Jay L W Contractors Ltd v Covec PNG Ltd [2022] PGNC 352; N9781 (19 July 2022)

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ASSESSMENT OF DAMAGES – payment under sub-contract – delay in performance of contract obligation- reduction of the scope of work – whether entitled to payment

JLW signed a subcontract with Covec for the upgrade and sealing of 13 kilometers of the Highlands Highway between Porgera and Laiagam in Enga Province for K26,860,035.72 on 21 August 2012. The subcontract value was K26,860,035.72. JLW encountered a delay in undertaking the road works and so the parties signed the Complimentary Agreement on 10 July 2014 reducing the distance to be undertaken by JLW to 7.25km valued at K14,999,670.00. The balance of 5.741km valued at K11,860,365.72 km was retained by Covec. JLW did not complete its portion of roadworks by the scheduled completion date of 30 December 2014, and thus on 14 April 2015 by agreement Covec took over part of JLW’s work and completed the roadworks including sealing in time for the practical completion date of 5 September 2015. The assessment is to ascertain what outstanding contractual payments and damages are properly due to JLW under the Sub-Contract, Complimentary Agreement, and Agreement of 14 April 2015.

2 Jay LW Contractors Limited is entitled to be paid for work undertaken on the 7.259km due to a massive landslide and will order that claim for that with evidence of work be submitted for certification and payment by Covec.

Papua New Guinean Cases
Kumagai Gumi Co Ltd v National Provident Fund Board of Trustees (2006) SC837
Niugini Civil & Petroleum v West New Britain Development Corporation Ltd (2008) N3292; N5775
Jeffrey Balakau v Sir Arnold Amet (2013) N5313
Binnen Construction Limited v Buka Golai Malai & Others (2014) N5775
PNG Aviation Service Pty Limited v Michael Somare (2002) SC685
Nivani Ltd v China Jiangsu International Ltd (2007) N3147
Bio Normalizer (PNG) Ltd v CPL (2009) N3649
Kurumbukari Ltd v Efi (PNG) Ltd (2012) N4704
Supreme Court Reference No.4 of 1980, [1982] PNGLR 65
Reference by East Sepik Provincial Executive (2011) SC1154
Board of Management v Moses Sariki (2013) N5446
Lee v Burua (2003) N2404
Curtain Bros (Qld) Pty Ltd v PNG [1993] PNGLR 285
PNG Aviation Service Pty Limited v Michael Somare, (2002) SC685
Mogai Ltd v Tolopa (2021) N9360
Mangobe v Estate of Late Mokola Kamiali (2022) N9582
Robmos Limited v Fredrick Punagi (2017) N6586

Hadley v Baxendale ( 1854) 9 Exch 341
Attorney General of the Virgin Islands v Global Water Associates Ltd [2020] UK PC 18
Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528
Koufos v C Czarnikow Ltd (“the Heron 11”) [1969] 1 AC350
Addis v Gramophone Co Ltd [1909] AC 488

2. JLW signed a subcontract with Covec on 21 August 2012 to upgrade and seal 13 kilometers of the Highlands Highway between Porgera and Laiagam in Enga Province. The subcontract cost of the road project was K26,860,035.72. JLW encountered a delay in the performance of the subcontract resulting in the parties agreeing to reduce the scope of work by signing the Complimentary Agreement on 10 July 2014.

3. Under the Complimentary Agreement the portion of work to be undertaken by JLW was reduced to 7.25 km and the consequential reduction of subcontract value to K14,999,670.00. Covec retained 5.741km of the subcontract work valued at K11,860,365.72.

4. JLW did not complete its portion of roadworks by the scheduled completion date of 30 December 2014, and thus on 14 April 2015 by agreement Covec took over part of JLW’s work and completed the roadworks including sealing in time for the practical completion date of 5 September 2015.

5. The assessment is to ascertain what outstanding contractual payments and damages are properly due to JLW under the Sub-Contract, Complimentary Agreement, and Agreement of 14 April 2015.

6. Counsel for JLW confirms that there are three (3) components to the Claim. They are labeled as Part A Unpaid Contract Entitlements, Part B Payment under the Complimentary Agreement, and Part C General and Special Damages.

7. Counsel for JLW tendered Table 1 and relies on submissions made during the hearing on liability and submit that the Court considers it in its assessment.

Item	Contractual Due	Judgment (Paragraph)	Amount (K)
1	Retention	58	381, 860.09
2	Uncertified Money	61	154, 327.97
3	Demobilization	64 & 66	325, 760.00
4	Variation	74	2, 895, 653.01
5	Balance of IPC/Progress Claim	77 & 78	1, 297, 530.00
6	Rice & Fall	80 & 82	1, 289, 888.31
7	Advance Payment	87	Nil
8	*Sub-Total*		*6, 347, 138.40*

8. There is only one Head of a claim for assessment which is provided in Table 2. Counsel for JLW relies on the submission made at trial on liability.

Item	Contractual Due	Judgment (Paragraph)	Amount (K)
1	Balance of subcontract under the Complementary Agreement	88 – 93	7, 362, 468.28
2	*Sub-Total*		*7, 362, 468.28*

9. These claims for general damages and special damages have not been considered. Counsel for JLW relies on previous submissions and submits that these heads of claims are also pleaded in its Amended Statement of Claim. The claims are itemized in the following Tables 3-7 and are further summarized in the following paragraphs for consideration and assessment.

10. Mr. Lains for JLW submits that JLW’s cash flow problems and its inability to pay Puma (PNG) Limited caused it to be placed in liquidation by the Court due to the actions and inaction by Covec. These include no advance payment, nonpayment of anticipated claims, deliberate delay of payment of second progress payment of 6 months, and underpayment of progress payments.

11. He contends that liquidation of JLW is tantamount to the death of a natural person whose demise is caused by another resulting in a civil claim and payment of damages. He submits therefore that the liquidation of JLW had caused injury to JLW’s trade reputation or goodwill for which a claim for K1.5 million is considered. Counsel relies on the defamation case of PNG Aviation Service Pty Limited v Michael Somare, (2002) SC685 in which the Court awarded K 100,000.00 for injury to the company’s trade reputation, K 1, 500, 000.00 financial losses occasioned by injury to the company’s trade reputation or goodwill and K 100,000.00 for aggravated damages.

12. Mr. Lains for JLW submits that Covec caused JLW to suffer cash flow problems from the beginning of the project. JLW had proposed steps to arrest the cash flow issues with Covec, but the latter showed no interest and refused. Counsel submits that JLW suffered the loss in its business because of Covec’s actions and seeks aggravated damages of K 1,000,000.00.

13. Counsel for JLW submits that his client incurred business losses and profits when it missed out on tendering for two projects. Those were the Niugu-Pangu Road and the Baiyer – Lumusa Road projects The calculations of the loss are derived from primary source materials including records of tax returns for 2012-2018, Profit and Loss statements, Bid evaluation Reports, and JLW bank statements, and contract copies.

14. Counsel further submits that the affidavit evidence by experience accountant Walter Tipi had not been refuted by Covec in Court and submits for the calculated amount to be paid by Covec. These are K5,948.338.20 for missing out on the Pangu– Niugu Road project and K8,922,507.30 for missing out on the Baiyer – Lumusa Road contract.

Loss of Business-Value of 5.74km of works Covec took back under the Complementary Agreement

15. JLW relies on the calculation of expert accountant, Walter Tipi which is reflected in Table 3. The evidence presented acknowledges the reason for the taking back of 5.741 km or K 11,860,365.72 worth of contract as being due to cash flow issues encountered by JLW. For example, the payment of K 5, 343.958.47 constituting 36% of the subcontract was insufficient to operate on and cover daily operating costs.

16. Counsel submits that JLW should be paid K 5, 493,350.64 (previously K 3,206,793.93). He submits that by comparison, Covec expended K 6,367,015 for doing the same kind of work on 5.741 km.

17. JLW had paid penalty interest for its equipment loan from the First Investment Finance Limited (FIFL). The unchallenged evidence shows payment of accrued penalty interest of K 93,185.48. JLW submits that the reasons for the delayed interest payment were due to its cash flow problems emanating from situations caused by Covec.

18. JLW claims it had paid penalty interest for delayed repayment of an equipment loan from Westpac Bank in the amount of K 12, 967. 00. It submits that this cost is not challenged by evidence and is not remote.

Item	Head of Damages	Submission Page & (Paragraph)	Amount (K)
1	Injury to Company’s Trade Reputation or Good Will	Pg. 29 para. 165 to pg. 31 para 176.	1, 500, 000.00
2	Aggravated Damages	Pg. 34 para 186 to pg. 35 para 191	1, 000, 000.00
3	Loss of Business/Profit on Niugu-Pangu Road	Pg. 34 para 177 to pg. 34 para 185	5, 948, 338.20
4	Loss of Business/Profit on Baiyer – Lumusa Road	Pg. 31 para 177 to pg. 34 para 185	8, 922, 507.30
5	Value of 5.74km of works Covec took back under the Complementary Agreement	Pg. 27 para 152 to pg. 28 para 157 and pg. 37 para 205	5, 493, 350.64
6	Penalty Interest paid to FIFIL	Pg. 28 para 159 to pg. 29 para 162	93, 185. 48
7	Penalty Interest paid to Westpac Bank	Pg. 29 para 163 & 164	12, 967. 00
8	Interest on internal borrowings	Plaintiff abandoned pursuing this head as there is no evidence to proof	Though claimed 20, 000.00 plaintiffs abandon it.
9	*Sub-Total*		*22, 970, 348.62*

19. Counsel for JLW summarizes and submits these under special damages and is captured in Table 4.

20. Counsel for JLW submits that cost was incurred by JLW in defending the petition for liquidation filed by Puma (PNG) and registered as MP No.31 of 2015-In the Matter of Jay LW Contractors Limited. The evidence shows payment of K 81, 711.81 by JLW for James Kruse of Deloitte Touche Tohmatsu.

21. Counsel submits that the legal fees incurred by the petitioner, Puma (PNG) Ltd in the liquidation proceeding against JLW amount to K 27, 500.00.

22. Counsel submits that this is legal fees in defending the application by Puma (PNG) Ltd. The lawyers acted for JLW and incurred legal bills of K 150,000.00.

Item	Head of Special Damage	Submission Page & (Paragraph)	Amount (K)
1	Liquidator’s Fees	Pg. 35, para 194 to pg. 36, para 95	81, 711.81
2	Petitioner’s Legal Fees	Pg. 36, para 196 & 197	27, 500.00
3	Legal Fees for Hardy & Stocks Lawyers	Pg. 36, para 198 – 201	150, 000.00
4	*Sub-Total*		*259, 211.81*

23. Mr. Lains for JLW submits for the Court’s consideration a post-judgment interest rate at 8% and three (3) categories of prejudgment commercial rates of interest to be applied on the judgment award. These are provided in the following tables:

Contractual Due	Date Cause of Action accrued		Date of Judgement	Judgment award (K)	Rate 22.50% per year	Interest Amount
Retention	06.09.2015		04.05.22	381,860.09	85,918.70 or 235.39/day	2380 days 560,237.02
Uncertified Money	06.09.15		“	154,327.97	34,723.70 or 95.13/day	2380 days x 95.13 = 226,418.16
Demobilization	06.09.15		“	325,760.00	34,296 or 208.81 /day	2380 days x 208.81 = 477,930.08
Variations	16.03.17		“	2,895,653.01	651,521.93 or 1784.99 /day	1784.99 days x 2,980,935.61
Rise & Fall	06.09.15		“	1,289,888.31	290,224.87 or 795.14 / day	2380 days x 795.14 = 1,892,425.18
Balance of the Value of Contract	06.09.15		“	7,632,468.28	1,717.305.36 or 4,704.95 /day	2380 days x 4,704.95 = 11,197,771.96
Outstanding of the IPCs or Progress Claims	20.06.15	28.10.21		1,297,530.40	291,944.34 or 799.87 /day	2,505 days x 799.87 = 2003,674.35
*TOTAL*				*13,977,488.37*		*19,339,392.36*

Head of Damage	Date WS filed	Date of Trial	Judgement Amount (K)	The rate at 13.5%	Interest Amount
Injury to Trade Reputation	07.12.17	13.10.21	1,5000,000.00	202,500.00=554.79 /day	3 years 310 days 779,479.95
Aggravated Damages	“	“	1,000,000.00	135,000.00 =369.86/ day	1405 day 519,653.30
Loss of Business i) Pangu Niugu Road Project ii) Baiyer Lumusa Road	07.12.17	“	5,948,338.20 8,922,507.30	803,025.66 =2,200.07 /day 1,204,538.49=3,300.11 /day	1405 days 3,091,098.76 1405 days 4,636,648.14
Loss of profit on 5.74 km	“	“	5,493,350.64	741,602.34 or 2,031.79 /day	1405 days x 2,031.79= 2,854,661.05
Penalty Interest- FIFL	“	“	93,185.48	12,580.04= 34.47/day	1405 days 48,424.54
Penalty Interest Westpac Bank	“	“	12,967.00	1,750.55 =4.80/day	1405 days 6,738.40
*Total*			*22,970,348.62*		*11,936,704.14*

Head of Damages	Date Cause of Action accrued	Date of Judgement	Judgment sum	12.5% /year	Interest Amount
Liquidator’s fee	24.03.16	13.10.21	81,711.81	10,213.97 =27.98 /day	2028 days 56,743.44
Puma’s Legal Fee	30.07.16	“	27,500.00	3,437.50 =9.42/day	2028 days 19,099.32
HS Lawyer’s Legal Fees	30.07.16	“	150,000.00	18,750 =51.37/day	1901 day =97,654.37
*Total*			*259,211.81*		*173,497.13*

24. Mr. Lains submits for costs to be on full indemnity on the basis that unnecessary costs were incurred, court’s resources and time wasted and there were elements of blameworthiness on the part of JLW.

25. Counsel for Covec relies on his submission filed on 24 May 2022 which followed the submission made at the hearing on liability.

26. Mr. Kasito for Covec submits that this head of the claim must be considered taking into account Clause 2 of the Complimentary Agreement that reads, “Subcontractor agrees not to claim anything for the works of CH7+259.7-CH+13+000 section that completed by Head Contractor. Head Contractor agrees not to deduct the payment of Subcontractor’s completed work which has been approved by the Consultant Engineer. The measurement and payment of the subcontractor’s work shall follow the items and rates of the previous Subcontract”

27. He submits that the consensus ad idem of the Complimentary Agreement is for the reduced amount of K 14, 999,670.00 for 7.259km. However, when Covec took over some of the work from JLW by agreement of 14 April 2015 the latter super cedes the Complimentary Agreement. Distance would have been reduced. He submits that JLW cannot claim the balance of the Complementary contract.

28. Mr. Kasito for Covec submits that special damages must be directly related to this proceeding. It must not be remote. “Remote” or remoteness has been defined by the Merrian Webster directory as “separated by an interval or space greater than usual; far relevant interest and cost”.

29. Counsel refers to Government of PNG v Moini [1978] PNGLR 184 cited in Kopele v MVIT [1983] PNGLR 223 at 228, “It is necessary that the question (of causation) ...be considered separately from that relating to foreseeability, as the concepts of causality and foreseeability differ, and the terms reasonably foreseeable is not, it, a test for causation; Chapman v Hearse [1961] HCA 46; (19610 [1961] HCA 46; 106 CLR 112. That a particular consequence may be foreseeable on the happening of an event, does not necessarily mean that it was caused by an earlier event. Because one event caused another it does not necessarily follow that the second event was a foreseeable consequence of the first...”

30. Also cited is Quinn v Burch (Builders) Ltd [1966] 2 QB 370, Court held injury was caused by his own risk in using the table and therefore B was not liable to damages. The injury was not a natural and probable consequence of the contract, even if it was a foreseeable consequence of that breach.

31. Counsel for Covec refers me to Mogai Ltd v Tolopa (2021) N9360, a case on trespass to land wherein the plaintiff sought general damages for trade reputation and goodwill. The court cited with approval the case of PNG Aviation Services Pty Ltd v Somare (supra) held that damages for trade reputation and goodwill is a remedy in an action for defamation and was refused. He submits that this case is one of the alleged breaches of contract and similarly the remedy must be refused.

32. Mr. Kasito submits that there is sufficient evidence that Covec is not solely responsible for the events that gave rise to the Complementary Agreement and subsequent takeover of the subcontract by Covec. He submits that the affidavit evidence by various managers of JLW shows a lack of interest in the project and preoccupation with their problems resulting in resignation to pursue other occupations.

33. Counsel for Covec also submit that the evidence shows that on many occasions Covec had paid IPCs in advance to progress the works. These payments were made following a request by JLW to progress the works on the agreement that the amount advanced will be deducted from the next IPC. He submits that the balance not deducted is brought forward to the next IPC as a way of assisting in progressing the project.

34. Further, Counsel submits that aggravated claim has not been pleaded and particularized. JLW has the burden of adducing admissible and credible evidence and is only entitled to lead evidence and recover such damages as were pleaded in the Statement of claim. He submits that the Court must refuse this head of the claim.

Loss of Business/Profit on Niugu-Pangu Road and Baiyer – Lumusa Road projects

35. Mr. Kasito submits that this claim is remote. When JLW and Covec signed the Subcontract, it was never foreseeable that JLW will also claim losing out on business endeavors. JLW made its bid amounts with many others, and some met the requirements of the bid and others missed out. It’s not as if JLW was the only bidder that was left out. The bidding process has its requirements and processes. He submits that even if it was foreseeable, which he denies, the loss was occasioned by the refusal by the Employer and has nothing to do with Covec or any alleged contract violations.

Loss of Business-Value of 5.74km of works Covec took back under the Complimentary Agreement

36. Mr. Kasito submits that the works were taken by Covec under a mutually and consented Complimentary Agreement. The introductory part of the Complimentary Agreement reads:

“Due to progress delay, capital problem and other difficulties that the Subcontract is being confronted and based on mutual consultation the two parties Head Contractor and Sub Contractor have reached an agreement on the below complementary terms and conditions to the previous Subcontract.”

“Subcontractor agrees not to claim anything for the works of CH7+259.7-CH+13+000 section that completed by Head Contractor. Head Contractor agrees not to deduct the payment of Subcontractor’s completed work which has been approved by the Consultant Engineer. The measurement and payment of the subcontractor’s work shall follow the items and rates of the previous Subcontract.”

37. Counsel submits that a further Agreement of 14^th April 2015 made between the parties provides for loss in contractual benefits and JLW should not claim for what it has agreed to forgo. The Complimentary Agreement was not amended unilaterally. Both Parties were in it and agreed. They fully knew and appreciated the risks, losses, and consequences that will follow. For JLW to claim for what it had agreed to forgo is against the principles of agreements. He submits this claim should be refused.

38. Mr. Kasito submits the FIFL loan that was taken out by JLW before the execution of the subcontract on 21 August 2012. Interest payments are private business endeavors with normal business risks including default. He submits that both claims are remote.

39. Counsel for Covec submits that the claim is remote. A corporation must accept business risks for its commercial activities and the medium of insurance normally provides for such risks, to be invoked in such eventuality.

40. He submits, that JLW had other commercial activities and cannot solely blame a breach of contract as the reason for incurring liquidated costs. He submits also that the parties did not foresee nor were aware that Covec will be made to face any effects of liquidation. Had that been the case, it might have impacted the signing of the subcontractor or Covec might have reconsidered or not entered the Subcontract at all. He submits that this claim should be refused.

41. Counsel submits that Petitioner’s legal fee of K 27, 500.00 arose out of a private business endeavor with normal business risks and costs and must be refused

42. Counsel submits that this is legal fees in defending the application by Puma (PNG) Ltd. The lawyers acted for JLW and incurred K 150,000.00. He submits that it must be refused.

43. Mr. Kasito refers me to Mangobe v Estate of Late Mokola Kamiali (2022) N9582 the court awarded the conventional 8 % rate of interest where parties have not contractually agreed on a rate.

44. He submits that should interest be allowed then interest be allowed at 4% on the basis that:

45. For costs, Mr. Kasito submits and reiterates that Covec should not be held responsible. That JLW was a contributor to the delays and its fate when considering incomplete mobilization, gross delay in submitting works programs, and gross delay in executing the subcontracted works.

47. Counsel, therefore, submits that this case should not be considered for costs on an indemnity basis, but cost be in the cause.

48. It is trite law in the contract that damages are awarded for breach of contract. Generally, the purpose of an award of damages for breach of contract is to compensate the injured party and to place him in the same position as if the contract had not been breached.

49. An assessment is a legal medium available to the courts to ascertain and assess the exact amount to be awarded to the party entitled after a finding on liability. The general principles for assessment are settled. The passage in the Headnotes in Peter Andoi t/a Rai Coast Electrical Services v Modilon General Hospital & Ors [2018] N7199, aptly summarises the principles as:

“The general principles for assessment of debt are the same as those for assessment of damages; the plaintiff has the onus of proving his losses, it is not sufficient to rely on assertions in the statement of claim, corroboration of a claim is required; the fact that debt cannot be assessed with certainty does not necessarily relieve the wrongdoer of the necessity of paying some amount of debt.”

50. In the contract, the distinction between debt and damages is stated in Kumagai Gumi Co Ltd v National Provident Fund Board of Trustees (2006) SC837 and followed in Niugini Civil & Petroleum v West New Britain Development Corporation Ltd (2008) N3292; N5775; Jeffrey Balakau v Sir Arnold Amet (2013) N5313; Binnen Construction Limited v Buka Golai Malai & Others (2014) N5775.

“A sum that one person is bound to pay another. Debt normally has one or other of two meanings. It can mean an obligation to pay money, or it can mean a sum of money owed”. The latter limb denotes the current cause of action now subject to assessment.

52. The ruling of Kapi DCJ in Reid v Murray Hallam & Allcad Pty Ltd [1995] N1337, as “Assessment of damages involves consideration of the terms of the contract and assessing the damages that flow from the breach of the terms of the contract.”

53. Here the assessment is for the unpaid contractual payments and damages due under the subcontract, complimentary agreement, and the agreement of parties on 14 April 2015.

54. JLW claims for assessment are categorized into three (3) categories as Part A, Part B, and Part C.

55. All claims itemized in Table 1 have all been assessed and endorsed without variation.

Part B. Payment under the Complimentary Agreement /Balance of
Sub-contract. Table 2

56. I am revisiting this claim to ensure it is consistent with my finding under Part A claims in particular considering the Interim Payment Certificate (IPC) or Progress certified claims of K7, 637, 201.72 of which K6, 341, 789.14 had been paid.

57. It is not in dispute, and I accept that the Complimentary Agreement reduced the scope of works from K13km to 7.25 km with a consequential reduction of subcontract value from K26,860,035.72 to K14,999,670.00. Covec retained 5.741km of the subcontract work valued at K11,860,365.72.

58. Clause 2 of the Complimentary Agreement is succinct in that JLW is not to claim any works on the CH7+259.7-CH+13+000 section of the road completed by Covec. JLW is only entitled to payment of completed works which has been approved by the Engineer. The Clause reads, “Subcontractor agrees not to claim anything for the works of CH7+259.7-CH+13+000 section that completed by Head Contractor. Head Contractor agrees not to deduct the payment of Subcontractor’s completed work which has been approved by the Consultant Engineer. The measurement and payment of the subcontractor’s work shall follow the items and rates of the previous Subcontract”

59. Covec alleges that there was further delay by JLW so on 14 April 2015 it took over the subcontract and undertook the road works to practical completion on 5 September 2015. No evidence has been properly tendered as to the terms of that takeover on 14 April 2015. Both parties have not been forthright in assisting the Court, especially what the agreement of 14 April 2015 entails.

60. I am left with the Complimentary Agreement to consider, and I confirm my finding that JLW undertook work on its 7.25km of road works under the Complimentary Agreement by undertaking earthworks on the 7.259km portion of the Laiagam - Porgera road during the extended period due to a massive landslide. As to the value of that work, this is a matter which is for submission for certification and settlement by the Engineer and Covec. The claim can be submitted under the terms of the Complimentary Agreement.

61. In arriving at the above, at the same time I accept that Covec performed road works including sealing on the CH7+259.7-CH+13+000 section of the road under the terms of the Complimentary Agreement. JLW is entitled to be paid for work undertaken on the 7.259km as alluded to above which I find not denied by Covec and will order a claim for work undertaken with evidence of work for certification and payment.

62. The test of remoteness is set out in Hadley v Baxendale (1854) 9 Exch 341, which remains the bedrock in contract law. It established that in breach of contract, a party will only be entitled to damages falling within one of these two categories:

2. Damages are the reasonable contemplation of the parties at the time of contracting.

63. The second limb is the most contentious. The Hadley v Baxendale test is in essence a test of foreseeability. That is, the loss will only be recoverable if it was in the contemplation of parties. The loss must be foreseeable not merely as being possible, but as being not unlikely. Put another way, the loss arises because of the special or unusual circumstances in which the parties contracted provided that those circumstances have been communicated to the other party.

64. The Privy Council in its intervention in Attorney General of the Virgin Islands v Global Water Associates Ltd [2020] UK PC 18 a case dealing with two associated government contracts with the same contractor. The Government of the Virgin Islands breached the first contract (for the design and the building of a water treatment plant with Global Water Associates). Global Water Associates terminated the contract and claim damages on the basis that it lost the ability to build the plant and the loss in profit it would earn in managing, operating, and maintaining the water facility (the second contract.)

65. The Privy Council found that the losses resulting from an inability to earn profits under the second agreement, were within the reasonable contemplation of the parties to the first agreement and losses arising under both agreements were therefore recoverable by the contractor. See also Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528: Koufos v C Czarnikow Ltd (“the Heron 11”) [1969] 1 AC 350.

66. The cause of action is in contract and JLW alleges breach of contract. It follows those damages for loss of trade reputation or goodwill can only survive if it can be proved that the loss is a result of a contractual breach. That is, damages can only be awarded for loss caused by the breach of contract, not for loss caused by the circumstances or manner of the breach. If loss of reputation is caused otherwise than by breach of contract, the plaintiff cannot recover damages for loss in an action for breach of contract. Herein lies the question and that is whether loss of reputation and goodwill can attract damages in the contract?

67. I have considered the ruling in PNG Aviation Service Pty Limited v Michael Somare, (2002) SC685 relied on by JLW and Mogai Ltd v Tolopa (2021) N9360 relied on by Covec and I conclude as in the latter case that damages for trade reputation and goodwill is a remedy in an action for defamation and not applicable.

68. In Addis v Gramophone Co Ltd [1909] AC488 a case generally regarded as the leading authority for the proposition that damages are not recoverable in a contract for loss of reputation, it held that loss of reputation could not attract damages in a contract because it was not caused by the breach of contract.

69. Further, in the current situation, the issue must be considered on the principle of remoteness. I must be satisfied that the injury to trade reputation or goodwill is a direct result of the contractual breach by the defendant as in the test enunciated in Hadley v Baxendale (supra).

70. I find that injury to trade reputation and goodwill was not in the contemplation of the parties at the time of contracting. Further, there is no breach of contract so JLW cannot recover damages for injury to trade reputation and goodwill in an action alleging breach of contract.

71. The claim by JLW is that Covec caused JLW to suffer cash flow problems from the beginning. It claims that during construction despite a proposal to arrest or solve cash flow issues with Covec, the latter refused thus aggravating JLW’s contractual and financial losses to K 1,000,000.00.

72. It has not been sufficiently articulated and proved as to how the action of Covec aggravated and caused the contractual delay that preceded the Complementary Agreement and subsequent takeover of the subcontract by Covec. I find the various managers of JLW were responsible for the progress of the subcontract due to their preoccupation, lack of foresight, and lack of interest in the project when they were required to resolve the delay issues.

73. Aggravated damages are articulated as damages to provide compensation for mental distress or injury to feelings caused by the manner or motive with which wrong was committed or by the defendant’s conduct after the wrong. Quite often claimed in torts (personal injuries and defamation) cases, contracts may be awarded for mental distress and injury due to the action of the defendant.

74. In assessing whether aggravated damages are to be awarded in this case, I must be satisfied that the conduct of Covec had caused JLW to suffer mental distress and financial injury or financial loss. In my view, JLW’s financial woes, cash flow issues, and lack of startup capital are first and foremost results of bad financial management more than attributable to the actions of Covec.

Loss of Business/Profit on Niugu-Pangu Road and Loss of Business/Profit on Baiyer – Lumusa Road

75. This claim relates to JLW’s incurring business losses and profits when it missed out on tendering for two projects. Those were the Niugu-Pangu Road and the Baiyer – Lumusa Road projects. The calculations of the loss are derived from primary source materials including records of tax returns for 2012-2018, Profit and Loss statements, Bid evaluation Reports, and JLW bank statement and contract copies. The claims are K5,948.338.20 and K8,922,507.30 respectively.

75. Can the claim by JLW be sustained in law. The only way this can be possible is to allocate wrongdoing or a breach on the part of Covec. The principle of remoteness must be considered. For example, when JLW and Covec entered the Subcontract was it foreseeable that JLW will also claim for losing out on business endeavors, see Hadley v Baxendale (supra).

76. The decision to bid by JLW on the two (2) projects was made on a commercial basis and not subject to the profits or outcome of this case. The bidding process has its requirements and processes. The failure by JLW to be awarded the contracts and thus the losses were occasioned by the decision of the Employer and have nothing to do with Covec. In Attorney General of the Virgin Islands v Global Water Associates Ltd (supra), the Privy Council found the losses resulting from an inability to earn profits under the second agreement, were within the reasonable contemplation of the parties to the first agreement and losses arising under both agreements were therefore recoverable by Global Water Associates.

77. The above-cited case can be distinguished as it involved two (2) contracts, the latter cannot be performed and thus loss of profits when the first was breached. Here is the loss of business /profit by JLW for not getting the two contracts which are independent and not within the reasonable contemplation of the parties to the present subcontract.

78. I try to allocate wrongdoing on the part of Covec but find none. I distinguish this from Robmos Limited v Fredrick Punagi (2017) N6586, in which the plaintiff claimed damages for expected income for loss tender due to the negligence and apparent illegality by servants of the State. I conclude here that it is not necessary to consider evidence tendered by JLW on the projected earnings and profits. The claim is refused.

79. I consider this claim parallel to Part B’s claim for unpaid contract payment under the Complimentary Agreement. Specifically, under this head. JLW is claiming the value of 5.74km of works Covec took back under the Complementary Agreement. The claim claims originally K 5,493, 359.64 but will settle for K 3,206,793.93.

80. The Agreement of 14^th April 2015 purportedly amended the Complementary Agreement. No evidence was led on the terms of the agreement however I accept that the parties were fully aware of the reduction or loss in contractual benefits. The Complementary Agreement was not amended unilaterally. They would have been fully aware of and appreciated the risks, losses, and consequences that would flow from the alteration. This claim by JLW relates to earnings it had agreed to forgo. The claim has no legal basis and is misconstrued.

81. The loan preceded the execution of the subcontract on 21 August 2012 by the parties. JLW had paid accrued penalty interest of K 93,185.48 for default in servicing its equipment loan from the First Investment Finance Limited (FIFL). JLW submits that the reasons for the delayed interest payment were due to its cash flow problems arising from actions or situations caused by Covec.
82. Penalty interest as there is a business risk and is a result of bad financial management and control in any private business enterprise. The claim is remote.

83. JLW claims it had paid penalty interest for delayed repayment of an equipment loan from Westpac Bank in the amount of K 12, 967. 00. It submits that this cost is not challenged by evidence and is not remote. I draw the same conclusion as in the foregoing claim.

84. These are legal fees/costs incurred in the liquidation proceedings instituted by Puma (PNG) and stay thereof and in the Supreme Court SCA 165 of 2015 and related proceedings in OS 838 of 2015.

(i) Court-appointed Liquidator’s Fees- Cost was incurred by JLW in defending the petition for liquidation filed by Puma (PNG) and registered as MP No.31 of 2015-In the Matter of Jay LW Contractors Limited. The evidence shows payment of K 81, 711.81 by JLW for James Kruse of Deloitte Touche Tohmatsu.

(ii) Petitioner’s Legal Fees-85- Legal fees incurred by Puma (PNG) Ltd as the petitioner in the liquidation proceeding amounting to K 27, 500.00.

(iii) Legal Fees for Hardy & Stocks-- Legal fees in defending the application by Puma (PNG) Ltd. The lawyers acted for JLW and incurred legal bills of K 150,000.00.

85. All three claims were not in contemplation at the time of contract and must fail as they are remote.

86. I have considered the appropriateness of claiming a commercial rate of 22.5%, 13.5%, and 12.5%. I also consider whether to award separate accrual dates of 22.5%, 13.5%, 12.5%, and the conventional 8%.

87. JLW submits that the justification and appropriateness for the commercial rates are:

88. Justification for seeking a commercial rate is one thing but claiming three (3) separate commercial rates is another. No evidence has been led by JLW to provide a rationale for seeking these threefold commercial rates. Further, parties led no evidence of any prior contractual expression on the rate of interest commercial or otherwise.

89. I am not entirely satisfied that the claims in this cause of action emanate from a breach of contract. Where payments are allowed these are entitlements under the subcontract as amended by the Complimentary agreement and the Agreement of 15 April 2014 that are due and owing to JLW which should have been settled but for this proceeding.

90. In my consideration of interest, I must decide whether to apply the conventional interest rate under the Judicial Proceedings (Interest on Debt and Damages) Act 2015 of 8% or the commercial rate. I will not delve into the different categories of commercial rates.

91. In Mangobe v Estate of Late Mokola Kamiali (2022) N9582 the plaintiffs claimed the interest of 22% from the State. No evidence was led by the plaintiff to indicate why a commercial interest of 22 % per annum should be applied to any damages awarded in the suit. His Honour Shepherd J held: “The conventional rate of interest which this court usually applies to claims of this nature, where parties have not contractually agreed to an expressed rate of per annum”

92. The Mangobe case relates to the payment of interest on a deceased estate where the State was the defendant. The Court in its discretion awarded prejudgment interest at 4% and post-judgment interest at 2%.

93. I consider that there is merit in the allocation of different pre-and post-judgment interest rates on any award of damages or counterclaim. I will award a pretrial interest of 8% and a post-judgment interest rate of 4%. The formula for post-trial interest is as follows:

D x IR x (N/365) = I, where.
D is the amount of special interest
IR is the percent rate of interest per annum
N is the number of days expressed as a percentage of year and
I is the amount of interest

94. For post-judgment I adopted the formula:
A = D x I x N.
Where: D is the amount of Debt and Damages.
I is the rate of Interest p.a;
N is the appropriate period in the number of years.
A is the amount of Interest.

95. Parties are ably represented by Counsels in court. I have considered whether there is blameworthiness on any party or counsel for that matter. It is my conclusion that while it took up time and resources, it is not outside of the usual.

(a) Retention moneys K 381, 860.09.
(b) Uncertified Money K 154, 327.97.
(c) Demobilization payment K 325, 760.00.
(d) Balance of Progress Payment K 1, 297, 530.40.
(e) Variation payment K 2, 895,653.01.
(f) Rise and Fall K 1, 289,888.00.

2. Part B. JLW is entitled to be paid for work undertaken on the 7.259km due to a massive landslide and will order that claim that with evidence of work be submitted for certification and payment by Covec.

Hardy & Stocks Lawyers: Lawyers for the Plaintiffs
Kasito Lawyers: Lawyers for the First Defendants

National Court of Papua New Guinea

Jay L W Contractors Ltd v Covec PNG Ltd [2022] PGNC 352; N9781 (19 July 2022)