Naki v AGC (Pacific) Ltd [2006] PGNC 205; N5015 (20 October 2006)

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DAMAGES – breach of contract – chattel mortgage agreement – breach by finance company – plaintiff/borrower's claim for loss of profits – trial on assessment of damages – need for plaintiff to corroborate claims – plaintiff awarded damages, plus interest and costs.

The plaintiff entered into a contract, a chattel mortgage agreement, with the defendant finance company, to enable him to purchase a truck. He told the finance company that he would use the truck for profit-making purposes. He acquired the truck and was in the course of repaying the loan when the finance company cancelled the agreement. The truck was consequently repossessed. The plaintiff says he had entered into contracts with other parties, which required him to use the truck. He had to forego those contracts and the profits he would have generated when the truck was repossessed. He succeeded in an earlier trial in establishing liability for breach of contract against the finance company. This was a trial on assessment of damages.

Albert Baine v The State (1995) N1335
Cheong Supermarket Pty Ltd v Pery Muro [1987] PNGLR 24
Coecon v National Fisheries Authority (2002) N2182
Dia Kopio v Employment Authority of Enga and Others (1999) N1865
Graham Mappa v PNG Electricity Commission [1995] PNGLR 170
Jonathan Mangope Paraia v The State (1995) N1343
Kolaip Palapi and Others v Sergeant Poko and Others (2001) N2274
Kopung Brothers Business Group v Sakawar Kasieng [1997] PNGLR 331
Livingston v Raywards Coal Co [1880] 5 App Cases 25
MVIT v Pupune [1993] PNGLR 370
MVIT v Tabanto [1995] PNGLR 214
Obed Lalip and Others v Fred Sikiot and The State (1996) N1457
Peter Wanis v Fred Sikiot and The State (1995) N1350
Steven Naki v AGC (Pacific) Ltd (2005) N2782
Tabie Mathias Koim and 28 Others v The State and Others [1998] PNGLR 247
The State v Keboki Business Group Incorporated and Morobe Provinsel Gavman [1985] PNGLR 369
Veltro Ltd and Vicky Vagikapi v Steven Liu Huang and Others OS No 478 of 2006, 12.09.06
Waima v MVIT [1992] PNGLR 254
Yange Langan and Others v The State (1995) N1369
Yooken Paklin v The State (2001) N2212

1. CANNINGS J: This is a case about assessment of damages for breach of contract. Liability was established against the defendant following a trial. A separate hearing has been held to assess the amount of damages, if any, that the defendant has to pay the plaintiff. The plaintiff, Steven Naki, is a small businessman based in Kimbe, West New Britain Province. The defendant, AGC (Pacific) Ltd, is a finance company. On 5 February 1999 the plaintiff entered into a mortgage chattel agreement with the defendant, to facilitate his purchase of an Isuzu truck from Kimbe Kar Sales, a division of KBSA Ltd. The defendant was to provide K30,000.00 to Kimbe Kar Sales, and the balance, K24,990.00, of the total purchase price of K54,990.00 was contributed by the plaintiff. The plaintiff was to pay back the principal of K30,000.00, plus interest, to the defendant in monthly instalments of K1,875.00 over two years. Kimbe Kar Sales released the truck to the plaintiff on the day the agreement between the plaintiff and the defendant was entered into, 5 February 1999. The plaintiff claims that three days later, on 8 February 1999, he started using the truck to perform a four-year contract with a landowner company, Karato Ltd, and NBPOL for the transport of oil palm seedlings and NBPOL employees. In March 1999 he started repaying the loan to the defendant. He made four instalments in the period from March to June 1999. The defendant then repudiated the contract by refusing to accept any more repayments and repaying to the plaintiff what he already paid it, and not paying Kimbe Kar Sales K30,000.00 as agreed. The plaintiff had to return the truck to Kimbe Kar Sales, then had to pay Kimbe Kar Sales K4,500.00 to buy back the vehicle that he had traded in to get the truck. In the first trial, the plaintiff established a cause of action in breach of contract, committed by the defendant in June 1999 by its refusal to accept further repayments from the plaintiff and its failure to provide finance to Kimbe Kar Sales (Steven Naki v AGC (Pacific) Ltd (2005) N2782, National Court, Cannings J).

2. The plaintiff is now claiming damages of K400,980.81, comprising K14,660.81 special damages and K386,320.00 general damages. The general damages are said to be profits he would have earned under his four-year contract with Karato Ltd and NBPOL, which he had to forego when he returned the truck to Kimbe Kar Sales. The defendant says the plaintiff should be awarded nothing except for K4,500.00 he paid Kimbe Kar Sales to get back the vehicle he had traded in prior to taking delivery of the Isuzu truck. The defendant argues that the plaintiff has not proven the existence of any other contract and in any event did not mitigate his losses.

3. This trial was conducted on affidavit evidence only. The plaintiff tendered eight affidavits and the defendant two. All were admitted into evidence by consent of the parties. In the table below, column 1 gives the exhibit number of the affidavit, column 2 describes the deponent and date of the affidavit and column 3 summarises the contents of the affidavit.

Exhibit	Deponent/date	Contents
A	Steven Naki, plaintiff, 17.02.05	States that in 1998 he was approached by the chairman, Casper Valuka, of a landowner company, Karato Ltd, regarding a contract to transport seedlings and workers for two oil palm estates being developed under a joint venture agreement with NBPOL – based on the negotiations he had with Karato Ltd, he entered into the chattel mortgage agreement with the defendant on 5 February 1999 – then entered into a verbal contract with Karato Ltd to provide transport with new truck for the estates known as 'Karato Eu' and 'Karato Mini', located within Kavugara and Navarai plantations – provides details of profits lost due to his inability to perform the contract, caused by repossession of Isuzu truck: K32,512.00 (transporting seedlings) + K453,024.00 (transporting workers) = K485,536.00 – also deposes to losses directly connected with Kimbe Kar Sales: lost his deposits on the truck (K1,946.08 + K6,480.00) and insurance (K1,734.73) and had to buy back the vehicle he had traded in (K4,500.00), a total of K14,660.81. Annexed to the affidavit is a statement by Frank J Lewis, senior project manager, OPIC, dated 31.03.00: "This is to confirm that OPIC engages private truck owners to cart seedlings for smallholder growers. There are no contracts written but if the operators are efficient and reliable the supply of work can usually be sufficient to keep the trucks operating fully. Steven Naki was involved in this work prior to his truck being repossessed".
B	Steven Naki, plaintiff, 12.04.05	States that he performed the contract with Karato Ltd for three months before the truck was repossessed.
C	Casper Valuka, former chairman/current director, Karato Ltd, 11.10.04	Karato Ltd's land was leased to NBPOL under an agreement dated 31 March 1998 – parties agreed to develop jointly two estates – in the early days Karato Ltd only had a tractor so had to find transport for seedlings and workers – he approached the plaintiff and entered into a contract with him, with the blessing of the board of Karato Ltd – the duration of the contract was four years, based on the period allowing for land clearing and planting and nurturing of oil palm trees, up to when they bear their first fruit – in effect, Karato Ltd sub-contracted its obligations under its agreement with NBPOL to the plaintiff.
D	Casper Valuka, former chairman/current director, Karato Ltd, 13.04.05	Restates key points in exhibit C: Karato Ltd awarded the plaintiff the service contract to transport seedlings and workers to the two estates and back – the plaintiff performed exceptionally well in the three months of his engagement prior to repossession of his truck – the plaintiff collected about three different payments.
E	Steven Kadiko, manager, Karato Ltd, 13.04.05	In 1998 and 1999, when Karato Ltd first started its joint venture project with NBPOL, it had difficulty transporting seedlings and workers to keep its side of the bargain regarding development of the two estates – so Karato Ltd contracted the plaintiff – Karato Ltd awarded the plaintiff a service contract.
F	John Kenneth Oussken, former assistant plantation manager, NBPOL, 17.02.05	Based on his long experience in the oil palm industry, he has calculated the number of seedlings required to be transported over a three-month period for planting the two estates – estimates that the plaintiff would have received a total of K32,512.00.
G	Raphael Niakra, accountant, 01.09.05	States that he has calculated a gross loss of revenue for the plaintiff due to the breach of contract by the defendant as K343,808.00 – however, the expenditure in running the business has to be deducted, which he estimates would have been K76,335.00 resulting in a net loss of K309,985.00.
H	Joshua Naki, plaintiff's son, 07.09.05	He helped his father deliver seedlings and transport workers for the two estates – they had no one assisting them as they were doing the job successfully – there was no need for an office or for office staff to do book-keeping – they employed no-one other than themselves.
D1	Joseph E Aisa, defendant's lawyer, 18.08.05	Describes the defendant's lawyer's attempts to settle the matter with the plaintiff's lawyers.
D2	Paul O'Brien, head of credit and risk, Westpac Bank PNG Ltd, 19.09.05	The defendant, AGC (Pacific) Ltd, is a subsidiary of Westpac Bank PNG Ltd – points out that the plaintiff is entitled to loss of profits, not loss of revenue – estimates that, on the basis of the revenue figure provided to the defendant prior to entry into the chattel mortgage agreement (K7,200.00 per month), the plaintiff would have earned a net profit after tax of K9,158.92 for the first year.

5. The amount claimed is set out in the plaintiff's first affidavit (exhibit A): lost deposits on the Isuzu truck (K1,946.08 + K6,480.00) and insurance (K1,734.73) and the amount he paid to buy back the vehicle he had traded in (K4,500.00), a total of K14,660.81.

6. Mr Takin submitted that there was ample evidence before the court to conclude that the plaintiff had entered into a service contract, of four years duration, with Karato Ltd in February 1999. The contract required the plaintiff to transport seedlings for two oil palm estates over a three month period and to transport workers for the whole of the period of the contract. Mr Takin submitted that all eight affidavits tendered by the plaintiff (exhibits A-H) proved the existence of the contract and the profit that would have been generated by it, if the plaintiff's performance of it had not been interrupted by the defendant's breach of the chattel mortgage agreement.

7. The evidence on this head of damage seemed to change from affidavit to affidavit but in his submission Mr Takin calculated the amount as follows:

For each oil palm estate: 27 workers x 10.5 days per fortnight x 26 fortnights x K6.00 per worker per day = K44,226.00 per year x 4 years = K176,904.00.

9. Mr Aisa submitted that it was hard to understand why the plaintiff agreed to pay K4,500.00 to Kimbe Kar Sales to get his vehicle back. Nevertheless the defendant would concede that it was liable for this amount. As for the other amounts claimed as special damages, the defendant was not privy to the arrangements between the plaintiff and Kimbe Kar Sales and was not liable for those amounts. The defendant does not concede the existence of any service contract between the plaintiff and Karato Ltd. The plaintiff may have done some work for them with the Isuzu truck in the few months he had possession of it. But the work was essentially casual. The statement by Frank Lewis of OPIC annexed to the plaintiff's first affidavit (exhibit A) does not support any conclusion other than that the work concerned was casual in nature. The plaintiff's evidence is vague and inconsistent as to who engaged him and who terminated his services. Some affidavits suggest that NBPOL terminated his services but there is no direct evidence of that – only hearsay. As to the three payments said to have been received from OPIC, there is no documentary evidence of them. Everything points to, at best, more or less regular casual work being available to the plaintiff. As to the revenue that would have been generated, when the plaintiff applied to the defendant for the loan he indicated that his projected monthly cash flow was K7,500.00 per month from NBPOL. That is the maximum the court should accept. From that sum should be deducted the costs of running his business. Mr Aisa relied on the calculations done by Paul O'Brien, Head of Credit and Risk at Westpac Bank (exhibit D2) to submit that the maximum that could be awarded (excluding a discount for mitigation of losses) would be K9,158.92 per year. However, that was a paper figure only as, in fact, there was no evidence to warrant the plaintiff being awarded anything at all for loss of profits. Mr Aisa cited the leading case on loss of profits, Graham Mappa v PNG Electricity Commission [1995] PNGLR 170, to argue that the plaintiff had failed completely to adduce any business records in support of his claims. If the court were inclined to award anything at all, the amount awarded must take account of the plaintiff's failure to mitigate his losses. As an alternative to his principal submission that the plaintiff be awarded zero general damages, Mr Aisa submitted loss of profits could be allowed for a period of three months, that being a reasonable period within which the plaintiff could have completely mitigated his losses by obtaining a substitute loan. He proffered the following calculation:

K7,500.00 gross revenue per month minus 50% operating costs = K3,750.00 per month x 3 months = K11,250.00 minus allowance (20%) for failure to mitigate losses (K2,250.00) = K9,000.00.

12. The main principles to apply when the court is assessing damages can be summarised as follows:

13. There is no dispute over the facts regarding this aspect of the case. The plaintiff paid Kimbe Kar Sales K4,500.00 to get back the vehicle he traded in. He also paid the other sums itemised in his affidavit: the deposits on the Isuzu truck (K1,946.08 + K6,480.00) and insurance (K1,734.73); a total of K14,660.81. I make findings of fact accordingly.

14. The facts in support of this part of the case are hotly contested. Having considered all the evidence and the competing submissions I conclude that there was no contract, oral or in writing, between the plaintiff and any other person or company, including Karato Ltd and NBPOL, for the transport of seedlings or workers. The evidence that there was a contract is vague and inconsistent. If a person submits that there was a contract – especially if an oral contract is relied on – the court must be able to identify the 'who, what, when, where and would' of the contract. That is:

See The State v Keboki Business Group Incorporated and Morobe Provinsel Gavman [1985] PNGLR 369; Veltro Ltd and Vicky Vagikapi v Steven Liu Huang and Others, OS No 478 of 2006, 12.09.06. The evidence tendered by the plaintiff fails to answer any of those questions with certainty. If the plaintiff's submission were upheld – and the court found that there was a contract between the plaintiff and, say, Karato Ltd – would Karato Ltd be able to sustain a cause of action against the plaintiff for breach of that contract by him? Hardly likely, given the state of the evidence. I accept Mr Aisa's submission that, at best, the plaintiff had a casual arrangement with Karato Ltd, which was paying him some money for providing transport for seedlings and workers. There is no evidence – other than pure talk and hearsay – that NBPOL was involved in the arrangement. Nobody from NBPOL has given evidence, so I find that it was not a party to the arrangements between the plaintiff and Karato Ltd. How regular was the arrangement and how long was it likely to last? As to the seedlings, I find that there is evidence to support a finding that it was a three month arrangement and that the numbers of seedlings and the revenue generated are as set out in various affidavits. I agree with the defendant, however, that the plaintiff's revenue figures have to be discounted by 50% to arrive at a proper estimate of lost profits. Thus the amount of lost seedling profits will be K32,512.00 x 50% = K16,256.00.

15. As to transport of workers, I agree with Mr Aisa that the monthly revenue figure has to be capped at K7,500.00, that being the figure the plaintiff put on his loan application form. I also agree that it has to be discounted by 50% to arrive at a proper estimate of lost profits. As to the length of the arrangement, Mr Takin submitted that the evidence showed that it was a four-year arrangement. The evidence in support of that contention is slight, and I am not prepared to uphold it in view of the lack of certainty over the arrangements. The evidence suggests, I reiterate, that the plaintiff had not entered into a binding contract with anyone but had his new truck on standby so that he could fulfil casual arrangements that would be entered into from time to time. I will discount the estimated length of the arrangements by 75% to reflect the reality of what was likely to happen. I therefore find on the balance of probabilities that the plaintiff would have earned the following profits:

17. If a plaintiff claims damages for profits lost as a result of a breach of contract, the plaintiff bears the onus of proving on the balance of probabilities how those profits would have been earned. If a plaintiff claims that contracts had been entered into with other parties on the strength of the contract that has been breached, there should be clear evidence of the existence of such contracts, irrespective of whether they are in writing. If there is insufficient evidence to conclude that such contracts with other parties had been entered into, the plaintiff may nevertheless prove that there was a reasonable probability that other profit-earning activities would have continued, notwithstanding those arrangements being loose or casual in nature. In the present case, the plaintiff was unable to prove that he had entered other, binding, contracts on the strength of the contract breached by the defendant. However, he proved that there was a reasonable probability that he would have been able to continue other profit-earning activities, though not to the extent he claimed. I will now assess the damages for which the defendant is liable. I accept the submission that the plaintiff failed to mitigate his losses and will discount the gross amount of general damages by 20% on account of that, as shown in table 3.

18. In the statement of claim the plaintiff claimed interest under the Judicial Proceedings (Interest on Debts and Damages) Act Chapter No 52. Section 1 is the appropriate provision. It states:

(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.

(2) Where the proceedings referred to in Subsection (1) are taken against the State, the rate of any interest under that subsection shall not exceed 8% yearly.

19. As Bredmeyer J pointed out in Cheong Supermarket Pty Ltd v Pery Muro [1987] PNGLR 24, this section confers a four-fold discretion on the Judge: (1) whether to grant interest at all; (2) to fix the rate; (3) to grant interest on the whole or part of the debt or damages for which judgment has been given; and (4) to fix the period for which interest will run. I exercise that discretion in the following way:

1 A plaintiff should in the normal course of events receive interest. There is nothing that takes this case out of the ordinary in that regard. The Court will order that interest be included in the sum for which judgment is given.

3 Interest should be payable on the whole of the sum of damages for which judgment is given.

4 The appropriate period is the whole of the period between the date on which the cause of action arose and the date of the judgment. The cause of action arose on the date of breach of the contract, which I fix as 15 June 1999. The date of judgment is 20 October 2006. The appropriate period, for the sake of mathematical convenience, is 7.34 years.

21. The general rule is that costs follow the event, ie the successful party has its costs paid for by the losing party on a party-to-party basis. The question of costs is a discretionary matter. There are no special circumstances in this case that warrant departure from the general rule.

Judgment accordingly.
________________________________________
B T Gobu & Associates: Lawyers for the Plaintiff
Allens Arthur Robinson: Lawyers for the Defendant

No	Category	Amount claimed	Principal response	Alternative response
1	Special damages	K 14,660.81	K 4,500.00	K 4,500.00
2	General damages (loss of profits)	386,320.00	0	9,000.00
Total		K 400,980.81	K 4,500.00	K 13,500.00

No	Category	Amount awarded
1	Special damages	K 14,660.81
2	General damages	61,256.00
3	Gross	75,916.81
4	Less 20% of general damages for failure to mitigate	12,251.20
Total		K 63,665.61

National Court of Papua New Guinea

Naki v AGC (Pacific) Ltd [2006] PGNC 205; N5015 (20 October 2006)