Boas v Gelen [2014] PGNC 108; N5649 (27 June 2014)

N5649

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO 1165 OF 2009

JOHNSON BOAS & JOAN BOAS
Plaintiffs

V

BOB GELEN
First Defendant

SETH DANIELS
Second Defendant

ELIZEAH KERRY PEU
Third Defendant

Madang: Cannings J
2014: 22 May, 27 June

DAMAGES – breach of contract – negligence – breach by vendor of contract of sale of real property – negligence of lawyer acting for both vendor and purchaser – liability established by default judgment – need for plaintiffs to corroborate claims – plaintiffs awarded damages, plus interest and costs

The plaintiffs entered into a contract of sale of real property with the first defendant under which they paid him K180,000.00 in consideration for which he was obliged to transfer to them title to a block of land of which he was the registered proprietor. The first defendant breached the contract by not transferring title; he was unable to do so as the bank from which he had obtained a loan to purchase the property foreclosed its mortgage over the property and sold it to a third party. All of this happened while the third defendant, an employed lawyer of the second defendant, the principal of the law firm, represented both the plaintiffs and the first defendant in regard to the contract of sale. The plaintiffs commenced proceedings against the three defendants, claiming damages for breach of contract and negligence. Only the second defendant filed a defence; and the proceedings against him were discontinued. The first and third defendants failed to file a defence and default judgment on liability was entered against them, subject to an assessment of damages. This was the trial on assessment of damages. The plaintiff sought four categories of damages: (a) balance of un-refunded purchase price, K135,100.00; (b) interest paid to finance company in respect of loan obtained to purchase property, K216,000.00; (c) business losses, K414,000.00; (d) hardship and distress, K20,000.00, a total claim of K785,100.00.

Held:

(1) The plaintiffs were awarded: (a) K135,100.00 for the full amount of the un-refunded purchase price + (b) K216,000.00 for the full amount of interest paid to the finance company + (c) zero business losses as the claim was too remote and vague + (d) K10,000.00 in respect of hardship and distress, a total award of K361,100.00.

(2) The court awarded damages of K361,100.00 plus interest of K26,576.96, a total judgment sum of K387,676.96.

Cases cited
Papua New Guinea Cases

Coecon Ltd (Receiver/Manager Appointed) v National Fisheries Authority (2002) N2182
Fuliva v Wagambie (2013) N5221
PNG Aviation Services Pty Ltd v Geob Karri (2009) SC1002
Tetley v The Administration (1971) No 647

William Mel v Coleman Pakalia (2005) SC790

Overseas Cases

Hadley v Baxendale (1854) 9 Exch 341
Victoria Laundry v Newman [1949] 2 KB 528

TRIAL

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

Counsel

G Pipike, for the plaintiffs

27th June, 2014

1. CANNINGS J: This is an assessment of damages for breach of contract and negligence, following entry of default judgment.

2. The plaintiffs, Johnson Boas and Joan Boas, on 12 December 2011 entered into a contract of sale of Section 66, Lot 70, Baidal Road, Newtown, Madang, with the first defendant, Bob Gelen. In accordance with the terms of the contract they, as purchasers, paid him, as vendor, K180,000.00 in consideration for which he was obliged to transfer to them title to Section 66, Lot 70, of which he was the registered proprietor. The first defendant breached the contract by not transferring title; he was unable to do so as the National Development Bank, from which he had obtained a loan to purchase the property, foreclosed its mortgage over the property and sold it to a third party. All of this happened while the third defendant, Elizeah Kerry Peu, an employed lawyer of the second defendant, Seth Daniels, the principal of the law firm Daniels & Associates, represented both the plaintiffs and the first defendant in regard to the contract of sale.

3. The plaintiffs on 17 July 2013 commenced proceedings by writ of summons against the three defendants, claiming damages for breach of contract and negligence. Only the second defendant filed a defence; and the proceedings against him were discontinued. The first and third defendants failed to file a defence and default judgment on liability was on 19 September 2013 entered against them, subject to an assessment of damages.

4. The present trial on assessment of damages was conducted on 22 May 2014. Neither the first nor third defendants appeared. Only the plaintiffs appeared, represented by Mr Pipike of GP Lawyers. They seek four categories of damages: (a) balance of un-refunded purchase price, K135,100.00; (b) interest paid to finance company in respect of loan obtained to purchase property, K216,000.00; (c) business losses, K414,000.00; (d) hardship and distress, K20,000.00, a total claim of K785,100.00.

5. The effect of the default judgment is that the facts and cause of action pleaded in the statement of claim are presumed to have been proven, and are only revisited if they do not make sense or would make an assessment of damages a futile exercise (William Mel v Coleman Pakalia (2005) SC790). Here, the facts pleaded were clear, as were the causes of action relied on, so the issue of liability has not been reconsidered.

1. BALANCE OF UN-REFUNDED PURCHASE PRICE
   

6. The plaintiffs obtained a loan of K180,000.00 from Credit Corporation to enable them to purchase Section 66, Lot 70. They paid that sum to the first defendant. When the contract fell through the first defendant undertook to refund that amount in full. During 2012 he paid K44,900.00 to the plaintiffs. He made a statutory declaration acknowledging that he still owed the balance to the plaintiffs but he has not refunded anything further. He still owes K135,100.00 as the balance of the purchase price. I award the whole of that sum as damages.

2. INTEREST PAID TO FINANCE COMPANY
   

7. The plaintiffs have given evidence that the loan that they took out with Credit Corporation has been repaid under a refinancing agreement that they entered into with National Development Bank Ltd. As a result of these transactions they claim to have lost K216,000.00 in interest that they were required to pay Credit Corporation. The evidence is sufficient to support the claim. I award the whole of that sum as damages.

3. BUSINESS LOSSES
   

8. The plaintiffs claim that they were planning to develop Section 66, Lot 70 as a 40-room inn and that they had engaged an architect and done preparatory work with a view to completing the project by 2012. They say that because of the breach of contract and/or negligence of the first and third defendants they have lost the opportunity to earn business income of K414,000.00.

9. This is a vague claim, unsupported by the evidence. At this juncture, in view of the deficiencies in the evidence, it is appropriate to call upon some pertinent principles for assessment of damages for breach of contract:

• 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: 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.
  

10. 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.

11. The first and third defendants are not presumed to have knowledge of the plaintiffs' plans for Section 66, Lot 70. I find that the sort of losses the plaintiffs are claiming were not reasonably foreseeable. They are too remote. Nothing is awarded.

4 HARDSHIP AND DISTRESS

14. I think that this is a fair claim, though it is difficult to quantify. There is evidence that the plaintiffs, a husband and wife, have suffered anguish and stress because of the breach of contract and the negligence that were committed. Their health has suffered due to what happened and there is medical evidence to support that assertion. I award K10,000.00.

SUMMARY OF DAMAGES ASSESSED

1 Balance of un-refunded purchase price: K135,100.00,

2 Interest paid to finance company: K216,000.00,

3 Business losses: 0,

4 Hardship and distress: K10,000.00

being a total award of K361,100.00.

INTEREST

15. 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 of service of the writ, 23 July 2013, to the date of this judgment, a period of 0.92 years, by applying the formula D x I x N = A, where:

• D is the amount of 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 K361,100.00 x 0.08 x 0.92 = K26,576.96.

COSTS

16. 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. I apply that rule of thumb here. The plaintiffs will be awarded costs.

APPORTIONMENT OF LIABILITY

17. Mr Pipike asked that liability for paying the amount of damages assessed should be apportioned so that the first defendant is 90% liable and the third defendant 10% liable. This issue should have been determined earlier, when the Court was determining the issue of liability. The terms of the default judgment did not apportion liability, so the presumption is that each of the defendants against which liability has been determined is jointly and severally liable for payment of the judgment debt (Fuliva v Wagambie (2013) N5221). I decline to apportion liability for payment of the judgment debt in the manner contended for.

ORDER

18. The Court orders that:

(1) the first and third defendants shall pay to the plaintiffs damages of K361,100.00 plus interest of K26,576.96, being a total judgment sum of K387,676.96; and

(2) the first and third defendants shall pay the plaintiffs' costs of the proceedings on a party-party basis which shall, if not agreed, be taxed.

Judgment accordingly.
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GP Lawyers: Lawyers for the Plaintiffs