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Yondu Coffee Producers Ltd v Punangi [2017] PGNC 382; N7128 (14 February 2017)

N7128

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO. 1038 OF 2009

BETWEEN:
YONDU COFFEE PRODUCERS LIMITED
Plaintiff

AND:
FRED PUNANGI
First Defendant

AND:
COMMODORE PETER ILAU, COMMANDER OF PAPUA NEW GUINEA DEFENCE FORCE
Second Defendant

AND:
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Third Defendant

Goroka: Yagi J
2017: 14^th February

ASSESSMENT OF DAMAGES – Breach of agreement to personal and aircrafts under the Green Revolution Policy by the State.

Cases Cited:

Binen Construction Ltd v Hon. Buka Goli Malai (2014) N5775
Harding v Teperoi Timbers Pty Ltd [1988] PNGLR 132
Radao Holdings Ltd v Sogeram Development Corporation (2007) N5485
Steven Naki v AGC (Pacific) Ltd (2006) N5015
Waguvisa Resource Owners General Co-operative Society Ltd v John Kambual & Madang Agro Ltd (2014) N6160

Legislations:

Judicial Proceedings (Interest on Debts and Damages) Act 2015

Counsel:

B. Ovia, for the Plaintiff
W. Agusave, for the Defendants

DECISION

14^th February, 2017

1. YAGI J: The plaintiff is a wholly owned local company duly incorporated under the laws of Papua New Guinea, and is engaged in the principal business of buying of coffee from local growers in the major centers in the highlands region mainly Goroka and Kainantu in the Eastern Highlands Province, Mendi in the Southern Highlands Province and Chuave and Kundiawa in the Simbu Province. In the coastal areas or lowlands of the country the company is also carrying out its business undertakings in the 6 Districts of the Morobe Province including Menyamya/Aseki, Wau/Bulolo and Finschhafen/Wasu. The company was incorporated in February 1998. In September of 1998, the company had a name changed. Its current registered and principal office is situated at Portion 1060C, Airport Road, Goroka, Eastern Highlands Province.

2. In 2002 the plaintiff company was granted a Dry Coffee Processing License by the PNG Coffee Industry Corporation Limited and in April 2005 was granted a Coffee Export License by the PNG Coffee Industry Corporation Limited. PNG Coffee Industry Corporation Limited is a statutory body incorporated under the Companies Act, amongst others, is vested with statutory powers relating to the control and regulation of the production, processing, marketing and export of coffee including the licensing powers.

3. It is clear from the evidence that the company grew from strength to strength since its humble beginnings in 1998. However, due largely to the failed business venture it entered into with the State, the subject of this proceedings, the company went into liquidation but, was able to weather the storm, so to speak, over a period of time between October 2006 to April 2009 and successfully traded out of its insolvency after settling its creditors.

4. As part of its corporate philosophy the company provided substantial subsidies in terms of air transportation costs to coffee farmers in remote areas particularly in the Simbu and Eastern Highlands Provinces by airlifting their coffee produce to main centers to sell their produce. The company also assisted third level airline companies in terms of construction and maintenance costs and test-run fees.

5. In or about 2005 the National Government adopted a Green Revolution Policy with the primary objective to develop, encourage and increase production and supply of coffee in the remote coffee producing communities in the country. The concept developed as a public/private partnership. The State was to provide the logistical support and a private business entity to provide the business and financial component of the joint venture.

6. The plaintiff company was identified and invited by the State as a partner in the joint venture. The invitation was considered and accepted by the company.

7. On 22 April 2005 the State through the Department of Defence signed a Memorandum of Agreement (MoA) with the plaintiff company to facilitate the implementation of the Green Revolution policy of the National Government.

8. Under the MoA, the State and the Department of Defence are responsible for the provision of air transportation. The air element of the PNG Defence Force were to be deployed in transporting the coffee from the remote locations to Goroka for the plaintiff company to process and sell to the domestic and overseas markets. The coffee was to be transported from remote locations in the Eastern Highlands, Simbu, Madang, Morobe, Western Highlands, Gulf and Oro Provinces.

9. To enable the plaintiff company to perform its obligations under the MoA, the company also entered into contractual arrangement with other organizations. One of the company’s was Monpi Coffee Exporters Ltd (Monpi), a company involved in exporting of coffee. Under this contract the plaintiff company is required to supply 1,400 bags of coffee to Monpi for export to overseas markets.

10. Despite the execution of the MoA and all the preparations and commitments put in by the plaintiff company the State and the Department of Defence failed to honour its obligations and commitments under the MoA resulting in the plaintiff company suffering losses and damages. The Department of Defence failed to use its aircrafts and personnel to uplift and transport the coffee bags that were purchased or to be purchased at various remote locations resulting in destruction and wastages.

11. The plaintiff company instituted proceedings in August 2009 claiming damages for breach of agreement. The agreement was entered into between the plaintiff and the Department of Defence on 22 April 2005 and was for a period of 5 years. The plaintiff was contracted under the agreement to buy from smallholder producers and farmers of coffee in the remote locations in a number of Provinces, mainly in the Highlands Provinces of the country under the governments Green Revolution Policy. Under the agreement the Department of Defence is to provide air logistical support in terms of Defence Force aircrafts in transporting the bags of coffee beans out from the remote locations to the Plaintiff in Goroka for processing and exporting to overseas markets. Moreover the company was also involved in assisting selected coffee farmers in maintaining and improving the quality of the coffee produce and selling them to the company.

12. On 4 March 2014 the Court struck out the defendant’s defence and entered default judgment in favour of the plaintiff company and directed the parties to negotiate and settle the question of damages. The parties were unable to resolve the issue of damages payable and consequently the matter went for trial for damages to be assessed on 3 December 2014.

13. The following affidavit evidence were relied upon by the plaintiff company at trial, which were unchallenged by the defence:

1. Alex Kavie sworn 1 May and filed 5 May 2010 (Exhibit “P1”)
2. Alex Kehana sworn 1 May and filed 5 May 2010 (Exhibit “P6”)
3. Morre Kamtai sworn 1 May and filed 5 May 2010 (Exhibit “P2”)

4. Luke Pandan sworn 18 October 2013and filed 22 October 2013 (Exhibit “P3”)
5. Alex Kehana sworn 8 May and filed 20 May 2014 (Exhibit “P4”)
6. Alex Kehana sworn 15 May and filed 29 May 2014 (Exhibit “P5”)

14. The defendants filed no affidavit evidence in response and did not rely on any evidence at trial.

15. Counsel for the plaintiff and the defence presented arguments and relied on written submission handed up in Court. Counsel for the defence made clear submissions on the principles of law that are relevant and applicable in assessment of damages. I have noted them. The principles are now well established. In Steven Naki v AGC (Pacific) Ltd (2006) N5015 his Honour Cannings J summarized the principles. With respect, I adopt the summary for the purpose of my deliberation. There his Honour stated:

“2. The main principles to apply when the court is assessing damages can be summarised as follows:

• In a civil action, the purpose of an award of damages is to put the innocent party in the same position, as far as possible, as they would have been in if the wrongdoer had not committed the wrongful act (the breach of contract). (Livingston v Raywards Coal Co [1880] 5 App Cases 25.)
  
• The plaintiff has the onus of proving his loss on the balance of probabilities. It is not sufficient to make assertions in a statement of claim and then expect the court to award what is claimed. The burden of proving a fact is upon the party alleging it, not the party who denies it. If an allegation forms an essential part of a person’s case, that person has the onus of proving the allegation. (Yooken Paklin v The State (2001) N2212, National Court, Jalina J.)
  
• Corroboration of a claim is usually required and the corroboration must come from an independent source. (Albert Baine v The State (1995) N1335, National Court, Woods J; Kopung Brothers Business Group v Sakawar Kasieng [1997] PNGLR 331, National Court, Lenalia AJ.)
  
• The principles of proof and corroboration apply even when the defendant fails to present any evidence disputing the claim. (Peter Wanis v Fred Sikiot and The State (1995) N1350, National Court, Woods J.)
  
• The same principles apply after default judgment is entered and the trial is on assessment of damages – even when the trial is conducted ex parte. A person who obtains a default judgment is not entitled as of right to receive any damages. Injury or damage suffered must still be proved by credible evidence. (Yange Lagan and Others v The State (1995) N1369, National Court, Injia J.)
  
• If the evidence and pleadings are confusing, contradictory and inherently suspicious, the plaintiff will not discharge the onus of proving his losses on the balance of probabilities. It is conceivable that such a plaintiff will be awarded nothing. (Obed Lalip and Others v Fred Sikiot and The State (1996) N1457, National Court, Injia J.)
  
• The fact that damages cannot be assessed with certainty does not relieve the wrongdoer of the necessity of paying damages. Where precise evidence is available the court expects to have it. However, where it is not, the Court must do the best it can. (Jonathan Mangope Paraia v The State (1995) N1343, National Court, Injia J.)
  
• Where default judgment is granted, for damages to be assessed on a given set of facts as pleaded in a statement of claim, the evidence must support the facts pleaded. No evidence will be allowed in support of facts that are not pleaded. (MVIT v Tabanto [1995] PNGLR 214, Supreme Court, Kapi DCJ, Hinchliffe J, Sevua J; Waima v MVIT [1992] PNGLR 254, National Court, Woods J; MVIT v Pupune [1993] PNGLR 370, Supreme Court, Kapi DCJ, Jalina J, Doherty J; Tabie Mathias Koim and 28 Others v The State and Others [1998] PNGLR 247, National Court, Injia J.)
  
• The court must be alert to vague claims, unsupported by corroborating evidence, as they might be false claims. The court must only uphold genuine claims. (Kolaip Palapi and Others v Sergeant Poko and Others (2001) N2274, National Court, Jalina J.)
  
• The person who has been wronged has a duty to mitigate their losses; though it is the defendant who has the onus of proving failure to mitigate (Dia Kopio v Employment Authority of Enga and Others (1999) N1865, National Court, Hinchliffe J; Coecon v National Fisheries Authority (2002) N2182, National Court, Kandakasi J.)”
  

16. The plaintiff company in this case, according to its pleading (statement of claim), claims 3 categories of damages:

1. Economic Loss
2. Business Loss
3. General Damages
   
17. It also claims interests at 8% pursuant to Judicial Proceedings (Interests on Debts and Damages) Act 1962 and costs in the proceeding.
    

Economic Loss

18. Under this head of claim the plaintiff claims an amount of K300,000.00 in damages. The breakup of the claim comprises as follows:
    
    • (i) Cost associated with the signing of the MoA - K 15,000.00
    • (ii) Executive Meetings - K 10,500.00
    • (iii) Legal Fees - K 4,500.00
    • (iv) Aerodrome Lease Fees - K 2,500.00
    • (v) Logistics & remote area visits - K 6,500.00
    • (vi) Costs of Damaged prepaid Coffee - K261,000.00
      
19. The defendants do not dispute the claim for damaged prepaid coffee as it is conceded that there is evidence supporting the claim. The evidence is provided in paragraph 35 of Alex Kavie affidavit filed on 10 May 2010. The evidence by Mr. Kavie is that the plaintiff company expanded over K261, 000.00 towards that expense. He had provided a spreadsheet (annexure “H”) showing the particulars of the expenses incurred by the company. The actual amount of expenses incurred is in fact K261, 733.00. This is the actual amount of the loss incurred by the company in respect to the damaged prepaid coffee.
    

19. As to the other components of the claim under this category the defendants submit there is no credible evidence such as receipts, hotel invoices, ticket buts, airline boarding passes, copy of lease agreements, etc to support the claims. Moreover, it is submitted the claims have not been corroborated.

20. I accept and agree with the defence submission that due to the nature of the claims there must or ought to be supporting documents provided. These expenses could best be described as reimbursement expenses and are business transactions which in normal course of business are evidenced by official receipts, invoices, tickets, etc. However, there is also ample evidence, which are not contested by the defence that the officials of the State and in particular the PNGDF officials and the Department of Defence Management have clearly acknowledged in various correspondences, letters and other documents that officials from the plaintiff company have travelled to Port Moresby and other places including the remote area to attend meetings and other activities associated with the MoA. I also note that the defence has not challenged nor provided contrary evidence that may create doubts as to the genuineness of these claims where it would necessitate corroborative evidence to be provided. For these reasons I think it is only just, fair and reasonable that the nominal global award should be made to cover these other components. The total of all other components is K39, 000.00. I propose to award 50% of that amount.

Business Loss

21. This claim is for an amount of K20,282,895.00. The plaintiff claims in its pleading that in the year 2006 its projected total income would be K25,843,200.00 with its projected expenses for the year at K20,483,980.00. Therefore its projected net earnings or profit margin per year was K4, 507,310.00. Applying that annual loss for over a period of 4½ years if the MoA was not dishonoured or breached by the defendants, the plaintiff would have made a business income of K20,282,895.00.

22. The evidence in support of this claim is contained in a number of affidavits by Alex Kehana and one by Luke Panda.

23. Mr. Kehana is the General Manager of the plaintiff company. In his affidavit sworn on 1 May 2010 (Exhibit “P4”), Mr. Kehana produced and referred to the company’s various bank statements for the 2005 and 2006 periods. It shows, amongst others, the various amounts in terms of deposits and drawings transacted on the company account during those periods. A closer examination of the accounts shows that the company made an earning of K8, 085,727.00 in 2005. However, in 2006 when it applied most its resources on the MoA, the company’s earnings dropped considerably to K5, 152,238.00. That translates to about 40% in terms of the loss of earning potential.

24. In respect to Mr. Kehana’s affidavit sworn on 29 May 2014 (Exhibit “P5”), he gave evidence in relation to the aggressive Green Revolution awareness campaign carried out by the company and the positive responses received by the company which indicated the piling up of coffee bags in various remote locations in the Madang, Morobe, Simbu and Oro Provinces. There were approximately a total of 60,450 coffee bags left to self destruction due to failure in implementation of the MoA.

25. As to his third affidavit sworn on 1 May 2014 (Exhibit “P6”), Mr. Kehana gave evidence that the company conducted a Two Profit Centre operations in its business; the dry coffee processing factory and the coffee export business. He said the company was operating profitably for 7 years up until the MoA in 2006. The failure in the implementation of the Green Revolution Policy based on the MoA brought about catastrophic consequences for the company. One of the significant problem was that the company was unable to trade or operate its business undertakings normally leading to a winding up suit taken against the company by one of its major creditors. As a result the company was forced into liquidation by an order of the National Court in October 2006. With some good fortune, the company was able to settle all its creditors in less than 3 years and consequently the liquidation was terminated by the Court in April 2009. He described the period in which the company was under liquidation as “very difficult and most times financially embarrassing”.

26. Mr. Luke Pandan is a qualified accountant and principal of RMM Consultants, a registered private Accounting firm based in Goroka. He was engaged by the plaintiff company to prepare its Profit and Loss Statements. He said he drafted the company’s statements for 2004 to 2008. He also made some pertinent observations in relation to the statements. Perhaps the significant observations in brief are:

• Sales dropped by 39.64% in 2006 compared to 2005. The company made a significant loss as a result of the Green Revolution Program.
• The company also made losses whilst under the management of liquidators as a direct result of the failed Green Revolution Program which had a rippling effect on the company’s overall operations.
• The company lost significant coffee stocks in various remote locations due to failed Green Revolution Program.
• There are a number of significant questionable charges levied by liquidators as “liquidators fees and administrative costs”.
  

27. The State submits that the evidence does not support the facts as pleaded. It is submitted that the claim for K4,507,310.00 as loss suffered by the plaintiff company in 2006 is not supported by evidence from Mr. Kehana because on his evidence Mr. Kehana’s figures in terms of the net loss in profits in 2006 was K4,477,310.00, which is not what is pleaded in the statement of claim.

28. Whilst I appreciate the defence argument that there is obvious variance between the figure pleaded and the evidence, it is abundantly clear from the overall evidence the plaintiff company had sustained a severe loss in 2006. The loss is directly attributed to the failed MoA. It seems fairly clear on the evidence that the plaintiff committed itself heavily in implementing its obligations under the MoA. This is true in early preparatory stage and particularly the period immediately following the signing of the MoA. The variance is the figure is not substantial. It is only to the tune of K30, 000.00. I am satisfied from all the evidence the plaintiff company made a loss of K4, 507,310.00 in 2006. I accept the alternative submission by the defence that clauses 9 and 10 of the MoA, which in effect provided for an initial trial period of 2 years. The continuation of the full 5 years term of the contract is subject to the trial program period. In the circumstances I consider that the plaintiff is only entitled to claim the loss for a period of 2 years.

General Damages

29. The plaintiff company claims K500, 000.00 as general damages for hardship, inconvenience and frustrations it endured particularly during the period when it was placed under liquidation. It submits that the amount claim is reasonable. The defence submits that there should not be any award made because the claim for business loss adequately offsets the claim and therefore there should not be a separate award.

30. The claim for general damages is usually to compensate an innocent party for any suffering it had experienced because of the breach of contract. This is a recognized head of claim: see Harding v Teperoi Timbers Pty Ltd [1988] PNGLR 132, Radao Holdings Ltd v Sogeram Development Corporation (2007) N5485, Binen Construction Ltd v Hon. Buka Goli Malai (2014) N5775 and Waguvisa Resource Owners General Co-operative Society Ltd v John Kambual & Madang Agro Ltd (2014) N6160.

31. The plaintiff company has not shown how it has arrived at the amount claimed. For example it has not referred to any cases where similar amounts had been awarded for comparative purposes. However, the evidence provided by the plaintiff company clearly supports an award under this head of damages. No doubt the company had suffered considerably. The evidence is clear. In the circumstances I proposed to award 50% of the amount claimed which in my view would be fair and reasonable given the level of suffering in terms of frustrations, inconvenience, hardships, etc. which the company had endured.

Interests

32. Interest has been claimed at 8% per annum pursuant to Judicial Proceedings (Interest on Debts and Damages) Act 1962. This Act has recently been repealed and replaced with a new legislation - Judicial Proceedings (Interest on Debts and Damages) Act 2015, hence interest will be ordered under the new Act because the combined effect of s.2, s.4, s.5 and s.6 of the Act means that all judgments or court orders made on or after 1 January 2014, insofar as it affects the State must apply the prescribed rate of interest otherwise the judgment or order would be a nullity and liable to be set aside. On that basis the interest will be awarded at 2% per annum pursuant to s. 4(2) of the current Act (Judicial Proceedings (Interest on Debts and Damages) Act 2015. Interest awarded will from the date of issue of the writ of summons to date of judgment, which is a period of 7.8 years.

Costs

33. The general principle will apply and that is costs follow the event. That means that the successful party will be entitled to costs. In this case cost is awarded in favour of the plaintiff company.

Summary of the Damages Awarded

34. The following damages is therefore awarded to the plaintiff company:

1. Economic Loss - K300,000.00 less 50% = K150,000.00
2. Business Loss - K4,507,310.00 x 2 years = K9,014,620.00
3. General Damages - K500,000.00 less 50% = K250,000.00

4. Interest - 2% x K9,414,620.00 x 7.8 years = K1,468,680.72

5. Cost - The State (third defendant) shall pay the plaintiff’s costs in the proceeding on party-party basis to be taxed, if not agreed.

Order

35. The following will therefore be the formal orders of the Court:

1. The third defendant (Independent State of Papua New Guinea) shall pay to the plaintiff damages totaling K9,414,620.00 plus interest of K1,468,680.72, being a total judgment sum of K10,883,300.72.
   
2. In the event that the total judgment (K10,883,300.72) is not paid within 40 days after a certificate of judgment is served on the State interest shall be payable at the rate of 2% yearly from the date of issue of the certificate of judgment on the total judgment sum until payment.
   
3. The third defendant (Independent State of Papua New Guinea) shall pay the plaintiff’s costs in the proceeding on a party-party basis to be taxed, if not agreed.
   

Judgment accordingly
________________________________________________________________
Koisen Lawyers : Lawyer for the Plaintiff
Acting Solicitor General : Lawyer for the Defendants