PacLII Home | Databases | WorldLII | Search | Feedback

National Court of Papua New Guinea

You are here:  PacLII >> Databases >> National Court of Papua New Guinea >> 2012 >> [2012] PGNC 37

Database Search | Name Search | Recent Decisions | Noteup | LawCite | Download | Help

Madang Cocoa Growers Export Co Ltd v National Development Bank Ltd [2012] PGNC 37; N4682 (18 May 2012)

N4682


PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]


WS NO 1165 OF 2009


MADANG COCOA GROWERS EXPORT CO LIMITED
Plaintiff


V


NATIONAL DEVELOPMENT BANK LIMITED
Defendant


Madang: Cannings J
2011: 18 November, 9 December;
2012: 18 May


DAMAGES – breach of contract – loan agreement – breach by defendant bank – plaintiff/borrower's claim for economic loss – need for plaintiff to corroborate claims – plaintiff awarded damages, plus interest and costs.


The plaintiff entered into a loan agreement with the defendant bank under which the bank advanced it K300,000.00. The loan was secured by amongst other things a fixed and floating charge over two of the plaintiff's motor vehicles. The plaintiff failed to meet its monthly repayment obligations and the bank took possession of the vehicles, sold them, credited the proceeds of sale to the plaintiff's loan account and terminated the loan agreement. The plaintiff succeeded at a trial on liability in establishing a cause of action in breach of contract against the bank on the grounds that, at the relevant time, the plaintiff was not in material default, the bank acted contrary to its duty of fairness in the conduct of the loan account and failed to give effect to the plaintiff's equity of redemption. This was a trial on assessment of damages. The plaintiff argued that the two vehicles were profit-earning assets as they were regularly hired out to customers and that it lost substantial profits as a result of the loss of its assets. It claimed damages of K3,151,100.00.


Held:


(1) The plaintiff failed to adduce sufficient evidence to support most of the claims.

(2) The court awarded a total amount of damages of K46,666.66 plus interest of K13,663.80, being a total judgment sum of K60,330.46.

Cases cited


The following cases are cited in the judgment:


Albert Areng v Gregory Babia (2008) N3469
Albert Baine v The State (1995) N1335
ANZ Banking (PNG) Ltd v Kila Wari (1990) N801
Coecon Ltd (Receiver/Manager Appointed) v National Fisheries Authority (2002) N2182
Continental Trading Limited v Dewe Patsy (2004) N2503
Eliab Buka v Henry Uramete (2009) N3905
Graham Mappa v ELCOM (1992) N1093
Hadley v Baxendale (1854) 9 Exch 341
Jonathan Mangope Paraia v The State (1995) N1343
Kopung Brothers Business Group v Sakawar Kasieng [1997] PNGLR 331
Livingston v Raywards Coal Co [1880] 5 App Cases 25
Madang Cocoa Growers Export Co Ltd v National Development Bank Ltd (2011) N4291
Madang Development Corporation Ltd v Rabtrad Madang Ltd (2006) N3091
Misac Pokonoming v Jeffery Simiri WS 1596/2005, 26.10.07
Niugini Civil & Petroleum Ltd v West New Britain Development Corporation Ltd (2008) N3292
Peter Wanis v Fred Sikiot and The State (1995) N1350
PNG Aviation Services Pty Ltd v Geob Karri (2009) SC1002
Putput Logging Pty Ltd v Philip Ambalis [1992] PNGLR 159
Rodao Holdings Ltd v Sogeram Development Corporation Ltd WS No 521 of 2001, 23.02.07
Spirit Haus Ltd v Robert Marshall (2000) N2630
Steven Naki v AGC (Pacific) Ltd WS No 1256 of 1999, 20.10.06
Tetley v The Administration (1971) No 647
Victoria Laundry v Newman [1949] 2 KB 528
Wahgi Security Service Pty Ltd v John Tenlon [1994] PNGLR 138
Wamena Trading v Civil Aviation Authority (2006) N3058
Westpac Bank (PNG) Ltd v Henderson [1990] PNGLR 112
Westpac Bank (PNG) Ltd v Miai Suve Larelake (2008) N3247
Yooken Paklin v The State (2001) N2212


TRIAL


This was a trial on assessment of damages for breach of contract.


Counsel


S Asivo, for the plaintiff, with leave of the Court
K Imako, for the defendant


18 May, 2012


1. CANNINGS J: This was a trial on assessment of damages for breach of contract. The plaintiff, Madang Cocoa Growers Export Co Ltd, succeeded at an earlier trial in establishing liability against the defendant, National Development Bank Ltd.


2. The contract breached by the bank was a loan agreement entered into with the plaintiff in March 2007 under which the bank advanced K300,000.00, repayable in monthly instalments over a period of five years. The loan was secured by amongst other things a fixed and floating charge over two of the plaintiff's motor vehicles. The plaintiff failed on several occasions to meet its monthly repayments and the bank, in September 2008, took possession of the vehicles, sold them, credited the proceeds of sale to the plaintiff's loan account and terminated the loan agreement. The plaintiff succeeded at a trial on liability in establishing a cause of action against the bank, on the grounds that the plaintiff was not at the relevant time in material default, the bank acted contrary to its duty of fairness in the conduct of the loan account and failed to give effect to the plaintiff's equity of redemption (Madang Cocoa Growers Export Co Ltd v National Development Bank Ltd (2011) N4291).


3. The plaintiff claims nine categories of damages, totalling K3,151,100.00. It is argued that the two vehicles were profit-earning assets that were regularly hired out to customers and that the plaintiff lost substantial profits as a result of the loss of its assets. That argument underpins the bulk of the amount of damages claimed, while there are other claims for things like loss of opportunity to obtain government grants and distress and anxiety caused to the plaintiff's executive director, Mr Asivo. The bank argues that the plaintiff should be awarded nothing as it has failed to prove its losses.


PRINCIPLES FOR ASSESSMENT OF DAMAGES


General


4. The following general principles have been taken into account when assessing the various categories of damages:


Specific


5. Specific principles that apply to assessment of damages for breach of contract are:


6. Those specific principles emerge from the leading British cases on damages for breach of contract, Hadley v Baxendale (1854) 9 Exch 341 and Victoria Laundry v Newman [1949] 2 KB 528, which have been applied in PNG in, for example, Tetley v The Administration (1971) No 647, Coecon Ltd (Receiver/Manager Appointed) v National Fisheries Authority (2002) N2182 and PNG Aviation Services Pty Ltd v Geob Karri (2009) SC1002.


1 EXISTING HIRE AGREEMENT WITH MOUNTAIN ENGINEERING LTD: K206,100.00


7. The plaintiff says that on the date that the bank repossessed its vehicles, 12 September 2008, it had a written hire agreement for one of the vehicles, a Toyota Landcruiser single-cab utility, registration No WAB 176 with Mountain Engineering Ltd of Madang. The plaintiff had to terminate the hire agreement, which was worth K206,100.00.


8. The bank argues that the plaintiff has not proven the existence of the hire agreement and not proven that it was receiving income from the hire of either of its vehicles. Though a copy of a hire agreement has been annexed to an affidavit by the plaintiff's executive director, Mr Asivo, and to an affidavit by the managing director of Mountain Engineering Ltd, Anton Yagama, it has not been stamped as required by Section 57A (leases of goods) of the Stamp Duties Act, so it is not admissible evidence and cannot be relied on, the bank argues, by virtue of Section 19(1) of the Stamp Duties Act (unstamped instruments produced in evidence). If the court is inclined to acknowledge its existence it should nonetheless not be taken into account when assessing damages as, the bank argues, it was entered into without the authority of the plaintiff's board of directors contrary to Section 110 (major transactions) of the Companies Act and without the authority of the bank contrary to the terms of the fixed and floating charge, to which the loan agreement was subject. Eleven cocoa growers who say that they are shareholders and/or directors of the plaintiff gave evidence that there was no board resolution and that Mr Asivo had no authority to purchase the two vehicles or enter into a hire agreement or to commence legal action against the bank.


9. Let me deal first with the bank's arguments. I agree that the hire agreement is unstamped, that it should have been stamped and therefore it cannot by virtue of Section 19(1) of the Stamp Duties Act be relied on as evidence (Putput Logging Pty Ltd v Philip Ambalis [1992] PNGLR 159, Wahgi Security Service Pty Ltd v John Tenlon [1994] PNGLR 138, Spirit Haus Ltd v Robert Marshall (2000) N2630). However, that does not mean that the plaintiff cannot rely on other evidence to prove its existence. Not being able to rely on an unstamped agreement does not prevent a witness from asserting that such an agreement exists and giving evidence as to its terms (Wamena Trading v Civil Aviation Authority (2006) N3058). A plaintiff who is claiming damages for lost profit arising from an agreement that has been terminated because of the defendant's wrongful conduct might even seek to prove that the lost agreement was an oral one (Steven Naki v AGC (Pacific) Ltd WS No 1256 of 1999, 20.10.06). Here, there is sufficient evidence in the affidavits of Mr Asivo and Mr Yagama to base a finding that there was in fact an agreement for the hire of WAB 176, that it was entered into in November 2007 and was due to run until December 2008 and that its total value (being the gross amount of rental payments due for the period of the agreement) was K206,100.00.


10. As to whether the hire agreement was a "major transaction" for the plaintiff for the purposes of Section 110 of the Companies Act, such that it had to be approved by a special resolution of the board of directors, I don't think it matters. Even if it is accepted that there was no special resolution, Section 110 does not require the conclusion that the agreement becomes illegal or unenforceable or that its existence cannot be taken into account for the purposes of an assessment of damages. Besides that I consider that Section 110 can only properly be invoked by a shareholder or director of the company which has allegedly entered into an unapproved "major transaction" (eg Madang Development Corporation Ltd v Rabtrad Madang Ltd (2006) N3091) not by a third party (in this case, the bank).


11. The bank's argument that the plaintiff was obliged by the terms of the fixed and floating charge to obtain its approval to enter into the hire agreement is valid but the fact is, as I found in the trial on liability, the plaintiff obtained that approval and the bank knew that the vehicle had been leased to another party and was earning income for the plaintiff and was amongst its core assets.


12. So, none of the bank's arguments convince me that the plaintiff should be awarded nothing. Of course it does not follow from that that the plaintiff should get what it asks for. One of the fundamental principles outlined above comes to the fore: the plaintiff has the onus of proving its losses. Has the plaintiff done that? Partially. I am satisfied, that it had a hire agreement with Mountain Engineering Ltd regarding WAB 176, which ran from November 2007 to December 2008 and was worth K206,100.00. But I am not satisfied that that sum is a proper measurement of damages, for two reasons. First, it represents the total amount of revenue payable over the whole period of the agreement, it does not represent the profits lost by the plaintiff as a result of the bank's breach of contract, which occurred in September 2008, which is what the plaintiff is entitled to. Secondly, it is gross revenue, which is not what the plaintiff is entitled to. The plaintiff is entitled to be compensated for its actual losses: the net profit on the hire agreement it would have earned if the bank had not breached the loan agreement (Eliab Buka v Henry Uramete (2009) N3905).


13. The evidence shows that the value (gross revenue) of the hire agreement from September to December 2008 was: K18,000.00 (Sep) + K18,600.00 (Oct) + K21,700.00 (Nov) + K21,700.00 (Dec) = K80,000.00. How much of that was net profit? The court has little to go on. The plaintiff should have provided an audited set of accounts to verify this claim. But there is nothing. The plaintiff seems to have naively presumed that it only had to throw some gross figures at the court and they would be accepted. That, of course, is not an acceptable approach. But nor is it proper, as the bank wants, to hurry to the conclusion that the plaintiff has proven nothing. I have decided to accommodate this deficiency in the evidence by discounting the claim, by assuming that the profit margin, after taking account of costs expended in generating revenue, is 50% of costs. I have taken a similar approach in other assessment cases (eg Misac Pokonoming v Jeffery Simiri WS 1596/2005, 26.10.07, Niugini Civil & Petroleum Ltd v West New Britain Development Corporation Ltd (2008) N3292, Albert Areng v Gregory Babia (2008) N3469). It appears arbitrary but I consider that it is justified in the interests of justice as it strikes a balance between on the one hand the duty of the court to put the plaintiff to proof, and on the other hand the right of the plaintiff to be compensated even though its losses cannot be proven with precision. The amount awarded is calculated by applying this formula:


Where:


I therefore award K26,666.66.


2 FUTURE HIRE AGREEMENTS WITH MOUNTAIN ENGINEERING LTD: K1,022,000.00


14. The plaintiff argues that it had an understanding with Mountain Engineering Ltd that both of the plaintiff's vehicles would be hired to it for the two-year period from 1 January 2009 to 31 December 2010. Hence the following lost profits are claimed:


15. There is insufficient evidence to support this claim. The understanding relied on is loose and unenforceable. The asserted lost profits are far too remote. Therefore I award nothing for this part of the claim.


3 LOSSES FOR BCC 714 FROM 12 SEPTEMBER TO 31 DECEMBER 2008: K111,000.00


16. The plaintiff argues that on the date of the breach of contract it was earning income from the hire of its other vehicle, also a Toyota Landcruiser single-cab utility, registration No BCC 714, at the rate of K1,000.00 per day. It claims that this income stream would have continued to operate until the end of 2008, when the vehicle was due to be hired to Mountain Engineering Ltd. Hence the following lost profits are claimed:


17. There is insufficient evidence to support this claim. Though in the judgment on liability I commented that both of the plaintiff's vehicles were leased to another party, on reflection the correct view of the facts is that only one (WAB 176) was leased on a regular basis pursuant to an ongoing hire agreement. There is some evidence that BCC 714 was being hired but only on a casual basis and the income it was generating is unclear. I award nothing for this head of damage.


4 FUTURE LOSSES FOR FINAL YEAR OF LIVES OF VEHICLES: K584,000.00


18. The plaintiff argues that its two vehicles, which were purchased brand new in April 2007, had an economic life of five years, so they would have been capable of generating income until February 2012. After completion of the proposed hire agreements with Mountain Engineering Ltd in December 2010 (the subject of the 'understanding' referred to in item (2) above) each vehicle would have been able to be hired at the rate of at least K800.00 per day for the following year. Hence the following lost profits are claimed:


This claim is even more speculative than those rejected in items (2), (3) and (4) above. I award nothing for this head of damage.


  1. LOSSES FROM 1 JANUARY TO 18 NOVEMBER 2011: K368,000.00

19. The plaintiff makes a special claim in respect of the period from 1 January to 18 November 2011 (the date of commencement of this trial) and argues that damages are payable in respect of a continuing cause of action under Order 10, Rule 19 of the National Court Rules.


20. I have found this claim to be unfathomable and unjustified and I award nothing.


6 LOSSES ARISING FROM VEHICLES BEING SOLD FOR BELOW MARKET VALUE: K160,000.00


21. The plaintiff says that it purchased the two vehicles from Ela Motors Madang in April 2007 for K104,363.52 each. They were only 17 months old when the bank repossessed and sold them for a total price of K86,524.00. They were not sold at a fair price, The plaintiff argues that a fair price would have been K80,000.00 each. It argues that it should be assumed that each vehicle had an economic life of five years and that its value after 17 months should be determined by applying straight-line depreciation of 20% per annum. Thus:


22. The plaintiff argues that both vehicles were in 'top nick' and 'good as new' and their value has been rounded out as K160,000.00.


23. There are obvious problems with this claim. There is little evidence as to the real condition of the vehicles. There is no independent evidence that the depreciation method applied by the plaintiff is appropriate. There is no justification for the rounding out (and substantial inflation) of the claim from K149,578.78 to K160,000.00. The plaintiff also fails to acknowledge that the bank applied the proceeds of the sale (K86,524.00) to the loan account. So even if K160,000.00 were deemed as fair value of the two vehicles, the most that the plaintiff would be entitled to is:


24. So what was the fair value of the vehicles in September 2008? And what is the relevance of that figure anyway? Does it matter if the bank sold the vehicles for less than their fair value? The answer to the last question is yes. A mortgagee which exercises its right to possess and sell mortgaged property has a duty to obtain a fair price for it (ANZ Banking (PNG) Ltd v Kila Wari (1990) N801, Westpac Bank (PNG) Ltd v Henderson [1990] PNGLR 112, Westpac Bank (PNG) Ltd v Miai Suve Larelake (2008) N3247, Continental Trading Limited v Dewe Patsy (2004) N2503). So it is relevant to an assessment of damages for breach of contract if the bank sold a mortgagor's assets for less than fair value.


25. In the judgment on liability I found that the bank acted too quickly – within a matter of days and without a public tender – to sell the vehicles for the total sum of K86,524.00 to a single buyer, another of the bank's customers. Given that the vehicles had been purchased for a total price of K208,727.04 (K104,363.52 x 2) only 17 months earlier, the bank sold them at a price K122,203.04 below the purchase price: each vehicle was depreciated in value by 58.55%. In the absence of evidence that either vehicle was in a state of disrepair or had been damaged in an accident or that there was some other special reason to account for them being sold at such a heavily depreciated value, and even allowing for the fact that one had been engaged as a hire vehicle for a substantial part of that period, the price obtained by the bank cannot be regarded as a fair price. The plaintiff is entitled to be compensated for this. I will assess damages at K10,000.00 for each vehicle, a total of K20,000.00.


7 LOSS OF TWO TERM DEPOSITS: K200,000.00


26. The plaintiff says that it held two term deposits with the bank worth K200,000.00 which were unnecessarily called in when the loan account was not materially in default, so these deposits should be 'reinstated' by awarding the plaintiff damages of K200,000.00.


27. This claim has no merit. I held in the judgment on liability that the bulk of the two term deposits was called in on 10 March 2008 and applied to the loan account. That was six months before the breach of contract, which occurred on 12 September 2008. The question of whether the term deposits were lawfully called in, in accordance with the loan agreement, is not in issue in these proceedings. I award nothing for this claim.


8 LOSS OF OPPORTUNITY TO OBTAIN GOVERNMENT GRANT: K350,000.00


28. The plaintiff says that on 16 June 2007 Prime Minister Sir Michael Somare came to Madang and at a renaming ceremony for the defendant (which had its name changed from Rural Development Bank to National Development Bank) at Laiwaden Oval, Sir Michael promised the cocoa growers of the province a government grant of K350,000.00 as a token of appreciation for the plaintiff's efforts in facilitating the day's festivities. This grant did not eventuate because of the bank's breach of contract.


29. This claim has no merit. No causal connection has been demonstrated between the breach of contract and the failure to obtain the grant. Besides the Prime Minister's undertaking was loose and unenforceable and too remote (not being reasonably foreseeable at the time of entry into the loan agreement) to warrant inclusion in an award of damages. Nothing is awarded.


9 DAMAGES FOR DISTRESS AND ANXIETY, LOSS OF REPUTATION ETC: K150,000.00


30. The plaintiff argues that its executive director, Mr Asivo, suffered distress and anxiety and his reputation and integrity were severely damaged by the bank's breach of contract and seeks damages of K150,000.00.


31. This claim has no merit. It is possible for a company to be awarded damages for inconvenience and frustration caused to it by a defendant's breach of contract (eg Rodao Holdings Ltd v Sogeram Development Corporation Ltd WS No 521 of 2001, 23.02.07). If this head of damage had been clearly pleaded and it had been argued that the plaintiff had suffered damage, and there was supporting evidence, an award of damages might have been justified. However, the claim here is made on behalf of an individual, Mr Asivo, who was not a party to the loan agreement and is not a party to these proceedings. The judgment on liability found the bank liable to the plaintiff, not Mr Asivo. Nothing is awarded.


SUMMARY OF DAMAGES ASSESSED


1 Existing hire agreement with Mountain Engineering Ltd: K26,666.66

2 Future hire agreements with Mountain Engineering Ltd: 0

3 Losses for BCC 714 from 12 September to 31 December 2008: 0

4 Future losses for final year of lives of vehicles: 0

5 Losses from 1 January to 18 November 2011: 0

6 Losses from vehicles sold for below market value: K20,000.00

7 Loss of two term deposits: 0

8 Loss of opportunity to obtain government grant: 0

9 Damages for distress and anxiety, loss of reputation etc: 0


being a total amount of K46,666.66.


INTEREST


32. Interest will be awarded at the rate of 8 per cent per annum on the total amount of damages under Section 1(1) of the Judicial Proceedings (Interest on Debts and Damages) Act Chapter No 52. Interest is calculated from the date on which the cause of action accrued, 12 September 2008, to the date of this judgment, a period of 3.66 years, by applying the following formula:


Where:


Thus K46,666.66 x 0.08 x 3.66 = K13,663.80.


COSTS


33. 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. In this case there is no clear winner. The plaintiff has on the one hand succeeded in obtaining an award of damages but on the other hand has succeeded in convincing the court that only 1.48% (K46,666.66 out of K3,151,100.00) of its claim had merit; 98.52% of the claim was without merit. The defendant has succeeded in showing that the vast bulk of the claim had no evidentiary basis and was misconceived. In these circumstances it is appropriate that the parties bear their own costs.


ORDER


34. The Court orders that:


(1) the defendant pay to the plaintiff damages of K46,666.66 plus interest of K13,663.80, being a total judgment sum of K60,330.46; and

(2) the parties shall bear their own costs.

Judgment accordingly.
_____________________________


Lawyers for the plaintiff : Nil
Rageau Manua & Kikira: Lawyers for the defendant


PacLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback
URL: http://www.paclii.org/pg/cases/PGNC/2012/37.html