Awesa v PNG Power Ltd [2016] PGNC 168; N6359 (7 July 2016)

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CONTRACT – Lease agreements – Early termination of – Notice issued in accordance with agreements – Landlord taking issue with validity of notice provisions as unfair and in breach Fairness of Transactions Act – Purpose and object of Fairness of Transaction Act – Ensure fairness in transactions – No provision for payment of compensation or damages – Balance of contractual value in damages not within object and purpose of Act – Correct remedy lies in rewriting the terms of an offending transaction.

MEDIATION – Liability resolved against defendant on account of bad faith in mediation – Damages ordered to be resolved by further mediation – Parties not able to settle due to a number of legal issues requiring judicial determination – Relevant facts and issues settled per a statement of agreed facts and issues – Parties and Courts bound by the statement and issues presented – No liberty to consider matters not in the statement or agreed issues except with the agreement of the parties.

PRACTICE & PROCEDURE – Default judgment – Effect of – Default judgment resolves questions of liability on matters pleaded – Plaintiff not at liberty to venture outside what was pleaded – Leave required to go out of pleadings.

Papua New Guinea Cases cited:

Alex Awesa on behalf of himself and Nancy Awesa v. PNG Power Limited (2014) N5708.
Abel Constructions Ltd v. W.R. Carpenter (PNG) Ltd (2014) N5636.
Bank of Papua New Guinea v. Derick Sakatea Niso (2004) N2664.
Bank South Pacific Ltd v Robert Tingke (2012) N4901
Corporation and Christopher Burt (2006) N3062.
Coecon Construction (Receiver/Manager Appointed) vs. The National Fisheries Authority and the Independent State of Papua New Guinea (2002) N2182.
Dr Florian Gubon v. Pacific Mobile Communications Ltd (2006) N3104.
Investments Limited v. PNGBC Limited (2003) N2439.
Jack Pinda v. Sam Inguba (2012) SC1181.
Kora Gene v. Motor Vehicles Insurance (PNG) Trust [1995] PNGLR 344.
Koitaki Plantations Ltd v. Charlton Ltd trading as Kookabura Meats & Stuart Fancy (2014) N5656.
Porgera Joint Venture Manager Placer (PNG) Ltd v. Robin Kami (2010) SC1060
Pija Grannies Ltd v. Rural Development Bank Ltd (2011) SC1327
Pama Anio v. Aho Baliki (2004) N2719.
Post Puma Ltd v. Yama Security Services Ltd
Papua New Guinea Banking Corporation v. Jeff Tole (2002) SC694
Rage and Maureen Augerea v. Bank South Pacific Limited (2007) SC869.
Rakatani Peter v. South Pacific Brewery Ltd [1976] PNGLR 537.
Smugglers Inn Resort Hotel Limited & Ors v. Papua New Guinea Banking Negiso
The Central Bank of PNG v. Gabriel Tugiau (2009) SC1013.
The Papua Club Inc v. Nusaum Holdings Ltd & Ors (No 2) (2004) N2603.
Tony David Raim v. Simon Korua (2010) SC1062.
The Central Bank of PNG v. Gabriel Tugiau (2009) SC1013.
The State v. The Independent Tribunal; Ex parte Moses Sasakila [1976] PNGLR 491.
Tian Chen Ltd v. The Tower Ltd (No 2) (2003) N2319.
Teio Raka Ila v. Wilson Kamit & Bank of Papua New Guinea (2002) N2291.
Wilson Thompson v. National Capital District Commission (2004) N2686.
Wantok Gaming Systems Ltd v. National Gaming Control Board (2014) N5809
William Mel v. Coleman Pakalia, The Police & The State (2005) SC790

Overseas Cases Cited:

Bank of New South Wales v. The Commonwealth [1948] HCA 7; (1948) 76 CLR 1
Buchanan v. Byrnes ( 1906) HCA 21; (1906) 3 CLR 704.
Canada in Highway Properties Ltd v. Kelly Douglas & Co Ltd (1971) 17DLR (3d) 710.
Hughes v. N.L.S Pty Ltd (1966) WAR 100.
Hillas (W.N.) and Co. Ltd v. Arcos Ltd [1932] UKHL 2; (1932) 38 Com. Cas 23.
Jonathan Peter Monckman Griffin v. Cedar Lodge Society (2002) BCSC 507
Lamson Store Services Co Ltd v. Russel Wilkins & Sons Ltd (1906) HCA 87; (1906) 4 CLR 672.
Lloyds Bank Ltd v. Bundy [1974] 3 All ER 757.
Luxer Holdings Pty Ltd vs. Glentham Pty Ltd (2007) WASCA 209.
Progressive Mailing House Pty Ltd vs. Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17.
Sherville vs. The Builder Licensing Board (1982) HCA 47; (1982) 149 CLR 620.
Sunbird Plaza Pty Ltd vs. Maloney (1988) HCA 1.
Sykes v. Fine Fare (1967) 1 Lloyd’s LLR 53.
Upper Hunter County District Council v. Australian Chilling and Freezing Co. Ltd [1968] HCA 8; (1968) 118 CLR. 429
Wing Lee Holding Ltd v. Starboard Dungaree Ltd, (1995) CanLII 1394(BC SC).
(CanLII).
York Air Conditioning and Refrigeration (A/asia) Pty Ltd v. Commonwealth ([1949] HCA 23; 1949) 80 CLR. 11.

Legislation and other material cited:

Rules Relating to the Accreditation, Regulation, and Conduct of Mediators 2010.

1. KANDAKASI J: This matter returned from mediation with the following six (6) questions:

(1) (a) “Subject to any amendment of pleadings and in the particular circumstances of this case, whether clause 10 of the relevant leases can be severed from the leases by operation of the Fairness of Transaction Act or other cause?” (b) “If so, in what circumstances could the leases be terminated early?”

(2) (a) “If cause 10 of the relevant leases cannot be severed, did the Defendant breach clause 10 by giving early notice?” (b) “If so, what is the amount of damages to which the Plaintiff is entitled after taking into account rental income from new tenant received by the Plaintiff during the balance of the original 2 year term of the Plaintiff’s leases to the Defendant?”

(3) “Did the two letters dated 4 May 2012 from PNG Power Ltd marked for the attention of Alex Awesa operate in law as proper early termination of the relevant leases?”

(4) “Is the Plaintiff entitled to more than the amount K20, 000 which he accepted from the Defendant for repairs to his premises and replacement of white goods said to have been removed by persons occupying those premises of the Plaintiff which were leased by the Defendant?”

(5) “What steps did the Plaintiff take to mitigate any losses which the Court may find he may have sustained?”

2. Upon return of the matter to the Court, Mr. Awesa sought to add the following two additional questions:

(1) “Should the Plaintiff be paid liquidated damages in the sum of K3,088,888.00 for the remaining 18 months period of the Lease Agreement despite the issuance of the notice to terminate the Lease Agreement on 04^th May 2012?”

3. The relevant background and facts are these. Alex Awesa is involved in the real estate business, owning and leasing properties. This case concerns two of his properties identified as Section 94 Allotment 04 Korobosea, National Capital District and Section 91 Allotment 01 Korobosea, National Capital District (properties). He leased both of his properties to PNG Power Limited under two separate but identical lease agreements (agreements). This was for 24 months each commencing on 18^th November 2011. One of the property was for a monthly rental of K114, 000.00 and the other was for a monthly rental of K57, 200.00. By two separate letters dated 4^th May 2014 to Mr. Awesa, PNG Power gave notice of its intention to terminate the lease agreements within a month from the date of the letters. By letter dated 16^th May 2014, Mr. Awesa responded to PNG Power’s termination notice letter. Thereafter, the parties conducted a joint inspection and established certain damages and losses of a number of furniture and white goods caused by PNG Power’s servants and agents. Following that inspection, Mr. Awesa, issued an invoice for K31, 150.00. Of that, PNG Power paid K20, 000.00.

“This agreement may be terminated by either party with or without cause provided a period of one (1) months’ notice has been given by the party.”

5. The notices were not accepted by Mr. Awesa resulting in his issuance of this proceeding claiming clause 10 breaches the Fairness of Transactions Act 1993 (FTA). He initially sought to restrain PNG Power from terminating the agreements, a rewriting of the agreements, mediation or arbitration to resolve the matter and in the alternative a recovery of K3, 088, 888.00 for the remaining periods of the agreements. The first relief sought by Mr. Awesa had to be sought promptly but it seems this did not happen. That resulted in PNG Power proceeding with its intended action of terminating the agreements and vacating the properties.

6. When the matter initially came before me, I ordered the parties to resolve it by mediation, which was one of the reliefs sought in Mr. Awesa’s statement of claim. Unfortunately, PNG Power took steps that frustrated the Court ordered mediation twice. This caused the mediator to issue a “bad faith” certificate under rr. 9 (5) and 10 (6) of the ADR Rules. That formed the basis for a hearing under r. 10 (7) of the same Rules. By judgment now referenced Alex Awesa on behalf of himself and Nancy Awesa v. PNG Power Limited,^[1] the Court struck out PNG Power’s defence and entered judgment against it with Mr. Awesa’s damages to be assessed. PNG Power unsuccessfully sought leave of the Supreme Court to appeal against that decision. That effectively affirmed the decision on liability. When the matter returned from the Supreme Court, I directed the parties to attempt to have the damages question resolved by mediation. Following that, the parties returned to Court with draft consent orders for mediation which I endorsed.

7. Before sending the parties to mediation, I directed Mr Awesa to carefully reconsider his prospects of success in the light of judgments such as the one in The Central Bank of PNG v. Gabriel Tugiau^[2] and Porgera Joint Venture Manager Placer (PNG) Ltd v, Robin Kami.^[3] Though these judgments were in the context of termination of employment contracts, they nonetheless speak in volumes for good reason against “balance of contract” claims. By reason of the questions now before this Court, especially those listed in paragraph 1 above, the parties were not able to resolve the issue of damages.

8. Before considering and determining the issues presented, there are two preliminary questions that must be addressed first. The questions are:

(1) Are the parties at liberty to raise any question not agreed to at mediation?

Are the parties at liberty to raise any question not agreed to at mediation?

9. Dealing firstly with the first of the two preliminary questions I note, r.5 (2) of the ADR Rules is relevant. This provision states:

“(2) The Court shall on the request of all parties to a proceeding or on the application of any party to a proceeding or on its own motion order mediation for

(b) failing settlement, identify and limit the real and meritorious issues in the proceedings that warrant judicial consideration and determination; and or

10. In Wantok Gaming Systems Ltd v. National Gaming Control Board,^[4] I observed that:

“If parties attended mediation in good faith and were not able to resolve their dispute despite their best efforts, they have the duty under Rule 5(2) of the ADR Rules to “identify and limit the real and meritorious issues in the proceedings that warrant judicial consideration and determination” and reach agreement on how to conduct the litigation over those issues.”

11. Most orders for mediation nowadays typically have an order in the following terms:

“If mediation fails to resolve the matter fully, the parties shall together with the assistance of the mediator:

(d) agree and settle the relevant facts upon which such an issue is presented.”

12. This term of the order is often included to give practical meaning to the often repeated statement that mediation and or ADR can fully resolve a dispute with lasting outcomes or failing that help narrow down the real issues for trial and thereby avoid unnecessary lengthy and costly court trials. Also and most importantly, mediation enables the parties to be truthful, honest and make full disclosures in good faith both in Court and during the mediation process. In a number of cases, as in Abel Constructions Ltd v. W.R. Carpenter (PNG) Ltd,^[5] I emphasized the point that all cases that come to Court are capable of resolution by mediation except only for a limited number of cases. I then listed the inappropriate cases for resolution by mediation. The list consists of any case that presents a:

13. Given that, I have held in a number of case, as in the case of Koitaki Plantations Ltd v. Charlton Ltd trading as Kookabura Meats & Stuart Fancy^[6] that:

“...once a Court makes an order for mediation, it effectively means there is no serious and meritorious issue which falls into the list of cases or questions inappropriate for mediation. This immediately obligates the parties to use their best efforts and endeavors to resolve their dispute through the mediation process. If they faithfully discharged their respective duties and responsibilities ... settlement would be inevitable. The only exception to that would be cases in which the parties are able to agree that there is a serious impediment to settlement which was not clear as at the time of the order for mediation.”

14. The exception mentioned in the above quote should only be for any belatedly discovery of any of the serious legal impediments in terms of the kinds of questions that are inappropriate for mediation despite the parties’ best efforts prior to the referral of the matter to mediation. In any case, the questions or issues thus identified should be in the opinion of the mediator beyond his ability to help the parties to resolve through the mediation process. Such questions or issues should then be referred back to the Court. The questions should be set out in an agreed statement of agreed facts and Issues, which set out the relevant facts giving rise to the issues and the statement of the issues themselves. The statement should be signed or endorsed by the mediator and all the parties where the parties cooperate and act promptly. Where either or both of the parties fail to cooperate and or fail to act promptly, the mediator should state in his certificate under rr. 9 (5) and 10 (6) of the ADR Rules the relevant questions and the facts giving rise to those questions.

15. Upon filing of the statement of the issues and the relevant facts and or a mediator’s certificate containing the same, the matter should be immediately list on the first available directions hearing and allocate a date for an expedited hearing and determination of the issues thus presented. Once the matter gets back to the Court the parties and the Court should be limited to the questions and facts stated in the statement or certificate. Any departure should be by agreement of the parties and with the Court’s leave for very good reason. This is necessary because in fairness the issue should have been first raised at the mediation where the mediator will have the opportunity to consider and comment upon its suitability or otherwise, of being resolved by mediation. Giving such an expedited hearing ensures that there is an avoidance of unnecessary delays, lengthy trials and costs which some might unfairly attribute it to mediation.

16. In the present case, the questions set out in paragraph 1 were agreed upon and settled with the mediator. The two questions listed in paragraph 2 were sought to be added by Mr. Awesa. PNG Power objects to those questions. The mediator was given no opportunity to consider those questions and comment upon them. Strictly speaking, I should have those questions excluded from my consideration and decision. However, I will consider and determine those questions for two reasons. First, this is the first time a case has returned to Court from mediation with questions and agreed facts in the way it has in this case. The process and procedure for this to happen is for the first time being discussed in this case. There is no prior judgment or provision in the ADR Rules for this save only for parties to narrow the issues for trial failing any resolution by mediation. Secondly, as will become apparent in the course of the judgment, both of these questions will be covered in discussions and decision in respect of the first two questions listed in paragraph 1 of this judgment and the second preliminary question.

17. Turning then to the second of the preliminary questions, Mr. Awesa argues through his learned counsel that, the judgment on liability precludes the PNG Power from taking issue with his claim for application of the FTA and his damages of K3, 088, 888.00. In support of that argument, reliance is placed on my judgment in Coecon Construction (Receiver/Manager Appointed) vs. The National Fisheries Authority and the Independent State of Papua New Guinea^[7] where I outlined the relevant principles in the following terms:

“A survey of the authorities on assessment of damages after entry of judgement on liability mainly in default of a defendant’s defence, clearly show the following:

18. PNG Power on the other hand argues that, these principles do apply against Mr. Awesa because he failed to plead the basis for an application of the FTA. It points out that, a judgment on liability is only good for matters properly pleaded. If Mr. Awesa wishes to go outside his pleadings and ask for a relief not properly pleaded, he must first have his pleadings amended to include that relief.

19. As both learned counsel acknowledge in their respective submissions, various Supreme and National Court decisions have endorsed and affirmed the principles I summarised in the Coecon Construction case. One of the first Supreme Court decisions doing that is the decision in Papua New Guinea Banking Corporation v. Jeff Tole.^[8] In that case, Mr. Tole had default judgment entered in his favour. Then following a trial for assessment of damages, the National Court amongst others, entered judgment for special damages. Special damages were not properly pleaded with particulars. I was one of the judges constituting the Supreme Court. In my judgment with Sheehan J.’s endorsement, I referred to the above summation of the principles and said:

“A party’s failure to turn up at a hearing and failing to raise objections to matters not pleaded are not one and the same thing after the entry of default judgment. A defendant against whom default judgment has been entered is entitled to do nothing, if for example, he does not object to the matters pleaded and more particularly the relief prayed for being granted against him. Such a defendant is entitled to expect judgment strictly for the matters pleaded and nothing else. If a plaintiff seeks to step out of the pleadings, then he is obliged to amend the pleadings and then allow the normal process of pleadings to take place before there can even be a hearing and judgment on matters not in the original pleadings.”

20. In a number of its subsequent decisions as in William Mel v. Coleman Pakalia, The Police & The State^[9] and Jack Pinda v. Sam Inguba,^[10] the Supreme Court cited with approval and applied the principles summarized in Coecon Construction as endorsed by the decision in the Jeff Tole case. In the latter decision, the Supreme Court noted:

“In Mel’s case the Supreme Court further stated that if the facts or cause of action pleaded do not make sense or makes assessment of damages a futile exercise, then the Court may revisit the issue of liability: see also Rupundi Maku -v- Steven Maliwolo & The State (2012) SC1171.

...In our view, the issue of lack of pleading is a point of law. When it was raised by the respondents’ counsel in submissions, it was open to his Honour to consider it because ‘..... an assessment of damages is based on a judgment on liability. Damages cannot be assessed in a vacuum, so to speak. In turn, judgment on liability must be founded on a proper pleading of a cause of action in law .....’ Paul Gigmai -v- Motor Vehicles Insurance Limited (2004) SC750.”

21. In the case before me now, the relevant pleadings regarding the application of the FTA are in the following terms:

“7. The Defendant is a large corporation and currently has either monopoly or dominant substantial market share and market power in the business of supplying electricity services throughout the whole of Papua New Guinea.

22. Paragraph 6 of statement of claim does not concern any of the matters pleaded in paragraph 7 to 10 or the application of the TFA. I will thus ignore the reference to paragraph 6 in paragraph 10. The only other provision made in the pleadings on the issue is in the prayer for relief which is in the following terms:

“(b) a declaration that the Defendant, at all material times, was in a predominant position economically such that the Plaintiff was not given a fair and reasonable opportunity to seek independent advice on and/or negotiate amendments or modifications to the said respective Lease Agreements, particularly Clause 10 thereof, with a view to protecting his economic and financial interests, contrary to Sections 4 and 5 of the Fairness of Transactions Act, 1993; and

(c) seeks an order that the Parties herein submit to arbitration and negotiate a settlement pursuant to Section 7 of the Fairness of Transactions Act, 1993 and Clause 11 of the said respective Lease Agreements”

23. In order for any of these reliefs to be granted, there has to be foundation in the main body or substantive pleadings. The pleadings must plead the necessary and essential elements that should form the foundation to invoke the application of the FTA. In this respect, the essential elements that must be pleaded come from the Act itself. The relevant provision is section 5 which is in the following terms:

(1) A transaction to which this Act applies may be reviewed by a court on the application of any party, if the Court is satisfied that the transaction was not genuinely mutual or was manifestly unfair to a party.

(2) Without limiting the generality of Subsection (1), unless the Court is satisfied that the transaction was entered into on an equal footing in all material respects, a transaction shall be deemed not to be genuinely mutual or manifestly unfair if a party to the transaction complaining unfairness shows—

(a) that he did not understand the transaction and no genuine effort was made to explain its terms to him prior to entering into the transaction; or

(b) that the other party was in such a predominant position (whether economically, socially, personally or otherwise), that an ordinary person with the background of the complainant was not likely to exercise a true freedom of choice in relation to the transaction; or

(c) that the other party had or should have had at the time of entering into the transaction or immediately thereafter information affecting the fairness of the transaction which was not disclosed to the complainant; or

(d) that he was mistaken in or had miscalculated the likely consequences of the mistake or miscalculation to such an extent adverse to his interests that he could not reasonably be held responsible for such consequences.”

“any contract, promise, agreement, dealing or undertaking of an economic or commercial nature, whether supported by consideration or not entered into between parties, and includes—

25. In Dr Florian Gubon v. Pacific Mobile Communications Ltd,^[11] I noted that the FTA provides for fairness in all transactions or contracts that are economic or commercial in nature and not renegotiated within three years from the date of the original transaction. I went on to note that s.4 (1) of the FTA in relevant parts defines the concept of fairness in these terms:

“... the concept of fairness relates to the principle of the just and equitable distribution to and among parties to a transaction of the rights, privileges, advantages, benefits and duties, obligations and disadvantages of the transaction in proportion and relative to a party's standing in or contribution to the transaction, and according to business principles and practices appertaining to the particular transaction in question ...”

“... the fairness or otherwise of a transaction, the circumstances of the parties existing before, at and after the entering into of the transaction shall be taken into account.”

27. Then in respect of the most pertinent provision, s. 5 of the FTA, I observed:

“Section 5 (1) of the Act then gives a court the power to review a transaction to which the Act applies on the application of any party and if the Court is satisfied that the transaction was not genuinely mutual or was manifestly unfair to that party. Subsection (2) provides for four circumstances in which a transaction may be deemed unfair and not genuinely mutual, unless the parties are on equal footing. The first is where the party applying for the review ‘did not understand the transaction and no genuine effort was made to explain its terms to him prior to entering into the transaction.’ The second is where ‘the other party to the transaction was in such a predominant position, (whether economically, socially, personally or otherwise), that an ordinary person with the background of the applicant was not likely to exercise a true freedom of choice in relation to the transaction.’ The third is where ‘the other party had or should have had at the time of entering into the transaction or immediately thereafter information affecting the fairness of the transaction which was not disclosed to the complainant.’ The final circumstance is where the applicant ‘was mistaken in or had miscalculated the likely consequences of the mistake or miscalculation to such an extent adverse to his interests that he could not reasonably be held responsible for such consequences.’”

“The Act expressly states that, its aim is not to depart drastically from the rule of law and of the right of the parties to contract. Rather, s.1 provides amongst others that the aim of the Act is to “ensure the overall fairness of any transaction” in cases where the parties are not on equal footing “for reasons of economic or other advantage” and where one of the parties is “predominant and the other is not able to exercise a free choice.” Even if the parties are on equal footing, the aim of the Act is also to ensure that the transaction is not otherwise manifestly unfair or not genuinely mutual.”

29. Further, I noted that, this was already a position at common law. Hence the FTA effectively codified what has always been the law at common, under the principles of inequality of bargaining powers and unconscionable conduct, which could undo a contract or transaction. These principles were effectively adopted and applied in our country pursuant to Schedule 2.2 of the Constitution. I then cited the case of Kora Gene v. Motor Vehicles Insurance (PNG) Trust.^[12] In that case, the plaintiff an unsophisticated illiterate person signed a deed of release, releasing the defendant of all liabilities in consideration of a payment of K600 for solatium for the loss of her child in a motor vehicle accident. The defendant sought to enforce the deed, which the plaintiff challenged. The Court held that the deed was unenforceable and refused to enforce it. The Court reasoned that:

“Whilst parties can always talk between themselves without lawyers, in the circumstances of PNG and by virtue of the disparity of education and understanding between the plaintiff and the defendant, I must find that the parties here are not on an equal footing. The plaintiff here is at a great disadvantage. I must find it is unconscionable for a plaintiff of the nature and the sophistication of the Motor Vehicle Insurance Trust to negotiate directly with an illiterate villager without taking appropriate precautions to ensure that the villager understands his legal rights.”

30. Thereafter, I noted that, in the case of The Papua Club Inc v. Nusaum Holdings Ltd & Ors (No 2)^[13] the Court declined to declare a contract of sale of a property null and void. In so doing, the Court reasoned that the plaintiff had received independent legal advice and yet it failed to take appropriate legal action to protect its interest. The Court also found that the defendants were in no better or worse position than the plaintiff. Further, the Court found no evidence of undue influences or pressures which were brought to bear on the plaintiff by the defendants.

31. Finally, I noted that couple of other cases^[14] made reference to the FTA but did not extend to its application. An exception to that was the decision in Negiso Investments Limited v. PNGBC Limited.^[15] There the Court considered and applied the provisions of s. 4 and s. 5 of the FTA. That was in a case of the defendant exercising its rights as a mortgagee but after much delay. The delay caused the plaintiff to suffer with substantial interest charges at a higher rate, which got added to the principle amounts owed. The Court found the actions of the defendant unfair and directed the parties to go to mediation under s. 7 of the FTA and failing that, return to the Court for appropriate remedial orders.

32. Having regard to the foregoing, it is clear to me that there a number of essential elements that must be pleaded and proven to invoke the application of the FTA. These elements must be in terms of the case disclosing:

(1) a complete or incomplete “contract, promise, agreement, dealing or undertaking of an economic or commercial nature whether supported by consideration or not entered into between parties” that is governed by the principles of contract law or even customary law (“the contract”);

(2) the contract was not genuinely mutual or was manifestly unfair to the plaintiff;

(3) the contract was not genuinely mutual or manifestly unfair because the plaintiff:

(a) did not understand the contract and no genuine effort was made to explain its terms to him prior to entering into it; or

(b) the defendant was in such a predominant position (whether economically, socially, personally or otherwise), that an ordinary person with the background of the plaintiff was not likely to exercise a true freedom of choice in relation to the contract; or

(c) the defendant had or should have had at the time of entering into the contract or immediately thereafter information affecting the fairness of the transaction which was not disclosed to the plaintiff; or

(d) that the plaintiff was mistaken in or had miscalculated the likely consequences of the mistake or miscalculation to such an extent adverse to his interests that he could not reasonably be held responsible for such consequences.

33. Clearly, the first of these elements has been pleaded and is present here. This is because; the parties take no issue in there being two (2) written lease agreements. PNG Power being in a predominant position is also pleaded. However, the pleadings do not plead with sufficient particulars that the contract was not genuinely mutual or was manifestly unfair in terms of the elements listed under subparagraph (3). This in my view, is a most critical element because that is the only basis upon which a transaction or contract can be reviewed under the FTA or generally and declared unenforceable or have it modified and make it enforceable.

34. I accept PNG Power’s submission that, it is settled law that no party can raise an issue that has no foundation in the pleadings. A latest statement of the relevant principles on pleadings and objects of pleading is in the decision of the Supreme Court in Tony David Raim v. Simon Korua.^[16] There the Court stated:

“...There is abundance of case authorities on pleadings in this jurisdiction and we need not refer to all, suffice to refer to Papua New Guinea Banking Corporation Limited -v- Jeff Tole (2002) SC694 where the Supreme Court comprising of Amet, CJ (as he then was), Sheehan & Kandakasi, JJ emphasized the need for pleading of particulars in this way:

‘The law on pleadings in our jurisdiction is well settled. The principles governing pleadings can easily be summarized in terms of, unless there is foundation in the pleadings of a party, no evidence and damages or relieves of matters not pleaded can be allowed.’

...Perhaps, a more succinct statement of these principles may be found in National Provident Fund Board of Trustees -v- Jimmy Maladina & Ors (2003) N2486, where Kandakasi, J said inter-alia, that ‘the object of pleadings is to enable the parties to fully disclose in fairness the basis of their claim or a defence with particulars to avoid delay, trials by ambush, evasion and or attrition. They also enable the opposing party to know precisely the claim he or she is to meet and if need be, enable an out of Court settlement or a payment into Court. At the same time, pleadings enable the Court to know exactly what are the issues between the parties and what it is required to hear and determine...’”

35. In this case, there is nothing in the body of Mr. Awesa’s statement of claim pleading the most essential element. Yet the prayer for relief asks for a relief that has no proper foundation in the pleadings. The prayer for relief cannot fill the substantial void in the pleading. The Supreme Court succinctly made that point clear in the following words in its decision in The Central Bank of PNG v Gabriel Tugiau:^[17]

“In this case, the plaintiff did not plead with any particularity his claim of having suffered stress, anxiety and loss of reputation in the Bank and amongst his peers. He only pleaded in the prayer for relief “damages for psychological effects, stress, embarrassment, shame, defamation of his good reputation and character.” That was no pleading at all. The law is clear that, foundation must be laid in the pleadings to properly ground any prayer for relief. Without any such pleadings there can be no award.”

36. The effect of all of the foregoing considerations is obvious. The argument for Mr. Awesa centered on the FTA has no proper foundation in the pleadings. The prayer for relief does not overcome the problem created by the lack of proper pleadings and foundation for a consideration and grant of the relief sought. Hence, the entry of judgment on liability with damages to be assessed remains valid only for the matters properly pleaded. The parties and the mediator recognized this lack in Mr. Awesa’s pleadings for any claim or relief based on the FTA and framed the first question in the way they have. It was thus incumbent upon Mr. Awesa to amend his pleadings promptly but he did not. Thus, he is now precluded from raising and seeking any relief based on the FTA. Accordingly, I am of the view that the PNG Power is entitled to raise the issue of lack of pleadings and its effect despite the judgment on liability.

37. With the above decisions on the preliminary points in mind, I will deal with the main questions in the order the questions are set out in paragraph 1 above. I consider the first two (2) questions most important in this case. The first question concerns severability of clause 10 from the rest of the agreements while the second question concerns the termination of the agreements if the first question is answered in the affirmative. An answer to the rest of the questions follow on from the answers to these two questions.

38. The question of whether clause 10 of the relevant agreements can be severed, requires a consideration of the principles on severability of provisions in a contract. In order for this issue to be considered, it must have foundation in the pleadings. As noted under the second of the preliminary questions, the first substantive question before me was crafted in the way it was namely, “subject to amendments to the pleadings.” That signaled the need for an amendment to the pleadings. Again as noted, there is a complete lack of pleading. This Mr. Awesa should have attended to first, but he failed. Going, by the principles and authorities citied in the context of the second preliminary question, Mr. Awesa is now precluded from raising this issue.

39. If despite the lack of pleadings, it was open to Mr. Awesa to raise the issue he had the burden to demonstrate to the satisfaction of this Court at the least that the agreements were not genuinely mutual or were manifestly unfair to him because:

(1) he did not understand the transaction and no genuine effort was made to explain its terms to him prior to entering into the transaction; or

(2) PNG Power was in such a predominant position (whether economically, socially, personally or otherwise), that an ordinary person with his background was not likely to exercise a true freedom of choice in relation to the transaction; or

(3) PNG Power had or should have had at the time of entering into the transaction or immediately thereafter information affecting the fairness of the transaction which was not disclosed to him; or

(4) that he was mistaken in or had miscalculated the likely consequences of the mistake or miscalculation to such an extent adverse to his interests that he could not reasonably be held responsible for such consequences.

40. The relevant part of Mr. Awesa’s submission on this point is at the paragraph that starts at 4.3 in his learned Counsel Mr. Ona’s submission where this issue is treated as issue number three. Two main submissions are made here. The first is in the context that the agreements were for 24 months in duration. In relevant parts the argument is:

“Clause 10 of the lease agreements was a bad and unfair clause which was commercially not good for business and not a suitable term of the lease agreements as it created no room for parties to renegotiate the terms of the lease agreements. Whether or not it had a good reason to terminate the lease agreements it was empowered to terminate at its convenience.

The leases were prepared by the defendant and slotted in Clause 10 in the lease agreements giving parties the right to terminate without cause was a bad and unfair clause commercially giving parties no room to renegotiate the terms of the agreement.

In essence it was a draconian clause designed as a “get out clause” since the defendant prepared the leases with the terms in the lease agreements and therefore deemed unfair and contrary to Section 4 and 5 of the Fairness of Transaction Act.”

41. Reliance is placed on the decision of the Supreme Court in Rage and Maureen Augerea v. Bank South Pacific Limited^[18] which discussed the FTA. In particular, the following is quoted from the judgment:

“The Act allows for a review of agreements or contracts that are considered unfair. As was observed in the second case, the Act did not introduce something that was new. It merely reinstated and reaffirmed the position at common law which has already been adopted and applied by the courts in our jurisdictions as in the case of Kora Gene v. Motor Vehicles Insurance (PNG) Trust... Appling those principles the Courts have already struck down agreements that were considered unfair because of inequality in the bargaining powers of the parties”

42. The submissions for Mr. Awesa than concludes that clause 10 can be severed due to “its unfairness and inequality in bargaining power between the parties as the defendant prepared the leases by itself and asked the plaintiff to just sign and execute the two agreements.” It is also submitted that PNG Power failed to notify Mr. Awesa in writing to seek legal advice and opinion before signing the agreements. In so failing, the submission goes on to suggest that PNG Power failed to follow an established practice for most major corporations.

43. There are about six problems with these submissions. First, there is no pleading or evidence of the “established practice for most major operations”. Secondly, there is nothing in the pleadings or in the evidence or the submissions demonstrating:

(1) How the need for PNG Power to advice Mr. Awesa in writing to seek the legal advice before signing arose given the pleadings in paragraph 9 that the parties were used to executing agreements in similar terms in the past?;

(2) How clause 10 was “bad and unfair” and “commercially not good for business and not a suitable term of the lease agreements”?;

(3) Why was it necessary and how the clause 10 created no room for parties to renegotiate the terms of the lease agreements after agreeing to the clause inclusion in the agreements?;

(4) How was drafting of the agreement by PNG Power in itself was unfair and bad”?; and

(5) How was the clause only favourable to PNG Power for it to terminate at its own convenience when the clause was open for either party to use?

44. Thirdly, whilst the pleadings cover the essential elements of there being contracts or transactions, PNG Power being in a dominant position, and Mr. Awesa not being given the opportunity to seek independent legal advice and have clause 10 amended, they do not provide any answers to the foregoing questions. Clause 10 imposes the same terms and or obligations on both parties. Both of the contracting parties are entitled to give a months’ notice to terminate their agreements. In other words, this provision grants a right to both parties to terminate the agreements on one month’s notice. This means Mr. Awesa was free to use the same clause if he wanted to terminate the agreements earlier for whatever reason. Clearly, Mr. Awesa is placed in the same position as the PNG Power unlike the appellant and the plaintiffs respectively in the Augereas and Negiso cases, in which the whole contracts and certain terms favoured and could only be used by one of the parties.

45. Fourthly, Mr. Awesa appears to be well educated and is involved in the real estate business as is pleaded in paragraph 9 of his statement of claim and has entered into similar agreements with PNG Power before. Also Mr. Awesa has signed a number of affidavits and other documents filed and used in this proceeding without requiring any interpretation. Clause 10 of the agreements is in very simple and in clear terms. This and other terms of the agreements are in simple English unlike the wordings in a mortgage document or complex contract agreement as was the case in the Augereas and the Negiso’s case and others like the one in Bank South Pacific Ltd v Robert Tingke.^[19] There is nothing hidden in this clause. The need to give a month’s notice was a fact known and open to both parties to use. All of these makes clause 10 in particular and the whole of the agreements easy to understand for anyone in the same position as Mr. Awesa was.

46. Fifthly, s.5 of the FTA speaks of a “transaction.” The term transaction is not defined to include a part of a transaction. Hence, I accept PNG Power’s submission that, the Court does not have any power to review only part of a transaction. This means the Court cannot review only clause 10 but the whole of the two agreements subject to proper foundation in the pleadings.

47. Sixthly, the need to properly plead the foundation for a party seeking to invoke the provisions of the FTA was not an issue before the Court in the Augerea’s case. The matter was before the Supreme Court on appeal from an entry of summary judgment by the National Court. In upholding the appeal, the Court pointed out a number of factors that spoke against the entry of summary judgment. One of the factors the Court considered was a possible application of the FTA in the context of a loan agreement between the parties which appeared to the Court to be unfair. This was because the parties were not on equal footing and the terms of the agreement which included a penalty provision which could only be exercised by the Bank.

48. In its later decision in Pija Grannies Ltd v. Rural Development Bank Ltd,^[20] the Supreme Court referred to the decision in the Augerea’s case and said this:

“Allowing ourselves to be guided by the decision of the Supreme Court in Rage Augerea & Maureen Augerea v. Bank South Pacific Limited (2007) SC869 and many decisions that have followed that decision and other decisions like the one in Otto Benal Magiten v. Rural Development Bank Ltd (WS No 938 of 1999, 2006 (unreported) and David Nelson v. Credit Corporation (PNG) Ltd (2011) N4368, we are firmly of the view that banks owe a duty of care to their customers to act reasonably and with much care. Contrary to the learned trial Judge’s view on this point in this matter, we are of the firm view that, in addition to the banks’ general duty of care, where the banks have an agreement, they have a duty to act fairly and in accordance with the terms of the agreement. That is in addition to ensuring at the first place that the terms of the agreement are fair and reasonable and are capable of standing up against any challenge under the Fairness of Transaction Act or a similar challenge going into the fairness and reasonableness of the terms of the agreement.

5. Having said that, however, we are also of the firm view that, parties who claim a breach of the duty of care owed to them by the banks have a duty to properly and clearly articulate their claims and demonstrate the basis for their allegations in due compliance of the rules relating to pleadings. They should exercise care to ensure that there is a proper factual and legal foundation for their claims in order to succeed against the banks. A mere claim of negligence or a breach of contract will not suffice.”

49. I do accept that PNG Power was a corporate entity with financial and other might. This on its face might suggest the parties may not have been on equal footing. That is not in itself sufficient to declare a transaction null and void or have it varied. The test however lies in my view in whether the transaction was genuinely not mutual and or manifestly unfair. Taking into account the fact that Mr. Awesa had in the past entered into similar contracts as the two in this case, the relevant factors to consider are:

(1) Mr. Awesa’s understanding of the terms of the transaction and how the need for a genuine effort to be made by PNG Power to explain the terms to Mr. Awesa prior to entering into the transaction arose; or

(2) How was PNG Power’s predominant position compared to that of Mr. Awesa prevented Mr. Awesa from exercising his true freedom of choice in relation to the transaction; or

(3) What particular information PNG Power had or should have had at the time of entering into the transaction or immediately thereafter that affected the fairness of the transaction and was not disclosed to Mr. Awesa; or

(4) How was Mr. Awesa mistaken in or had miscalculated the likely consequences of the mistake or miscalculation to such an extent adverse to his interests that he could not reasonably be held responsible for such consequences.

50. As noted, none of these factors have been properly pleaded and established by Mr. Awesa against PNG Power. The key provisions were the provisions on the rental amounts, duration of the agreements and the parties’ agreement to terminate them earlier. When the agreements are examined as a whole having particular regard to these key provisions, it shows Mr. Awesa was the more predominant party if not the party who was favoured more in that he got PNG Power to agree to pay rentals at the rate of K114, 000.00 and K57, 200.00, respectively for two properties for 24 months representing over K4 million in rental income. These rental rates appear much higher. In the absence of any evidence or pleading to the contrary, may be this is why, Mr. Awesa was only able to have the properties rented out to others for only K370, 436.00 following PNG Powers termination of the agreements. If however, they were reasonable and in line with the prevailing rates, the obligation was on Mr. Awesa to produce evidence confirming or establishing that, apart from properly pleading it. There is no evidence suggesting these rates were well below the prevailing market prices for the kind of properties involved at the relevant time in order to render these rates unfair from Mr. Awesa’s perspective. Similarly, Mr. Awesa had the duty to establish by appropriate evidence that a provision in terms of clause 10 or the other terms of the agreements in this case were not in line with the established or standard rental property industry practice. The duty was on Mr. Awesa to firstly plead and then produce these kinds of evidence but he failed also failed to do so.

51. The foregoing discuss should make it clear that, Mr. Awesa did not plead and make out a case to severe clause 10 from the agreements under the FTA or for other cause. There is a further reason why clause 10 cannot be severed. Without the provisions of clause 10, the agreements would have the effect of forcing the parties to be in their contractual relationship for the full duration of the agreements. It is normal for lease or tenancy agreements to allow for earlier terminations which allows for eventualities in life that might render remaining in a contractual relationship untenable. Usually it is for a month’s notice by one party to the other. If the agreements in this case were to run for their full term, special circumstances and or clear agreement of the parties had to exist or be in place warranting such a term. There is no evidence of any such special circumstance existing that removed either of the parties’ right to opt out of the agreement prior to their agreed expiry date. Ordering a severance of the provisions of clause 10 will have the effect of rewriting the parties’ contract which is not the function or the role of the Court.

52. At the highest, I find the decision of the first Chief Justice of PNG, Frost CJ in Rakatani Peter v. South Pacific Brewery Ltd,^[21] useful. There, citing Sir Owen Dixon’s judgment in Bank of New South Wales v. The Commonwealth^[22] which was cited in The State v. The Independent Tribunal; Ex parte Moses Sasakila^[23] the learned Chief Justice said:

“...‘The effect of (severability) clauses is to reverse the presumption that a statute is to operate as a whole, so that the intention of the legislature is to be taken prima facie to be that the enactment should be divisible and that any parts found constitutionally unobjectionable should be carried into effect independently of those which fail. To displace the application of this new presumption to any given situation arising under the statute by reason of the invalidation of part, it must sufficiently appear that the invalid provision forms part of an inseparable context.’ But once it appeared that rejection of the invalid part would mean a different operation of the valid part or produce a different result, the whole must fail. This consideration supplied a strong logical ground for holding provisions to be in severable, since in such a case there was a strong inference that Parliament did not intend that anything less than the whole Act should be law...

There are, however, two additional considerations, which are that ‘in no case can the Court be required to legislate nor should it do so’, and, ‘the reduced form or operation of the Act must result’ in a consistent workable and effective body of provisions’.”

53. His Honour considered the applicability of the position taken by the Court in Australia in the context of s. 10 of the PNG Constitution and said:

“Whether s. 10 requires a different operation than is indicated by the Australian decisions, which I find of persuasive value, is a question which may be left for consideration in the future application of the section to the various types of enactments which may come up for decision. The citizen judges of this country may in the course of time prefer a different approach. In the meantime the considerations established by the High Court over many years in different types of cases, in my opinion, do provide valuable assistance in the interpretation of s. 10.”

55. The above was in respect of a question of severability of a statutory provision. The same applies to agreements or contracts. The role of the Courts is to construct and uphold the free negotiation and agreement of parties in so far as that is practically possible. In Tian Chen Ltd v. The Tower Ltd (No 2),^[24] I had regard to a number of overseas authorities^[25] and observed:

“It is clear from these authorities that, it is the duty of the Court to uphold the agreement of the parties regardless of whatever difficulties there might be in the construction of their contract. In the exercise of that duty, the Courts must endeavour to uphold the agreement of the parties, particularly in commercial arrangements. This is because the Courts are not there to destroy the agreement of parties but to uphold them. This should readily be the case where the parties have not only agreed but have gone further into implementing their agreement resulting in expenses being incurred by either or both of the parties. In so doing the Courts can and have ignored words or clause that are meaningless or superfluous ... and supply terms or words as appear reasonable and necessary in the circumstances to give effect to the parties agreement.”

56. In this case, clause 10 was an integral part of the agreements. The provision was open for either party to utilize with or without good reason to terminate the agreements earlier than their agreed expiry date. The parties’ part performed the agreement. Then in accordance with the provisions of that clause, the PNG Power gave notice and terminated the agreements. If Mr. Awesa considered clause 10 unreasonable he should have sought and secured an agreement from PNG Power to vary and have the provision varied. There is no evidence of any such attempt by him. Instead, he appears to have been content with the terms of the contract until PNG Power decided to terminate the agreements. Prior to that it was not an issue at all.

57. Ultimately on the question under consideration, I find the Mr. Awesa has failed to make a case in terms of his pleadings, evidence and submission as a matter of law for a conclusion that clause 10 of the agreements can be served by application of the FTA or for other cause. That being the case, it is not necessary to consider and answer specifically the second question in question 1. With this in mind I will now turn to a consideration of the other questions starting with the second question under question 2 in paragraph 1 of this judgment.

If clause 10 cannot be severed, did PNG Power breach clause 10 of the agreements and if so what damages are due to Mr. Awesa?

58. The whole of question 2 (breach of clause 10 and damages), 3 (validity of notice letters) and 4 (damages for loss and damage to furniture and white goods) in paragraph 1 of this judgment can be summed up in these terms: if clause 10 cannot be severed, did PNG Power breach clause 10 of the agreements and if so what damages are due to Mr. Awesa. The above findings and decision should render a consideration of these questions except for question 4, unnecessary. However, since they have been raised and for clarity I will deal with them briefly.

59. Clause 10, as already noted is in simple and clear terms. Both of the contracting parties were given the right to terminate the agreements “with or without cause provided a period of one (1) month’s notice has been given”. Though very simple, it speaks loudly and clearly that, either party can terminate the agreements for any reason. The only requirement is for one month’s prior notice. Legally and correctly, as long as the notice requirement is met, the agreements could be terminated earlier than their agreed expiry dates.

60. PNG Power gave two separate one month notices for each of the agreements prior to terminating them. The notices were properly addressed and served on Mr. Awesa. After serving the notices, PNG Power did not immediately vacate the leased premises. It remained until the one month notice period was up and it had paid in full all rentals due up to the period of the notices. Following PNG Power’s vacation of the respective properties, the parties did a joint inspection. That inspection established certain losses and damages to furniture and white goods. Following the inspection, Mr. Awesa rendered an invoice for K31, 150.00. Of that PNG Power paid a sum of K20, 000.00. Apart from the arguments for severability, Mr. Awesa does not clearly bring out how PNG Power’s giving one month’s notice, paying all of the rentals due up to the date of its termination and vacating the leased premises amounted to a breach of clause 10. PNG Power gave notice in accordance with that clause. In the circumstances, I would dismiss all of Mr. Awesa’s arguments in respect of the whole of questions 2 and 3 and answer the relevant questions in the negative.

61. I will however, make one comment in respect of the damages question under question 2, which is also the subject of the 1^st question under paragraph 2 of this judgment. The thrust of learned counsel for Mr. Awesa’s submissions is twofold. Firstly, liability was resolved by judgment of the Court which entitles his client to a judgment for the pleaded amount of K3, 088,888.00 and have the matter treated as a liquidated claim being for the balance of the agreed contract periods. Secondly, the argument is that Mr. Awesa is entitled to recover the balance of the contract periods on the basis of bargain damages for the balance of the contract period on grounds of repudiation and abandonment of the agreements.

62. In support of the first argument, reliance is placed on my decision in the Coecon Construction case and the cases that have since adopted and applied the principles summarized in that case. Some of those cases and the relevant principles have already been discussed and set out above. Hence, it is not necessary to restate them here. Going by those principles and authority, there is a serious problem with Mr. Awesa’s submission. As may be recalled, the principles relied upon apply in the context of an assessment of damages hearing after an entry of judgment in default. They do not address and are no authority for Mr. Awesa’s counsel’s suggestion that the Court can effectively revisit its order for an assessment of his client’s damages and change it from one for assessment of damages hearing to an application for entry of judgment in a liquidated claim. Once the Court has arrived at a decision to enter judgment on liability with damages to be assessed, it cannot revisit that. The power to do so is vested only in the Supreme Court, on a proper appeal or by agreement of the parties. The National Courts task is to conduct a hearing, assess the plaintiff’s damages and come to a decision on the actual amount of damages payable to him.

63. Of course, parties are always at liberty to negotiate and arrive at an agreed position on the question of damages. Where that happens a long drawn out trial for an assessment of damages is avoided. In such a case, the Court can on the application of both or either of the parties, enter judgment for the plaintiff in the agreed amounts or have the proceedings dismissed, discontinued or withdrawn as the case might be, based on the parties’ negotiations or mediation resulting in an agreement. Given these possibilities, the Court ordered the parties in this case to have the issue of damages resolved by mediation. As has been observed in many cases already, the parties in all cases could easily arrived at an agreement on the damages, unless one of the parties chooses to take a position that has no merit, or clearly unreasonable by reason of which settlement is impossible or difficult or there is a genuinely serious legal impediment that needs to be cleared first. Failing any resolution despite all good faith efforts, the matter could return to the Court for a resolution through judicial adjudication but on issues clear narrowed down with the relevant facts settled at mediation. In this case the parties returned to Court with a set of questions which impeded a settlement on the question of damages. Unless the questions are determinative of the question for trial the matter will have to be finally determined by a trial.

64. Turning then to Mr. Awesa’s second argument, I note that his learned counsel relies on a number of overseas cases and none from within the country. This has resulted in counsel failing to assist with submissions on the relevance and application of the decisions in The Central Bank of PNG v. Gabriel Tugiau and Porgera Joint Venture Manager Placer (PNG) Ltd v. Robin Kami^[26] and the line of cases that stand for the principles enunciated in those cases. Though these we in the context of employment contracts the principles apply to all other contracts.

“It is now also clear law that, there is no entitlement to such a relief called ‘balance of contract’ especially where the parties’ employment relationship is governed by written contract of employment. This is because the main reason for awarding damages is to compensate a plaintiff for his actual loss, which is usually expressed technically in terms of restitutio in intergrum. But that is subject to a plaintiff’s obligation to mitigate his loss and provided also that the kinds of damages he is asking for are not too remote.”

66. The decision of the Supreme Court in Post Puma Ltd v. Yama Security Services Ltd^[27] was the first in a line of cases that, expressly held that contracts which provided for a payout of the balance of the contract if the contract is terminated earlier, amounts to penalties. Given that, the Courts will not uphold such a clause. This is because, apart from these kinds of provisions not fixing an actual loss, they go against the fundamental principle of the freedom of the contracting parties to opt out of contractual obligations at the instance of one of the parties or by mutual agreement when it becomes difficult to be in a contract.

“Damages in contract are awarded to compensate a party for loss or injury not to penalize. Damages are awarded to put the injured party in the same position, as it would have been had the contract not been breached, and it is the duty of the Court to satisfy itself that a sum to be held over a party to enforce a contract. A Plaintiff claiming under a contractual provision for liquidated damages must show that the agreement represents a genuine pre estimate by the parties of the actual loss that will be occasioned if the contract terms are met. But if the provisions can be seen to be essentially a threat over a party to secure performance of the contract, the provision will be a penalty and unenforceable.

Courts have long held that because the purpose of a penalty is to ensure compliance rather than to truly compensate, agreements for sums found to be penalty will not be enforced, and the party claiming damages will be properly and adequately compensated by an award of actual assessed loss. Further, if there be provision in an agreement for a sum or sums payable on breach wholly out of proportion to the breach. (sic) The Courts will hold such provision a penalty, as unconscionable, and unenforceable. ‘A Plaintiff cannot recover the sum stated in a contract if he has not in fact suffered such loss.’ (Law of Contracts Cheshire & Fifoot 2nd Edn 767).’’

68. Further, the Court said a court dealing with a contract having such a provision has the duty to:

“... inquire into the matter and determine whether the provision in the contract represents a genuine pre-estimate of the damages that will occur in the event of breach, as opposed to whether the sum designated is in reality a penalty to be imposed if the contract is not carried through.”

69. In a number of my own decisions in the National Court, I had regard to that judgment and followed it in a number of termination of employment cases as in the case of Teio Raka Ila v. Wilson Kamit & Bank of Papua New Guinea^[28] and a few others.^[29] In so doing, I noted that the Courts in our country have upheld contracts having provisions for a pay out of the balance of the contract as in the Rooney case. But those were cases in which the issue of whether such provisions amounted to penalties or were a genuine estimate of the anticipated damages did not arise. The Courts have also allowed for the balance of the contract where such loss has been limited to a shorter period of the unexpired period, as was the case in Papua New Guinea Banking Corporation v. Jeff Tole (2002) SC694.

70. In PNGBC v. Jeff Tole, the Supreme Court re-echoed the above position though not expressly. There the Court upheld an appeal against an award of damages for the balance of a contract of employment terminated prior to the agreed date of termination. The relevant provision of the contract made provision for a pay out of the balance of the contract or 12 months whichever of the two were lesser. There PNGBC, terminated Mr. Tole one year 8 months before the agreed period of termination. The National Court awarded damages for the full balance of the contract. This, Supreme Court found was erroneous and allowed for damages for 12 months as agreed to by the parties.

71. All of these proceeded on the basis that the only true measure of damages is the amount of wages actually lost or denied. This is usually by reference to the relevant period of notice as agreed to by the parties or imposed by law. They also take into account the fact that a plaintiff is under an obligation to mitigate his loss which includes securing alternative employment. In the Wilson Thompson v. National Capital District Commission^[30] the National Court provided some guidance on how to assess damages by reference to the relevant period of notice. There the Court said:

“...the law does look up to the period of notice to measure an unlawfully terminated employee’s damages. The relevant period of notice is the one the contract provides for or one imposed by legislation such as the Employment Act in the absence of any agreement of the parties to the contrary. A number of cases in this jurisdiction confirm that position. An example of that is the case of Appa v Wama [1992] PNGLR 395.

72. The cases learned counsel for Mr. Awesa refers to and relies upon are overseas cases that deal with damages arising from breach of lease or rental agreements following their repudiation or abandonment. That is not what his client has pleaded or is claiming in his statement of claim here. Also, it is not what the Court asked Mr. Awesa to provide in support of his claim for the balance of the terms of each of the agreements.

73. The first case cited for Mr. Awesa is the decision of the High Court of Australia in Buchanan v. Byrnes.^[31] That was a case in which the landlord of a licensed premises claimed damages against its lessee who abandoned the premises. Barton J held that the lessor was entitled to damages on accepting the lessee’s repudiation. The following passage from p.719 of the judgment is cited:

“It must not be forgotten that a right of action had arisen on the termination of the correspondence on the 28^th of June, as the defendant had given distinct notice of his intention not to perform his covenant. There was at that time a renunciation which, at the plaintiff’s option, amounted to a breach of the covenants that throughout the term he would carry on a licensed victualler’s business upon the premises and keep them open and in use ... and ... not to do anything which might entail forfeiture of the licence...... as well as of the subsidiary covenants. The plaintiff was then entitled to claim in an immediate action, prospectively, such damages as would be caused by a breach at the appointed time, subject to any circumstances which might operate in mitigation of damages...”

74. The next case cited by learned counsel for Mr. Awesa is another decision of the High Court of Australia namely; Lamson Store Services Co Ltd v. Russel Wilkins & Sons Ltd^[32] The following passage from Griffith CJ., at p.684 is cited and relied upon:

“In the ordinary case of demise for a term of years with an express covenant to pay the rent, if the lessee unequivocally repudiates the lease and abandons the land, the lessor may at his option bring an immediate action for breach of the covenant, in which he will be entitled to recover the full amount of the agreed rent for the whole term, less such sum as a jury may think he is likely to derive as profits from the use of the land during the residue of the term. Buchanan v. Byrnes... This is the rule of damages.”^[33]

75. These cases and the principles of law they represent are relevant and applicable in cases of a lessee or a tenant abandoning the leased or rented premises or repudiates a lease or rental agreement well before the agreed expiry date. There is no submission by counsel as to how these cases are relevant when the parties in this case had a particular provision allowing either party to termination of the agreements earlier than their agreed expiry date. Similarly, there is no submission as to how these authorities apply to a case as in the present in which a party terminates the lease earlier in accordance with the terms of a a lease agreement such as clause 10. Also, counsel for Mr. Awesa did not disclose the relevant facts or circumstances giving rise to each or any of the cases he relies upon for appreciation of their background and the reasons for the decisions in the cases cited. This is serious absence in the submissions because, the cases may well have turned on the relevant facts and shaped the relevant outcomes and principles. Further, learned counsel for Mr. Awesa failed to demonstrate how these cases are applicable under our Constitutional scheme for the reception and application of overseas cases. Further, I accept PNG Powers submission that, there is no foundation in the pleadings for Mr. Awesa to raise and succeed in his arguments based on abandonment or repudiation of the agreements and or bargain damages. In these circumstances, I do not find the various cases and the principles they stand for of any relevance and application to the case at hand. This is especially the case when there are local cases that are relevant and applicable, which the Court referred counsel to and yet there is no mention of them his submissions.

76. Additionally, I note that Mr. Awesa in his prayer for relief seeks damages as an alternative under paragraph 13 (d) of the statement of claim to the other reliefs prayed for in paragraphs 3(a), (b), and (c). The orders of the Court dated 04 August 2014 entering judgment for the plaintiff with damages to be assessed through direct negotiations and failing that mediation precludes any consideration of the alternative. Hence, the claim for damages in terms of the balance of the terms of the lease is no longer available to the plaintiff. This claim would be open for consideration if the Court did not already grant the orders sought in paragraphs 13 (a) to (c) of the prayer for relief.

77. Given that the Court has already ordered judgment for Mr. Awesa with damages to be assessed, I accept PNG Powers submission that the damages to be assessed must be based on the pleadings in the statement of claim. This Mr. Awesa failed to do. An approach that would be consistent with the pleadings and the judgement on liability would be a pleading that one (1) month’s notice to terminate earlier is unfair and therefore it offends the provisions of the FTA, by pleading with particulars that render the provision unfair. This is critical particularly when clause 10 is in simple terms language and either of the parties can use it. Upon such a foundation and evidence confirming or establishing it, the Court would be under a duty to strike out clause 10 of the respective agreement and in their place put in a period Mr. Awesa establishes in his pleadings as reasonable. This is necessary because, as already indicated, striking out clause 10 completely from each of the agreements would result in an unfair and unreasonable result in that the freedom of the parties to terminate their contract any time earlier than the agreed expiry date forcefully removed. This would be stepping out of line for the Court because it cannot be expected to try and overcome one problem and introduce another the parties did not contemplate in the exercise of their freedom of to negotiate and enter into a contract on terms and conditions they can live with that was clearly open to them at the time of their initial contracting and subsequent implementation.

78. This leaves me to turn to a consideration of the remaining questions 4, 5 and 6. The first of these questions concerns loss and damage to Mr. Awesa’s furniture and white goods as established at the time of PNG Power physically vacating the properties. A total of K31, 150.00 was the monetary value of the loss and damage. Of that PNG Power paid K20, 000.00 leaving K11, 150 still owing. In the absence of any argument to the contrary, this amount is the only amount that appears to be properly due and owing to Mr. Awesa. I will thus answer the question with a yes and point out that the amount payable is K11, 150.00

79. The next question to consider then is question 5. This question concerns Mr. Awesa’s duty to mitigate his loss. A plaintiff’s duty to mitigate his loss and or damage becomes relevant after a clear establishment of certain damages due to a plaintiff. Where such a finding is lacking, the need for any consideration of the question of mitigation of loss or damages does not arise. In this case, the sum effect of the questions earlier considered and answered leaves Mr. Awesa with only one head of damages. This concerns his loss and damage to his furniture and the leased premises as noted above. I cannot see how Mr. Awesa could be expected to mitigate his loss in respect of this loss or damage. PNG Power has not presented any evidence nor any submission in respect of this point. Hence I am of the view that the principle on mitigation of Mr. Awesa’s loss or damage does not apply to this part of Mr. Awesa’s loss or damage.

80. Despite the foregoing, I make one observation. Subsequent to the termination of the agreements, the properties were released to other persons. This is all that was require of Mr. Awesa to mitigate his loss and he took the appropriate steps to mitigate his losses. The re-leasing however, brought him a total income of K370, 436.00 which was far less then what he fetched from PNG Power. It is not clear when the properties were re-leased. Also it is not clear as to the reason for the properties being able to generate such a low level of income. There is no evidence establishing the market value for rentals for the kinds of property the subject of this proceeding as at the time of their leasing to PNG Power and later as at the time of releasing. In the absence of any evidence to the contrary, this appears to lend support to the suggestion that, the amount for which Mr. Awesa was able to lease out to PNG Power was inflated and therefore unfairly favourable to him more than PNG Power. Following the termination of the agreements, the fair and real rentals came down to the amounts Mr. Awesa was able to subsequently rent or lease out.

81. The final question under paragraph 2 of this judgment is costs. Costs are usually a consequential matter at the end of a trial or court process. It is always a discretionary matter for the Court. Generally, a party who is successful in the proceedings usually gets its costs except only in a few exceptional cases for good reason, where each party may be ordered to bear their own costs or the winning party may be ordered to pay the losing party’s costs.

82. In the case here, the Court ordered costs in favour of Mr. Awesa when it ordered judgment in his favour. That being the case, I take it that, the issue of costs here concerns the costs involved in pursing or defending Mr. Awesa’s entitlement to damages. The Court referred that question to be resolved by mediation. However the issues raised at mediation and referred back to Court prevented the parties from resolving the issue at mediation. I have now considered the questions referred and answered all but one question in favour of Mr. Awesa. They effectively demonstrate that, Mr. Awesa did not have any proper foundation in the pleadings, facts or the law to raise those questions at the first place and take the position he has taken in his submissions before me. The questions thus lack merit and were raised unnecessarily. Consequently, they unnecessarily frustrated the mediation process. If the questions were not raised at the mediation the parties could have easily resolved the question of damages and all relevant and related questions. These factors dictate an order for costs against Mr. Awesa for all costs concerning and connected to an assessment of his damages. I would further order that such cost be agreed within 14 days and failing that taxation.

83. In summary the Courts answers to the questions present as per the following table:

Questions	Answers
1. (a) Subject to any amendment of pleadings and in the particular circumstances of this case, whether clause 10 of the relevant leases can be severed from the leases by operation of the Fairness of Transaction Act (FTA) or other cause?	There is no proper foundation in the pleadings to invoke the provisions of the FTA and severe clause 10 of the agreements.
1. (b) If so, in what circumstances could the leases be terminated early?	In the view of the answer to question 1 (a) it is not necessary to answer this question.
2. (a) If cause 10 of the relevant leases cannot be severed, did the Defendant breach clause 10 by giving early notice?”	No.
2. (b) If so, what is the amount of damages to which the Plaintiff is entitled after taking into account rental income from new tenant received by the Plaintiff during the balance of the original 2-year term of the Plaintiff’s leases to the Defendant?	In view of answer to question 2 (a) above, no damages are due and payable to the Plaintiff.
3. Did the two letters dated 4 May 2012 from PNG Power Ltd marked for the attention of Alex Awesa operate in law as proper early termination of the relevant leases?”	Yes.
4. Is the Plaintiff entitled to more than the amount K20, 000 which he accepted from the Defendant for repairs to his premises and replacement of white goods said to have been removed by persons occupying those premises of the Plaintiff which were leased by the Defendant?	Yes in the sum of K11, 150.00
5. What steps did the Plaintiff take to mitigate any losses which the Court may find he may have sustained?	The Plaintiff only had to secure new tenants which he did.
6. Who should pay the costs of the trial of assessment of damages?	The Plaintiff should bear the costs for an assessment of his damages.

1. Should the Plaintiff be paid liquidated damages in the sum of K3, 088,888.00 for the remaining 18 months period of the Lease Agreement despite the issuance of the notice to terminate the Lease Agreement on 04^th May 2012?	The Plaintiff is not entitle to liquidated damages in the sums claim in view of the judgment on liability with damages to be assessed.
2. Whether or not the Plaintiff is entitled to be paid general damages?	Except only for the sum of K11, 150 due under question 4 there is no foundation for any other damages to be paid to the Plaintiff.

Ona Lawyers : Lawyers for the Plaintiffs
Gadens Lawyers : Lawyers for the Defendants

National Court of Papua New Guinea

Awesa v PNG Power Ltd [2016] PGNC 168; N6359 (7 July 2016)