Boroko Motors Ltd v Meridian Motors Ltd [2020] PGSC 114; SC2028 (6 November 2020)

SC2028

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCA No. 171 OF 2018

BETWEEN:
BOROKO MOTORS LIMITED
Appellant

AND:
MERIDIAN MOTORS LIMITED
Respondent

Waigani: Murray, Bona & Shepherd, JJ
2019: 1^st May
2020: 6^th November

SUPREME COURT – appeal against assessment of damages - jurisdiction – whether grounds of appeal raise questions of fact alone requiring leave - whether mitigation of damage is question of law or fact – application of s.14(3)(b)(iii) of Supreme Court Act - appeal against discretionary judgment of lower court - principles applicable.

Cases Cited:

Papua New Guinea cases

Bean v. Bean [1980] PNGLR 307
Curtain Brothers (PNG) Ltd v University of Papua New Guinea (2005) SC788
Dickson v Orere [1976] PNGLR 120
Dillingham Corporation of New Guinea Pty Ltd v Diaz [1975] PNGLR 262
Dowsett Engineering (New Guinea) Pty Ltd v Edwards [1979] PNGLR 426, SC161
Kingston v QBE Insurance (PNG) Ltd (2018) SC1698
Kewakali v The State (2011) SC1091
PNG Banking Corporation v Tole (2002) SC694
Pinpar Developer Pty Ltd v TL Timber Development Pty Ltd (2006) N3075
Shelley v PNG Aviation Services Pty Ltd [1979] PNGLR 119
Tulin v Toyota Tsusho (PNG) Ltd (2016) SC1555
Tsang v Credit Corporation (PNG) Ltd [1993] PNGLR 112, SC437
Waghi Savings & Loan Society Limited v Bank of South Pacific Ltd (1980) SC 185
Wani v The State [1979] PNGLR 593, SC170

Overseas Cases

British Launderers’ Research Association v Central Middlesex Assessment Committee and Hendon Rating Authority (1949) 1 All E.R. 21
British Westinghouse Electric & Manufacturing Ltd v Underground Electrical Railways Co. of London Ltd [1912] AC 675
Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2010] NSWSC 828
Hills Industries Ltd v Financial Services and Leasing Pty Ltd [2012] NSWCA 830

Counsel:

Mr M. Goodwin & Mr. T. Ivano, for the Appellant
Mr I. Molloy & Mr. I. Shepherd, for the Respondent

6th November, 2020

1. BY THE COURT: This is an appeal from a judgment of the National Court delivered on 1 October 2018 in proceeding WS No. 1584 of 2014 (Comm). The appellant Boroko Motors Ltd (BML) was the defendant/cross-claimant. The respondent Meridian Motors Ltd (MML) was the plaintiff/cross-defendant.
   

Background

2. MML & BML entered into a commercial lease agreement over part of a property (the premises) owned by MML. The lease commenced on 1 July 2011 and was for a term of 5 years to expire on 30 June 2016. On 19 March 2014 BML terminated the lease early and vacated the premises, claiming MML had repudiated the lease.
   

National Court proceeding

3. On 12 December 2014 MML instituted the current suit against BML, asserting that BML had breached the lease by firstly, failing to pay rent which became due on 1 October 2011 and then defaulting on payment of subsequent rent when due; secondly, for abandoning the premises and purporting to terminate the lease by alleging repudiation by MML in or about March 2014; and thirdly, for failing to restore the premises to a satisfactory condition as required by clause 8(g) of the lease.
   
4. MML claimed the following damages against BML for breach of contractual terms in the lease:
   1. K222,001.00 being:
      
      • (i) rent of K133,089 due on 1 March 2014; and
        • (ii) a shortfall of K87,912 for rent due for the months July 2013 to February 2014;
          
   2. K1,197,801.00 for loss of rent for the months April 2014 to December 2014;
      
   100. K412,000.00 being the estimated cost of restoring the premises to a condition satisfactory to MML;
        
   4. loss of rent for the unexpired term of the lease from January 2015 to expiration of the lease at the end of June 2016 or until a suitable tenant was found and paid rent, pursuant to clause 16(b) of the lease; and
      
   5. interest on damages at the agreed rate of 20% per annum pursuant to clause 19 of the lease.
      
5. BML defended the claim by MML and made a cross-claim. By its defence, BML pleaded:
   1. that MML had repudiated the lease by:
      1. substituting a new signatory or signature page to the lease;
      2. changing the rent review clause;
      100. interfering with BML’s entitlement to quiet enjoyment of the premises; and
      4. entering into negotiations with third parties to re-lease the premises to replace BML
   2. that it denied it had left the premises in an unsatisfactory condition but had instead made improvements which were to the financial benefit of MML such that MML had been unjustly enriched.
   3. that MML had failed to take reasonable steps to mitigate its loss.

6. In its cross-claim, BML repeated its averral of repudiation of the lease by MML and asserted causes of action against MML based on breach of contract, deceit, conspiracy to defraud, causing injury by unlawful means and commission of criminal offences for which liquidated damages of K1,757,779.93 was sought by BML, comprising the cost of improvements and renovations which BML claimed to have made to the premises amounting to K1,726,418.32 and BML’s costs of moving its business operations to an alternative site assessed by BML at K31,361.61 (but later not pursued in this appeal), and which BML sought to set-off against MML’s claim.

7. The trial proceeded on 21 June 2017 by way of both affidavit and oral evidence. On 1 October 2018 the primary judge dismissed BML’s cross-claim and entered judgment in favour of MML. Damages were awarded against BML as follows:

1. the sum of K222,001 being the balance of short-paid rent for July 2013 to February 2014 and unpaid rent due for March 2014;
   
2. the sum of K1,197,801 for unpaid rent due for the months April 2014 to December 2014;
   

100. the sum of K412,000 for the estimated cost of putting the premises in a condition satisfactory to MML;
     

4. damages for the unexpired term of the lease from January 2015 to June 2016 pursuant to clause 16(b) of the lease;
   
5. interest on damages at the rate of 20% per annum pursuant to clause 19 of the lease.
   

BML was ordered to pay MML’s costs of the proceeding on a party-party basis.

8. BML’s appeal to this Court does not challenge the primary judge’s finding of liability on the part of BML. BML’s appeal is expressed to be in relation to the issues of mitigation of loss and quantum of damages awarded only and not in relation to liability on the issue of MML’s alleged repudiation of the lease, which latter issue was rejected by the primary judge.

Grounds of Appeal

9. BML’s notice of appeal contains 8 grounds of appeal, which raise 3 central issues:
   
   • (1) whether the primary judge erred in law and in fact by finding that MML had mitigated its loss: grounds 3.1 to 3.6;
     
   • (2) whether the primary judge erred in law and in fact when assessing damages by failing to take into account the value of BML’s improvements to the premises: ground 3.7; and
     
   • (3) whether the primary judge erred in law and in fact by finding that MML had incurred cost in putting the premises in a condition satisfactory to MML: ground 3.8.
     

Consideration

Issue 1: Did the primary judge err in law and in fact when he found that MML had mitigated its loss?

10. Paragraph 2.2 of BML’s notice of appeal expressly pleads that:
    

2.2. The appeal lies without leave of the Supreme Court pursuant to Section 14(1)(a)(b) and Section 14(3)(b)(iii) of the Supreme Court Act Ch. 37, as it arises from a National Court decision/order which is final in nature and also raises the question [sic] of law and questions of mixed fact and law.

11. Section 14 of the Supreme Court Act relevantly provides:
    

14. Civil Appeals to the Supreme Court

(1) Subject to this section, an appeal lies to the Supreme Court from the National Court–

(a) on a question of law; or

(b) on a question of mixed fact and law; or

(c) with the leave of the Supreme Court, on a question of fact.

(2) ...

(3) No appeal lies to the Supreme Court without leave of the Supreme Court–

(a) ...

(b) from an interlocutory judgement made or given by the National Court except–

(i) where the liberty of the subject or the custody of infants is concerned; or

(ii) in cases of granting or refusing an injunction or appointing a receiver; or

(iii) in such other cases prescribed by the Rules of Court as are in the nature of final decisions.

12. We see no jurisdictional difficulty with BML invoking this Court’s jurisdiction under s. 14(1)(a) and/or (b) of the Supreme Court Act on questions of law and/or questions of mixed law and fact, where clearly leave of the Court is not required if there are no questions of fact alone that are challenged in the appeal.
    
13. However, para. 2.2 of BML’s notice of appeal raises two threshold matters which go to competency and to the jurisdiction of this Court to entertain appeal grounds 3.1 to 3.6, namely:
    
    1. whether BML can rely on the exclusion provision contained in s.14(3)(b)(iii) of the Supreme Court Act to assert that no leave was required for any of its grounds of appeal?
       
    2. whether BML’s grounds 3.1 to 3.6 pleaded in its notice of appeal involve questions of mixed law and fact for which leave was not required, as Mr Goodwin submits for BML, or if those grounds, as Mr Molloy contends for MML, based as they are on mitigation of loss and which relate to questions of fact alone, required leave to appeal under s.14(1)(c) of the Act?
       
14. At the outset we observe that s.14(3)(b)(iii) of the Supreme Court Act relates solely to appeals against interlocutory decisions of the National Court, where leave to appeal is ordinarily required. The exception allowed by s.14(3)(b)(iii) where leave is not required only applies to appeals from interlocutory decisions which come within the category of “other cases prescribed by the Rules of Court as are in the nature of final decisions”. There was no attempt by BML in its submissions to argue that the exception in s.14(3)(b)(iii) applies to any of the grounds in this appeal, based as they all are on matters arising from a final decision of the National Court. Had such a submission been made, we would have dismissed it. Any reliance placed by BML on s.14(3)(b)(iii) as a basis for not applying for leave to appeal in respect of the grounds pleaded in its notice of appeal is misconceived and can be disregarded.
    
15. However, the other basis on which BML relies for its contention in para. 2.2 of its notice of appeal that it did not require leave to appeal bears closer scrutiny. Mr. Molloy for MML made preliminary submissions that appeal grounds 3.1 to 3.6 are all concerned with mitigation of loss, also known as mitigation of damage, which involves questions of fact for which leave of this Court was required under s.12(1)(c) of the Supreme Court Act and that BML’s failure to obtain that leave renders appeal grounds 3.1 to 3.6 incompetent and divests this Court of jurisdiction to entertain them.
    
16. We observe at this juncture that Mr Goodwin for BML did not contest or address this threshold issue. Instead Mr Goodwin primarily contended in the introductory remarks to his submissions for BML that leave to appeal was not required because this appeal is from a final decision of the National Court and that it involves questions of law or questions of mixed fact and law, not questions of fact.
    
17. There is no dispute in this instance that this appeal is from a final decision of the National Court, not an interlocutory decision. This appeal can therefore only proceed to the extent that it raises questions of law under s.14(1)(a) and/or questions of mixed fact and law under s.14(1)(b) of the Act.

18. The threshold issue is this: should BML have obtained leave to appeal for its grounds 3.1 to 3.6 because, as argued for MML, those grounds all relate to mitigation of loss, which are questions of fact alone for which leave was mandatorily required under s.14(1)(c) of the Act?

19. To appreciate the arguments for each party and to assist with our determination whether to uphold or dismiss Mr. Molloy’s preliminary submissions in connection with appeal grounds 3.1 to 3.6 in BML’s notice of appeal, we set out a summary of those grounds:

3.1 The primary judge erred in law and in fact in failing to consider, apply or take into account the expert evidence of Arthur Ugup, registered valuer, in his affidavit sworn 23 September 2016.

3.2 The primary judge erred in law and in fact in finding that the asking price for rent by MML in 2014 was only K140,000.00 per month exclusive of GST when he should have found on the evidence that it was higher.

3.3 The primary judge erred in law and in fact in finding that the asking price for rent by MML of K140,000 per month exclusive of GST was less than the amount of rent that BML was to pay in 2014, when the amount BML was to pay in 2014 was K127, 652 per month exclusive of GST under item 8 of the lease.

3.4 The primary judge erred in law and in fact in failing to find that MML was telling and advertising to prospective tenants that the rental rate on the premises, particularly in 2014, was between 56% and 200% more than the market rate, and that MML would not agree to a reduction in the advertised rate to a reasonable market rate.

3.5 The primary judge erred in law and in fact in finding that MML had acted reasonably in mitigating its loss under clause16(e) of the Lease, by rejecting two offers from prospective tenants in June 2014, SP Engineering and Total Food Network (the Rejected Offers), particularly:

3.5.1 the Primary Judge made an error of law by applying a subjective test of reasonableness from the point of law of MML in determining mitigation of loss, when the correct test to apply was the objective test of a reasonable and prudent person standing in the shoes of the lessor at the time and in the circumstances;

3.5.2 the primary judge made an error of law in only finding that there was no obligation upon MML to rent the premises, when he should have found that on application of the objective test referred to in paragraph 3.5.1 that the Rejected Offers were reasonably made and would be acceptable to a reasonable and prudent person standing in the shoes of the lessor at the time and in the circumstances, and applied this to reduce MML’s damages;

3.5.3 there was no evidence, or no substantial evidence, that the Rejected Offers would cause damage to the premises and in what way, and the primary judge did not state in his decision the source of this evidence and how he arrived at this finding given the contrary evidence set out below;

3.5.4 the primary judge failed to consider, apply or take into account the evidence of John Uthmann, the Chief Executive Officer of MML, in paragraph 13 of his affidavit sworn 7 September 2016, where he states that the reason for the offers being rejected was that the prospective tenants did not have status, or financial history to secure MML’s right to payment of rent and other money in the event that the tenant might not comply with the terms of the lease;
3.5.5 the primary judge failed to find on the evidence that the allegation of prospective damage to the premises was not a reason for rejecting the offers, or not a valid explanation, that on the evidence of John Uthmann, the reason for rejecting the offers as set out in paragraph 3.5.4 was the only reason for the rejection of the offers, and these reasons were not sufficient to reject the offers and MML was in breach of its duty to mitigate its loss;
3.5.6 the primary judge failed to consider, apply and take into account at all the evidence of Alex Ikupu, the Property Manager of MML, and find that MML had failed to mitigate its loss on his evidence, when he stated in cross-examination that he thought the two offers in June 2014 were reasonable offers and that they should have been accepted by MML.
3.6. The primary judge erred in law and in fact in failing to find that the two offers from prospective tenants in June 2014, SP Engineering and Total Food Network, were reasonably acceptable to a reasonable and prudent lessor in the terms of the duty to mitigate damage under clause 16(e) of the lease, as they were:

• 3.6.1 offers in line with market rate for rent of the premises;
• 3.6.2 offers in line with that amount paid by BML for rent under the lease;
• 3.6.3 offers for a reasonably acceptable term;
• 3.6.4 proper commercial offers which were reasonable acceptable in the ordinary course of business under the protection of a formal lease agreement with security of payment of a bond under the lease for rent, default repairs and damage;
• 3.6.5 proper commercial offers, which on the evidence, were reasonably acceptable to MML but not taken up; and
• 3.6.6 offers which posed no greater risk than the existing risk under the repudiated lease.
  

20. Mr. Goodwin in his submissions for BML gives lengthy attention to these matters which all go to mitigation of loss but, as we have already noted, he did not address the threshold question as to whether mitigation of loss is a question of fact for which leave is required under s.14(1)(c) of the Act.

21. Mr Molloy for MML refers us to McGregor on Damages 18^th Edition (2009) which at para. 7-016 puts beyond contention that mitigation of loss is a question of fact. The learned authors state, in relation to this principle:

In Payzu v Saunders [1919] 2 KB 581 CA, both Bankes and Scrutton L.,JJ said that the question of mitigation of damage is a question of fact; in The Solholt [1983] 1 Lloyd’s Rep 605 CA, Sir John Donaldson M.R. said that “whether a loss is avoidable by reasonable action on the part of the claimant is a question of fact not law” and that “this was decided in Payzu v Saunders”. It has never been doubted since; today it tends to be regarded as trite law. One result of this is that, once a court of first instance has decided that there has been, or has not been, a failure to mitigate, it is difficult to persuade an appellate court to come to a different view. Mitigation being a question of fact, “it is therefore rarely appropriate; said Potter L.,J. in Standard Chartered Bank v Pakistan National Shipping Corp [2001] 1 All E.R. Comm.822 CA, “to interfere with the conclusions of the trial judge based as they are on the evidence (or lack of satisfactory evidence) before him...” (underlining ours)

22. In Waghi Savings & Loan Society Ltd v Bank of South Pacific Ltd (1980) SC185, Kapi J, as he then was, addressed the difference between questions of fact and questions of law. His Honour quoted with approval what Lord Denning said in British Launderers’ Research Association v Central Middlesex Assessment Committee and Hendon Rating Authority (1949) 1 All E.R. 21 at pp. 25 and 26:

On this point it is important to distinguish both facts and the conclusions from them. Primary facts are facts which are observed by witnesses and proved by oral testimony, or facts proved by the production of a thing itself, such as an original document. Their determination is essentially a question of fact for the tribunal of fact, and the only question of law that can arise on them is whether there was any evidence to support the finding. The conclusions from primary facts are, however, inferences deduced by a process of reasoning from them. if and in so far as those conclusions can well be drawn by a layman (properly instructed on the law) as by a lawyers, they are conclusions of fact for the tribunal of fact and the only questions of law which can arise on them are whether there was a proper direction in point of law and whether the conclusion is one which could reasonably be drawn from the primary facts. (underlining ours)

This same passage was referred to by Prentice DCJ in Dillingham Corporation of New Guinea Pty Ltd. v Diaz [1975] PNGLR 262, at p.270.

23. Having had regard to the principles in Waghi Savings & Loan Society Limited (supra) and having assessed each of grounds 3.1 to 3.6 set out above against the evidence presented to the primary judge in this instance, we are of the view that all of those grounds raise issues of fact alone, as submitted by Mr Molloy, for which leave was required pursuant to s.14(1)(c) of the Supreme Court Act but was not obtained.

24. With particular reference to BML’s ground 3.5, we accept that a first reading of that ground suggests that it does raise questions of mixed law and fact. However, we agree with Mr Molloy that ground 3.5 is an attempt by BML to disguise this ground as one of mixed law and fact. We adopt the submission for MML that the primary judge was entitled, on the evidence presented, to make a finding that MML was under no obligation in law to re-lease the premises where the financial status of the prospective tenants was doubtful and where their business operations could pose a risk of damage to the premises. The uncontradicted evidence before the primary judge was that offers were received by MML from SP Engineering and Total Food Network. However, MML’s Mr Uthmann gave evidence as to why those prospective tenants were unacceptable. BML failed to satisfy the primary judge that MML’s refusal to re-lease the premises to those prospective tenants in the circumstances outlined by Mr Uthmann was unreasonable. There is nothing on the evidence to suggest that the primary judge applied the wrong test in making this finding and thereby erred in mixed law and fact in the exercise of his discretion. Ground 3.5 relates to mitigation of loss, for which leave to appeal should have been obtained by BML but was not.

25. As leave to appeal grounds 3.1 to 3.6 was not obtained, the absence of that leave goes to jurisdiction. On an appeal this Court will not entertain a ground which requires leave (whether because the ground raises a question of fact or for any other reason requiring leave) where leave has not been granted: Dillingham Corporation of New Guinea Pty Ltd v Diaz [1975] PNGLR 262 at pp. 265-6 and 269-270; Dickson v Orere [1976] PNGLR 120 at p. 122; Shelley v PNG Aviation Services Pty Ltd [1979] 119 at p. 123; Dowsett Engineering (New Guinea) Pty Ltd v Edwards [1979] PNGLR 426 at pp.434-5; Wani v The State [1979] PNGLR 593 at pp. 594-5; Tsang v Credit Corporation (PNG) Ltd [1993] PNGLR 112 at pp. 114-117; Kingston v QBE Insurance (PNG) Ltd (2018) SC1698 at paras. 23-24, 126 and 139-140.

26. We accordingly uphold the preliminary arguments made by Mr. Molloy and find that appeal grounds 3.1 to 3.6 are incompetent because those grounds, all of which relate to mitigation of loss, raise questions of fact, for which leave to appeal was not obtained under s.14(1)(b) of the Supreme Court Act. This Court has no jurisdiction to allow those grounds. We are therefore of the view that it is not necessary to consider the first of the main issues, which is whether the primary judge erred in law and in fact when he found that MML mitigated its loss. However, if we are wrong in this regard, which we say we are not, for completeness we now proceed to consider the first main issue.

Did the primary judge err in law and in fact when he found that MML had mitigated its loss?

27. MML had both a general duty in underlying commercial law as well as an express contractual obligation to mitigate its loss if BML were to depart the premises before the expiration of the 5-year term of the lease.

28. We reproduce below the text of clause 16(e) of the lease (without grammatical amendment):

16(e) If the Lessee vacates the Premises whether with or without the Lessor’s consent, the Lessor shall be obliged to take reasonable steps to mitigates its damage and to endeavour to lease the Premises at the reasonable rent and on reasonable term. The Lessor’s entitlement to damages shall be assessed on the basis that the Lessor should have observed the obligation to mitigate damages contained in this paragraph. The Lessor’s conduct taken in pursuance of the duty to mitigate damages shall not by itself constitute acceptance to the Lessee’s breach or repudiation or surrender by operation of law.

29. The primary judge’s reasoning that MML had mitigated its loss is contained at paragraph 25 of his published decision:

From a consideration of the evidence, I am not satisfied that BML has proved on the balance of probabilities that MML did not take reasonable steps to lease the premises at a reasonable rent for a reasonable term. That MML placed the premises with three real estate agents and advertised the premises to my mind is the course of action that would be undertaken in the ordinary course of business to rent a premises or property. There was no obligation upon MML to rent the premises notwithstanding that a proposed rental by a lessee would lead to the premises sustaining substantial damage as a consequence of the rental activity. That two offers to rent the premises were received is indicative that MML’s efforts in marketing the premises for rental, met with some success. Further, MML was entitled to rely upon the fact that none of the real estate agents without whom the premises had been placed, informed MML that the rental that it was seeking was too high. BML’s submissions on this point are rejected.

30. Before reaching that conclusion, the primary judge took into account the principles on mitigation of loss as submitted for MML, which he noted were not opposed in any manner by BML. This can be seen at paragraphs 23 and 24 of the primary judge’s decision.

31. The primary judge states at paragraph 23 of his decision:

MML submits that the onus of proving that a plaintiff did not take reasonable steps to mitigate is clearly upon the defendant: Commercial Leases in Australia W.D.Duncan 4^th Ed at [13.40]: “The duty to mitigate loss is constituted by the taking of reasonable steps to reduce the loss payable by the lessee in damages. The standard is not high. The lessor would not be under any obligation to do anything other than what might be expected to be done in the ordinary course of business, as it is the lessee who has brought about the loss”.

32. And at paragraph 24, the primary judge states:

BML did not submit that the law was not as set out above.
33. In summary, Mr Goodwin of counsel for BML now argues that it was for MML to establish on the evidence at trial that it complied with its duty to mitigate its loss but that MML did not discharge that duty: Papua New Guinea Banking Corporation v Tole (2002) SC694. Mr Goodwin submits that the test as to whether MML had mitigated its loss is an objective test, that is to say what would a reasonable and prudent man acting in the course of business do, and not a subjective test taken from the point of view of MML: Tulin v Toyota Tsusho (PNG) Ltd (2016) SC1555; Pinpar Developer Pty Ltd v TL Timber Development Pty Ltd (2006) N3075; British Westinghouse Electric & Manufacturing Ltd v Underground Electrical Railways Co. of London Ltd [1912] AC 675.

34. Mr Goodwin argues that in this instance the primary judge applied a subjective test and found on poor evidence that MML had discharged its duty to mitigate its loss. This, Mr. Goodwin submits, constituted error in law and in fact on the part of the primary judge.

35. Mr. Molloy submits that the primary judge correctly found, based on the evidence, that MML had done what was reasonably required of it in law to mitigate its loss.

36. Firstly, we consider that the reason for the decision reached by the primary judge is on the application of the principles of mitigation as put forward by MML. BML did not suggest to the primary judge a different position at law which it now tries to advance before us. BML is not entitled to do that in this appeal. We find no error by the primary judge in his consideration and application of the law on mitigation of loss in his decision-making process.

37. Secondly, the argument by BML that the primary judge could not reach the decision he did because of the alleged paucity of evidence presented by MML is, in our view, without merit. The primary judge carefully analysed the evidence before him and found on balance of probabilities that he was satisfied MML had taken reasonable steps in its unsuccessful endeavours to re-lease the premises for the balance of the unexpired term of BML’s lease. This justified the primary judge’s finding that MML had mitigated its loss. The primary judge was entitled to arrive at that conclusion in the exercise of his discretion. We find no error of law or of mixed law and fact on the part of the primary judge in making that finding.

Issue 2: Did the primary judge err in law and in fact when assessing damages by failing to take into account the value of BML’s improvements to the premises?

38. Mr. Goodwin’s submission on this appeal ground 3.7 is that, as a matter of law, it was necessary for the primary judge to ascertain any betterment obtained by MML from BML’s exit from the lease and to then deduct the value of that betterment from the award of damages the primary judge was minded to make in favour of MML. This betterment, Mr. Goodwin submits, was twofold:

• BML asserts that it expended K1,726,418.32 on improvements to the premises when converting them into a world class car showroom. Mr Goodwin contends that the primary judge should have allowed a credit for this value by way of deduction of K1,726,418.32 from the award of damages made in favour of MML but that the primary judge failed to do so. This failure to deduct, it is alleged and as pleaded in BML’s cross-claim, is said to have resulted in unjust enrichment by MML.
  
• the improvements which were carried out by BML enhanced the marketability and value of the premises and that this therefore increased the rental which MML could obtain for the premises.
  

39. The combination of these two factors is said by Mr Goodwin to be a double benefit which accrued to MML in consequence of BML’s early departure from the premises and premature termination of the lease, notwithstanding that BML already owed very substantial arrears of rent to MML when it vacated the premises in March 2014.

40. In addition, it is argued for BML that MML can only claim for loss of rent of K620,268, inclusive of the shortfall of rent due but unpaid by BML as at March 2014, for the period up to June 2014 and not beyond. It is asserted for BML that June 2014 was the cut-off point for MML’s claim for loss of rent under the lease; that MML was not entitled to any award of damages for rent for the unexpired balance of the term of the lease through to June 2016 because MML could at as at June 2014 have entered into a new lease of the premises with either SP Engineering or Total Food Network. Mr Goodwin submits that the primary judge erred in law and in fact when he accepted MML’s evidence given by Mr Uthmann that MML did not consider either of those two prospective lessees to be satisfactory for reasons relating to their financial status and the likely risk of damage their business operations could cause to the premises.

41. The result of this submission for BML’ appeal ground 3.7 is that this Court is now urged in its appellate jurisdiction to adjust the primary judge’s award of damages downward to allow for a credit of K1,106,150.32 comprising the value of BML’s improvements to the premises said to be K1,726,418.32 less MML’s loss of rent of K620,269 admitted by BML which had accrued under the lease to June 2014. Mr Goodwin argues that this amount of K1,106,150.32 should be a set-off or deduction from the primary judge’s award of damages in favour of MML so as to allow for the betterment which MML has received, the deduction to be based on a quantum meruit or for unjust enrichment. We note in passing that BML does not, as part of the set-off or deduction it seeks this Court to make, now pursue its separate claim for K31,361.61, being the alleged cost of BML’s relocation of its business operations from the premises to an alternative site.

42. Mr. Molloy in answer submits that this ground 3.7 is misconceived. He argues that even if BML’s claims in respect of its expenditure on improvements and alleged resulting unjust enrichment of MML were to be valid in law (which is denied by MML), those claims could only arise on BML’s cross-claim, which was dismissed by the primary judge and which was not one of the grounds of appeal.

43. We observe that BML pleaded in paragraph 36 of its statement of defence:

36. In addition, the Defendant says that if it is found liable to pay to the Plaintiff any claim for rent, damages, costs or interest (which is denied), then the Defendant is entitled to set-off its loss and damage against such claim on the basis of the rights, actions and matters pleaded in the Cross-Claim of the Defendant.
    

44. Paragraph 13 of BML’s cross-claim alleges that as a consequence of MML’s alleged repudiation of the lease (an averment which was rejected by the primary judge and not challenged in this appeal), BML suffered loss and damage, particularized to include the cost of improvements and renovations “on a quantum meruit basis or an equitable claim for unjust enrichment”. In paragraph 27 of BML’s cross-claim, BML then seeks the same loss and damage as a consequence of alleged conspiracy, fraud and criminal conduct on the part of officers of MML.

45. We accept Mr Molloy’s summation of the facts and the law in relation to ground 3.7.

46. Paraphrasing Mr Molloy’s summation, the facts are that BML carried out work on the premises prior to the commencement of the lease to convert what was a large warehouse owned by MML into a car salesroom to suit BML’s own business operations. The improvements which BML carried out were the subject of extensive pre-lease negotiations between the parties. BML was granted a rent-free period of three months, and a further nine months at reduced rent. BML also had unhindered access to the premises for at least 5 months prior to the commencement of the lease on 1 July 2011. The parties by their agreement allocated the risks and their obligations relating to the improvements carried out by BML. This was part of their bargain. The legal effect of these mutually agreed arrangements is that there can be no claim by BML based on a quantum meruit or unjust enrichment: Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2010] NSWSC 828; Hills Industries Ltd v Financial Services and Leasing Pty Ltd [2012] NSWCA 380.

47. As already noted, BML’s cross-claim, which is the foundation for all of its claims for a quantum meruit or unjust enrichment based on betterment, was dismissed by the primary judge. The order for dismissal, to be found at paragraph 32(a) of the primary judge’s decision, means that all of these claims by BML were extinguished and cannot be considered further in this appeal as there has been no appeal by BML against the dismissal of its cross-claim.

48. In the circumstances, we consider BML’s appeal ground 3.7 to be without merit. We find no error in mixed law or fact on the part of the primary judge when he did not take into account in his assessment of damages the cost of BML’s improvement of the premises.

Issue 3: Did the primary judge err in law and in fact by finding that BML had incurred cost in putting the premises in a condition satisfactory to MML?

49. This issue raised by appeal ground 3.8 derives from the parties’ obligations under clause 8(g) of the lease. Clause 8(g) is inelegantly phrased but it is nonetheless clear as to its meaning and intent:

8(g) Upon vacating the Premises, the Lessee agrees if requested by the Lessor, to put the Premises in the condition satisfactory to the Lessor. In the event that the Lessor is required to put the Premises to the condition satisfactory to the Lessor, the Lessee agrees to reimburse the Lessor for all cost incurred by the Lessor in putting the Premises to the satisfaction to the Lessor.
50. Mr. Goodwin’s argument in summary is that the primary judge erred in law and in fact when awarding damages of K412,000 the cost MML claimed it would incur when putting the premises in a condition satisfactory to it following BML’s departure from the premises because what MML did was to obtain contractors’ quotes to restore the premises to the condition they were in prior to when the parties entered into the lease. Mr Goodwin submits that stripping the improved building back to its basics was an unreasonable proposition because the improvements which BML made to the premises were done with the consent of MML, that MML obtained the benefit of those improvements and that this in turn improved the marketability and rental value of the premises.

51. The primary judges’ reasoning and finding on this issue appear at paragraphs 29 and 30 of his Honour’s decision.

52. At paragraph 29 of the decision, the primary judge states his reasons:

MML claims that it required BML to put the premises in a satisfactory condition by letter dated 30^th October 2014 according to the estimate attached to that letter. The estimate was the first quotation and was for K412,000. BML admits receiving an estimate for that amount and apart from a reference in Mr. Rajan’s oral evidence, BML has not disputed that the work the subject of the estimate was required or that the cost was reasonable. Further, submits MML, BML did not have anyone on its behalf inspect the premises, after it vacated the premises, to provide a separate assessment of the cost involved in complying with MML’s request.

53. And at paragraph 30 of the decision, the primary judge states his finding:

In the absence of evidence to the contrary, I am satisfied that MML has satisfactorily made out its claim for the cost of placing the premises in a satisfactory condition.

54. We observe that the primary judge’s finding on this issue was primarily based on the evidence of Mr Uthmann which is set out in the appeal book at tab 9, page 90, paragraph 12 and page 91, paragraph 14; and tab 23, page 502 line 35 to page 503 line 39. This evidence went largely unchallenged at trial. We find no error in mixed law or in fact on the part of the primary judge when he accepted Mr Uthmann’s evidence.

Conclusion

55. The decision of the primary judge which is the subject of BML’s grounds of appeal resulted from the exercise of the primary judge’s discretion.

56. The law as to this Court’s power to overturn a decision of a lower court which is a result of the exercise of judicial discretion is well settled. The Supreme Court will be slow to overturn a decision of a lower court which was a result of that court’s exercise of discretionary power, except where the exercise of that discretion is clearly wrong. A discretionary judgment may be set aside if an identifiable error occurred in the exercise of the discretion, such as where the lower court:

(i) acted on wrong principles; or
(ii) gave weight to extraneous or irrelevant matters; or
(iii) failed to take into account relevant considerations; or
(iv) was mistaken as to material facts.

Alternatively, a decision of a lower court may be set aside by this Court in its appellate jurisdiction where there is no identifiable error, but the resulting judgment or order is "unreasonable or plainly unjust" and such that an error can be inferred: Bean v Bean [1980] PNGLR 307; Curtain Brothers (PNG) Ltd v. University of Papua New Guinea (2005) SC788; Kewakali v The State (2011) SC1091.
57. We have considered each of the grounds of appeal according to the central issues as identified. We find that no errors of law or errors of mixed law and fact were made by the primary judge. It follows that the appeal must be dismissed, with costs to follow the event.

Order

58. The Order of this Court is:

(1) The appeal is dismissed.

(2) The judgment of the National Court in WS No. 1584 of 2014 (Comm) delivered on 1 October 2018 is affirmed.

(3) The Appellant shall pay the Respondent’s costs of the appeal on a party-party basis, such costs to be taxed if not agreed.

Judgment accordingly.

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O’Briens Lawyers: Lawyers for the Appellant
Ashurst Lawyers: Lawyers for the Respondent