Trustees v. Southern Highlands Provincial 
Government (2006) N3028
Polem Enterprise Ltd v. Attorney General of Papua New Guinea (2006) 
 N2968 
Shell Papua New Guinea Ltd v. Speko Investment Ltd (2004) SC767

Overseas Cases Cited:

Donald Campbell & Co v Pollak [1927] AC 732
Lollis v Loulatzis (No 2) [2008] VSC 3
Northern Territory v Sangare (2019) 265 CLR 164
Oshlack v Richmond River Council (1998) 193 CLR 72
Ritter v Godfrey [1920] 2 KB 47

Counsel:

T. Tape, for the Appellants
G. Gileng, for the First Respondent
D. Doiwa, for the Second Respondent

11th June, 2021

1.	BY THE COURT: This is an appeal against the decision of the National Court given on 10 May, 2019, in proceeding WS No. 136 of 2012, in which the primary judge dismissed the appellant’s claims for damages against the respondents for breach of contract. 
See, Keam Investments Ltd v. Toyota Tsusho (PNG) Ltd, trading as Ela Motors and Westpac Bank (PNG) Ltd (2019) N7859.

2.	The appeal raises issues of mixed fact and law, thus pursuant to s. 14 (a) and (b) of the Supreme Court Act Chapter 37, the appeal lies without leave.

3.	In WS No. 136 of 2012 proceeding, the appellant claimed damages against the respondents for alleged breaches of a contract.  The appellant’s claims arose out of the sale of a truck with a crane in 2011.  

Background

4.	On 26 June, 2010, the appellant entered into a 3-year cartage contract with Hargy Oil Palm which required the appellant to supply a duly registered Hino truck with a crane for use in transporting oil palm.  There was no requirement in the contract that the truck be brand new.  The appellant did not have the required truck, thus it was not able to perform its part of the contract immediately.

5.	On 16 July, 2010, the fist respondent gave a written quote addressed to the appellant offering a new Hino FS1ERPA-CC6F4 truck for K308, 000.00, a hoist for K40, 000.00, a bin for K65, 000.00 and a PK950, which was a crane for K115, 000.00.  Together with other charges the total quoted price was K598, 400.00.  The quote specifically stated that delivery would be after sale and gave a 12-month warranty.

6.	After receiving the quote the appellant inquired with the second respondent about financing the truck, which included the crane. After receiving a positive response from the second respondent, the appellant informed the first respondent that it would purchase the truck (with the crane).  Before picking up the truck and the crane, the appellant wanted some adjustments done to the levers of the crane to a certain height.  All the adjustments were carried out by the first respondent at no cost to the appellant.  The appellant’s technical experts flew to Lae, where the truck and crane were being held and inspected the adjustments made to the crane levers. The final inspection of the adjustments to the crane levers by the appellant's technical experts took place on 15 March, 2011.  The appellant and the first respondent agreed that the truck (with the crane) be delivered to Kimbe, West New Britain Province where it was going to be used.

7.	Because of the above adjustments there was a period of delay in the appellant performing its part of the contract.  That delay also resulted in the lease agreement between the appellant and the second respondent being extended.

8.	The lease agreement between the appellant and second respondent commenced on 16 June, 2011.   On this same day the second respondent paid the purchase price of the truck and the crane to the first respondent, which then delivered the truck with the crane to the appellant in Kimbe where the appellant took possession of them.

9.	It later transpired that the crane without the truck had been bought by the first respondent in 2006 and had been stored until sold to the appellant in 2010.

10.	Although the crane was not brand new, it had never been used.  The first respondent was told by the appellant that it wanted a new truck (with crane).  The appellant was told that if a new truck was ordered, its cost would be high because it had to be ordered from an overseas manufacturer, but if it agreed, it could purchase the unused crane at a lower cost.  The plaintiff chose the second option.

11.	After the adjustments were made to the crane’s lever, the second respondent purchased the truck from the first respondent and released it to the appellant under the lease agreement between the appellant and the second respondent.

12.	After being used for some time the crane developed oil leakage to its hydraulic system.  This was raised with the first respondent, the first respondent fixed the leak, again at no cost to the appellant.  However, the appellant then wanted a brand-new replacement crane, which the first respondent rejected.  The first respondent instead offered to fix any other defects under the 12-month warranty, but if the appellant did not agree, the first respondent offered to refund the full purchase price of K598,400.00 and the truck (with the crane) to be returned to it.

13.	The appellant rejected both offers and demanded compensation in millions of kina for alleged breach of contract which the respondents, in particular the first respondent rejected.

14.	The appellant fell into arrears with its lease repayments.  The second respondent as a result repossessed the truck (and the crane) and sold it to a third party.

15.	This resulted in the appellant issuing proceeding WS No. 136 of 2012, in which it claimed damages against the respondents for breach of contract. The appellant relied on Goods Act, Chapter 251.  The appellant’s claims were dismissed by the primary judge but the cross-claim by the second respondent for the balance of the outstanding lease payment arrears was granted.  The parties were ordered to pay their own costs.  The second respondent has cross-appealed against the orders for the parties to pay their own costs.

16.	The appellant has raised 13 grounds of appeal, which can be summarized as follows:

Ground 1

(i)	The primary judge erred in finding that there was no contract of sale and breach of that contract between the appellant and the first respondent; because that is an agreed fact by the parties, and the appellant had a cause of action.

(ii)	There was also an oral agreement between the parties when the appellant offered to buy and the first respondent agreed to sell a brand-new crane and a brand-new truck as provided in the quote which the appellant accepted and paid for with the funds secured from the second respondent.  This transaction met the definition of “a contract of sale of goods” under ss. 3 and 5 of the Goods Act.  Furthermore, there was undisputed evidence from the first respondent to reimburse the appellant’s full purchase price of K598,400.00 for the truck and the crane, thus a clear demonstration that the appellant was the purchaser of the crane and the truck with funds provided by the second defendant.

Ground 2

The primary judge erred in making the following findings:-

(i)	The appellant made it known to the first respondent that it would not be the buyer and that the appellant did not accept the offer to buy.

(ii)	The appellant asked the second respondent to buy the specific vehicle then lease it to the appellant. 

(iii)	There was uncertainty and misunderstanding between the appellant and the first respondent as to whether the truck was brand new as coming out fresh from a manufacturer overseas or a truck which had never been used.

(iv)	There was no intention to create legal relations by the appellant as it lacked capacity to do so and had no intention to be the buyer of the vehicle.

(v)	There was no consideration because the plaintiff did not pay for the purchase price.

Ground 3	

The primary judge erred in not giving due consideration and weight to the terms of the contract of sale as pleaded in paragraph 7 of the Statement of Claim which the first respondent admitted in paragraph 7 of its Defence, in that, the appellant had expressly stated that it required a truck with a crane and because the specific purposes for which they were required, the truck and crane to be brand new, specifically requiring that the crane to be attached to the truck at a certain height and the controls and levers to be stationed at certain levels for safety reasons.

Ground 4

The primary judge erred in ruling that because there was no contract of sale between the appellant and the first respondent, the Goods Act, was irrelevant and did not apply.

Ground 5

The primary judge erred in ruling that if there was a contract under the Goods Act, albeit finding that there was none, ss. 3. 11, 12 (4), 35 and 53 of the Goods Act, would only entitle the appellant to claim for damages for breach of a condition of a warranty; and not for a repudiation of contract and return of the crane and replaced with a new one.  The ruling was against the clear dictates of s. 12 and other relevant provisions of the Goods Act, and the implied conditions in ss. 14 and 15.  

Ground 6

The primary judge erred in not dealing with the agreed issues and facts between the appellant and the respondents which were before the Court, through the Agreed and Disputed Facts and Legal Issues for trial.

Ground 7

The primary judge was manifestly unfair and biased in not considering the evidence and submissions of the appellant, and instead relied heavily on the evidence and submissions by the respondents. 

Ground 8

The primary judge erred in dismissing the claims by the appellant without properly considering documents and material before the Court.

Ground 9

The primary judge erred in not making a finding or addressing the issue of write-off of the balance of the loan by the second respondent, although the appellant did address the issue in its written submissions.

Ground 10

The primary judge erred in not making any finding in respect of Clause 3.5 of the lease agreement between the appellant and the second respondent, although the appellant had addressed it in its written and oral submissions at the trial.

Ground 11

The learned primary judge erred in failing to consider that the amount awarded to the second respondent under its cross-claim was not the amount claimed. 

Ground 12

The primary judge erred in relying on the evidence of Jenny Takaro which was discredited during cross-examination and submissions by the appellant.

Ground 13

The entire judgment lacked logic, it was conjectural and speculative.  It was full of contradictions, thus demonstrating that the judgment was unfair, biased and disrespectful to appellant’s evidence and submissions, which were either not heard or simply rejected and disregarded without proper consideration, thereby denying the appellant a fair hearing and justice in the matter.

Relief sought 

17.	The appellant seeks the following Orders: 

		(i) 	That the decision of the primary judge be quashed. 

		(iii) 	That there was a contract of sale which was breached and the appellant was entitled to repudiate the contract, return the crane and the truck and claim for damages under the Goods Act, Chapter, 251.

(ii) 	There was a contract of sale between the appellant and the first respondent to buy a new crane and a new truck.  
		
		(iv) 	That the appellant is entitled to damages for breach of 			contract against the first respondent. 

(v)	That the second respondent’s cross-claim be dismissed.

(vi)	That the matter be remitted to the National Court to be heard for assessment of damages before another judge.

(vii) 	That the respondents to pay the appellant’s costs of the appeal.

Submissions

18.	Mr. Tape for the appellant argued that the central issue was whether the crane met the appellant's request that it be brand new.  This will require the Court to find whether such request was made, if not whether it could be inferred.  It was argued by Mr. Tape that the quote given for the crane by the first defendant did not disclose that the crane was not second hand or used but had been kept without use since 2006 to the date of its delivery.

19.	It was submitted that the age of the crane was reflected by it breaking down a month after it was delivered together with the number of adjustments made to it.

20.	It was argued that contract was concluded when the appellant provided the price of the crane through the loan he obtained from the second respondent.  It was argued that contract was breached when the first respondent provided an old crane.

21.	Mr. Tape also argued that it was an agreed fact by the parties in the 'Statement of Agreed and Disputed Facts and Legal Issues', that there was a contract between the parties, thus the breach of the contract did not require judicial determination.  It was argued that the contract could be inferred from the quote provided by the first respondent.

22.	Mr. Gileng for the first respondent submitted that the parties cannot look outside of the terms of the lease agreement between the appellant and the second respondent, and by law the second respondent was the purchaser and owner of the truck and the crane.  This therefore entitled the second respondent to repossess its truck and crane and sell them when the appellant defaulted in its loan repayments.  Mr. Gileng also argued that any right the appellant had to make a claim for damages against the respondents based on the condition of the crane was lost when he accepted the condition of the crane with the adjustments made to the lever of the crane by the first respondent at no cost to the appellant.

23.	Furthermore, the first respondent offered to get the crane and the truck back and repay the full purchase price of K598, 400.00 to the appellant, but the offer was refused by the appellant.  Mr. Gileng also denied that the parties had agreed that there was a contract between the appellant and the respondents.  In any case, he argued that legally there could not be a contract between them. He said the learned primary judge was right in finding that the appellant could only sue for damages for breach of warranty, but the appellant could not make such claims because the first respondent had done all the adjustments required by the appellant within the 12- month warranty period.  It was argued that the Goods Act, Chapter 251, was irrelevant and had no application to the case because the appellant was not the buyer of the truck and the crane.

24.	Ms. Doiwa for the second respondent supported the arguments by Mr. Gileng.  It was argued that under the lease agreement the appellant assumed all risks and liabilities for the truck and the crane and was responsible for maintaining them in good repair. The appellant therefore cannot put any blame on the second respondent for the condition of the truck and the crane.  

Reasons for decision

25.	We agree with the learned primary judge that the Goods Act, is irrelevant and could not be relied upon by the appellant because the appellant did not buy the truck and the crane from the first defendant.  There was no implied contract of sale between them either.  The basic elements of a contract of offer, acceptance and consideration did not exist between the appellant and the first respondent because the appellant was not paying for the truck and the crane.  See, Shell Papua New Guinea Ltd v. Speko Investment Ltd (2004) SC767.

26.	The above view is fortified by the fact, that there was a lease agreement between the appellant and the second respondent.  This agreement spelt out the rights and obligations of the appellant and the second respondent regarding the truck and the crane.  Under this agreement the second respondent was the buyer (purchaser) and the owner of the truck and the crane.  The first respondent was the seller.  Any claims by the appellant against the second respondent must flow from the terms of this lease agreement.  See, Keith Reid v. Murrary Hallam and Allcad Pty Ltd (1995) N1337 and K.L. Engineering & Constructions (PNG) Ltd v. Damansara Forest Products (PNG) Ltd (2002) N2250.  Under the agreement, the second respondent was indemnified against any loss or damages, including liabilities in respect of the truck and the crane (Cl. 3.4).  The second respondent also did not give any warranty to the appellant (Cl. 6.1).  The second respondent remained owner of the goods during the period of the lease agreement. (Cl.2.2). Upon taking delivery of the goods the appellant accepted the goods in the conditions they were in and the delivery was conclusive proof that the goods were satisfactory to the appellant. (Cl. 2.1).  It was the responsibility of the appellant to register the truck and the crane (Cl. 4.2); and the second respondent as the owner of the truck and the crane had the right to repossess and sell them, in the event of the appellant defaulting in its loan repayments.

27.	 In the circumstances, we agree with the primary judge that the only possible remedy for the appellant was against the first respondent to make a claim for damages for breach of warranty.  So the question is, was there a breach of warranty.

28.	We are of the view that given that the appellant was not the buyer of the truck and the crane, no claim for a breach of warranty as that envisaged under s. 53 of the Goods Act, can be made out by the appellant.  But even if, there existed a warranty, the appellant had by its conduct accepted the condition of the crane by accepting the first respondent’s offer to do adjustments to the lever of the crane; and then taking delivery of the crane.  Therefore, the doctrine of 'estoppel by conduct' prevents the appellant from making any claim for damages based on breach of warranty against the respondents.  See, Francis Kunai v. PNG Forest Authority (2018) N7570; Jonny Suagu v. Ken Ngangan (2018) N7376; First Assistant Secretary Department of Prime Minister v. Michael James Leahy & Or (1981) N311 (L) and National Provident Fund Board of Trustees v. Southern Highlands Provincial Government (2006) N3028. 

29.	In this case, pursuant to Cl. 2.1 of the lease agreement, the appellant by taking delivery of the truck and the crane agreed and accepted that the condition of the crane was satisfactory. He is therefore estopped from complaining against the condition of the crane.  The appellant had also used the crane for some time after taking possession.

30.	The first respondent had also offered a full refund of the purchase price to the appellant, but the offer was refused by the appellant.

31.	There was as found by the primary judge, uncertainty as to what was meant by a new crane. In any event, we find that the appellant had by its conduct in allowing the first respondent to do adjustments on the crane over a period of time at the expense of the first respondent and then eventually taking delivery of the crane, abandoned any claims based on the condition of the crane.

32.	The appellant also claims that the parties had agreed under the terms of the 'Statement of Agreed and Disputed Facts and Legal Issues' that there was contract between the appellant and the respondents, therefore the parties are bound by the agreed fact. However, this is a legal issue which could only be properly determined by the Court. Therefore, it was not an issue that the parties could agree on.  See, Polem Enterprise Ltd v. Attorney-General of Papua New Guinea (2006) N2968.  Thus, we reject the claim, in our view it is misconceived.  See also Hilary Singut v. Commissioner of Police (2008) SC910.  The issues before the primary judge required consideration of the relevant provisions of the Goods Act, and the terms of the lease agreement between the appellant and the second respondent. The primary judge held that the Goods Act, upon which the appellant relied for his claims for damages for breach of contract, was irrelevant and inapplicable. We respectfully agree with the primary judge on this finding for reasons we have already expressed. 

33.	The rest of the grounds of appeal are vague and lack particulars and are insufficiently pleaded. We reject the criticisms against the judgment of the primary judge, especially those raised in grounds 7 to 13 of the grounds of the appeal. We find no basis at all for those criticisms. 

34.	We do not find any error in the amount awarded to the second respondent by the primary judge because the amount was due and owing to the second respondent as the balance of the outstanding arrears under the terms of the lease agreement between the appellant and the second respondent.

35.	For the foregoing reasons, we dismiss the appeal with costs to the respondents.

36.	The second respondent has cross-appealed against the decision of the primary judge to order the parties to pay their own costs, despite the second respondent being successful in its cross-claim against the appellant for the outstanding amount of loan under the lease agreement.  

37.	 The awarding of costs is discretionary but the discretion must be exercised judicially and the specified, usual position is that costs follow the event. See, Order 22, rule 12, National Court Rules. Although this rule does not create an entitlement on the part of a successful party to an order for costs in its favour, it does create a reasonable expectation as to how, unless there is good reason to the contrary, the discretion as to the awarding of costs will be exercised. 

38.	The awarding of costs against an unsuccessful party is not punitive. Rather, for reasons of fairness and policy in relation to civil litigation, courts are empowered to award costs with the usual exercise of that power being to award costs so as to indemnify, to the extent allowable on a taxation of costs, the successful party in respect of the event on which it has succeeded. In specifying that the usual position is that costs follow the event, Order 22, rule 12 makes explicit the way in which the costs discretion is usually exercised in this jurisdiction and elsewhere in the Commonwealth: See, Donald Campbell & Co v Pollak [1927] AC 732, at 812; Oshlack v Richmond River Council (1998) 193 CLR 72, at [67] and [134]; Northern Territory v Sangare (2019) 265 CLR 164 at [25].

39.	The cross-appeal being against an order made in the exercise of a discretion, the second respondent must show some error of principle. It would be no reason to allow the appeal merely because we might have exercised the discretion in a different way. The learned primary judge did not explain why, even though the second respondent (second defendant) had succeeded in its cross-claim, that costs could not be ordered in the second respondent’s favour. 

40.	Although the occasion for not making an order for costs in favour of a successful party is inherently case specific, there are certain well-recognized bases upon which a successful party might be deprived of an order for costs. For example, disentitling conduct  where the successful party effectively invited the litigation: Ritter v Godfrey [1920] 2 KB 47; where the successful party unnecessarily protracted the proceedings: Lollis v Loulatzis (No 2) [2008] VSC 3 at [29], and where the successful party pursued the matter solely for the purpose of increasing the costs recoverable; late amendment of pleadings so as to raise the point on which the party succeeds; where  the successful party is only nominally successful and, related to that, quantum and proportionality of success; public interest grounds; where the successful party was seeking an indulgence; imprudent refusal of an offer of compromise or contribution. This list is of course not exhaustive. 

41.	None of the recognized bases upon which a costs discretion might be exercised judicially so as to deprive the second respondent of an order for costs in the court below is evident in the circumstances nor is any other basis apparent. Ordinarily, one might have expected the reason for departure from the usual position to be identified. In the absence of any such reason and none being apparent in the circumstances, we are obliged to conclude that the exercise of the discretion by the learned primary judge must have been affected by an error of principle and miscarried.

42.	In the circumstances, we allow the second respondent’s cross-appeal.  We order the appellant to pay the second respondent's costs of and incidental to the WS No. 136 of 2012, proceeding which are to be taxed, if not otherwise agreed. The second respondent's cross-appeal being against the appellant and the first respondent, we order that the second respondent’s costs of and incidental to the cross-appeal be paid by the appellant and the first respondent on 50/50 basis, which are to be taxed if not otherwise agreed.

43.	The Orders of the Court are as follows:

1.	The appeal is dismissed.
2.	The appellant will pay the first and second respondents' costs of 	and incidental to the appeal, which if not otherwise agreed are to be taxed. 
3.	The second respondent's cross-appeal is allowed. 
4.	The appellant will pay for the second respondent's costs of and incidental to the WS No. 136 of 2012, proceeding which if not 	otherwise agreed are to be taxed.  
5.	The appellant and the first respondent will pay for the second respondent's costs of and incidental to the cross-appeal on 50/50 	basis, which if not otherwise agreed are to be taxed. 

Orders accordingly.	
_______________________________________________________________
Kandawalyn Lawyers: Lawyers for the Appellant	
Gileng & Co. Lawyers: Lawyers for the First Respondent
Allens Lawyers: Lawyers for the Second Respondent