PNG Aviation Services Pty Limited v Geob Karri, Acting Deputy Secretary for Department of Civil Aviation and To’oro Aihi, Secretary for Department of Civil Aviation and Michael Nali, Minister for Civil Aviation and Lindsay Gideon, Registrar of Land Titles and The Independent State of Papua New Guinea (2009) SC1002

• Jurisdiction: Papua New Guinea
• Judge: Cannings J, Gabi J and Ellis J
• Judgment Date: 04 December 2009
• Court: Supreme Court
• Citation: (2009) SC1002
• Docket Number: SCA 4 of 1997
• Year: 2009
• Judgement Number: SC1002

Full Title: SCA 4 of 1997; PNG Aviation Services Pty Limited v Geob Karri, Acting Deputy Secretary for Department of Civil Aviation and To’oro Aihi, Secretary for Department of Civil Aviation and Michael Nali, Minister for Civil Aviation and Lindsay Gideon, Registrar of Land Titles and The Independent State of Papua New Guinea (2009) SC1002

Supreme Court: Cannings J, Gabi J and Ellis J

Judgment Delivered: 4 December 2009

SC1002

PAPUA NEW GUINEA

[IN THE SUPREME COURT OF JUSTICE]

SCA 4 of 1997

BETWEEN

PNG AVIATION SERVICES PTY LIMITED

Appellant

AND:

GEOB KARRI,

ACTING DEPUTY SECRETARY FOR DEPARTMENT OF CIVIL AVIATION

First Respondent

TO’ORO AIHI,

SECRETARY FOR DEPARTMENT OF CIVIL AVIATION

Second Respondent

MICHAEL NALI

MINISTER FOR CIVIL AVIATION

Third Respondent

LINDSAY GIDEON,

REGISTRAR OF LAND TITLES

Fourth Respondent

THE INDEPENDENT STATE OF PAPUA NEW GUINEA

Fifth Respondent

Waigani: Cannings J, Gabi J and Ellis J

2009: 29 October, 4 December

JUDGMENT

ASSESSMENT OF DAMAGES – breach of contract – object is to put the plaintiff in the same position as if the contract was performed

CLAIM FOR LOSS OF PROFITS – use of present value method with reduction for contingencies

EXEMPLARY DAMAGES – whether recoverable in action for breach of contract – whether recoverable by company

COSTS – conduct warranting order on solicitor-client basis – solicitor-client basis not sought at first instance – costs of appeal awarded on solicitor-client basis

Cases cited:

Papua New Guinea Cases

Alotau Enterprises Pty Limited and Allen Enterprises Pty Limited v Zurich Pacific Insurance Pty Limited (1999) N1969

Blackwood Hodge Hire (Australia) Pty Ltd v Sandaun Provincial Government and Jacob Talus, Pratt J, 6 March 1085

Cybula v Nings Agencies Pty Ltd [1981] PNGLR 120

Koimi v The State [1995] PNGLR 535

Pinzer v Bougainville Copper Limited [1985] PNGLR 160

Overseas Cases

Air Caledonie v General Estates Corporation Pty Ltd, Sup Court of Qld, No 3869 of 1987, Vasta J (31 August 1997)

Fogg v McKnight [1968] NZLR 330

Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145

Robinson v Harman (1848) 1 Exch 850 at 855, 154 ER 363

Rookes v Barnard [1964] AC 1129

The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64

Uren v John Fairfax & Sons Pty Ltd (1966) 117 CLR 118

Vorvis v Insurance Corporation of British Columbia [1989] 1 SCR 1085

Counsel:

Mr J Shepherd, for the Appellant

Mr M Wilson, for the Respondents

1. BY THE COURT: The appellant obtained a judgment on liability against the respondents on 10 August 1995 which is reported at [1995] PNGLR 103. Subsequently, orders were obtained for the payment of K1,127,994.00 damages plus interest of K121,143.46 (a total of K1,249,137.46) and costs as a result of a judgment delivered on 13 December 1996.

Introduction

2 An appeal against damages was heard by Hinchliffe J, Sakora J and Batari J on 30-31 August 2001. On 28 November 2007 leave was granted to lead further evidence in relation to rates of interest. The further evidence that was led is considered below, under Ground (k). There was a further hearing on 1 May 2008. Following the death of Hinchliffe J, the State exercised its entitlement under section 3 of the Supreme Court Act to have the appeal re-heard.

3 Hence, this is a re-hearing of the appeal against some of the components of the damages awarded by the trial judge almost 13 years ago. A Notice of Appeal dated 22 January 1997 was superseded by a Supplementary Notice of Appeal (ie Amended Notice of Appeal) dated 7 June 2001 in which fourteen grounds of appeal were raised. Ground (i), raising the issue of general damages, Ground (l), raising the question of what was the proper date for the conversion of foreign currency obligations to Kina, and Ground (n), which alleged the total destruction of the appellant’s business, were not pursued. Ground (k), described as “no allowance for inflation of currency between the date of the wrong and the date of the judgment”, was pursued via a claim for a variation in the rate used for the calculation of interest.

4 The components of the damages awarded may be summarised, together with the grounds of appeal, as follows:

Ground Component Amount

Rental credit 3,515.00

Loss of work in progress 25,000.00

(a) Loss on sale of buildings and 20,621.00
improvements

(b) Loss on sale of stock, plant and 66,666.00
equipment

Estimated loss on sale of aircraft 229,500.00

Additional labour costs 20,741.00

(c) Claim for Mr Mendoza’s time 4,000.00

Close down costs 54,702.00

(d) Loss of past LSL for Mr Valentine

Accounting expenses 33,145.00

Expert witness costs 21,376.00

(e) Loss of employment claim: Mr
Mendoza

(f) Loss of employment claim: Mr
Valentine

(g) Loss of collectable debtor

(h) Loss of company profits 748,728.00

(i) General damages

(j) Exemplary damages

Less amount previously paid (100,000.00)

Sub-total 1,127,994.00

(k) Interest 121,143.46

Total K1,249,137.46

(l) Proper date for the conversion of
foreign currency obligations to Kina

(m) Plus costs (on a party and party basis)

(n) Total destruction of the appellant’s
business

5 Before considering each of the grounds argued in the appeal, it is necessary to first summarise the factual background in order to understand not only the judgment on liability but also the particular circumstances relevant to the assessment of damages.

Factual background

6 For 20 years or more, the appellant carried on an engineering business which provided maintenance for small aircraft from a site at Jackson’s Airport which it leased from the State. The term of that lease was three years with options to renew. Needing to give possession of that part of the airport site to a construction company for the purpose of redevelopment, the State gave the appellant notice to vacate.

7 When the State offered an alternative site, which the appellant claimed was unsuitable, the appellant sought allowances for relocation expenses and the cost of enabling the continuation of its business at that site. However, the State then withdrew its offer of that alternative site in a letter from the then Minister for Civil Aviation dated 21 July 1995, the day after the hearing on liability commenced, using the unfettered discretion he had under section 4 of the Aerodrome (Business Concessions) Act Chapter 354.

8 By reason of the State’s insistence that the plaintiff vacate by 18 August 1995 so that it could avoid substantial damages under the redevelopment contract, the hearing on liability was concluded as quickly as possible. Of course, it must be observed that the State should have taken into consideration its obligations under existing contracts when entering into the contract for the redevelopment of the airport.

9 The trial judge, Brown J, found that the State had breached the express covenant in the lease for quiet enjoyment, rejecting the State’s misconceived claim of frustration (misconceived since the situation was due to the conduct of the State and not without the fault of either party). His Honour is honurHobserved that the most the State offered in respect of the appellant’s relocation expenses, which were shown to exceed K600,000, was K100,000. He also noted that the proposed new lease, which was offered but later withdrawn, which carried an annual rental of K67,659 compared with the existing lease carried which an initial annual rent of K6,281, subject to CPI increases. The rent at the time the proposed new lease was offered was K8,075.

10 The orders made, when judgment was delivered on 10 August 1995, included declarations that the appellant was entitled to five further consecutive renewals of the three year term of the lease from 13 March 1996, which options would have enabled the appellant to remain on the site until 12 March 2011, and that, upon vacation of the site, the appellant was entitled to damages for the State’s breach of the lease.

11 On 23 August 1995 Doherty J extended the deadline for the appellant to vacate the site from 17 August 1995 to midnight on 15 September 1995.

Outline chronology

12 It is convenient to summarise the relevant dates and events as follows:

18 Jun 75 Appellant incorporated

02 May 83 Date of execution of lease

13 May 83 State lease registered

11 Aug 92 Department purported to terminate lease

08 Sep 92 Appellant commenced proceedings

11 Sep 92 Interim injunction granted, by consent

20 Jul 95 Hearing on liability commenced

21 Jul 95 Letter from Minister refusing a new lease

01-04 Aug 95 Hearing on liability continued

10 Aug 95 National Court judgment on liability

11 Aug 95 Lease terminated

23 Aug 95 Time to vacate extended from 17 Aug to 15 Sep

14 & 18 Dec 95 Hearing of damages claim

13 Dec 96 National Court judgment on damages claim

30-31 Aug 01 Hearing of appeal (Hinchliffe J, Sakora J, Batari J)

28 Nov 07 Leave to adduce further evidence granted

01 May 08 Further hearing of appeal (Hinchliffe J, Sakora J,
Batari J)

12 Mar 11 Date lease would expire if all options exercised

Legal background

13 This appeal does not turn on the legal principles in relation to the assessment of damages but on the application of those principles to the circumstances of this case.

14 When assessing damages in contract, the court seeks to put the injured party in the position that party would have been in but...