Awesa v PNG Power Ltd [2019] PGSC 70; SC1848 (12 September 2019)

SC1848

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCA NO. 107 OF 2016

BETWEEN
ALEX AWESA
Appellant

AND:
PNG POWER LTD
Respondent

Waigani: Hartshorn, Yagi & Thompson JJ
2019: 29 August
: 12 September

APPEAL - Plaintiff’s claim arising out of termination of Lease Agreement referred to mediation - mediation unsuccessful –‘bad faith’ certificate issued against Defendant - default interlocutory judgment entered by National Court against Defendant - assessment of damages referred to mediation --mediation unsuccessful - mediator prepared list of questions for referral to National Court for determination - some questions related to issue of liability - whether or not National Court judge had power to determine questions relating to liability after default judgment - whether or not National Court should only have assessed damages

Cases Cited:

Common Constructions Ltd v. TSC Contractors (PNG) Ltd (2017) N6681
Jimmy Lama v. NDB Investments Ltd (2015) SC1423
Meridien Motors Ltd v. Boroko Motors Ltd (2018) N7699
PNGBC v. Jeff Tole (2002) SC694
Rupundi Maku and ors v. Steven Maliwolo and Ors (2012) SC1171

Counsel:

A. Ona, for the Plaintiff
D. Dusava, for the Defendant

12^th September, 2019

1. BY THE COURT: BACKGROUND: On 23 May 2012 the Plaintiff/Appellant (“the Appellant”) issued a writ of summons against the Defendant/Respondent (“the Respondent”). Essentially, the Statement of Claim said that on 18 November 2011 the parties had entered into a Lease Agreement whereby the Respondent agreed to rent the Appellant’s property for two years “unless earlier terminated in accordance with the terms and conditions herein specified”. Clause 10 went on to provide that the Agreement could be “........ terminated by either party with or without cause provided a period of one month’s notice has been given......”.

2. On 4 May 2012, the Respondent gave a month’s written notice of its intention to terminate the Lease. The parties subsequently conducted a joint inspection of the property. Following the inspection, the Appellant issued an invoice to the Respondent for K31, 150.00 for alleged damage to the property, and the Respondent paid K20,000.00, leaving an outstanding balance of K11,150.00.

3. In the Writ of Summons, the Statement of Claim pleaded Clause 10 of the Agreement, said that the Respondent had invoked the provisions of Clause 10, and that as a result the Appellant would suffer loss. There was no pleading that this was in breach of the Lease. The Statement of Claim sought relief under the Fairness of Transactions Act, and claimed loss of income of over K3,000,000.00 plus damages, based on payment of rent for the remainder of the Lease Agreement.

4. The National Court referred the matter to mediation. This was unsuccessful, and the mediator issued a “bad faith” certificate against the Respondent. As a result, in 2014 the National Court struck out the Respondent’s Defence and entered default interlocutory judgment against it.

5. The Respondent sought leave to appeal this decision, but leave was refused.

6. The National Court then referred the assessment of damages to mediation. This was unsuccessful. At the conclusion, the mediator proposed that various questions be referred back to the National Court for determination. The Appellant took the view that some of those questions related to the issue of liability, which had already been determined, and that only questions relating to an assessment of damages could be raised.

7. Following Directions Hearings in May 2015, the parties agreed and the Court directed by consent, that both the Appellant’s proposed questions and the mediator’s proposed questions would be included in a Statement of Agreed and Disputed Facts and Issues(SADFI) which would be referred to the National Court for determination. The Appellant’s lawyer endorsed his consent on the resultant, SADFI which contained both sets of questions / issues for determination.

8. On this point, the Appellant’s lawyer submitted that he had only ‘reluctantly’ agreed to the SADFI including all the questions because he had been overborne by the Judge. No transcript or affidavit evidence was provided to support the submission, and the lawyer had not made any application at the time to vary or set aside the SADFI. This court can therefore only proceed on the basis that the questions/issues had been referred to the primary Judge, by consent.

9. The determination proceeded, and on 7 July 2016 the National Court delivered its decision. The primary Judge answered and determined each of the questions and issues in the SADFI. In essence, the primary Judge found that there was no proper foundation in the pleadings to enable it to assess any damages. The Appellant therefore lodged this Appeal on 16 August 2016, and on 30 August 2016 filed a Supplementary Notice of Appeal.

The Appeal

10. We deal with each of the Grounds of Appeal in turn.

11. Ground 3.1 – the Judge erred in refusing the relief sought.

12. This Ground fails to comply with the provisions of O7 R 10 of the Supreme Court Rules, by failing to specify with particularity the grounds relied on to demonstrate the specific reasons why the judgment is alleged to be wrong. It is therefore incompetent. (see Jimmy Lama v. NDB Investments Ltd (2015) SC1423).

13. Ground 3.2 – the judge erred in considering issues of liability, when there was already a default interlocutory judgment.

14. At para 77 of his Decision, the primary Judge found:

“Given that the court has already entered Judgment or Mr. Awesa with damages to be assessed, I accept PNG Power’s submission that the damages must be based on the pleadings in the statement of claim.”

15. Although, some of the questions referred to the primary Judge related to liability, they appear to have been considered relevant to the period of notice and other factors to be taken into account when assessing damages. The primary Judge was obliged to consider issues relating to, but not of, liability, because they formed part of the questions which, by referral from the mediator and by consent of the parties, had been referred to him for determination. By considering those issues, the primary Judge did not thereby determine or settle the issue of liability, which had already been determined and settled by his previous order for the entry of default interlocutory judgment. The primary Judge merely answered the questions which had been referred to him, but did not make any decision on liability.

16. Even if the primary Judge had revisited the issue of liability, he may do this where the pleadings do not disclose a cause of action in law. (see Rupundi Maku and ors v. Steven Maliwolo and ors (2012) SC1171). The pleadings here did not disclose a cause of action, and so the primary Judge would not have fallen into error.

17. There was no error shown in considering issues which related to liability, there was no decision on liability, and the primary Judge correctly proceeded on the basis that there was already a default interlocutory judgment.

18. Ground 3.3 – the Judge erred in failing to award costs to the Plaintiff, following the event, when the Plaintiff had succeeded on the issue of liability and had damages assessed at K11,150.00.

19. The question of costs is always a matter for the discretion of the Judge, which discretion is to be exercised in accordance with recognized principles. Order 22 Rule 11 of the National Court Rules provides that if the Court makes an order as to costs, the Court shall order that the costs follow the event, except where it appears to the court that some other order should be made as to the whole or any part of the costs. It is therefore, always within the Court’s discretion to make some other order as to costs.

20. In this case, although the Appellant had obtained default interlocutory judgment, it could not be said that this was “the event”, because it was only the first step to the final event, and the Appellant did not succeed in the second part of his claim for over K3m or any other figure by way of damages for the termination of the Lease.

21. The only amount determined by the Court was for the outstanding balance of the repair costs for property which was said to have been damaged during the lease. This was not a claim which was pleaded in the Statement of Claim, and which could therefore only have been raised during the unsuccessful mediation. As it did not form part of the Statement of Claim, the primary Judge’s answer to the question could not be said to have been an assessment of damages which would be “the event” within the meaning of the National Court Rules.

22. As the primary Judge found that the Appellant had failed to establish any basis for an award of damages, no error has been shown in the exercise of his discretion in relation to his answer to the question on costs.

23. Ground 3.4 – The Judge erred in failing to find that Clause 10 of the Lease Agreement was severable and should have been struck down or rewritten by the court.

24. This Ground fails to comply with the provisions of Order 7 Rule 10 of the Supreme Court Rules, by failing to specify with particularity the grounds relied on to demonstrate the specific reasons why it was alleged to be wrong. (see Jimmy Lama v.NDB Investments Ltd (supra)). The Lease Agreement was a simple and straight forward document, and there was no pleading of any basis for the Court to have the power to sever the clause, strike down or rewrite the Agreement.

25. If this Ground was intended to be a reference to the provisions of the Fairness of Transactions Act, the primary Judge dealt with this at length. He found that there was no pleading of a factual basis of the essential elements required by the Act, including that the Lease was not genuinely mutual or was manifestly unfair. No evidence could be given of matters not pleaded, but in any event, the Appellant’s own evidence was that he was a literate businessman who had been earning income from his various investment properties for many years, and had entered into several previous leases with the Respondent, in identical terms. There was no reason why he could not have understood the simple terms of the Lease, or why he could not have obtained independent advice, or why he could not have chosen to refuse to lease the property to the Respondent if he wished.

26. As there was no foundation in the pleadings for a claim under the Fairness of Transactions Act, and the Court had no other power to sever, strike down or rewrite the terms of a valid Agreement, no error has been demonstrated in the primary Judge’s answer to the question.

27. Ground 3.5 – The Judge erred in failing to find that the Appellant had a right to treat the termination of the Lease Agreement under Clause 10, as a repudiation of the Lease Agreement and which entitled the Appellant to claim the balance of rent payable under the lease.

28. The Appellant has misunderstood the difference between a termination, and a repudiation, of a contract. In order for there to be repudiation, one party must have breached the contract by either actual or anticipatory breach, which entitles the other party to elect to treat the contract as at an end, and claim damages for the breach. (see Meridien Motors Ltd v. Boroko Motors Ltd (2018)N7699).

29. There was no breach of the Contract here, and none was pleaded. The Respondent merely terminated the Contract in accordance with its specific provisions. The Appellant was not in a position to elect whether or not to accept the Respondent’s termination. As the termination was validly given under the Agreement, it simply took effect, and the Agreement was at an end. If there had not been a termination clause in the Agreement, the Appellant may have been entitled to claim damages for the remaining period of the Lease. However, there was a specific contractual term entitling either party to terminate without cause, simply by giving one month’s written notice. There was no error in the primary Judge’s answer to this question.

30. Ground 3.6 –The Judge erred in finding that there was no foundation in the pleadings on which to assess damages.

31. The basis for this Ground appears to be that the Appellant had produced sufficient evidence to show the loss which he had suffered as a result of the termination of the lease. However, evidence of loss is only relevant where it has first been pleaded and proven that there was a breach which caused the loss. There was no pleading or evidence of any breach, and therefore no foundation on which a loss could be assessed. (see PNGBC v. Jeff Tole (2002) SC694). There was no error in the primary Judge’s answer to this question.

32. Ground 3.7 – The Judge erred in failing to find the termination notice period in the lease was insufficient to allow the Appellant enough time to find other persons who were willing and able to enter into another lease for the same period and same rent.

33. This was not a question which was referred to the primary Judge. The primary Judge considered the amount of the rentals, in the context of the Appellant’s argument that he was entitled to have the Lease reviewed under the Fairness of Transactions Act, and in relation to the issue of whether or not the Appellant had a duty to mitigate his loss, if there had been a breach of the Lease Agreement. There was no pleading that the notice period was insufficient, and no pleading of any basis on which the court had the power to rewrite the notice clause in the Lease. (see PNGBC v. Jeff Tole (supra)). No error has been shown in the primary Judge not making such a finding.

34. Ground 3.8 – The Judge failed to find that the notice period in the Lease Agreement was insufficient and offended Sections 4 and 5 of the Fairness of Transactions Act.

35. Again, this was not a question which was referred to the primary Judge. In the context of the other questions, the primary Judge considered the Appellant’s claim for relief under the Fairness of Transactions Act. The primary Judge was not satisfied that the Appellant had pleaded or shown that the Lease Agreement was a transaction which was not genuinely mutual or manifestly unfair to the Appellant. The Appellant was a literate property owner who had entered into a number of identical Lease Agreements with the Respondent on previous occasions. There was no basis shown for his un-pleaded statements that he did not understand the Lease Agreement or that he could not exercise freedom of choice in relation to the Agreement or that the Agreement was in some other way unfair to him.

36. No error has been shown in the primary Judge’s reasoning that the pleadings and evidence failed to establish a claim under the Fairness of Transactions Act, and therefore there was no error in not making such a finding. (see PNGBC v. Jeff Tole (supra)).

37. Ground 3.9 - The Judge erred in failing to find that foreign common law cases were relevant to the issue of the “bargain damages”.

38. The primary Judge considered the issue in the context of answering the other questions which were put to him. In paras 64-75 of his Decision, the primary Judge specifically considered the cases from foreign common law jurisdictions which were cited by the Appellant. He found that they were not relevant because they all concerned cases where the agreements had been breached or repudiated. As no breach of an agreement had been pleaded or proved by the Appellant, no error has been shown in the primary Judge’s finding that those cases were neither relevant nor applicable.

Conclusion

39. It is apparent that the Appellant’s case proceeded substantially on the basis of a misunderstanding of the nature of his claim. His submission was based on the argument that the Appellant was entitled to elect to accept the Respondent’s termination of the agreement as a repudiation of the agreement, and claim damages for the balance of the lease period. However, there can only be a repudiation of a contract where there has been a breach of the contract. (see Common Constructions Ltd v. TSC Contractors (PNG) Ltd (2017) N6681, Meridien Motors v. Boroko Motors Ltd(supra)). In this case, there was no breach, there was only a valid termination, and there could be no repudiation or claim for damages.

40. The primary Judge’s decision shows that he did not proceed on the basis that there was no default interlocutory judgment, he made no other decision on liability, and as no breach of the Lease Agreement was pleaded or proven, there is no error in the primary Judge’s finding that there was no foundation in the pleadings to enable damages to be assessed.

41. The Appellant has failed to establish any of the Grounds of Appeal. We therefore make the following Orders:

(a) The Appeal is dismissed;

(b) The Appellant is to pay the Respondents costs of and incidental to the Appeal, to be agreed or taxed.
__________________________________________________________________Ona Lawyers: Lawyers for the Appellant

In-house counsel: Lawyers for the Respondent