Rodao Holdings Ltd v Sogeram Development Corporation Ltd [2007] PGNC 239; N5485 (23 February 2007)

N5485

PAPUA NEW GUINEA
IN THE NATIONAL COURT OF JUSTICE

WS NO 521 OF 2001

RODAO HOLDINGS LTD
Plaintiff

V

SOGERAM DEVELOPMENT CORPORATION LTD
Defendant

Madang: Cannings J
2005: 18 November,
2006: 18 January, 20 November,
2007: 23 February

DAMAGES – breach of contract – management agreement – breach by party which had contracted other party to manage its affairs – assessment of damages following entry of default judgment – conflict between terms of default judgment and statement of claim – assessment of remuneration due to plaintiff – general damages.

The plaintiff, a management company, and the defendant, a landowner company and owner of forest resources, entered into a three-year management agreement under which the plaintiff was to manage the defendant's affairs, particularly regarding a timber and marketing agreement it had with another company. Under the management agreement, the defendant was to pay the plaintiff a flat fortnightly sum plus 5% of the gross amount of monies the plaintiff recovered on the defendant's behalf. A few months after commencement of the management agreement, the defendant repudiated it. The plaintiff sued the defendant claiming amongst other remedies a percentage of monies recovered and general damages for breach of contract. The defendant failed to defend the matter and default judgment was entered against it for (a) "remuneration for the remainder of the contractual period" and (b) "general damages", both of which were to be assessed. This was a trial on assessment of those amounts. The plaintiff submitted the assessed sums should be (a) K4.78 million and (b) K50,000.00. The defendant submitted the plaintiff be awarded nothing; or in the alternative judgment be entered for nominal sums only.

Held:

(1) The default judgment resolved all questions of liability in respect of the matters pleaded in the statement of claim.

(2) An assessment of remuneration for the balance of the contract period required the court to examine the terms of the contract and the statement of claim; and as a result of that process the plaintiff was awarded K2,000.00.

(3) General damages for distress, frustration and inconvenience were assessed at K50,000.00.

(4) The plaintiff was awarded interest of K28,704.00, being a total judgment sum of K80,704.00.

(5) As both sides had a victory of sorts they will bear their own costs.

Cases cited

The following cases are cited in the judgment:

Albert Baine v The State (1995) N1335
Anglia Television v Reed [1972] 1 QB 60
Cheong Supermarket Pty Ltd v Pery Muro [1987] PNGLR 24
Coecon Ltd (Receiver/Manager Appointed) v National Fisheries Authority (2002) N2182
Hadley v Baxendale (1854) 9 Exch 341
Kolaip Palapi and Others v Sergeant Poko and Others (2001) N2274
Kopung Brothers Business Group v Sakawar Kasieng [1997] PNGLR 331
MVIT v Pupune [1993] PNGLR 370
MVIT v Tabanto [1995] PNGLR 214
Obed Lalip and Others v Fred Sikiot and The State (1996) N1457
Papua New Guinea Banking Corporation v Jeff Tole (2002) SC694
Peter Wanis v Fred Sikiot and The State (1995) N1350
Tabie Mathias Koim and 28 Others v The State and Others [1998] PNGLR 247
Tetley v The Administration (1971) No 647
Victoria Laundry v Newman [1949] 2 KB 528
Waima v MVIT [1992] PNGLR 254
William Mel v Coleman Pakalia and Others (2005) SC790
Yange Lagan and Others v The State (1995) N1369
Yooken Paklin v The State (2001) N2212

ASSESSMENT OF SUM AND DAMAGES

This was a trial on assessment of an amount due under a repudiated contract and general damages following entry of default judgment.

Counsel

B Meten, for the plaintiff
Y Wadau, for the defendant

23rd February, 2007

1. CANNINGS J: This is a case about assessment of amounts of remuneration and damages for breach of contract following the entry of default judgment in favour of the plaintiff. The plaintiff says it should get judgment for almost K5 million, whereas the defendant submits that the plaintiff should be awarded nothing. The plaintiff is Rodao Holdings Ltd, a management company based in Madang owned and controlled by David Monks. The defendant is Sogeram Development Corporation Ltd, a landowner company that is the timber resource owner of the Sogeram Timber Project, Madang Province.

2. In January 2000 the plaintiff and the defendant negotiated a management agreement. The defendant engaged the plaintiff to manage its affairs, particularly regarding its logging and marketing agreement with Madang Timbers Ltd. The parties did not execute a formal document or contract. Instead the agreement was brought into force by a letter headed "management agreement" from the defendant's chairman, Isaac Cap Selong, to the plaintiff's director, dated 24 January 2000. The letter, signed by Mr Selong and counter-signed by Mr Monks on 15 and 16 February 2000 respectively, stated:

I refer to recent discussions in regard to the financial management of our Corporation. We have held a special Board of Directors meeting to consider this matter and am pleased to offer to your Company the management rights to assist in the financial recovery of our Corporation.

Your brief will be as follows:-

a) To oversee all financial aspects of the Corporation's affairs dating back to the start of our operations.

b) To review and update, as required, the re-imbursements received by way of premiums, royalties, export payments, etc payable from Madang Timbers.

c) To renegotiate the existing payments structure due to the termination of the exporting of round logs from the 11th of November 1997.

d) To peruse and execute the economical and development program which has to date not been carried out by our contractor, Madang Timbers Ltd.

e) Provide recommendations of financial and operational controls to the Board of Directors.

f) To liaise with Madang Timbers to ensure that all aspects of the LMA and the TP have been adhered to.

g) To assist with recommendations in the renegotiations of a new LMA and TP.

h) To report to the Board of Directors on any findings relating to the management of the Corporation.

Your initial period of appointment shall be for a 3-year period and shall be subsequently renewed at that anniversary for a further term of 1 year and so-forth.

Your starting date shall be the date of your signed acceptance of these conditions.

Your remuneration shall be K2,000.00 per fortnight after tax, reviewed at 3 monthly intervals and is also subject to CPI increases, plus 5% of gross amount of any monies recovered and any other additional revenue with the exception of our current payment of premiums.

You shall have full access to our office facilities, of business purposes only, which shall include telephone, fax, computer, stationary, etc, a fully maintained vehicle for use during working hours only, as and when required by your Company.

Please acknowledge receipt of this letter and your acceptance of the terms and conditions as set out above by signing and returning the enclosed copy to this office.

Yours faithfully

[Signed]

Isaac Cap Selong

Chairman – Board of Directors

Sogeram Development Corporation Limited

[no company seal affixed]

I, David Monks, a Director of Rodao Holdings Limited hereby acknowledge receipt and accept the terms and conditions of the management agreement as set out above.

[signed]

David Monks

Director

Rodao Holdings Limited

[company seal affixed]

3. The plaintiff rendered services under the management agreement until 10 March 2000, when the defendant suspended the agreement. Then on 13 April 2000 the defendant repudiated the agreement, for reasons unknown to the plaintiff.

4. One year later, on 26 April 2001, the plaintiff commenced the current proceedings against the defendant, claiming remuneration and other monies due under the agreement and damages, for breach of contract. The amounts claimed in the statement of claim were:

(a) K7,920.00 being remuneration still owing for work already done (payable at the rate of K2,000.00 per fortnight);

(b) K5,000.00 being 5% of the performance bond of K100,000.00 the plaintiff had already recovered on behalf of the defendant from its contractor;

(c) K179,480.00 being remuneration for the remainder of the period of the three-year management agreement;

(d) "the defendant register with the National Court any recovered monies owing by the defendant from its contractor and the defendant's directors with 5% of any monies recovered to be paid to the plaintiff" [sic];

(e) special damages;

(f) general damages;

(g) interest under the Judicial Proceedings (Interest on Debts and Damages) Act;

(h) costs of these proceedings; and

(i) such further or other orders as the court deems fit.

5. The defendant failed to defend the matter and on 20 June 2001 Sawong J ordered default judgment against the defendant. The wording of the order, entered on 21 June 2001 – particularly order No 4 – is important. It states:

THE COURT ORDERS as follows:

1. That Default Judgement is entered against the Defendant.
   
2. That the Defendant pay the Plaintiff the sum of K7,920.00 being the balance of remuneration outstanding plus interest of 1.52% per month from 13/04/2000 to date of judgment, totalling K9,819.62.
   
3. That the Defendant pay the Plaintiff the sum of K5,000.00 being 5% of the Performance Bond plus interest of 1.52% per month from 13/04/2000 to date of judgment, totalling K6,199.26.
   
4. That Default Judgment is also entered against the Defendant for remuneration for the remainder of the contractual period, such to be assessed and further for general and special damages and interest to be assessed.
   

6. The amounts awarded under order Nos 2 and 3 have been paid so the present trial was set down to assess the remedies under order No 4, ie:

• remuneration for the remainder of the contract period;
• general damages;
• special damages; and
• interest.
  

7. At the trial the plaintiff abandoned the claim for special damages. As for interest it can only be calculated once the amounts that give rise to it are assessed. That means the trial is for the time being concerned with assessing two amounts only:

• remuneration for the remainder of the contract period; and
• general damages.
  

PLAINTIFF'S EVIDENCE

8. Mr Meten, for the plaintiff, tendered two affidavits by consent, both by David Monks. Mr Monks deposed to the circumstances in which the management agreement had been entered into and later repudiated by the defendant. He detailed the work the plaintiff had done in the period before the defendant repudiated the agreement. He also explained the steps the plaintiff had taken to set up recovery of a lot of money said to be owing to the defendant, particularly by Madang Timbers Ltd. He estimated that if the defendant had not repudiated the agreement and the plaintiff had been permitted to do what it was contracted to do, the plaintiff would have been paid K4,780,818.38 by the defendant (approx K4.8 million). The basis of that sum is set out in table 1.

TABLE 1: REMUNERATION CLAIMED BY PLAINTIFF
FOR REMAINDER OF CONTRACTUAL PERIOD

No	Item	Amount claimed
1	Remainder of contract period	K 237,190.19
2	Premiums	1,576,299.71
3	MOU	135,500.00
4	Royalties	288,.345.72
5	Reafforestation	10,000.00
6	Agriculture levy	34,500.00
7	Infrastructure maintenance levy	25,875.00
8	MPG levy	17,250.00
9	Outstanding infrastructure	2,399,450.00
10	SDC directors	56,407.76
Total		K 4,780,818.38

9. Item No 1 is the total of the flat fee of K2,000.00 per fortnight that would have been paid to the plaintiff for the duration of the contract period.

10. Item Nos 2 to 9 represent 5% of the various amounts that had been identified for recovery. Mr Monks provided extensive details on how each of these recovery items was calculated. For example, in item No 2, premiums, Mr Monks referred to the provisions of the timber permit that stipulate the maximum and minimum volume of logs the permit holder was permitted to harvest. Based on information provided to the plaintiff he estimated that Madang Timbers Ltd owed money to the defendant because of its failure to comply with the minimum volume of logs under the timber permit. He estimated that in the ten-year period from October 1990 to October 2000 the defendant received only K986,805.83 when it should have received K32,512,800.00; leaving a shortfall of K31,525,994.17 (approximately K31.5 million). The plaintiff had been contracted to recover that sum and would have been entitled to be paid 5% of it, ie K1,576,299.71 (approx K1.5 million), Mr Monks stated in an affidavit.

11. The largest sum claimed is under item No 9, outstanding infrastructure. The sum of K2,399,450.00 (approximately K2.4 million) is 5% of the estimated value of infrastructure benefits owing to the defendant by Madang Timbers Ltd, K47,989,000.00 (approx K48 million). The latter figure was calculated by reference to Timber Permit 12-20 and the LMA, which obliged Madang Timbers Ltd to arrange construction of various roads, bridges and buildings. Mr Monks deposed that representatives of the plaintiff and the defendant inspected the timber permit area on 26 February 2000 and found that many required infrastructure projects were either incomplete or non-existent. The plaintiff then compiled a written inspection report and forwarded it and a show cause letter to Madang Timbers Ltd, which responded on 18 April 2002. Mr Monks's affidavit included costings for the infrastructure required under the timber permit and the LMA.

12. The above calculations were made for the purposes of the claim for lost remuneration, which is, in light of the terms of the default judgment, the first amount I have to assess. There were no similarly detailed calculations in support of the second amount to be assessed under the default judgment, general damages.

DEFENDANT'S EVIDENCE

13. Mr Wadau, for the defendant, called no evidence.

ROLE OF TRIAL JUDGE WHEN MAKING ASSESSMENT OF DAMAGES AND OTHER AMOUNTS FOR WHICH A DEFENDANT IS LIABLE FOLLOWING ENTRY OF DEFAULT JUDGMENT

14. This issue was addressed by the Supreme Court in William Mel v Coleman Pakalia and Others (2005) SC790, Los J, Jalina J, Cannings J. The court endorsed the principles expressed by Kandakasi J in the National Court in Coecon Ltd (Receiver/Manager Appointed) v National Fisheries Authority (2002) N2182 and by the Supreme Court in Papua New Guinea Banking Corporation v Jeff Tole (2002) SC694, Amet CJ, Sheehan J, Kandakasi J. The trial judge's role is:

• to make a cursory inquiry so as to be satisfied that the facts and the cause of action are pleaded with sufficient clarity; and
  
• if the facts and cause of action are reasonably clear, liability should be regarded as proven, ie the default judgment resolves all questions of liability in respect of the matters pleaded in the statement of claim;
  
• 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;
  
• the plaintiff has the burden of producing admissible and credible evidence of the alleged damages;
  
• 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.
  

General principles for assessment of damages

15. Other general principles to apply when the court is assessing damages can be summarised as follows:

• The plaintiff has the onus of proving his loss on the balance of probabilities. It is not sufficient to make assertions in a statement of claim and then expect the court to award what is claimed. The burden of proving a fact is upon the party alleging it, not the party who denies it. If an allegation forms an essential part of a person's case, that person has the onus of proving the allegation. (Yooken Paklin v The State (2001) N2212, National Court, Jalina J.)
  
• Corroboration of a claim is usually required and the corroboration must come from an independent source. (Albert Baine v The State (1995) N1335, National Court, Woods J; Kopung Brothers Business Group v Sakawar Kasieng [1997] PNGLR 331, National Court, Lenalia AJ.)
  
• The principles of proof and corroboration apply even when the defendant fails to present any evidence disputing the claim. (Peter Wanis v Fred Sikiot and The State (1995) N1350, National Court, Woods J.)
  
• The same principles apply after default judgment is entered and the trial is on assessment of damages – even when the trial is conducted ex parte. A person who obtains a default judgment is not entitled as of right to receive any damages. Injury or damage suffered must still be proved by credible evidence. (Yange Lagan and Others v The State (1995) N1369, National Court, Injia J.)
  
• If the evidence and pleadings are confusing, contradictory and inherently suspicious, the plaintiff will not discharge the onus of proving his losses on the balance of probabilities. It is conceivable that such a plaintiff will be awarded nothing. (Obed Lalip and Others v Fred Sikiot and The State (1996) N1457, National Court, Injia J.)
  
• Where default judgment is granted, for damages to be assessed on a given set of facts as pleaded in a statement of claim, the evidence must support the facts pleaded. No evidence will be allowed in support of facts that are not pleaded. (MVIT v Tabanto [1995] PNGLR 214, Supreme Court, Kapi DCJ, Hinchliffe J, Sevua J; Waima v MVIT [1992] PNGLR 254, National Court, Woods J; MVIT v Pupune [1993] PNGLR 370, Supreme Court, Kapi DCJ, Jalina J, Doherty J; Tabie Mathias Koim and 28 Others v The State and Others [1998] PNGLR 247, National Court, Injia J.)
  
• The court must be alert to vague claims, unsupported by corroborating evidence, as they might be false claims. The court must only uphold genuine claims. (Kolaip Palapi and Others v Sergeant Poko and Others (2001) N2274, National Court, Jalina J.)
  

Special principles regarding damages for breach of contract

16. When assessing damages for breach of contract special principles apply. These come from the leading common law case on damages for breach of contract, Hadley v Baxendale (1854) 9 Exch 341, the principles of which were explained in the other leading common law case Victoria Laundry v Newman [1949] 2 KB 528. Hadley v Baxendale has been considered in PNG in, for example, Tetley v The Administration (1971) No 647, pre-Independence Supreme Court, Frost SPJ and in the Coecon case. I consider that the principle of Hadley v Baxendale and the Victoria Laundry cases are appropriate to the circumstances of PNG, and therefore can be safely applied as part of the underlying law. The special principles are:

• The general principle that the purpose of an award of damages is to put the innocent party in the same position, as far as money can do, as if the guilty party had not committed a wrongful act, is qualified substantially when assessing damages for breach of contract.
  
• The qualification is that the innocent party only gets the amount of his actual losses that were reasonably foreseeable at the time the contract was formed.
  
• What is taken to have been reasonably foreseeable at the time the contract was formed depends on two things: (a) the sort of knowledge that any reasonable person would be expected to have; and (b) knowledge of special circumstances outside the ordinary course of things.
  

17. I have taken into account all of the above principles when assessing the two types of remedies covered by the default judgment.

WHAT AMOUNTS SHOULD BE AWARDED?

18. I reiterate that I am assessing two types of remedies for which the defendant is liable under the default judgment:

• remuneration for the remainder of the contract period; and
• general damages.
  

19. I will set out those two remedies in the following table and show the awards that each party is arguing for.

TABLE 2: PLAINTIFF'S CLAIMS AND DEFENDANT'S RESPONSE

No	Remedy	Amount claimed	Response
1	Remuneration for remainder of contract period	K 4,780,818.38	K 0
2	Special damages	50,000.00	0
Total		K 4,830,818.38	K 0

20. I will now set out and consider the submissions and make an assessment in relation to each remedy.

CATEGORY NO 1: REMUNERATION FOR REMAINDER OF CONTRACT PERIOD

Plaintiff's submission

21. Mr Meten relied on Mr Monks' affidavits.

Defendant's submission

22. The plaintiff had a choice to claim for reliance loss or expectation loss, citing Anglia Television v Reed [1972] 1 QB 60, the case of the unmade film. The plaintiff chose the latter but the amounts it is claiming are far too speculative and depend on what would be complex litigation against Madang Timbers Ltd. So it should be awarded nothing.

Consideration

23. I agree with neither Mr Meten nor Mr Wadau as I think both counsel have missed an important point regarding this particular remedy. Under the default judgment the plaintiff was awarded "remuneration for the remainder of the contract period". That is not the same thing as "general damages". It is a specific remedy, which relates to something sought in the statement of claim. A default judgment cannot make a defendant liable for a remedy that was not sought in the statement of claim. So, going to the statement of claim: the relevant remedy sought was:

K179,480.00 being remuneration for the remainder of the period of the three-year management agreement;

the defendant register with the National Court any recovered monies owing by the defendant from its contractor and the defendant's directors with 5% of any monies recovered to be paid to the plaintiff [sic].

24. That is, in assessing "remuneration for the remainder of the contract period", there are two components to assess:

➢ the flat fortnightly fee of K2,000.00; and
➢ the 5% fee.

25. As to the first component, I am not obliged to award the sum claimed of K179,480.00. That is a claim only. Instead I have to look at the category of remuneration and assess the amount for which the defendant is liable by looking at the contract. I have to apply the terms of the contract. What do I find? The contract has no termination or notice provisions. Do I infer from that, that the plaintiff is entitled to be paid K2,000.00 per fortnight for the balance of the contract period for doing nothing? No, I do not think that that was in the contemplation of the parties when the contract was formed. A more reasonable interpretation is that the contract could be terminated on a fortnight's notice. So the amount I assess is K2,000.00.

26. As to the second component, the statement of claim shows that it is 5% of the amount that has actually been recovered that this remedy is referring to. And that amount would be registered with the National Court. Nothing has been registered and 5% of 0 is 0.

Assessment

27. I award K2,000.00 + 0 = K2,000.00 for this remedy.

CATEGORY NO 2: GENERAL DAMAGES

Plaintiff's submission

28. Mr Meten submitted that the plaintiff should recover a sum for distress, inconvenience and frustration of K50,000.00.

Defendant's submission

29. Mr Wadau concedes little. He argues that nothing should be awarded or if something is awarded it should be a nominal sum.

Consideration

30. I agree that something should be awarded to compensate the plaintiff for the distress, inconvenience and frustration caused to it by the defendant's breach of contract. But that is all. This remedy does not include lost remuneration. It is only for a particular type of general damage. It is clear that the plaintiff and its principal Mr Monks have suffered inconvenience. There is evidence of it in Mr Monks' affidavits.

Assessment

31. I will award the sum claimed: K50,000.00.

SUMMARY OF AMOUNTS AWARDED

32. See table 3 below.

TABLE 3: SUMMARY OF AMOUNTS AWARDED

No	Remedy	Amount awarded
1	Remuneration for balance of contract period	K 2,000.00
2	General damages	50,000.00
Total		K 52,000.00

INTEREST

33. 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.

34. 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.

2 The conventional rate of interest is 8%. In view of current economic conditions in the country I think 8% is the proper rate of interest.

3 Interest should be payable on the whole of the sum 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 day the contract was repudiated and therefore breached, 13 April 2000. The date of judgment is 23 February 2007. The appropriate period, for the sake of mathematical convenience, is 6.9 years.

35. I calculate the amount of interest by applying the following formula:

• D x I x N = A
  

Where:

• D is the amount of remuneration and damages assessed;
  
• I is the rate of interest per annum;
  
• N is the appropriate period in numbers of years;
  
• A is the amount of interest.
  

Thus:

• K52,000.00 x 0.08 x 6.9 = K28,704.00.
  

COSTS

36. 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. In view of the amounts being claimed by the plaintiff, approaching K5 million, both sides have had a victory of sorts. It is appropriate in these circumstances that they pay their own costs.

ORDER

(1) Remuneration is payable by the defendant, Sogeram Development Corporation, to the plaintiff, Rodao Holdings Ltd, of K2,000.00.

(2) Damages are payable by the defendant, Sogeram Development Corporation, to the plaintiff, Rodao Holdings Ltd, of K50,000.00.

(3) Interest is payable by the defendant, Sogeram Development Corporation, to the plaintiff, Rodao Holdings Ltd, of K28,704.00;

(4) A total judgment lump sum is payable by the defendant, Sogeram Development Corporation, to the plaintiff, Rodao Holdings Ltd, of K80,704.00;

(5) In the event that the total judgment lump sum for the plaintiff, Rodao Holdings Ltd is not paid within 30 days after the date of entry of this judgment interest shall be payable at the rate of 8% yearly from the date of entry of the judgment on so much of the total judgment lump sum as is from time to time unpaid.

(6) The parties shall bear their own costs.

Judgment accordingly.
________________________________________
Narokobi Lawyers: Lawyers for the plaintiff
Young Wadau Lawyers: Lawyer for the defendant