Jay LW Contractors Ltd v Wereh [2025] PGNC 48; N11169 (7 February 2025)

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ASSESSMENT OF DAMAGES – breach of commercial contract with State – frustrated for non-performance - measure of damages – place plaintiff in position as if contract performed - expectation or reliance losses – recoup expenditures incurred or lost profits - plaintiff has onus of proof – Court has discretion to do the best it can where there is insufficient evidence – damages awarded accordingly

Cases cited
Alpar Trading Limited v Dr Nicholas Mann & Ors WS 568 of 2007 18 December 2012 (Unreported National Court Judgement)
Coecon Limited v. National Fisheries Authority [2002] N2182
Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54
Curtain Brothers (Queensland) Pty Ltd and Kinhill Kramer Pty Ltd v The State [1993] PNGLR 285
Kepson v Lati [2023] N10473
Marks v GIO Australia Holdings [1998] HCA 69; [1998] 196 CLR 494
Miliangos v Frank (Textiles) Ltd [1976] AC 443
National Capital District Commission v Yama Security Services Ltd [2017] SC1606
Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21; (1976) 136 CLR 444
PNG Aviation Services Pty Ltd v Karri [2009] SC1002
Robinson v Harman [1848] EngR 135; (1848) 1 Ex 850
Robmos Ltd v Punangi [2017] N6585
Tolanas v Gipe [2008] N3536

Counsel
Mr George Akia for the plaintiff
No appearance for the defendants

Default judgment was entered against the State defendants on 4 August 2022 for default in filing a defence within time. Jay LW Contractors Ltd seeks damages of K26,160,659.00 in business losses. Jay LW Contractors Ltd was unable to perform the contract following repudiation of the contract by the defendants.

2. The trial proceeded in the absence of the defendants. I was satisfied that the Solicitor General had received sufficient notice of the trial. The plaintiff agreed to proceed in the absence of the defendant under Order 10 rule 12 of the National Court Rules which give the defendants an option to vary or set aside the decision within 7 days. Written submissions from both parties were filed earlier when the trial was heard before Ganaii AJ but relisted before me after her Honour's term expired before handing down the decision.

3. The background facts are that the plaintiff was duly contracted by the State following public tender processes managed by the then Central Supplies and Tenders Board (CSTB). The plaintiff signed the contract with the State on 25 July 2013. The contract was for a period of six months and valued at K2,456,110.24.

4. The plaintiff then mobilised to Lae, its personnel and equipment which were in Wabag, Enga Province by the end of July 2013, soon after signing the contract. It was a term of the contract for the works to commence within 28 days from the date of signing the contract. Unfortunately, the plaintiff could not take possession of the site and perform the works because the defendants did not allow access to the site. After eight months of waiting, the plaintiff discovered that the contract was given to another contractor who had commenced in March 2014, to perform the same works that the plaintiff was engaged to perform. The plaintiff alleged breach of contract and loss of business and issued this proceeding against the first and second defendants nearly six years after the breach, the action is within the time limitation rule of six years. The plaintiff seeks the following relief as pleaded in its statement of claim filed 17 February 2020:

"27. As a result of the breach of Agreement and breach of statutory duties by the First and Second Defendant, the plaintiff suffered loss and damage, the particulars of which are as follows;

28. The plaintiff alleges that it suffers future loss of income as well due to the injuries and loss it suffers as a result.

29. The plaintiff gave its intended notice of claim to the Solicitor General by letter in May 2014, which was accepted as proper notice.

5. The plaintiff relies on 12 affidavits which were tendered into evidence, accepted and marked as exhibits as follows:

6. The plaintiff's evidence are from its Managing Director Jacob Jim, Praio Oksap Surveyor, Accountant John Wau, the Works Department Superintendent Simeon Suagu and Steven Peter. Praio collaborates Jim’s evidence about the mobilisation to Lae to take up the job at the Unitech as awarded by the State. Suagu collaborates Jim's evidence about not taking possession of the site and raising those concerns to the Works headquarters and the Secretary. Wau provides expert evidence about the extent of business losses suffered by the plaintiff from the evidence and information supplied by Jim. Steven Peter deposes to being the registered proprietor of the property which the plaintiff rented to store its machinery and equipment that it mobilised from Wabag. His evidence is that he had a verbal agreement with Jim for the rental to be at K4000.00 per month. Jim's evidence is of his company being awarded the public works contract by the CSTB after meeting due compliance requirement of the public procurement processes, acceptance of the award and mobilisation to commence works. He deposes about the delay of eight months experienced with machines and staff awaiting confirmation from the defendants to commence works despite numerous attempts to the local works superintendent verbally and formally to the Secretary to grant access to the project site, to commence the road rehabilitation works. His evidence demonstrates efforts taken by him to commence work and resolve the impasse.

7. The defendants failed to attend the trial despite adequate notice. The defendants filed their submissions on 01 June 2023 and the affidavits of David Wereh the Secretary of Works and Highways department filed on 23 May 2023 and Gabriel Tomtai, a member of the technical evaluation committee of the Works Department that considered bids for the Unitech job to which the plaintiff was awarded the contract. However, the defendant’s lawyer did not file the requisite notices under section 35 of the Evidence Act to rely on these affidavits nor attend the trial to present their case. The defendant’s evidence is not formerly tendered into evidence. Despite this, the plaintiff referred to the State affidavits in their submissions and on that basis, I have taken a cursory view of the affidavits and perused the defendant's filed submission in my deliberations.

8. The defence submission is that the pleadings should be revisited. The defendants also raise allegations that the plaintiff did not produce its work programme which prevented it from commencing the works. I am not persuaded by the defendant's submissions on revisiting liability as I find the pleadings sufficiently aver to facts concerning the contract, its breach and the loss of business suffered by the plaintiff. I am satisfied the pleadings are in order and there is no need to revisit the pleadings. The issue of the work programme is raised in the first defendant’s affidavit, which I consider is a matter going to liability which ought to have been pleaded in its defence, if it was filed. The defendants are precluded from raising these issues at this advanced stage of the proceedings without complying with the Court’s process to file a defence. It is too late now as liability has been established by the default judgment. See Coecon Ltd (Receiver/Manager Appointed) v National Fisheries Authority [2002] N2182.The matter is properly before the Court for assessing damages occasioned because of the breach, subject to proof of the financial losses claimed.

9. The issue for my consideration concerns the appropriate measure of damages and the quantum to award.

10. The general principle in assessing damages for breach of contract arises from common law and requires the innocent party to be placed in the position it would have been, if the contract was fulfilled. This common law position was established in Robinson v Harman (1848) 1Ex 850 at p855 that: -

"where a party sustains a loss by reason of a breach
of contract, he is, so far as money can do it, to be placed
in the same situation, with respect to damages, as if the
contract had been performed."

11. This statement of principle has been accepted and applied in Papua New Guinea. See PNG Aviation Services Pty Ltd v Karri [2009] SC1002 the Supreme Court commented at [14]:

“When assessing damages in contract, the court seeks to put the injured party in the position that party would have been in but for the breach of the contract. In other words, the object is to put the plaintiff in the same position as if the contract was performed. That statement of general principle for the assessment of damages for breach of contract is usually based on the decision in Robinson v Harman [1848] EngR 135; (1848) Exch 850 at 855; [1848] EngR 135; 154 ER 363 at 365, approved by the High Court of Australia in Commonwealth v Amann Aviation Pty Ltd ...”.

12. The rule in Robinson v Harman was considered by the Australian High Court in Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54. Commonwealth v Amann has been cited in Alpar Trading Limited v Dr Nicholas Mann & Ors WS 568 of 2007 18 which the plaintiff has relied on. It is therefore worth considering it. In Commonwealth v Amann the Australian High Court considered two methods of assessing damages in commercial contracts which gives effect to the principle in Robinson v Harman. These are expectation damages and reliance damages.

24. The award of damages for breach of contract protects a plaintiff's expectation of receiving the defendant's performance. That expectation arises out of or is created by the contract. Hence, damages for breach of contract are often described as "expectation damages". The onus of proving damages sustained lies on a plaintiff and the amount of damages awarded will be commensurate with the plaintiff's expectation, objectively determined, rather than subjectively ascertained. That is to say, a plaintiff must prove, on the balance of probabilities, that his or her expectation of a certain outcome, as a result of performance of the contract, had a likelihood of attainment rather than being mere expectation.

25. In the ordinary course of commercial dealings, a party supplying goods or rendering services will enter into a contract with a view to securing a profit, that is to say, that party will expect a certain margin of gain to be achieved in addition to the recouping of any expenses reasonably incurred by it in the discharge of its contractual obligations. It is for this reason that expectation damages are often described as damages for loss of profits. Damages recoverable as lost profits are constituted by the combination of expenses justifiably incurred by a plaintiff in the discharge of contractual obligations and any amount by which gross receipts would have exceeded those expenses. This second amount is the net profit.

27. ... In cases where, had non-negligent advice been given, the client would not have entered into a subsequent transaction, for example a purchase of real property, then, in conformity with Robinson v. Harman, the client will be entitled to recover as damages expenditure wasted on account of the negligent advice, less anything subsequently recovered and given reasonable acts of mitigation: Hayes v. Dodd [1988] EWCA Civ 8; (1990) 2 All ER 815, per Staughton LJ. at p 820. The amount of wasted expenditure will be the appropriate measure of damages in such a situation because, it having been established that the client would not have entered into the subsequent contract if proper advice had been given, it is not sensible to speak of loss of profits. Hayes v. Dodd is a useful illustration of the statement that the expressions "expectation damages", "damages for loss of profits", "reliance damages" and "damages for wasted expenditure" are simply manifestations of the central principle enunciated in Robinson v. Harman rather than discrete and truly alternative measures of damages which a party not in breach may elect to claim.

"The distinction between "expectation" loss and "reliance" loss for the purposes of the law of contract is well recognised. However, it is a distinction that is apt to mislead if transposed into other contexts. Contrary to what might be thought, the term "expectation" loss does not indicate that damages are payable simply for thwarted expectations. Rather, damages are payable for the loss involved in non-performance of the contract. Even if a contract is not susceptible of specific performance, the other party is legally entitled to expect its performance. Hence the expression "expectation loss"!

14. In any case, the expressions "expectation damages", "damages for loss of profits", "reliance damages" and "damages for wasted expenditure" are defined by the learned authors in Contract: General Principles The laws of Australia^[1] as follows:

"Four major interests are compensated by the award of damages for breach of contract: expectation damages, reliance damages, restitution damages and indemnity losses.

Expectation damages are awarded to give effect to the primary aim of compensatory damages, which is to place the innocent person in the position that person would have been in if the contract had been performed.

Reliance damages are awarded to compensate a person who has spent money or transferred property in anticipation of performance of a contract when the spending or transfer is wastes as a result of the guilty person’s breach. For example, where a person is offered employment in another city and is required to spend money to move there, those costs will be wasted if the prospective employer fails to go on with the contract. The prospective employee may be able to recover them as reliance damages.

If the contract is terminated, the damages may include compensation for the loss of the bargain, a form of expectation loss.

An important qualification on loss of bargain damages is that they must have flowed from the breach of contract itself rather than from the innocent party’s decision to end the contract.

If however, the breach was sufficient to authorise the innocent party to terminate at common law, loss of bargain damages are available."

15. The Court in Robmos Ltd v Punangi [2017] N6585 considered expectation damages and awarded net profit loss to Robmos for expectation loss suffered in not being awarded a State contract. It proved it would have been awarded the contract but for the wrongful decisions of the officials of the CSTB, as established by a judicial review decision it had obtained earlier. It also relied on its accounting information to prove the contract value was its expected net lost profits. The Court awarded damages on a contractual basis and held:

"44. Applying these principles to the case now before me, I find the plaintiff, Robmos has presented its case on a contractual basis rather than on the basis of a tort. In support of its claim, it has presented both actual and oral evidence. These evidence covers both prior profit and loss, and a substantial decrease in net profit since 2005 when the tender breaches occurred. The loss of the contract price, is the actual loss of Robmos’ net profit which comes to K1,065,161.80. The evidence is in the uncontested accounting report ... This is the contractual and actual loss Robmos suffered as a result of the Defendants’ tender breaches."

45. Additionally, Robmos claims in its pleadings for damages for loss of profits for a number of years subsequent to the tender breaches. This is readily calculable and represents a true and determinable loss and appears in the circumstances to be a fair and reasonable claim supported by the evidence before the Court. However, Robmos decided to abandon this part of its claim. Hence, Robmos claims only for the uncontested contractual and actual loss of K1,065,161.80 for damages."

Robmos Ltd v Punangi establishes that the contract value can be awarded as expectation damages subject to sufficient proof.

16. These cases establish that, an innocent party to a contract that is breached must prove what it expected to gain from the contract and that expectation may include receiving full payment of the contract value which comprises expenses planned to be incurred in performing the contract and the gain or profit expected to be made, subject to proof. Included in these considerations are expenditures incurred in reliance of performing the contract, which have now become wasted expenditures because of the repudiation of the contract. Where the innocent party is unable to prove lost profits, the Court can instead award damages for expenditures incurred.

17. In Commonwealth v Amann Aviation Pty Ltd his Honour Gaudron J commented at [19] that the starting position to assess damages where it is difficult to measure loss is the expenditure incurred because of the contract:-

"A contracting party who is unable to establish the precise measure of his or her loss is not thereby deprived of his or her right to recover damages. In some cases a court will make the best estimate it can. See Fink v. Fink [1946] HCA 54; (1946) 74 CLR 127, at p 143; and McRae, at pp 411-412. In other cases, a court may proceed on the basis that "a starting point" for the calculation of loss is the "expenditure incurred and wasted in reliance on the ... promise"

18. Where loss of profit is difficult to ascertain, their Honours CJ Mason and Dawson J in Commonwealth v Amann Aviation Pty Ltd held that a party can recoup its expenses subject to the other party demonstrating that the innocent party would not recover its expenses from the contract payment. His Honours commented: -

"36. Naturally, the categories of a case in which a plaintiff is likely to make a claim for the recovery of expenditure incurred are those in which the plaintiff has not suffered a loss of profits and those in which it is impossible to assess what would have been the outcome had the contract been performed or those in which that outcome is otherwise uncertain... The manner in which a plaintiff frames his or her claim for damages will be dictated ... according to whether the contract, if fully performed, would have been and could be shown to have been profitable (even if the actual amount of profit is not readily ascertainable). If this can be demonstrated, a plaintiff's expectation of a profit, objectively made out, will be protected by the award of damages. Otherwise, subject to it being demonstrated that a plaintiff would not even have recovered any or all his or her reasonable expenses, a plaintiff's objectively determined expectation of recoupment of expenses incurred will be protected by the award of damages.

37. An award of damages for expenditure reasonably incurred under a contract in which no net profit would have been realized, while placing the plaintiff in the position he or she would have been in had the contract been fully performed, also restores the plaintiff to the position he or she would have been in had the contract not been entered into."

38. It should be observed that, in a case where it is not possible to predict what position a plaintiff would have been in had the contract been fully performed, as was the case in both McRae and Anglia Television, it is not possible as a matter of strict logic to assess damages in accordance with the principle in Robinson v. Harman. But the law considers the just result in such a case is to allow a plaintiff to recover such expenditure as is reasonably incurred in reliance on the defendant's promise. In this case, the law assumes that a plaintiff would at least have recovered his or her expenditure had the contract been fully performed. It will still be open to a defendant, however, to argue that, notwithstanding the fact that it is impossible to assess what profits, if any, the plaintiff would have made had the contract been fully performed, the expenditure claimed by a plaintiff would nevertheless not have been recovered..."

19. The facts in Commonwealth v Amann Aviation Pty Ltd are similar to this case. In Commonwealth v Amann Aviation Pty Ltd, Amann was awarded a three-year contract by the Commonwealth of Australia to provide aerial surveillance from Perth to Cairns. Soon after the award it purchased several planes, which had to be refitted to the technical specifications required to fulfil the contract. However, it took too long, there was delay, Amann did not communicate this well to the Commonwealth and the contract was terminated. Amann claimed damages to recover costs it incurred in re-fleeting and modifying the new planes once it was awarded the contract, loss of profits and other damages.

20. In Commonwealth v Amann Aviation Pty Ltd the High Court upheld Amann's arguments for payment of the expenses incurred and that it could rely on the commercial benefit of a renewal of the contract, in light of evidence of its preparations to be a strong contender for renewal as opposed to other business competitors with the re-fleeting and new technical modifications of its aircrafts, and was held to be entitled to the commercial benefit of the assumption of a renewed contract which would result in it fully recovering costs spent on the planes in preparation for performing the contract.

21. In Commonwealth v Amann Aviation Pty Ltd his Honour Brennan J held that Amann's claim was for wasted expenditure incurred in reliance of the contract and devised a general formular to assess damages factoring expenditure incurred in reliance of the contract, expenditure incurred while performing the contract and the expected profit or loss as follows:

"4. The situation of a plaintiff "if the contract had been performed" is, of course, a hypothetical situation with which the plaintiff's actual situation is compared. When a contract is rescinded for breach by a defendant, the hypothesis postulates that the contract is still on foot. On that hypothesis, the benefits to which the plaintiff would have been entitled had the contract been performed (let the benefits have a value of $B) can be apportioned among three components: the amount expended by the plaintiff in performing or preparing to perform the contract prior to rescission ($x); the further amount which the plaintiff would have had to expend to perform the contract ($y); and the amount of profit or loss that would have eventuated had the contract been performed ($z). The cost of capital equipment properly to be apportioned to the contract must be taken into account whether by way of hiring charges, depreciation or amortization, else the profit component is falsely inflated or the loss component falsely reduced or eliminated, but care must be taken to ensure that, in an action to recover damages for costs and lost profits, there is no duplication of this item: see the explanation of Cullinane v. British "Rema" Manufacturing Co. Ld. (1954) 1 QB 292 by this Court in TC Industrial Plant Pty. Ltd. v. Robert's Queensland Pty. Ltd. [1963] HCA 57; (1963) 37 ALJR 289. The components of the calculated profit considered in TC Industrial Plant, at p 294, show that the remuneration payable under a contract plus the value of all other benefits to which a plaintiff would have been entitled had the contract been performed equals the costs incurred and to be incurred in performing the contract plus the profit or minus the loss, as the case may be. An equation can therefore be stated: $B = $x + $y +- $z.

5. In this case, the principal item of loss which the respondent ("Amann") is seeking to recover is the net amount expended by it in preparing to perform the contract ($x), forgoing any profits which it submits it would have earned but which it is unable to quantify. The amount so expended (net of its remainder value) was wasted by the repudiation of the contract by the appellant (the Commonwealth). It is a loss that falls comfortably within the rule in Hadley v. Baxendale. The question is: what is the measure of damages for that loss?

16. The point of distinction between the method of assessment of expectation damages and the method of assessment of reliance damages is the reversal in the case of reliance damages of the onus of proof of the net value of the plaintiff's contractual benefits. There can be no duplication of reliance damages and expectation damages. The compensable losses in reliance damages do not include possible lost profits but both cover expenditure reasonably incurred in preparing to perform and in performing the contract within the limits prescribed by Robinson v. Harman. The measure of damages prescribed by Robinson v. Harman governs each method of assessment.

17. Where justification for reversing the onus exists, reliance damages may be recovered; absent that justification, the plaintiff must recover expectation damages, if any, by proof of the value of benefits and the cost of performance; that is, by proof that $B - $y is greater than $x. These are alternative methods of assessing damages, but the plaintiff does not have an election as to the method. The plaintiff who seeks recovery of reliance damages must show that justification for reversing the onus of proof exists. Otherwise, he must endeavour to prove his damages on the ordinary basis."

22. In Commonwealth v Amann Aviation Pty Ltd clarified that the difference in assessing expectation and reliance loss, is the shifting of the onus of proof to the defendant to prove that the innocent party could not have incurred the expenses it incurred in relying on the contract, or that the expenses are greater than the contract value. That, reliance damages do not include loss of profit and the two methods of assessment being reliance and expectation damages could not be combined, that they are alternate methods of assessment within the limits of Robinson v. Harman. See Commonwealth v Amann Aviation Pty Ltd CJ Mason and Dawson J at [40 and 42] and Brennan J [18].
Other principles that I have considered in assessing damages include:

23. Counsel for the plaintiff, relied on Alpar Trading Limited v Dr Nicholas Mann & Ors WS 568 of 2007 18 December 2012 (Unreported National Court judgement of Kirriwom J), Coecon Ltd (Receiver/Manager Appointed) v National Fisheries Authority [2002] N2182 and Robmos Ltd v Punangi [2017] N6585 to seek damages for loss of bargain, standdown costs, loss of profit and mobilisation, demobilisation and loss of three machines.

24. The plaintiff relied on Alpar Trading Limited v Dr Nicholas Mann & Ors to support the damages sought. It claimed each component of alleged loss as a separate head or component of its damages. It sought damages for loss of bargain at K2,456,110.24 and loss of profit at K7,189,173 as separate components of the breach amongst other damages claimed.

25. In Alpar Trading Limited v Dr Nicholas Mann & Ors the Court relied on Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54 to award damages for loss of bargain, speculative loss, less contingencies discounted at 30% In Alfar, the facts were similar to this case in that Alfar had being awarded a State contract by the CSTB whose performance was frustrated by the line department preventing its performance and awarding the contract to another supplier. Alfar Trading had secured supplies with an international supplier in anticipation of performing the service which was also affected by the breach.

26. I, however, and with due respect, digress from the reasoning in Alpar Trading Limited v Dr Nicholas Mann & Ors. I find the decision in Commonwealth v Amann Aviation Pty Ltd of a highly persuasive value as it clarifies the common law position established in Robinson v Harman and discusses pertinent factors that go to assessing damages for breach of a commercial contract which I find relevant and applicable.

27. I think loss of bargain and loss of profit are duplicate awards that the plaintiff is seeking as they both contain the components of expenses and profit. It is therefore worth understanding the concept of loss of bargain. I have searched our caselaw but have not found a case that discusses the principle of loss of bargain, though the nearest discussions are in Alpar Trading Limited v Dr Nicholas Mann & Ors where loss of bargain was regarded as the contract value and awarded by reliance on employment cases. Counsel has not made submissions on loss of bargain.

28. My view is that loss of bargain refers to the terms of the contract which fall within the category of expectation damages and entails the terms bargained for by the parties and agreed to; but lost, as a result of a breach of the agreement by a party. In Miliangos v Frank (Textiles) Ltd [1976] AC 443 Lord Wilberforce commented about loss of bargain at 468 that:

“The only certainty achieved is certainty in the sterling amount but that is not in point since sterling does not enter into the bargain. The relevant certainty which the rule ought to achieve is that which gives the creditor neither more nor less than he bargained for. He bargained for 415,522(sic) Swiss francs; whatever this means in (unstipulated) foreign currencies, whichever way the exchange into those currencies may go, he should get 415,522(sic) Swiss francs or as nearly as can be brought about.”

"13. ... Where a promisor has failed to perform his promise, he may without more, be sued for such damages as flow from the breach. Where the promise which is not performed is the promise to complete a purchase, the damages will include the loss of the benefit of the performance of that promise, properly referred to as damages for loss of bargain."

In National Capital District Commission v Yama Security Services Ltd [2017] SC1606 at [35] and [36] and Tolanas v Gipe [2008] N3536 at [7],[11] and [15] the term 'bargain' is used in its ordinary context to describe the terms of the contract bargained for and agreed to by the parties.

29. In my view, loss of bargain is not a separate component of damages to lost profits or expenses incurred as it compensates an innocent party to the full value of the executed contract.

30. An award for loss of bargain to the value of the contract is a gross amount comprised of expected expenditure and profit as reflected in the bill of quantities forming the contract value. Clause 37 of the contract states the bill of quantities forms the contract value. Further, the Court in Robmos Ltd v Punangi established that the contract value can be awarded as expectation damages subject to sufficient proof. Therefore, the plaintiff would be overly compensated if along with an award for loss of bargain, the plaintiff is awarded in addition to the other losses claimed. This in my view would be contrary to the principle in Robinson v Harman.

31. I therefore, regard it fair and reasonable to assess damages by the two methods decided in Commonwealth v Amann Aviation which observed the principle in Robinson v Harman by considering two alternate methods of assessing damages for breach of commercial contracts based on the plaintiff proving either reliance losses or expectation losses.

32. Ultimately, the issue comes down to Jay LW proving on a balance of probabilities that it had a real possibility as opposed to a mere expectation of achieving its expected business outcome had it performed the contract or, that it suffered losses in reliance of the contract, while waiting to perform it.

33. The plaintiff must prove that it expected to make a profit. Where it cannot prove the quantum of the profit, the Court may award damages for expenditures incurred, subject to proof.

34. The plaintiff claims that while waiting to perform the contract, it incurred overhead costs of rental, staff salaries and three of its machines lost due to corrosion from lack of use and which became redundant. It also claims that its resources were tied to the State contract, waiting to commence the project and as a result of the delay and breach, it lost business income and profits for the 2013 financial year which carried on for six years to the 2018 financial year. The plaintiff claims net quantum damages of K26,160,659.00. The plaintiff submitted that it is entitled to the following heads of damages as a result of the breach:

35. Comparing the submission to the reliefs claimed in the prayer for relief, there are differences in the claims for loss of machinery, standdown costs and loss of bargain.
Reproduced below is the prayer for relief:

36. It is obvious that the plaintiff's claim contains a mixture of reliance and expectation damages. I will proceed to assess first; losses allegedly suffered by the plaintiff in reliance or anticipation of performing the contract and secondly; losses allegedly suffered in expectation of performing the contract. The method of assessing damages that is proved by evidence or with the court doing the best it can, where loss is proved, will be the damages awarded.

37. The law as discussed in Commonwealth v Amann Aviation Pty Ltd is clear, the plaintiff cannot be awarded both expenses incurred in reliance of performing the contract (reliance loss) and loss of profit (expectation loss). To do that would be contrary to the principle of restoration espoused in Robinson v Harman and in my view amount to over-compensation.

38. The first step in assessing reliance loss, in my view, is to the terms of the contract bargained by the parties to ascertain whether there are provisions that apply to guide the Court in awarding damages for the premature breach or early termination of contract. The terms contain the parties' bargain and speaks for themselves. See Curtain Brothers (Queensland) Pty Ltd and Kinhill Kramer Pty Ltd v The State [1993] PNGLR 285.

39. The contract has been tendered into evidence through the affidavit of the plaintiff's managing director, Mr Jacob Jim. The contract is comprehensive and has several parts governing various aspects of the contract reflecting the parties' responsibilities. Despite the comprehensive nature of the contract Mr Akia only relied on clause 21 in his submissions.

40. After perusal of the contract provisions, I find that the provisions which concern site access, and its consequences are covered in Section IV conditions of contract and Section V contract data. It is to these terms that I am guided by in considering the circumstances of the breach and the appropriate measure of damages to award.

41. Clause 1.0 of Section V defines the site to be located within the Unitech campus in Lae, Morobe Province. Clause 21.1 of Section IV clarifies that the date of possession of the site is within 28 days after receipt of the acceptance of the contract award and goes on to clarify that where possession of the site is not given by the State, it is deemed to be a 'compensation event'. A 'compensation event' is defined in clause 44.1(a) Section IV to include the State not giving access to the project site within the 28 days. As to the quantum of the compensation arising from a compensation event, that is not specified. However, clause 60.2 which contains express terms on the measure of damages, applies. Clause 60.2 provides the measure of damages where the contract is terminated by the State because of a fundamental breach or for the convenience of the State. As to what constitutes a 'fundamental breach' that is defined in clause 59 of Section IV to include lack of access to the project site.

“The Site is located on within the University of Technology, in Lae, Morobe Province.”

“ The date of Possession of Site shall be as stated in the Contract Data. If possession of a part is not given by the date stated in the Contract Data, the employer will be deemed to have delayed the start of the relevant activities, and this will be a Compensation Event.

“If a compensation Event would cause additional cost or would prevent the work being completed within the Period of Completion, the Contract Price shall be increased and/or the Period of Completion shall be extended. The Superintendent shall decide whether and by how much the Contract Price shall be increased and whether and by how much the Period of Completion shall be extended.

44.3 As soon as information demonstrating the effect of each Compensation Event upon the Contractor’s forecast cost has been provided by the Contractor, it shall be assessed by the Superintendent, and the Contract Price shall be adjusted accordingly. If the Contractor’s forecast is deemed unreasonable, the Superintendent shall adjust the Contract Price based on the Superintendent’s own forecast. The Superintendent will assume that the Contractor will react competently and promptly to the event

44.4 The Contractor shall not be entitled to compensation to the extent that the Employer’s interests are adversely affected by the Contractor’s not having given early warning or not having cooperated with the Superintendent”

" If the contract is terminated for the Employer's convenience or because of a fundamental breach of Contract by the Employer, the Superintendent shall issue a certificate for the value of the work done, materials ordered, the reasonable cost of removal of equipment, repatriation of the Contractor's personnel employed solely for the Works, and the Contractor's costs of protecting and securing the Works, and less advance payments received up to the date of the certificate."

42. The lack of access to the project site is a compensation event and requires the contract value to be adjusted. Where the contract is terminated clause 60.2 applies. It requires the superintendent to compute the costs for payment in consultation with the plaintiff. However, there is no evidence that these steps have been taken, except for the superintendent’s letter of 14 March 2014 which has been tendered into evidence. This letter does not compute costs. It instead, states that the superintendent considered there was a conflict in the contract as a result of the other contractor performing the same works which the plaintiff lawfully won the contract for, and recommended to his superiors that the plaintiff be re-directed to perform a similar scoped works for the Igam Barracks in Lae.
However, there was no positive response from the superintendent’s headquarters.

43. Clause 60.2 provides the following items to be considered in compensating a breach by the State:

44. The superintendent for the project, Simeon Suagu, gave evidence for the plaintiff but had not issued a certificate as required by clause 60.2 as the delay caused a compensation event. He has not clarified why clause 60.2 was not considered to compensate the plaintiff earlier.
However, I find the items in Clause 60.2 a useful guide, and have considered them and respond as follows:

The plaintiff's claim for standdown rates of its personnel and equipment could fall within this category, however that is not the intent of this provision as it relates to 'repatriation costs'.

45. In my view, the only costs that may be awarded under clause 60.2; subject to proof; are:

The costs arising from clause 60.2 are reliance costs, if proved, some are wasted expenditures, because of the breach, they have not yielded any expected benefit to the plaintiff as a result of incurring them and would be awarded to the plaintiff.

46. It is obvious, that the plaintiff's claim for loss of its three machines, standdown rates, loss of bargain and loss of profit is not envisioned by clause 60.2.
The plaintiff seeks additional heads of damages by relying on expectation damages. Expectation damages are compensatory in nature and intends to place the plaintiff in a position where the contract would have been performed. The plaintiff's submission is that had the contract been performed, it would have earned the contract price and made a profit. It has not submitted whether that would have given it a commercial advantage, though that would be one likely benefit from the completion of this project.

47. The plaintiff relies on the common law remedy of loss of bargain as applied in Alpar Trading to claim the contract value as a separate head of damages and for standdown costs in reliance on Coecon Limited v. National Fisheries Authority
However, I am not persuaded that these cases apply because the Court in Alpar Trading proceeded to consider the common law remedy for breach of contract after it found that there was no provision for relief in the contract that was breached. His honour Kirriwon J states at [63]:

" ... The contract itself does not contain any provision for remedies upon breach of contract, therefore the common law principles of remedies for breach of contract apply."

48. The language of clause 60.2 is clear. The project Superintendent must certify the value of the work done thus far, costs of materials and personnel to be repatriated, materials ordered etc,. There is no certification by the Superintendent but the factors to consider are relevant. The items listed in clause 60.2 concern compensation for expenses incurred or reliance losses which the plaintiff recoups.
Clause 60.2 provides some remedy for breach of contract but; not for expectation damages sought by the plaintiff for loss of profit.

49. Pursuant to clause 60.2 the plaintiff may, subject to proof, be entitled to damages for losses of the following items:

50. The plaintiff submits that the State is responsible to reimburse the plaintiff the full costs of the equipment striker 1112R impact crusher which it purchased by importation, for an amount in excess of K2.4million.

51. The plaintiff submits that the equipment corroded due to the equipment standing by idle for more than 8 months while awaiting instructions from the Works Secretary to commence the contract. The equipment is a major capital asset for the plaintiff. I infer this would set the plaintiff up to secure further contracts from the State or other large contractors going forward, but for the breach.

52. However, the evidence concerning its purchase price is inadequate and does not prove to the required evidentiary civil standard of proof of balance of probabilities; that the equipment was imported and purchased at more than K2.4million or Australian $960,000.00. For such a large purchase, the plaintiff ought to have corroborated his evidence with import documents such as customs entry form, payment receipt, bank telegraphic transfer documents showing remittance and payment of money to an international supplier. Even, Hill's evidence that he is the PNG agent of the alleged supplier falls short as it is not corroborated by any payment confirmation receipts except to state that the purpose of the purchase was for the Unitech project. The evidence about the purpose of the purchase nevertheless, collaborates the evidence of the plaintiff's managing director. I therefore accept the equipment was purchased but the evidence about the purchase price is lacking and does not assist the court in quantifying its value. I note this equipment is listed in the contract at section 5.0 plant and equipment and I infer the cost of its use would have been factored in the items forming part of the contract value.

53. However, I do not hold the view that the State should be responsible for loss arising from the corrosion of the equipment. At all material times, the equipment was within the control of the plaintiff. The plaintiff could have mitigated its loss by care and maintenance or by using it elsewhere after it became clear the State had engaged another contractor The delay lasted eight months. The plaintiffs evidence about the machines corroding in eight months is vague. Further, the pleading only captures the striker with the prayer for relief seeking "loss of striker 1112R impact crusher valued at about or over K2.4 million".
The alleged losses for three machines including the striker 1112R impact crusher totalling K3,380,000.00 are refused.

Costs for the standdown, and two of the three machines have not been pleaded and ought to be refused. See Kepson v Lati [2023] N10473.

54. Mobilisation and demobilisation costs are a natural consequence of performing a conduct. The plaintiff claims K500,000.00 however, K250,00 and K80,000 are factored in the bill of quantities and captured in the contract value. No direct evidence has been adduced, but I accept the terms of the contract which provides for K250,000.00 to mobilise and K80,000.00 to demobilise. However, I consider that these expenses would be covered in a loss of profit award and make no specific award for mobilisation and demobilisation costs.

55. There was no evidence adduced to prove the costs of repatriating personnel after the breach and repudiation of the contract. The costs for repatriation of personnel are not proved to warrant an award within the terms of clause 60.2. Even so, a loss of profit award is deemed to factor repatriation costs.

56. Excluded from the list in clause 60.2 are standdown costs. The plaintiff seeks costs for standing down its staff and equipment for eight months because of the delay and claims K12, 635,376.00 calculated using the standdown rates in the contract. The plaintiff has not demonstrated any right in the contract to the standdown rates. I find the plaintiff picking and choosing the terms of the contract by relying on the standdown rates and not addressing the costs agreed to be compensated in clause 60.2.

57. Further, the plaintiff's reliance on Coecon Ltd (Receiver/Manager Appointed) v National Fisheries Authority to seek an award for standdown costs using the rates of the contract is misconceived. The factual background in Coecon Ltd (Receiver/Manager Appointed) v National Fisheries Authority was that, Coecon had stood down its resources, after confirming both parties agreed to vary the contract and for Coecon to standdown or suspend the execution of the contract with the standdown rates agreed to by the parties. In Coecon Ltd v National Fisheries Authority the contract was performed and the works were in progress when it was suspended by mutual agreement; this is not the case here. The facts are distinct and the Courts findings in Coecon do not, with respect, apply to the plaintiff. In any case, a claim for standdown costs is not included in the prayer for relief and cannot be awarded. See Kepson v Lati.

58. Therefore, loss occasioned in reliance of performing the contract or reliance loss, has not been proved on a balance of probabilities. I turn now to consider expectation loss or lost profits.

59. The plaintiff claims lost profits of K7,189,173.00 and loss of bargain or expected lost profits from the contract of K2, 456,110.24. These two awards are not separate heads of damages. I reiterate that to award separate heads of damages for these items will result in duplicity and excessive compensation and place the plaintiff in a far superior position than it should be in, had the contract been performed. The plaintiff may only be entitled to the contract value and that to me is the yardstick in this case to go by in assessing lost profits and loss of future income.

60. In Commonwealth v Amann Aviation Pty Ltd the court^[2] clarified at [25] loss of business profits as:

" In the ordinary course of commercial dealings, a party supplying goods or rendering services will enter into a contract with a view to securing a profit, that is to say, that party will expect a certain margin of gain to be achieved in addition to the recouping of any expenses reasonably incurred by it in the discharge of its contractual obligations. It is for this reason that expectation damages are often described as damages for loss of profits. Damages recoverable as lost profits are constituted by the combination of expenses justifiably incurred by a plaintiff in the discharge of contractual obligations and any amount by which gross receipts would have exceeded those expenses. This second amount is the net profit."

61. The claim for expenses incurred by the plaintiff lacks evidence, however the tax returns and financial statements disclose a reasonable conclusion that income expected from the contract would have resulted in profit for the immediately affected years of 2013, and 2014 and future income loss to its 2015 financial year.

62. To support its claim for business loss, the plaintiff adduced evidence of filed tax returns for financial years 2012 to 2018 with financial statements for the respective years. While it is sound that the plaintiff has produced these vital financial records into evidence I consider it remote to extend loss to years 2016, 2017 and 2018. The plaintiff has also not adduced evidence of mitigating its lost profits.

63. In submissions, the plaintiff assumes to make the same profit as it did for 2012 of K798,797.00 and simply multiplies that amount by 6 years to claim a loss for future income of K7,189,173.00 I do not accept this computation as it assumes the same economic, social and trade conditions applying in 2012; applied throughout, and contradicts the income and expense trend as declared in its tax returns and financial statements for the years 2012 to 2016. Further, the contract is for six months, subject to extension. It is not a multi-year contract where continued income would be expected. That discards the future profit loss assumption for the outer years 2016, 2017 and 2018.

64. The plaintiff has also not provided evidence of other business dependent on this contract to demonstrate expected business income continuity which has been lost or expected profit or commercial advantage adversely affected by the breach to support its claim for six years of continued loss of future income. Further neither the plaintiff's managing director nor the accountant state the amount of profit expected to be made from the contract in 2013 and 2014.

65. While I accept the plaintiff's tax returns and financial statements for the financial years 2012 to 2016 is evidence of compliance of the country's tax laws, the amount of expenses and income are not conclusive evidence of the plaintiff's final tax position until those tax returns have been assessed by the Commissioner General of the IRC. See section 228 of the Income Tax Act 1959 (as amended).
The tax returns are unassessed but contain a full and complete disclosure^[3] by the plaintiff of its business expenses and gross income. I therefore take those figures declared in the tax returns as good indicators of the plaintiff's financial position for the financial years 2012 to 2018. While the evidence does not provide sufficient accounting notes to explain some of its big expense items that it may have incurred including the payments for the striker 1112R impact crusher, and the losses arising for the breach of this contract. I accept the information stated there, of the gross expenditures, gross incomes and final annual outcome whether profit or loss, for purposes of assessing lost profits.

66. The tax returns and financial statements shows that there was an increase in income of K2million in 2013 compared to 2012 and a substantial decrease in income for 2014 of K5,201,938.00 compared with the 2013 income of K8,541,612.00. The plaintiffs financial year 2015, showed a slight increase in income compared to its 2014 financial year.

67. This in my view, sufficiently demonstrates that the expected income from the contract of K2,456,110.24 affected its overall financial position when the income was not received. I accept the plaintiff's submissions that had it received the expected income from the contract, its financial position in 2013 and 2014 would not have been adversely affected. Thus, I measure damages for gross loss of profit for the financial years 2013, 2014 and 2015 on the basis of increasing the amount of gross income and adjusting its overall outcome of a profit or loss. This method discounts any considerations about payment of dividends to shareholders when a profit is made or in investing the profit or taxes paid on the profit. The assumption is that the gross income and gross outcome of each year carries on into the following year.

68. The table below reflects the financial information that was contained in the tax returns and financial statements produced into evidence. There are two figures in 2014 as those figures were sourced from the tax return and the financial statement which showed those disparities however; the outcome for the year is the same. There is also discrepancy with the total business income figure for 2015 and the outcome.

Year	Total Business Income	Total Business Deduction	+/- From Ordinary Business Activity Profit or Loss
2016	4,390,505.00	4,328,570.00	61,936.00
2015	2,639,447 or 3,505,217	4,348,842.00	-294,660.00 or -843,625.00
2014	4,194,653.00	5,324,063.00	-1,129,410.00
2014	3,339,674.00	4,469,083.00	-1,129,410.00
2013	8,541,612.00	8,867,460.00	-325,848.00
2012	6,679,708.00	5,880,911.00	798,797.00
2012	6,679,708.00	5,880,911.00	798,797.00
2011	3,628,301.00	4,671,788.00	-1,043,488.00

69. Thus, I consider that any profit would have been spread over 2013 and 2014, dependant on when the plaintiff would have received payments from the defendants.

70. I would therefore, split the contract value and add that to the gross income for the financial years 2013 and 2014, expected income from the contract value of K2,456,110.24 by 50% to K1,228,055.12 for 2013 and 2014. For 2013, the plaintiff is assumed to return a profit of K902,207.12 being the income of K1,228,055.12 subtracted from the 2013 loss of K 325,848.00.

71. The plaintiff declared its largest loss in 2014 of K1,129,410.00. The assumed opening financial position for 2014 from a profit of K902,207.12 for 2013 the previous year, would have reduced its loss of K 1,129,410.00 to a lower loss of K227,202.88. Adding the 50% income of K1,228,055.12 from the contract to subtract the loss of K227,202.88 will return a profit for the 2014 financial year of K1,000,852.24. This amount will be reflected in the opening balance of the 2015 financial year as income; hence, I would award the amount of K1,000,852.24 as loss of future income for 2015.

72. Therefore doing the best I can, I estimate a profit of K902,207.12 for 2013 and additional gross income of K1,228,055.12 to the value of 50% of the contract value in 2013 and for 2014, award K1000,852.24, being its adjusted gross income as a result of income adjustments in 2013 and 2014, and as loss of future income for 2015 from income expected from performing the contract.

73. The claim for loan repayment, aggravated damages and loss of depreciation were not pursued and are not considered.

74. In the end, I am satisfied with the award for lost profits; an award based on expenses are an alternate measure where lost profits are difficult to prove. The plaintiff has satisfactorily proved through its financial statements and tax returns that its overall income and financial results of profit/loss from financial years 2013 to 2015 were adversely affected by the breach.

75. The claims for expenditures incurred in reliance of the contract such as standdown costs, mobilisation, demobilisation, rental, machinery were considered but are refused because of lack of evidence for the most part and because loss of profit has been demonstrated and awarded. To this end costs of mobilisation and demobilisation are deemed to be included in the award.

76. Fundamentally, the plaintiffs' contract with the State was for six months at a total value of K2,456,110.24. The total losses it claims of K26,160,659.00 far exceeds the amount the plaintiff would have received had it performed the contract. This would have placed the plaintiff in a far superior position to what it should be in, had the contract been performed, which is expecting to receive income and its expenses recouped, to the value of the contract and not more.

77. To me the most appropriate award in placing the plaintiff in a position as if the contract had been performed is its expected annual financial positions for years 2013 to 2015 for lost income and profits affected for these years as a result of the expected income from the contract not eventuating. The plaintiff has not been able to discharge its burden of proof for expenditures incurred or losses sustained in reliance of the contract.

Only one method of assessing damages suffices. In this case, expectation damages or lost profits has been proved.

78. On that basis, it is my judgment to award expectation damages for lost income and profits expected from the income of the contract for each of the financial years 2013, 2014, and 2015; as follows:

79. The total expectation damages awarded for loss of profit for the plaintiffs financial years 2013 and 2014 and future income loss for 2015 is K3,456,962.48. I am satisfied that the damages awarded for lost profits are consistent with principle in Robinson v Harman.

80. The statutory interest for damages awarded against the State is the rate of two percent per annum (2%) pursuant to Sections 4 and 6 of the Judicial Proceedings (Debt and Damages) Act Chapter 52.

81. I accept the plaintiff's evidence that it made several attempts to seek settlement of the claim with the Works Department and the Solicitor General including to consider another project within the Lae area at Igam Barracks. However, these efforts failed. The defendants have not sufficiently defended the claim nor made genuine efforts to settle the claim, so as to save taxpayers from meeting increased costs of a protracted litigation.

82. In that regard, I consider it proper to exercise my discretion to award statutory interest at the rate of 2% per annum to apply on pre and post judgement periods from the date of filing of the writ of summons on 17 February 2020, to the time when the judgement debt is finally satisfied, unless it is settled within 30 days pursuant to section 6 where the 2% interest award on pre and post judgement would not apply.

83. I award pre-judgement interest of K3,456,962.48 which is comprised of K345,696.25 damages award x 0.02 interest rate x 5 years (1803 days /365 days in a year = 4.93) = K345,696.25

84. Costs follow the event and are awarded to the plaintiff. Costs of and incidental to the proceedings are to be paid by the second defendant as the ultimate contractee of the plaintiff on a party/party basis, to be taxed if not agreed.
The relief claimed for costs on a solicitor-client basis was not pursued and is not considered.

1) Judgment is entered for the plaintiff for expectation damages in the sum of K3,456,962.48 comprising:

b) post-judgment interest on so much of the sum of K3,802,658.73 being the aggregate of the damages of K3,456,962.48 and pre-judgment interest of K345,696.25, as remains unpaid, from time to time.

4) Costs of and incidental to the proceedings are to be paid by the second defendant on a party/party basis, to the plaintiff, to be taxed if not agreed.

5) Pursuant to Order 10 rule 12 (3) of the National Court Rules, the defendants have seven (7) days from the date of service of this judgement to apply to set aside these orders, failing which the judgement stands, and the Orders remain as so ordered.

6) Time for entry of the orders is abridged to the date of settlement by the Registrar of the National Court which shall take place, forthwith.

Lawyers for the plaintiff: Kalit Legal Consulting
Lawyer for the defendants: Solicitor General

^[1] JLR Davis, Contract: General Principles The laws of Australia Thomson Reuters, second edition, 2012, pp690-691.
^[2] Mason C.J. And Dawson J
^[3] Duty of true and full disclosure is stipulated in section 223 Income Tax Act 1959 ( as amended).

National Court of Papua New Guinea

Jay LW Contractors Ltd v Wereh [2025] PGNC 48; N11169 (7 February 2025)