N9431
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO 560 OF 2020

ALOIS BUKA,
MANAGING DIRECTOR, MAUNGASAI HOLDINGS LIMITED
First Plaintiff

MAUNGASAI HOLDINGS LIMITED
Second Plaintiff

V

DANIEL ALOI, MADANG PROVINCIAL ADMINISTRATOR
First Defendant

JOHN BIVI, MADANG PROVINCIAL MINES MANAGER
Second Defendant

MADANG PROVINCIAL GOVERNMENT
Third Defendant

THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Fourth Defendant

Madang: Cannings J
2022: 18th, 19th, 20th, 22nd January

DAMAGES – breach of contract – assessment of debt and damages following entry of default judgment – duty of Court to conduct cursory examination of terms of default judgment – principles of assessment of damages for breach of contract. 

This was an assessment of debt and damages for breach of contract following entry of default judgment in favour of two plaintiffs against four defendants. The contract for road construction was between the second plaintiff and the State (fourth defendant). The Court undertook a cursory inquiry as to the terms of the default judgment and queried whether it was appropriate for damages to be awarded to the first plaintiff, who was managing director of the second plaintiff and against the first defendant, a provincial administrator and the second defendant, another senior officer of the provincial government (third defendant). The plaintiffs sought damages in three categories: amount due under the contract, K3,987,950.00; special damages for money owed to creditors, K2.1 million; damages for mental distress etc, K50,000.00.

Held:

(1)	The terms of the default judgment were amended, in that it was ordered that: (a) default judgment is entered against the third and fourth defendants in favour of the second plaintiff; and (b) default judgment is not entered against the first and second defendants, in relation to whom the proceedings are dismissed. 

(2)	The claim for the amount due under the contract was for debt, as distinct from damages, and was adequately pleaded and proven. The amount claimed was awarded: K3,987,950.00.

(3)	The amount claimed as special damages was properly regarded as a claim for general damages and made subject to application of principles for assessment of damages for breach of contract. The losses alleged were remote and the evidence supporting the claim was not of high probative value. The amount claimed was discounted by 90%. The amount awarded was K210,000.00. 

(4)	The claim for mental distress was actually a claim for special damages but was neither pleaded nor proven adequately. Nothing was awarded. 

(5)	The total amount of debt and damages awarded was K4,197,950.00. Interest was awarded on that sum from the date of service of the writ to the date of judgment, in the sum of K121,740.55. The total judgment sum was K4,319,690.55.

Cases Cited:
Papua New Guinea Cases

The following cases are cited in the judgment:

Albert Baine v The State (1995) N1335
Coecon Ltd (Receiver/Manager Appointed) v National Fisheries Authority (2002) N2182
Graham Mappa v ELCOM (1992) N1093
Jonathan Mangope Paraia v The State (1995) N1343
Kopung Brothers Business Group v Sakawar Kasieng [1997] PNGLR 331
Kumagai Gumi Co Ltd v National Provident Fund Board of Trustees (2006) SC837
Niugini Civil & Petroleum Ltd v West New Britain Development Corporation Ltd (2008) N3292
Peter Wanis v Fred Sikiot and The State (1995) N1350 
PNG Aviation Services Pty Ltd v Geob Karri (2009) SC1002
Tetley v The Administration (1971) No 647
William Mel v Coleman Pakalia (2005) SC790
Yooken Paklin v The State (2001) N2212

Overseas Cases

Hadley v Baxendale (1854) 9 Exch 341
Livingston v Raywards Coal Co [1880] 5 App Cases 25
Victoria Laundry v Newman [1949] 2 KB 528

Counsel

J Kolkia, for the Plaintiffs 

22nd January, 2022

1.      CANNINGS J: This was a trial on assessment of debt and damages for breach of contract following entry of default judgment in favour of two plaintiffs against four defendants. 

2.     It was pleaded in the statement of claim that the second plaintiff, Maungasai Holdings Ltd, entered into a written contract with the fourth defendant, the State, on 15 January 2015 for road construction in the Kurumbukari area of Usino-Bundi District, Madang Province. The value of the contract was K4,987,950.00. The contract was to be managed and co-funded by the third defendant, Madang Provincial Government, as part of a memorandum of agreement for the Ramu Nickel project. The second plaintiff commenced construction in 2017. Madang Provincial Government paid K1 million up-front. The project was completed in 2018. A project completion certificate was issued by the Provincial Works Manager on 12 December 2018. The balance of K3,987,950.00 remained unpaid. It is still unpaid. 

3.     It was also pleaded that Alois Buka, the first plaintiff, is a shareholder and director of the second plaintiff and its managing director and that he was attacked by disgruntled landowners during the course of construction due to the difficulties in getting progressive payments made; and that he had to borrow money from local people in the total sum of K1,050,000.00 to keep the construction going. It is pleaded that the second plaintiff is liable to repay this amount plus interest. 

4.     Default judgment was ordered on 6 August 2021 in the following terms:

1.	Pursuant to O 12 Rule 25(a), (b) and Rule 28 of the National Court Rules, default judgment is entered against the defendants for damages to be assessed.

2.	Costs of the application.  

CLAIM

5.     The plaintiffs claimed three categories of damages: 

(a)	amount due under the contract, K3,987,950.00; 

(b)	special damages for money owed to creditors, K2.1 million;

(c)	damages for mental distress etc, K50,000.00.

Total claim = K6,137,950.00.

APPROACH 

6.     As explained by the Supreme Court in William Mel v Coleman Pakalia (2005) SC790, the role of the judge assessing damages after entry of default judgment is to make a cursory inquiry so as to be satisfied that the facts and the cause of action are pleaded with sufficient clarity. If the facts and cause of action are reasonably clear, liability should be regarded as proven: the default judgment resolves all questions of liability in respect of the matters pleaded in the statement of claim. Only if the facts or the cause of action pleaded do not make sense or would make an assessment of damages a futile exercise should the judge inquire further and revisit the issue of liability. The plaintiff has the burden of producing admissible and credible evidence of the alleged damages. Any matter that has not been pleaded but is introduced at the trial is a matter on which the defendant can take an issue on liability.

7.     I have made a cursory inquiry and am satisfied that the facts and the cause of action are, generally, pleaded with sufficient clarity. Liability is therefore regarded as proven. I have inquired whether there is any reason to believe that s5 of the Claims By and Against the State Act has not been complied with. I note that compliance is pleaded in the statement of claim. No argument or evidence is before the Court to contradict that pleading. 

8.     However, I have some issues around the terms of the order for default judgment. I cannot see any cause of action pleaded against either the first or second defendant. It would be most unusual for public officials, in the absence of pleading and evidence, to be found liable for a breach of contract when they are not a party to the contract. Though the first defendant executed the contract, he did so on behalf of the State, and his signature on the contract does not make him a party or give rise to personal liability. Likewise, with the second defendant. He was not a party to the contract. The proceedings against the first and second defendants will be dismissed. For similar reasons, the first plaintiff, who was not a party to the contract, should be excluded from the default judgment. 

9.     As a result of my cursory inquiry into the default judgment, I will order that the terms of the order are amended to clarify that the defendants liable for damages are only the third and fourth defendants and that liability inures in favour of the second plaintiff only. 

PRINCIPLES FOR ASSESSMENT OF DAMAGES

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

•	In a civil action, the purpose of an award of damages is to put the innocent party in the same position, as far as possible, as it would have been in if the wrongdoer had not committed the wrongful act (Livingston v Raywards Coal Co [1880] 5 App Cases 25).

•	The plaintiff has the onus of proving its loss on the balance of probabilities. It is not sufficient to make assertions in a statement of claim and simply expect the court to award what is claimed. The burden of proving a fact is upon the party alleging it, not the party who denies it (Yooken Paklin v The State (2001) N2212).

•	Corroboration of a claim is usually required and the corroboration must come from an independent source (Albert Baine v The State (1995) N1335, Kopung Brothers Business Group v Sakawar Kasieng [1997] PNGLR 331).

•	The principles of proof and corroboration apply even when the defendant fails to present any evidence disputing the claim (Peter Wanis v Fred Sikiot and The State (1995) N1350).
•	The fact that damages cannot be assessed with certainty does not necessarily relieve the wrongdoer of the necessity of paying damages. Where precise evidence is available the court expects to have it. However, where it is not, the Court must do the best it can (Graham Mappa v ELCOM (1992) N1093, Jonathan Mangope Paraia v The State (1995) N1343).

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

ASSESSMENT 

(a)	Amount due under the contract, K3,987,950.00

13.      This is actually a claim for debt as distinct from damages. It is important to maintain that distinction (Kumagai Gumi Co Ltd v National Provident Fund Board of Trustees (2006) SC837, Niugini Civil & Petroleum Ltd v West New Britain Development Corporation Ltd (2008) N3292).

14.     The claim is clearly pleaded and there is evidence in support of it. I award the amount claimed: K3,987,950.00. 

(b)	Special damages for money owed to creditors, K2.1 million

15.    I call upon the specific principles that apply to assessment of damages for breach of contract: the innocent party (the second plaintiff) only gets the amount of 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.

16.     I also apply two general principles re assessment of damages: the plaintiff must prove its losses by evidence and the fact that damages cannot be assessed with certainty does not necessarily relieve the wrongdoer of the necessity of paying damages. Where precise evidence is available the court expects to have it. However, where it is not, the Court must do the best it can. The combined effect of these principles is that the losses said to have been caused by being forced to borrow from the informal sector seem rather remote and that there is insufficient evidence that the amount of K1.05 million was borrowed. I am prepared to accept, however, that some money was borrowed. I will discount the claim by 90%. I will award 10% of the K2.1 million claimed = K210,000.00.
 
(c)	Damages for mental distress etc, K50,000.00

17.    There is evidence that the first plaintiff was assaulted and injured and traumatised. But I find that this is a claim for special damages outside the normal category of damages for this sort of case, a commercial case for breach of a construction contract. As it is actually a claim for special damages, it needed to be pleaded with particularity. It was not. Therefore, nothing is awarded. 

Summary of assessment

18.     The following amounts are awarded: 

(a)	amount due under the contract, K3,987,950.00; 

(b)	damages for money owed to creditors, K210,000.00;

(c)	damages for mental distress etc, 0.

Total = K4,197,950.00.

INTEREST

19.     Interest will be awarded at the rate of 2 per cent per annum on the total amount of damages under s 4(1) of the Judicial Proceedings (Interest on Debts and Damages) Act 2015. Interest will be calculated in respect of the period from the date of service of the writ, 10 Aug 2020, to the date of this judgment, a period of 1.45 years, by applying the formula D x I x N = A, where: D is the total amount of damages awarded, I is the rate of interest per annum, N is the appropriate period in numbers of years and A is the amount of interest. Thus K4,197,950.00 x 0.02 x 1.45 = K121,740.55.

COSTS

20.     Costs will follow the event.

ORDER

1.	The order of 6 August 2021, entered on 13 August 2021, is amended in that, for the avoidance of doubt, it is ordered that: (a) default judgment is entered against the third and fourth defendants in favour of the second plaintiff, for damages, to be assessed; and (b) default judgment is not entered against the first and second defendants, in relation to whom the proceedings are dismissed. 

2.	The third and fourth defendants are liable to the second plaintiff in damages of K4,197,950.00 plus interest of K121,740.55, a total judgment sum of K4,319,690.55.

3.	The third and fourth defendants shall pay the second plaintiff’s costs of the proceedings on a party-party basis, which shall, if not agreed, be taxed.

4.	The proceedings are thereby determined and the file is closed. 
________________________________________________________________
Johnny Kolkia Lawyers: Lawyers for the Plaintiffs