Pako F & C Holding (PNG) Ltd v Cloudy Bay Sustainable Forestry Ltd [2021] PGNC 276; N9141 (20 September 2021)

	Home \| Databases \| WorldLII \| Search \| Feedback National Court of Papua New Guinea

ASSESSMENT OF DAMAGES – Claim based on breach of contract – service contract – judgment entered – hearing on assessment of damages – quantum – consideration – whether plaintiff is entitled to all, some or none of the damages that are pleaded – exercise of discretion on quantum

WS 774 of 2014 and WS 794 of 2014 - Cloudy Bay Sustainable Forestry Limited v Pako F & Holdings Ltd and Pako F & Holdings Ltd v. Cloudy Bay Sustainable Forestry Limited
William Mel v. Coleman Pakalia & Ors (2005) SC790
Nae Ltd v. Cameron Construction Ltd (2012) N5346
Rodao Holdings Ltd v. Sogeram Development Corporation Ltd (2007) N5485
The Administration of Papua New Guinea v. Carroll [1974] PNGLR 265
Nivini Ltd v. Coconut Products Ltd (2016) N6582

1. ANIS J: This matter was trialed on 9 July 2020. On that day, the defendant’s counsel Mr Kuria applied to vacate the hearing. I refused to grant the request and proceeded to hear the matter. My reasonings for refusing the request to vacate the hearing is contained in the transcript of proceedings for that day and I would refer to that.

2. The plaintiff tended a total of 11 affidavits without objections, in support of its case. Mr Kuria, counsel for the defendant, informed the Court that he had no instructions to proceed on the matter. As a result, the defendants offered no evidence in reply. At the close of the hearing, the plaintiff presented its closing submissions. The defendant requested for time to present its closing submissions. The matter was then adjourned to 9:30am on 31 July 2020 for that purpose. On 31 July 2020, the defendant presented its closing submissions on quantum. The plaintiff also provided a revised submission in reply.

3. Whilst I reserved my ruling on quantum, the defendant filed an appeal to the Supreme Court in proceeding SCA No. 56 of 2020. On 18 September 2020, leave to appeal was granted as well as a stay on my pending decision. About a year later on 3 September 2021, the Supreme Court proceeding was discontinued with costs with leave of the Court.

5. The dispute concerned breach of contract. The contract was a service contract which was entered between the parties on a logging area in the Central Province. The site is called Bonoabo which is situated in the Abau District of Central Province. The plaintiff was contracted by the defendant to log, saw, and sell sawn timbers at set prices to the defendant. The service contract was signed on 18 November 2013 (the contract). The term of the contract was 5 years.

6. On 14 April 2014, the defendant gave a written notice terminating the contract. Following that, both parties filed proceedings, namely, WS 774 of 2014 and WS 794 of 2014 - Cloudy Bay Sustainable Forestry Limited v Pako F & Holdings Ltd and Pako F & Holdings Ltd v. Cloudy Bay Sustainable Forestry Limited. The matters were trialed together. On 12 July 2018, Hartshorn J, in a written decision, dismissed the defendant’s claim in these proceedings and entered judgment in favour of the plaintiff. His Honor entered judgment in favour of the plaintiff with damages to be assessed in regard to the plaintiff’s cross-claim and claim in proceedings WS 774 of 2014 and WS 794 of 2014. That then led to the assessment of damages hearing by this Court on 9 and 31 July of 2020.

7. The main issue of course is whether the plaintiff has provided proof for each of the 5 damages or losses that it is said to have suffered, and if so, what the Court should award for its total losses.

8. The plaintiff seeks (a), loss of income, (b), outstanding invoices for payment, (c), value of plant and equipment that had been seized, (d), balance of plant and equipment that had been sold to the defendant, and (e), Loss of goods and consumables at the camp site upon being told to vacate the area.

9. At the hearing, the plaintiff conceded that relief (c), (d) and (e) were repetitious and on that basis, counsel addressed them as one or together. The defendant also agreed that that was the case and made submissions on that basis in response.

10. To assess damages, it is prudent, in my view, to firstly consider the type of breach. The question I have to ask is this. Was the breach of contract as pleaded and which the Court has found in favour of the plaintiff, limited to the period of notice of termination? Or was it a substantial breach whereby damages to be assessed extends or should be assessed, for the remainder of the duration of the contact? And, if the latter is applicable, whether the damages sought for the duration of the contract are too remote or whether they are reasonably foreseeable.

11. I refer to the pleadings and the decision by His Honour Justice Hartshorn on liability.

12. The defendant claimed that the plaintiff breached various terms of the contract which was why it issued a letter of termination. It blamed the plaintiff for repudiating the contract and as a result filed proceedings to sue for damages for breach of contract. At the joint hearings, the defendant failed to adduce any evidence to prove its allegations against the plaintiff. The plaintiff, on the other hand, provided evidence to show that it was the defendant who had breached the terms and conditions of the contract.

13. So, without any evidence whatsoever to support the defendant’s claim, the trial Judge was satisfied and, in the end, dismissed the defendant’s claim and entered judgment in favour of the plaintiff with damages to be assessed. The breach was obviously substantial. It was not based on or limited to the notice period. In my view, it cannot be limited to the notice period because, based on the contract, the notice period only applies (or come into play) on the 4^th year of the contract. Clause 2 at page 3 of the contract reads in part, Automatic Five (5) Year continuation of Contract provided One (1) Year notice given by either party of intention to terminate at the end of the fourth year. The parties never reached the 4^th year where clause 2 could have been utilized. The breach of contract was due to baseless grounds, and it is safe to make this assumption since no evidence had been called by the defendant to show otherwise at the trial on liability; the contract was regarded as unlawfully terminated by the defendant. The termination of the contract is therefore regarded as unlawful or baseless. Given this fact and also given the fact that the contract was for a period of 5 years, its unlawful termination meant that the plaintiff had missed out on the benefits or opportunities that it would have otherwise gained had the contract not been terminated. The use of the terms such as “Automatic,” and to inscribe in the contract that the contract could be terminated only by giving such an intention at the end of the 4^th term, indicates the intentions of the parties, which was to secure certainty in the contractual terms and arrangements, that is, to ensure that service is provided by the plaintiff for the full duration of the contract. Of course, regard also had to have been made based on the nature of the business the parties had engaged themselves in. The plaintiff was sub-contracted under the Timber Permit held by the defendant, to harvest logs and then convert them into sawn timber for the defendant to use, sell or export. Specific targets were set at page 5 of the contract, that is, of the required volumes of cubic meters of timber from 2014 to 2018 that were required of the plaintiff, to harvest and sell to the defendant. As such, the termination has severely affected the business operations and financial expectations of the plaintiff for the said 5-year term.

14. I am satisfied at this juncture that the plaintiff has suffered actual loss and loss that would have resulted, as a direct consequence of the unlawful actions of the defendant in terminating the contract.

15. The next question I have is this. Are any of the 4 relief sought remote, or are they reasonably foreseeable by the unlawful breach of contract? I would answer that the 4 relief sought are not remote. They are also reasonably foreseeable. The contract was signed for a period of 5 years. It was a service contract; a business deal whereby both parties stood to benefit from the extraction of timber as a raw product, to the mills for cutting and then to be sold by the plaintiff to the defendant at given prices, for export or sales. Arrangement had been made whereby the plaintiff had committed resources and expenses particularly logistics and plant and equipment to operate at the logging sites.

16. I also note that the defendant has not raised any serious challenge to the question of remoteness of damages.

17. The next question to ask is whether each of the relief has been established. The plaintiff has the burden to prove his losses. See cases: William Mel v. Coleman Pakalia & Ors (2005) SC790; Nae Ltd v. Cameron Construction Ltd (2012) N5346, and Rodao Holdings Ltd v. Sogeram Development Corporation Ltd (2007) N5485. Once these damages are established, the next question is how much the Court should award for each of them. Again, the plaintiff may be required to provide evidence to assist the Court to make such a determination. If the Court is satisfied, the defendant would then be required to disprove or argue that no or a lesser sum should be awarded for each of the relief sought.

GENERAL DENIAL ARGUMENT BASED ON WANT OF LICENCE TO OPERATE TO LOG OR HARVEST LOGS

18. Before I proceed to consider the various damages claims and where required make assessments, it is prudent that I should firstly address a general argument raised by the defendant. It makes a general claim that because the plaintiff did not have a permit or license to harvest logs, which is only reserved for a timber permit holder under the provisions of the Forestry Act 1991, it cannot claim for losses such as losses that is anticipated for the balance of the contract. As such, it claims that no award at all should be awarded to the plaintiff.

20. In my view, the argument is misconceived. The plaintiff was essentially subcontracted as an employee or agent of the defendant who was the timber permit holder, to harvest and mill timbers to the defendant’s specifications as required in the contract. That was the very reason why the parties had entered into the contract in the first place. In other words, the only way perhaps for the defendant to raise the argument is if it denies the existence of the contract between the parties. That is not the case here. Both parties had entered into the contract and its existence before its termination which has not been denied. The provisions that have been referred to by the defendant under the Forestry Act 1991 such as s. 91, s. 92 and s. 93 are, with respect, irrelevant herein as they state the processes for applying for a permit or license to harvest timber. The defendant was a permit holder over the area where the plaintiff was operating under pursuant to the contact, at the material time. I therefore need not dwell further with this argument. But I would only add a comment that the defendant has, with this argument, attempted to raise matters that perhaps should have been pleaded separately and addressed, which it had not done so. It cannot therefore raise that in this matter which is simply a hearing to assess the damages that the plaintiff has possibly suffered based on the earlier findings by the Court that the contract had been unlawfully terminated.

21. The plaintiff’s first special damage claim is that it should be awarded monies that it was expected to make for the duration of the contract. The loss claimed is pecuniary in nature.

22. I have considered the arguments that had been presented by the parties. The plaintiff says it is entitled to a liquidated sum of K146,280,750, which it estimates would be its projected monies that would have been earned from the 5-year contract. The defendant on the other hand says that the plaintiff is only entitled to claim its losses under the contract for a period of 2 months, that is, out of the 1-year notice period that is required under clause 2 of the contract. The defendant submits that the plaintiff is only entitled to, and the Court should award a sum of K4,108,478.15 under this head of damage. I note that this was a defined or fixed contract for 5 years. Its unlawful termination only meant that the plaintiff could not perform it and as such make or meet its projected revenue targets within the terms of the contract. It is not disputed that preparations, commencement and production began from November of 2013 to April of 2014 before it was terminated. As I have found above, the 1-year termination clause cannot be applied or considered herein to assess damages because it was not or could not have applied as the basis for termination in the first place. Secondly, the breach was substantive and stands unlawful as the defendant failed to prove or justified its actions at the trial on liability. The projected losses, subject to my assessment, are real given the nature of the contract and what was required of the plaintiff under the terms of the contract, that is, in terms of providing the required descriptions and volumes of timber to the defendant for the tenure of the contract.

23 As such and for the reasons I give above, I find the defendant’s assessment or computation of time to assess this special damage, to be misconceived and wrong.

24. I am minded instead to make awards for the said period, that is, based on the duration of the contract period which is 5 years. The notice of termination was issued on 14 April 2014, that is, 4 months into the 5-year contract. The contract had 4 years 8 months remaining before it was unlawfully terminated. The unrefuted evidence by the plaintiff which I find relevant for this purpose is this. For the first 3 months of operation, that is, from January 2014 to March 2014, the plaintiff produced a total volume of 4,059.983 cubic meters of timber. The price range, which is based on the timber grade and length, is set out at page 6 of the contract. The prices of the 4 grades of timber comprise as follows: (1), A grade timber, 2.4m up at K1,050, (2), A grade timber, 6.0m up, at K1,100, (3), A grade timber, size 200mm up at K1,200, and (4), B grade timber, 2.1 m under at K800.

25. Under this head of damage, the plaintiff has provided its estimates and calculations of its earnings, which were based on its earnings in the earlier part of the contract. Evidence and calculations show the following. It claims that for each year, it had expected to make an estimated 33,000 m3 per year. From a total of 149,000 m3, it multiplied that from its selected rate, namely, K1,050. It added the 10% GST and then subtracted 15% from the total sum to cater for contingencies. The total sum claimed is K146,280,750.

26. My assessment on loss of income is as follows. Firstly, I would apply an average or mean rate of the 4 rates of timber prices, as stipulated under the contract. The mean of K1,050, K1,100, K1,200 and K800, is K1,037.50. I accept the volume of timber per cubic meter for the 3 months as furnished by the plaintiff, which is unrefuted, that is, from January to March of 2014 which totaled 4,059.983 m3. There are 12 months in a year so there are 4 sets of 4,059.983 m3 in 1 year. So, if I multiply 4,059.983 m3 by the mean rate that is K1,037.50, I will get K4,212,232.36. That would be the estimated earnings for 3 months in 1 year. Since there are 4 sets of 3 months in 1 year, I will multiply K4,212,232.36 by 4. This will give me K16,848,929.44. Then I multiply K16,848,929.44 by 5 years, the latter being the duration of the contract. The total sum would be K84,244,647.20.

27. For contingencies, I note that the plaintiff applied 15% to its total. I prefer to and will apply 25% for contingency consideration. If I minus that from K84,244,647.20, I will arrive at a final reduced sum of K63,183,485.40. The final addition would be the 10% GST where if added, it will give a final figure of K69,501,833.94.

28. I find these calculations and the final figure of K69,501,833.94 under this special damage claim, that is, for loss of income or business, to be reasonable. I award the said sum to the plaintiff under this head of damage.

29. The next claim under special damages is for outstanding invoices. The plaintiff claims that pursuant to the contract, it (i) rendered invoices for items that had been purchased and (ii) lost valuable items, that is, items that have been lost or destroyed which have not been settled by the defendant after the contract ended.

30. Under the said heading, the claims are various ranging from monies owed for purchase of equipment as agreed to under the contract, some of which have been part-paid by the defendant, plant and equipment that had been sold to the defendant and part-payments received, and the value of plant and equipment and other materials or items that have been left behind at the sites because of the abrupt cancellation of the contract and forced exit of the plaintiff, by the defendant.

31. A total of 4 items are claimed under this head of special damages. I will address them individually. The first is the balance of the costs for purchase of assets. Under this heading, the plaintiff claims with supportive evidence, that from a total cost of K6,850,000 (i.e., for purchase of assets, relocating cost, purchase and building of Bonabo shed, purchase of a loader, costs incurred for Bam Mill configuration, recruitment, survey and related, and purchase of 2 excavators), the defendant paid K5,849,999.98. Therefore, the plaintiff claims the balance which is K1,000,000.02. The obligation, the plaintiff submits, is stipulated under clause I(3), (a) to (g) of the contract. The defendant does not dispute the calculations and claims. It however submits that because the contract was terminated, the plaintiff is not entitled to claim the amount. The argument, with respect, is without merit given that the Court had already found the contract to have been unlawfully terminated. Also, these were actual costs that had been incurred by the plaintiff under the contract. I find the plaintiff’s calculated sum supported by evidence as well as the fact that it is a claim that is sought pursuant to clause I(3), (a) to (g) of the contract. The parties, pursuant to the terms of the contact, have agreed that the defendant will provide the plaintiff with funds to purchase various plant and equipment, pay for mobilization, relocation, and recruitments. As such, I will make an award of K1,000,000.02 under this sub-head claim.

32. The second item claimed is invoice for logs, timber production, food and spare parts and equipment. The plaintiff claims in total 9 items under this sub-heading. In total, it claims a sum of K1,736,365.62. The plaintiff, in evidence, gives detailed particulars on each of the items with their costings. The defendant concedes that the plaintiff has proven these claims and agrees with the plaintiff’s calculations. For assessment purposes, I note that regard has been given to the projected harvest and payment of logs for the months of January 2014 to March 2014. As such, I will disallow the plaintiff’s claim under item D6 A and B. The total cost stated therein is (i.e., K1,049,505.61 plus K226,306.21) K1,275,811.82. I will deduct K1,275,811.82 from K1,736,365.62 which is equals to K460,553.80. I will allow K460,553.80 under this claim.

33. The third item claimed is the value of a cargo crane, low bed trailer and steel reinforcement and consumables imported. The plaintiff particularizes and pleads their value at K2,153,474.02. In reply, the defendant does not dispute the evidence of the calculated sum. It, however, argues that the plaintiff did not provide evidence to show that these items were lost or destroyed. The defendant proved no evidence to support its assertion. I find that the plaintiff has proven these losses. I will allow it.

34. The final special damage claim is for loss of goods or consumables that had been bought locally. The plaintiff provided evidence and calculations which were valued at K1,500,000. The defendant concedes that the claim is supported with evidence. I will allow this claim.

35. General damages is pleaded as a relief in the statement of claim. However, it was not pursued by the plaintiff in the assessment hearing nor in its written submission.

36. I refuse to make any award under this heading. I will comment that the damages suffered by the plaintiff for breach of contract was assessable in terms of their monetary value or losses. It is not a case where it was difficult to make monetary assessment that would have warranted a claim under this heading as a non-pecuniary loss. See the meaning of general damages which is discussed in The Administration of Papua New Guinea v. Carroll [1974] PNGLR 265 and Nivini Ltd v. Coconut Products Ltd (2016) N6582.

37. The defendant makes no submission on mitigation of loss. As for the plaintiff, it submits that the loss in relation to unlawful termination of the contract has caused irreparable damages to its business operations. It submits that it had lost its plant and equipment. It says the nature of the business was such that it was difficult to bonce back and conduct similar operations in order to mitigate its losses. It says the termination was abrupt and it had to leave behind its capital assets. It says it has debts which were outstanding to date from third parties or creditors. It says the contract was at its starting phase when it was terminated and thus most of its purchase and consumables were based on credits from its suppliers.

38. Without a contest by the defendant on the matter but regardless, I am inclined to uphold the submissions by the plaintiff. Evidence adduced by the plaintiff supports its assertions. Evidence shows that the plaintiff was asked to leave immediately with heavy or armed police presence at the site. It was not given time to pack its assets, equipment and plant, and consumables. It had basically left behind its tools of trade. So, in my view, it would be ridiculous for one to expect such a person to come out of that type of scenario and then begin to conduct its business the very next day or after some time without facing difficulties.

39. I therefore find under this sub-heading that it was difficult, if not, impossible, for the plaintiff to mitigate its loss given what it had to go through, that is, from the time it was contracted by the defendant; from the time it had to procure or purchase equipment; from the time it had to train and attend to the logistical costs and setting up of its various camp sites; and from the short time it had began or commence its operations. And I think that overall, the main consideration one must bear in mind from all these activities is that whilst the contract had just commenced into its 4^th month, substantial costs had already been incurred by the plaintiff to procure materials from both within and overseas, including its preparatory work to commence operation on time to meet the terms and conditions of the contract.

40. The plaintiff submits that interest should be calculated at 8% per annum from the date when the cause of action accrued which was the date of termination of the contract, to the date of the decision of the Court. The defendant makes no submission in this regard.

41. Precedents show that calculation of interest may be assessed on the proposed period as submitted by the plaintiff, or interest could be assessed from the date of filing the Court proceedings. I would prefer the latter approach as appropriate in this case. The contract was repudiated in April of 2014. However, in my view, the claim or cause of action had to be made out first, and in this case, that was so when the plaintiff filed its claim on 16 July 2014. As such, interest will be assessed at the rate of 8% per annum from 16 July 2014 to 20 September 2021. Interest will continue to accrue under the same rate 30 days after the date of service of the judgment upon the defendant, pursuant to the provisions under the Judicial Proceedings (Interest on Debts and Damages) Act 2015.

42. The total assessed losses suffered by the plaintiff, as calculated below, is K74,615,861.78. Eight percent of that will amount to K5,969,268.94 accrued interest per annum. Interest per day from the K5,969,268.94 will be K16,354.16. From 16 July 2014 to 20 September 2021, will be a period of 7 years and 66 days (i.e., 15 days for the remaining days for the month of July 2021, 31 days for the month of August 2021, and 20 days for the month of September 2021 which is the date of decision). I multiply K5,969,268.94 by 7 years which totals K41,784,882.58. I also multiply 66 days by K16,354.16 which totals K1,079,374.56. The former is the total accrued interest on the principal sum of K74,615,861.78 for 7 years, whilst the latter is the total accrued interest for the 66 days, and both are assessed from the date of filing of the proceeding on 16 July 2014 to the date of judgment which is 20 September 2021.

43. The final prejudgment interest sum, which shall be due together with the principal sum at the date of this judgment, is K42,864,257.14.

Item No.	Type of Damage	Description	Amount
1.	Special damage	Loss of income	K69,501,833.94
2.	Special damage	Balance owing under clause I(3), (a) to (g) of the contract	K1,000,000.02
3.	Special damage	invoice for logs, timber production, food and spare parts and equipment	K460,553.80
4.	Special damage	Values of a cargo crane, low bed trailer and steel reinforcement and consumables imported	K2,153,474.02
5	Special damage	Loss of goods or consumables bought locally	K1,500,000

#		SUB-TOTAL:	K74,615,861.78
#		Plus Interest	K42,864,257.14
#		TOTAL:	K117,480,118.92

________________________________________________________________
Holingu: Lawyers for the Plaintiff
Kuria: Lawyers for the Defendant

National Court of Papua New Guinea

Pako F & C Holding (PNG) Ltd v Cloudy Bay Sustainable Forestry Ltd [2021] PGNC 276; N9141 (20 September 2021)