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Finance Corporation v Dept of Community Development [2018] PGNC 297; N7371 (25 June 2018)

N7371
PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]


WS 1223 of 2014


BETWEEN

FINANCE CORPORATION

Plaintiff


AND

DEPT OF COMMUNITY DEVELOPMENT

First Defendant


AND

THE INDEPENDENT STATE OF PAPUA NEW GUINEA

Second Defendant


Waigani: Polume-Kiele J
2017: 17 March
2018: 25 June


PRACTICE AND PROCEDURE- Claim for breach of contract – for unpaid rentals, rental increase and outgoings for the lease of Sambra Haus.


CIVIL LAW- Vicarious liability - Whether causes of action adequately pleaded – whether sufficient evidence of elements of cause of action to hold State vicariously liable.


Cases cited:

Papua New Guinea Cases
Tony David Raim v. Simon Korua (2010) SC1062
Papua New Guinea Banking Corporation Limited -v- Jeff Tole (2002) SC694
The Central Bank of PNG v Gabriel Tugiau (2009) SC1013
National Provident Fund Board of Trustees -v- Jimmy Maladina & Ors (2003) N2486
Alex Awesa v PNG Power Ltd (2016) N6359
Wilson Thompson -v- National Capital District Commission & Anor (2004) N2686
Appa v Wama [1992] PNGLR 395
Paul Kaupa v NCDC (2009) N3750
Delphi Corporate Investigations Limited v Bernard Kipit & National Capital District Commission (2003) N2480
Rodao Holdings Ltd v Sogeram Development Corporation Ltd (2007) N5485. I
Yooken Paklin v The State (2001) N2212
Albert Baine v The State (1995) N1335
Kopung Brothers Business Group v Sakawar Kasieng [1997] PNGLR 331
Peter Wanis v Fred Sikiot and The State (1995) N1350
Yange Lagan and Others v The State (1995) N1369
Obed Lalip and Others v Fred Sikiot and The State (1996) N1457
MVIT v Tabanto [1995] PNGLR 214
Waima v MVIT [1992] PNGLR 254
MVIT v Pupune [1993] PNGLR 370
Tabie Mathias Koim and 28 Others v The State and Others [1998] PNGLR 247
Kolaip Palapi and Others v Sergeant Poko and Others (2001) N2274
Tetley v The Administration (1971) No 647
Post Puma Ltd v Yama Security Services Ltd (unreported) 26/07/2001) SCA No. 80 of 2000)
Infratech Management Consultants Ltd v The State & 2 Ors (2018) N7368


Overseas Cases


Craven Ellis v Cannons Ltd [1936] 2 KB 403; [1936] 2 All ER 1066
Hadley v Baxendale (1854) 9 Exch 34
Victoria Laundry v Newman [1949] 2 KB 528


Counsel:


Mr S Gor, for the Plaintiff
Ms A Nasu, for the Defendants

RULING


25th June, 2018


  1. POLUME-KIELE J: This is my ruling on liability and damages on a claim by the Plaintiff against the Defendants, trial was conducted on the 17th of March 2017.
  2. Decision was reserved which I now deliver.

Background facts


  1. The Plaintiff’s is an incorporated company and proprietor of the building known as Sambra Haus constructed on the land described as Allotment 2 Section 354, Hohola, National Capital District, Volume 115 Folio 192.
  2. On or about the 31 December, 2010; the plaintiff entered into a written Commercial Lease Agreement (the “Commercial Lease”) with the Defendants for the lease of Sambra Haus, to be occupied by the employees of the Department of Community Development. The Commercial Lease was for a term of 5 years.
  3. On or about 23rd of October 2013, the Defendants gave notice to terminate the lease. The Defendants vacated the premises sometime in November, 2013.
  4. The plaintiff claims that since the termination of the lease, the property has not been re-tenanted and as a result, the plaintiff has lost rental revenue from the rental of the property.
  5. The required notice to the State as required under Section 5 of the Claims By and Against the State Act 1996 notifying the State of its intention to make a claim against the State was given to the Solicitor General on the 9th of April 2014.

Plaintiff’s Evidence


  1. The plaintiff in support of its claim, relied on the following:
  2. Mr Witham for the plaintiff gave evidence that the commercial lease agreement was signed by the Minister for Lands on the 31st of December 2010. He also says that the plaintiff did not at any time; receive any complaint, written or otherwise, from the Defendants, or any other person or organization. Further, the plaintiff did not at any time; receive any complaint, written or otherwise, of any odour, leaking roof or open ceiling damages or any other damages at Sambra Haus. In addition, the plaintiff also was not aware of and has not been informed, in writing or otherwise, of any report, written or otherwise, from the Department of Community Development or the defendants, person or organization, that Sambra Haus needed repairs or maintenance.
  3. Further and in addition the matters raised in support of the cause of action, the plaintiff says that they have provided the goods and services to the defendants as a bona fide supplier and in good faith. Given that the defendant has failed to give due notice as to the reasons for termination of the lease, the plaintiff is entitled to claim for outstanding unpaid GST and rent increase and unpaid rent and outgoings before the termination of the Commercial Lease and for the remainder of the term of the Commercial Lease.
  4. Since the defendants vacated the property, Sambra Haus in November 2013, the claim for the remainder of the term of the commercial lease would be for a period of 1 year and 11 months at a monthly rental rate of K221, 244.00 in accordance with Clause 1 of the Commercial Lease Agreement executed between the parties.
  5. Although, the defendants now claimed that the lease was never signed and that the plaintiff is not entitled to the damages claimed, the fact that the defendants have given notice to terminate does acknowledge that an arrangement had been in place which had led to the defendants’ exercise of its rights to terminate the lease.
  6. Consequently, the plaintiff says that since the defendants have not made rental payment since 2011, and the following amounts, as described in the table 1[1]below are due under the terms of the Commercial Lease:

Table 1: Claim for outstanding rental due and outgoings payable by the defendants


From
To
Item
Amount (K)
Amount including GST
Invoice #
1 June 2011
31 December 2011
Unpaid GST
16,974.55
18,672.00
201,005.00
1 January 2013
31 December 2013
Unpaid rent increase
100,387.42
110,425.86
201,115.00
1 June 2013
31 December 2013
Unpaid rent
286,820.42
315,502.46
201,114.00
1 January 2014
31 March 2014
Unpaid rent
903,484.32
993,832.75
201,116.00
1 April 2014
30 June 2014
Unpaid rent
903,484.32
993,832.75
201,117.00
1 December 2013
27 March 2014
Unpaid electricity
48,792.27
53,671.50
201,314.00
1 December 2013
27 March 2014
Unpaid water
37,307.04
41,037.74
201,315.00
1 July 2014
30 September 2014
Unpaid rent
903,484.32
993,832.75
201,118.00
27 March 2014
30 September 2014
Electricity @ K12,198 per month for 7 months
85,386.00
93,924.60
201,316.00
27 March 2014
30 September 2014
Water @K8083.62 per months for 3 months
24,250.87
26,675.96
201,317.00
Total Amount



K3,911,847.00

14. The plaintiff claims that a total of K3, 911,847.00 being rental for the months of 1st June 2011 to September 2014 is due and owing by the defendants. Furthermore, an amount of K903, 484.32 being pro rata payment per quarter of a year is also due and owing for the period 1st October 2014 until the end of the term of the lease, which is the 31 December 2015. Also claimed is a pro rata payment for the outgoing costs for water rates in the sum of K9, 326 per month from the commencement of the lease to the end of the Lease on 31 December 2015 plus a sum of K12, 198 per month for electricity until the end of the Lease on 31 December 2015.


Defendants’ Evidence


15. The defendants dispute that a commercial lease agreement had been entered into between themselves and the plaintiff. They say further that if any arrangement had been made, it was made without authority. Therefore they are not liable for any damages suffered by the plaintiff.


  1. However, on or about the 25 October 2013, the defendant gave notice to terminate the lease in accordance with the terms of the lease.
  2. The plaintiff refused to accept the notice of termination and filed proceedings for breach of contract and claimed damages against the Department of Community Development, the Independent State of PNG and others (collectively the Defendants) for unpaid rentals, rental increase and outgoings for the remainder of the term of the lease of Sambra Haus.
  3. The defendants say that they do not owe the plaintiff any outstanding rental payments and in addition, they have complied with the requirement to give notice in writing by letter of 25 October 2013 for and on behalf of all the defendants that the lease agreement had ended and all obligations under the lease has been suspended as per the terms of the lease.
  4. It is the plaintiff who has continued to frustrate the agreement between the parties.

Issues


  1. The legal issues for this Honourable Court’s determination are:


Law


  1. By a written contract dated 31st December 2010, the plaintiff leased its property (Sambra House) on a commercial lease to the defendants for a term of 5 years. Clause 3.1 of the Lease provides that the defendants pay a sum of K221, 244.00 per month.
  2. On the 25th of October 2013, the defendants gave notice to the plaintiff of termination of the lease under clause 5.2 of the lease. Clause 5.2 of the agreements provides for Default/Termination in these terms:

“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.”


  1. The notice of termination however was not accepted by the plaintiff and thus this proceedings. In any event, the defendants subsequently vacated the property.
  2. The plaintiff now claims outstanding unpaid GST and rent increases including unpaid rent and outgoings prior to the termination plus the balance of the term of the lease.
  3. It is settled law that no party can raise an issue that has no foundation in the pleadings; whilst there has been a number of case authorities on pleading, in the most recent case of Tony David Raim v. Simon Korua (2010) SC1062., the Supreme Court in regard to the relevant principles on pleadings and objects of pleading stated:

“the general rule of pleadings is, a party must first sufficiently plead the material facts establishing the elements by particularising them: see Order 8, Rules 29 & 32 of the National Court Rules. It is also trite that pleadings lay a foundation of a cause of action and act as a means of informing the opposing party of what to expect at trial. They give the opposing party the opportunity to identify the issues for trial and the kind of evidence to be led at trial”


  1. In Papua New Guinea Banking Corporation Limited -v- Jeff Tole (2002) SC694, the Supreme Court comprising of Amet, CJ, 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.’


  1. Further in National Provident Fund Board of Trustees -v- Jimmy Maladina & Ors (2003) N2486, Kandakasi J in his discussion on pleadings stated:

‘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...’”


  1. More recently, in Alex Awesa v PNG Power Ltd (2016) N6359, which is a claim for the balance of the term of a commercial lease, which is similar to this present case. In order to determine whether the plaintiff is entitled to the damages claimed. The court in that case noted that 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. This proposition is contrary to the principle held in The Central Bank of PNG v Gabriel Tugiau (2009) SC1013 where the Supreme Court stated:

“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.”


  1. Coming back to the case at hand, by clause 5.2 of the Lease, both of the contracting parties are entitled to give notice to terminate their agreements. This clause gives rights to both parties to terminate the lease upon giving notice to the other, a right which the defendants have exercised under the Lease Agreement. The argument for the plaintiff is centred on the notice and that it is not accepted. The plaintiff says that it is not guilty of any wrong doing which would give rise to the lessee terminating the lease. Consequently, the lessor is entitled to claim for the balance of the term of the lease.
  2. The prayer for relief is for the balance of the term of the lease and outstanding rental for the years 2011 to the date of expiry of the lease agreement, which is 30th December 2015.

Consideration of the issues


  1. Clause 5.2 (notice of termination) empowers a party to the contract to give notice to terminate the contract. This clause then removes a party from fulfilling his obligations under the contract and also from the terms of the entire arrangements. Once given, it bring the agreement to an end. In such situation, the issues that may be relevant to ask is whether the notice is given without cause or for cause? Once determined, the next question to be dealt with then concerns the termination of the agreements and what consequences follows from such termination.
  2. In this present case, whilst I note that clause 5.2 (B) provides for the specific notice. The question of whether clause 5.2 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. The first is in the context that the agreements were for 5 years. Whether the defendant gave good reason to terminate the lease agreement or not, it is not in evidence. The plaintiff on the other hand says that it has complied with its obligations on the lease and that no notice was given of any breaches of any of its obligations on the lease to entitle the defendant to terminate at its convenience. Given the foregoing, the plaintiff says that the defendant’s right to terminate (with or without cause) was done in bad faith, and unfair. In that the plaintiff has suffered commercially and that it was not given room to renegotiate the terms of the agreement or attend to any obligations alleged to have been breached under the terms of the lease.
  3. In attempting to determine the matters outlined above, I find that this claim is based on three main heads of damages. Firstly, the unpaid rents for the period 1st June 2011 to 30 November 2013; secondly the outgoings for water and electricity for the period commencing 1st June 2011 to 30th December 2015; thirdly, the balance of rental payment for the period 31st December 2013 to 30th December 2015. Interest and Costs in most cases would follow the event (for the successful party).
  4. Here, a commercial lease was executed by both parties and was valid for all intents and purposes. However Clause 5.2 imposes a right on both parties to terminate (whether with or without cause). Clause 5.2 (B) entitles a party to give notice to terminate under Clause 5.2 (B) is without cause. This means that if the defendant wishes to terminate the lease it may do so without giving reasons so long as sufficient notice of at least a month is given. Similarly the plaintiff. Clearly, the defendant was only exercising its rights under the Clause 5.2 (B).
  5. By not accepting the notice of termination, the plaintiff is causing frustration of the exercise of rights of the defendants under clause 5.2 of the lease agreement.
  6. In Gabriel Tugiau’s case the Supreme Court stated:

“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.”


  1. In Post Puma Ltd v Yama Security Services Ltd (unreported) 26/07/2001) SCA No. 80 of 2000) the Court 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. The Court in that case went on to say at (pp. 4-5) that:

“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.


  1. Hence in situations where a claim is for the balance of a contract, the 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 Ed. 767).’’


  1. Similarly, the court have also stated that a court dealing with a contract having such a provision has the duty to:

“... enquire 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.”


  1. Furthermore, in the case of Wilson Thompson -v- National Capital District Commission & Anor (2004) N2686, the National Court did address this aspect of a contract and provided some guidance as to how an assessment of damages by reference to the relevant period of notice can be determined. In the case, the Court stated:

“...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.

  1. Applying these principles to the present case, the plaintiff’s claim is for unpaid rental, GST, and outgoings for water and electricity for the periods 1st June 2011 to 30th September 2014. Noting that notice to terminate was given on the 25th of October 2013; it is accepted that the one month period expired on or about the 30th of November 2013. This means that the lease would have terminated on the 30th of November 2013. Therefore any claims for damages and or outgoings issued from the 1st of December 2013 to the expiry of the term of the lease which is the 30th of December 2015, amounts to penalty and thus the claim for the balance of the contract is misconceived.
  2. Further the plaintiff claims an alternative remedy of damages based on a quantum meriut basis. In Paul Kaupa v NCDC (2009) N3750, his Honour Manuhu J in his discussion on the issue of damages based on a quantum meriut basis referred to the “definition of “quantum meriut” in “The Magistrates Manual of Papua New Guinea (Hill & Powles, Law Book Co., (2001)” at p. 270 which reads:

“Quantum meriut means ‘as much as the thing is worth’. It is an award of compensation that may be used where fairness requires it. Strictly speaking, quantum merit does not arise out of a contract. It arises where a party provides goods or services to another party, believing there is an agreement, and the other party accepts them. When the first party seeks to be compensated for goods and services, there is no contract to rely upon and therefore no breach. However, in circumstances where fairness requires, a court will compensate the party in an equal amount to that by which the other party was enriched by the goods or services.”


  1. The principle of quantum meriut is part of the underlying law. In Delphi Corporate Investigations Limited v Bernard Kipit & National Capital District Commission (2003) N2480, Gavara–Nanu, J. referred to the case of Craven Ellis v Cannons Ltd [1936] 2 KB 403; [1936] 2 All ER 1066, which is fittingly summarized as follows: the decision of the Court of Appeal, thus:

“The Court of Appeal held that the agreement was void because the persons purporting to act as directors had no authority to bind the company. The claim therefore had to fail. However, since the services were rendered to the company and the company had benefited from those services, the alternative claim on quantum meriut could succeed.”


  1. However, in contrast to these cases, the present case is one based on a validly executed contract. Therefore the argument on a claim based on equity does not arise and is therefore misconceived.
  2. In applying the law to the present case, I find that the plaintiff has established that there is a valid contract between itself and the defendants. The parties are at liberty to terminate the contract upon giving notice to each other under Clause 5.2 of the Contract.
  3. Given that the defendant is entitled to give notice to terminate under Clause 5.2 of the contract, this then implies that Clause 5.2 is severable from the main contract and can be interpreted separately from the main contract which means that the contract ended on the 30th of November 2013. So if there is any damages that the plaintiff would have suffered, it would be in relation to the payment of rental and outgoings for water and electricity for the rental period of 1st June 2011 to 30th of November 2013, if such remained unpaid, due and owing.
  4. However any claim due and pending has to be determined within the special principles regarding damages for breach of contract as held in Rodao Holdings Ltd v Sogeram Development Corporation Ltd (2007) N5485. In this case, his Honour Cannings J in his assessment of the claim by the plaintiff noted the general principles for assessment of damages which I adopt (see also Infratech Management Consultants Ltd v The State & 2 Ors (WS No. 1467 of 2007) 18th June 2018 Unreported judgment) and these are:
  5. I adopt for purposes of assessing damages the five principles established (see Hadley v Baxendale (1854) 9 Exch 34; Victoria Laundry v Newman [1949] 2 KB 528; Tetley v The Administration (1971) No 647 which cases have been adopted and applied by our Courts and also the case of Coecon (supra) as appropriate to this present matter. These special principles are:

· The general principle that the purpose of an award of damages is to put the innocent party in the same position, as far as money can do, as if the guilty party had not committed a wrongful act, is qualified substantially when assessing damages for breach of contract.

· The qualification is that the innocent party only gets the amount of his actual losses that were reasonably foreseeable at the time the contract was formed.

· What is taken to have been reasonably foreseeable at the time the contract was formed depends on two things: (a) the sort of knowledge that any reasonable person would be expected to have; and (b) knowledge of special circumstances outside the ordinary course of things.


  1. Having arrived at this assessment, I find that the claim for unpaid rent including outgoings for water and electricity for the period 1st January 2014 to 30th September 2014 are not proven on the balance of probabilities. I therefore make no award for these claims.
  2. I now consider the next matter to determine whether the plaintiff has proven on the balance of probabilities his damages? Having already accepted that the purpose of an award of damages is to put the innocent party in the same position as he was prior to the breach. In light of this proposition, the Court has determined that the innocent party only gets the amount of his actual losses that were reasonably foreseeable at the time the contract was formed. In this present case, I accept that the plaintiff here is only entitled to get the amount of his actual losses and that would be the reasonably foreseeable amount of rents that has remained unpaid at the material time that the notice of termination was given on the 25th of November 2013.
  3. In this present case, the pleadings in the statement of claim plead, as set out in Table 1 below outstanding rentals for the period 1 June 2011 to 30 September 2014. Evidence adduced during trial also confirmed that the lease agreement had been terminated without reasons.
  4. However, given the established principle as that the plaintiff is only entitled to get the amount of his actual losses, reasonably foreseeable, I consider that the actual losses only relates to the outstanding rental and outgoings for the period commencing 1st June 2011 to 31st December 2013.
  5. I will now assess the damages for the period of time that no rental had been paid to the plaintiff for which the defendant is liable under the contract. These are set out as follows:

· Remuneration for the rental period commencing 1st June 20111 to 31st December 2013 only (Clause 5.2(B) including any outgoings for water and electricity remaining due and payable for the same period as detailed in the Table 2[2] below:


Table 2: Outstanding rental invoices from 1st June 2011 to 31st December 2013


Invoice #
From
To
Item
Amount (K)
Amount
201005a
1 June 2011
31 December 2011
Unpaid GST
16,974.55
18,672.00
201115
1 January 2013
31 December 2013
Unpaid rent increase
100,387.42
110,425.86
201114a
1 June 2013
31 December 2013
Unpaid rent
286,820.42
315,502.46

Total Amount




K444,660.32


54. The Orders of the Court are:


(a) Damages in the sum of K444, 660.32 for the plaintiff.
(b) Costs follow the event. Costs to be taxed if not agreed.
(c) Interest at 2% accrues on sum of K444, 660.32 to run from date of this decision.

Orders accordingly
________________________________________________________________
Fiocco & Nutley Lawyers: Lawyers for the Plaintiff
Solicitor General: Lawyer for the Defendants


[1] Table 1: Claim for outstanding rental due and outgoings payable by the defendants


[2] Outstanding rental invoices from 1st June 2011 to 31st December 2013

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