National Capital District Commission v Yama Security Services [2016] SC1606; SCA31

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    Supreme Court decision overturning an earlier damages award of over K17.8 million to Yama Security Services and replacing it with an award of K1. The Supreme Court also overturned an award of costs of K5 million to Yama Security Services and replaced it with an order the respondent / plaintiff (Yama Security Services) pay the NCDC's costs of the National and Supreme court proceedings.

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  • SC1606
    PAPUA NEW GUINEA
    [IN THE SUPREME COURT JUSTICE]

    SCA No. 31 of 2016

    BETWEEN:
    NATIONAL CAPITAL DISTRICT COMMISSION
    Appellant

    AND:
    YAMA SECURITY SERVICES LIMITED
    Respondent

    Waigani: Kassman, Logan & Lindsay JJ.
    2017: 28 August,
    1 September

    APPEALS — Supreme Court – Civil — Judgment on liability for damages set
    aside — Duty of the Court to facilitate process for pleadings and full trial to
    determine merits of issues — Not in the interests of justice to remit — Appeal
    allowed

    CONTRACT – Contract involving public authority — Public Finances
    (Management) Act 1995 s 61 — requirement for approval of Minister

    CONTRACT— Construction — Measure of Damages — Duty of Court to facilitate
    proper determination of issues — Penalty or Liquidated Damages — Nature —
    Breach of Contract Clause — Validity

    PRACTICE & PROCEDURE — requirement for National Court to rule consistently
    with Supreme Court findings — not open to the National Court to find facts and law
    contrary to Supreme Court findings

    Facts

    The appellant and the respondent entered into a contract for the respondent to provide
    security services to various premises belonging to the appellant. After a period, the
    appellant terminated the contract. The respondent sued for damages for breach of
    contract, quantifying its claim for damages by reference to Clause 12(d) which

  • Page 2 of 17

  • provided that the measure of damages would be the balance of the amount payable
    under the contract. The respondent obtained judgement by default in respect of an
    unlawful termination of that contract with damages to be assessed. The appellant and
    the respondent purported to compromise those proceedings via a Deed of Release the
    terms of which were never approved pursuant to s 61 of the Public Finances
    (Management) Act 1995. For this reason, that Deed of Release was later held to be
    invalid by the Supreme Court. A trial for the assessment of damages in respect of the
    default judgement was then conducted in the National Court. At that trial, the
    respondent confined its evidence to quantifying the amount it would have been paid for
    the balance of the term of the contract. The appellant led evidence that the appellant
    had, after termination, been offered, taken up and paid for by it for alternative work. In
    the ex tempore judgement given at the hearing the trial judge quantified damages by
    reference to clause 12(d), based on the respondent’s evidence and awarded compound
    interest on that sum, making particular reference to the entry by the appellant into the
    Deed of Release. The trial judge also gave costs to the respondent, to be taxed if not
    agreed. Later in chambers, revising the judgement from transcripts, the Judge included
    an order that the appellant pay the respondent’s costs in the sum of K5 million, without
    further hearing the parties.

    Held

    As in previous proceedings the Supreme Court had held that the deed of release was
    invalid by reason of breach of s 61 of the Public Finance (Management) Act 1995
    the trial judge was not at liberty to proceed on the basis that the deed of release was
    not invalid, at [34];

    With a clause in a contract providing for assessment of damages, the question is
    always one of construction of the clause in question, to the end of answering
    whether, at the time of contract, the principal purpose served by the clause was one
    of deterring a party from terminating the contact or, instead, to compensate an
    innocent party for a breach of contract, at [37];

    Clause 12(d) provides for a lump sum the amount of which will vary according to the
    balance of the remaining term of the Security Contracts to be paid irrespective of
    whether a breach is trifling or not. Having regard to the principles adopted for this
    jurisdiction in Post PNG Ltd v. Yama Security Services Ltd, cl 12(d) provides for a
    penalty and is invalid, at [43];

    As the assessment of damages was made on a false premise the judgement must be set
    aside, at [48];

    The recitation in the revised reasons for judgement of a radically different order in
    respect of costs appears to have been an error of recollection by the trial judge
    running counter to the accepted practice set out in the Australian Institute of
    Judicial Administration Guide for Judicial Conduct at paragraph 4.5.1, at [50];

  • Page 3 of 17

  • There should be no order for a retrial as the respondent had an opportunity to call
    evidence to prove a loss known to the law and failed to do so, at [52];

    The appeal is allowed, the order of the National Court made 2 March 2016 set aside,
    ordered that the appellant pay the respondent by way of damages the sum of K1.
    00, the respondent to pay the appellant’s costs of the appeal and the trial in the
    National Court in respect of assessment of the damages, at [53].

    Cases Cited
    PNG Cases cited

    National Capital District Commission v Yama Security Services Limited [2005] PGSC
    45; SC835
    National Capital District Commission v Yama Security Services Limited [2003]
    PNGLR 1
    Post PNG Ltd v Yama Security Services (unreported, 26 July 2001, SCA 80 of 2000

    Overseas Cases cited
    Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119Cavendish Square
    Holding BV v Talal El Makdessi [2015] UKSC 67; [2016] AC 1172
    Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1914] UKHL 1;
    [1915] AC 79
    Leary v Leary [1987] 1 WLR 72
    Lordsvale Finance Plc v Bank of Zambia [1996] QB 752
    Paciocco v Australia and New Zealand Banking Group Limited [2016] HCA 28;
    (2016) 258 CLR 525

    Legislation

    Attorney General Act 1989, s 7((j)
    Claims By and Against the State Act, s 5
    Constitution of the Independent State of Papua New Guinea, s 155(4)
    National Court Act 1975, s 9
    National Capital District Commission Act 1990, s 3
    National Court Rules, Order 1, Rule 7
    Public Finance (Management) Act 1995, s 61
    Counsel:

    Mr P Kuman and Ms Flora Matiabe, for the Appellant
    Mr B Lomai, for the Respondent

  • Page 4 of 17

  • 1st September, 2017

    1. BY THE COURT; On 2 March 2016, the respondent, Yama Security Services
    Limited (Yama) obtained from the National Court (Sakora J) an order that the
    appellant, the National Capital District Commission (Commission) pay to it the
    sum of K17, 871,510 by way of damages and interest thereon in respect of a
    breach of contract. The Commission has appealed against that order.

    2. The background to the dispute between Yama and the Commission and its
    earlier litigious history is conveniently stated by drawing upon a summary given
    in an earlier Supreme Court appeal, National Capital District Commission v Yama
    Security Services Limited [2005] PGSC 45; SC835. It is desirable to set out that
    background and history so as to explain why it has taken so long to resolve the
    dispute.

    3. On or about 5 February 1998 and 27 March 1998, Yama and the Commission
    entered into two contracts for the provision by Yama to the Commission of
    security services (collectively, the “Security Contracts”), one being the principal and
    the other supplementary. Under the Security Contracts, Yama was to provide security
    services to the Commission for periods of 48 months and 39 months respectively.

    4. The Commission terminated the Security Contracts on 9 February 1999.

    5. Upon termination of the Security Contracts by the Commission, Yama sued it for
    breach of contract in proceedings WS No. 1221 of 1999 on 29 October 1999,
    claiming the sum of K7, 513,835.84, That sum was calculated by Yama to be the
    amount it was to have been paid during the balance of the full term of the Security
    Contracts, together with interest.

    6. The then City Administrator, Jamie Maxton Graham and the present
    Commission (then in suspension) were made the first and second defendants while
    the National Executive Council and the State were made the third and fourth
    defendants respectively in the proceedings.

    7. The third and fourth defendants’ Notice of Intention to Defend was filed by
    the Solicitor General on 10th November 1999, whilst that of the first and second
    defendants were filed by A.G. Corren & Co on 12 November 1999.

    8. On 7 December 1999 the first and second defendants filed a motion seeking
    leave to file their Defence out of time and on 9th December 1999 the Court
    granted an extension of time of 30 days from the original date of expiry of the

  • Page 5 of 17

  • time required for filing of the Defence.

    9. On 7 January 2000 the Solicitor General filed the third and fourth
    defendant’s Defence denying that it entered into any contracts with Yama and
    further stating that the second defendant was capable of being sued and suing in its
    own name and style under s.3 of the National Capital District Commission Act
    1990. It also relied on the failure by Yama to give notice under s. 5 of the Claims
    By and Against the State Act in addition to saying that the second defendant was
    solely liable for any damages suffered by Yama, and that the proceedings did not
    disclose any reasonable cause of action against them.

    10. On 12 January 2000 Yama, after conducting a search at the National Court
    Registry and discovering that the first and second defendants had not filed their
    Defence within the extended time referred to above, filed a Notice of Motion
    seeking default judgment against the first and second defendants for K7,
    513,735.84 for failure to file their Defence and costs.

    11. On the same day, 12 January 2000, the first and second defendants filed their
    Defence. In their Defence, apart from denying the claim and denying any breach of
    contract and further stating that the claim did not disclose any reasonable cause of
    action, the first and second defendants pleaded in the alternative the provisions of
    the Public Finance (Management) Act 1995 including the failure to obtain ministerial
    approval under s. 61 of that Act.

    12. On 19 January 2000 Yama filed an amended Notice of Motion seeking
    default judgment for the above sum or alternatively default judgment for damages
    to be assessed and costs against the first and second defendants.

    13. On 31 January 2000 the first and second defendants filed a Notice of
    Motion seeking a further extension of time to file their Defence out of time in the
    event that the Court found the Defence they had filed on 12 January 2000 which we
    have referred to above, to have been filed out of time.

    14. Both Yama’s motion for default judgment and the first and second defendants’
    motion for further extension of time to file their Defence were heard by Los J on 10
    March 2000. On 17 March 2000, his Honour rejected the defendants’ application
    and entered default judgment in favour of Yama for damages to be assessed.

    15. For more than a year since the decision of Los J on 17 March 2000 and up to
    25 November 2001 when the Commission’s (then the second defendant) Board of
    Commissioners passed a resolution to settle the claim by either re-engagement of
    Yama, reduction of the amount payable under the contracts or payment by

  • Page 6 of 17

  • instalments, the defendants took no steps at all to challenge the decision by way of
    an appeal to the Supreme Court or to apply to the National Court to set the default
    judgment aside on the basis that they had a defence on the merits.

    16. Following this resolution of the Commission, 3 days later , the Hon. Philip
    Taku on behalf of the Commission and Mr. Peter Yama on behalf of Yama executed a
    Deed of Release on 28 November 2001 to settle Yama’s claim for K8, 500, 000,
    inclusive of interest.

    17. A few days after the execution of the Deed of Release, the Hon. Philip
    Taku and his Commissioners were displaced by legislative changes made to the
    Commission.

    18. The Commission did not pay Yama following the change in its administration
    and management. Yama filed an application by way of Notice of Motion on 7
    March 2002 seeking the enforcement of the Deed to compel the Commission to pay
    the sum settled in the Deed or alternatively that judgment be entered in the amount
    agreed to in the Deed. That application was opposed by the Commission.

    19. On 20 March 2002 the Notice of Motion was heard by Los J in the National
    Court. In the result, judgment was entered for Yama for K8.5 million on 27 March
    2002.

    20. The Commission then appealed in April 2002 to the Supreme Court (SCA No.
    24 of 2002) against that judgment. It did not obtain a stay of the National Court’s
    judgment until mid- November 2002.

    21. Prior to the stay order, the Commission, in August 2002, made two
    payments to Yama being K500, 000.00 on 8 August 2002 and K1.5 million on 21
    August 2002.

    22. On 6 June 2003, the Supreme Court upheld the Commission’s appeal:
    National Capital District Commission v Yama Security Services Limited [2003]
    PNGLR 1. The Court made the following orders:

    1. The appeal is allowed;.
    2. The decision of the National Court made on 27 March 2002 is
    quashed;
    3. The question of assessment of damages pursuant to the judgment
    entered in favour of the respondent on 1 December 2000 shall not
    proceed to trial until the validity of the deed of release entered into

  • Page 7 of 17

  • between the appellant and the respondent on 25 November 2001, is
    determined by the National Court;.
    4. The respondent and/or the appellant take steps to either amend the
    pleadings in WS 1221 of 1991 or institute fresh proceedings by
    way of writ of summons, to plead the deed of release and the issue
    of the validity of the deed of release be determined by the
    National Court on the merits;.
    5. The respondent shall pay the appellant’s costs of this appeal, if not
    agreed, to be taxed;.
    6. Certify the appearance of Southern Counsel.”

    23. Following the Supreme Court decision on 6 June 2003 in SCA No. 24 of
    2002, the Commission filed an application on 18 August 2003 as a “stated” case under
    Order 10 Rule 21 of the National Court Rules in WS No. 1221 of 1999.

    24. This application was heard on 11 September 2003 by Davani J and on 22
    September 2003, her Honour dismissed the application on the basis that the issue of
    the validity of the Deed of Release needed to be properly heard or argued at trial.

    25. Following that decision, Yama made an election pursuant to the Supreme Court
    decision in SCA No. 24 of 2002 and took out a fresh set of proceedings in the
    National Court in WS No. 1209 of 2003 on 26 August 2003 wherein the Deed was
    pleaded. The Original proceedings WS No. 1221 of 1999 was never discontinued and
    is still current or is still on foot to date.

    26. The Commission filed its Notice of Intention to Defend and Defence and
    Cross Claim but for some unknown reasons WS No. 1209 of 2003 was discontinued
    on 6 October 2003 with costs.

    27. On 29 October 2003 Yama again issued fresh proceedings in WS No. 1548
    of 2003 (i.e. The present proceedings the subject of the Supreme Court’s 2005
    appeal judgment) with pleadings in the same terms as the discontinued proceedings
    in WS No. 1209 of 2003. The Commission then filed its Notice of Intention to
    Defend and Defence and Cross Claim in WS No. 1548 of 2003 on 11 November
    2003. In its Defence and Cross- Claim, the Commission pleaded amongst other
    things, illegality pertaining to compliance with s.61 of the Public Finance
    ( Management ) Act, s. 5 of the Claims by and Against the State Act and s. 7(j) of the
    Attorney General Act 1989. Then on 17 December 2003 Yama filed a Notice of
    Motion seeking summary judgment in WS No. 1548 of 2003 which application
    came before Sevua J on 19 December 2003 and his Honour ordered that the question
    of validity of the Deed of Release be set down for trial.

  • Page 8 of 17

  • 28. On 9 March 2004, Sevua J heard the arguments on the validity of the Deed of
    Release and on 30 April 2004 ruled that the Deed was valid. That judgment was
    reversed by the Supreme Court on 9 December 2005, following an appeal by the
    Commission: National Capital District Commission v Yama Security Services Limited
    [2005] PGSC 45; SC835.

    29. This then left the parties in the position that Yama had secured a judgment in
    respect of a breach of the Security Contracts against the Commission with damages
    to be assessed. It was not until 27 August 2015 that the question of the assessment
    of damages was brought to trial. The evidence at trial consisted of two affidavits of
    Mr Peter Yama, which comprised of Mr Yama’s evidence in chief and an affidavit
    of Mr Augustine Ravi, the Commission’s Financial Controller. The trial concluded
    on 1 September 2015 with judgment being reserved.

    30. As recorded above, judgment in favour of Yama was given on 2 March 2016.
    Initially, the reasons for that judgment were delivered ex tempore. We now have
    the benefit of the reasons for judgment as revised by the learned primary judge.

    31. Yama’s initial response was not to meet the appeal on the merits but rather to
    apply when the appeal was first called on in October last year that two members of
    the Court, Kassman J and Lindsay J respectively disqualify themselves. For
    reasons each has respectively delivered, each disqualification application has been
    dismissed.

    32. So it is that, the better part of two decades after what must be taken to be an
    established breach of the Security Contracts by the Commission, the question as to
    what loss in law has flowed from that breached has yet finally to be determined.
    Against the background recited and reinforced by the experience of a misconceived
    disqualification application in respect of the current appeal bench and if
    understood as an expression of frustration with an apparent absence of adequate
    attention over the years by various practitioners to principles of law and practice, it
    is difficult not to express sympathetic agreement with his Honour’s observation that
    there had been, “too much lawyering” in relation to this dispute. But that frustration
    is not, with respect, a licence to apply idiosyncratic notions of fairness to the
    application of the law to the evidence led at trial. When in his play “Henry VI,” Part
    II, Act IV, Scene II, Line 73, the playwright William Shakespeare’s character, Dick
    the Butcher, urges his fellow rebel, Jack Cade, “’The first thing we do, let’s kill all
    the lawyers,” he is advocating anarchy and the death of those who would seek to
    uphold justice according to law. It is to the question of whether, having regard to
    the grounds of appeal, the learned trial judge correctly applied the law to the facts
    that we must now give attention.

    33. It is as well to begin with the clause in the Security Contracts upon which Yama

  • Page 9 of 17

  • has always pleaded its claim and by reference to which it cast its evidence at the trial.
    That clause is cl 12(d), found cl 12 of the principal contract, which clause is
    headed, “Termination of the Company”. It provides:

    In the event that the Hirer terminates this contract the Company shall
    be entitled to receive, and the Hirer shall pay to the Company the
    balance of the term of the contract.

    In this clause, the “Hirer” is a reference to the Commission and, “the Company”
    is a reference to Mr. Yama.

    34. The point taken by the Commission in respect of clause 12(d) at trial, which
    was repeated before us on appeal, was that clause 12(d) was penal in character and
    conducive to unjust enrichment.

    35. This point was dealt with in a very peremptory way by the learned primary
    judge. As his reasons for judgment reveal, that was because his Honour viewed it
    as a technical point advanced by a party endeavouring to renege on two bargains it
    had struck with Yama, the initial Security Contracts and the later Deed of Release.

    36. Yet with great respect to his Honour, this Court had held on appeal in 2005 that
    the Deed of Release was invalid. The Deed of Release was a contract to which s.
    61 of the Public Finance (Management) Act 1995 applied. Section 61 is an
    important provision designed, in respect of transactions above the amounts specified,
    to prevent the hazarding of the public revenue by bargains which may be
    improvident (or worse). It offers the Minister an opportunity to make an informed
    value judgment about the proposed commitment. Contrary to the requirements of
    that provision, no consent of the Minister had been obtained before the Commission
    entered into the Deed of Release. This Court having pronounced the Deed of
    Release to be invalid, the National Court as constituted by the learned primary
    judge, was not at liberty to proceed on the footing that it was not. It follows that
    we accept the Commission is correct to characterise this as an error made by the
    primary judge. Even so, his Honour did not quantify damages by reference to the
    compromise sum specified in the Deed of Release but rather on the basis of the
    operation of cl 12(d). Demonstrating that the Deed of Release was not one in
    respect of which the Commission sought to renege, because it was never a lawful
    bargain at all does not demonstrate that cl 12(d) is invalid.

    37. In this jurisdiction, as the Commission’s submissions correctly identified,
    the Supreme Court’s judgment in Post PNG Ltd v. Yama Security Services Ltd
    (unreported and unnumbered judgment delivered on 26th July 2001 in SCA 80 of
    2000) contains an authoritative discussion of principle in respect of the assessment of
    damages for breach of contract in circumstances where the contract contains a

  • Page 10 of 17

  • clause providing for the payment on breach of an amount quantified by reference to
    a total amount which would have been payable to the innocent party had the
    contract run its course, which is sometimes termed a “balance of contract clause”.
    The Court stated (at pp. 4 – 5):

    Damages in contract are awarded to compensate a party for loss or
    injury not to penalise. Damages are awarded to put the injured party in
    the same position, as it would have been had the contract not been
    breached, and it is the duty of the Court to satisfy itself that a sum to
    be held over a party to enforce a contract. A Plaintiff claiming under
    a contractual provision for liquidated damages must show that the
    agreement represents a genuine pre-estimate by the parties of the
    actual loss that will be occasioned if the contract terms are met. But
    if the provisions can be seen to be essentially a threat over a party
    to secure performance of the contract, the provision will be a
    penalty and unenforceable.
    Courts have long held that because the purpose of a penalty is to
    ensure compliance rather than to truly compensate, agreements for
    sums found to be penal will not be enforced, and the party claiming
    damages will be properly and adequately compensated by an award of
    actual assessed loss. Further, if there be provision in an agreement for
    a sum or sums payable on breach wholly out of proportion to the
    breach. (sic) The Courts will hold such provision a penalty, as
    unconscionable, and unenforceable. ‘A Plaintiff cannot recover the
    sum stated in a contract if he has not in fact suffered such loss.’ (Law
    of Contracts Cheshire & Fifoot, 2nd Edn, 767).”

    38. More particularly, in respect of a balance of contract clause, the Court stated
    that, in a case where a court is confronted with such a clause, it had a duty to:

    “…[I]nquire into the matter and determine whether the provision in the
    contract represents a genuine pre-estimate of the damages that will
    occur in the event of breach, as opposed to whether the sum
    designated is in reality a penalty to be imposed if the contract is not
    carried through.”

    39. Post PNG Ltd v. Yama Security Services Ltd took up and applied in this
    jurisdiction principles of the common law notably explained by the House of Lords
    over a century ago in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor
    Co Ltd [1914] UKHL 1; [1915] AC 79 (the Dunlop Pneumatic Tyre Case).

    40. In the many years which have elapsed since the deciding of the Dunlop

  • Page 11 of 17

  • Pneumatic Tyre Case, it is the speech of Lord Dunedin in that case and the
    “tests” formulated by his Lordship which have been most frequently cited in
    relation to the assessment of damages for breach of contract in circumstances where
    a governing clause is alleged to be invalid, because it is penal. His Lordship stated:

    Though the parties to a contract who use the words “penalty” or
    “liquidated damages” may prima facie be supposed to mean what
    they say, yet the expression used is not conclusive. The Court must
    find out whether the payment stipulated is in truth a penalty or
    liquidated damages. This doctrine may be said to be found passim in
    nearly every case.

    The essence of a penalty is a payment of money stipulated as in
    terrorem of the offending party; the essence of liquidated damages
    is a genuine covenanted pre-estimate of damage (Clydebank
    Engineering and Shipbuilding Co. v. Don Jose Ramos Yzquierdo y
    Castaneda).

    The question whether a sum stipulated is penalty or liquidated
    damages is a question of construction to be decided upon the
    terms and inherent circumstances of each particular
    contract, judged of as at the time of the making of the contract, not
    as at the time of the breach (Public Works Commissioner v. Hills and
    Webster v. Bosanquet).

    To assist this task of construction various tests have been suggested,
    which if applicable to the case under consideration may prove
    helpful, or even conclusive. Such are:

    (a) It will be held to be penalty if the sum stipulated for
    is extravagant and unconscionable in amount in comparison
    with the greatest loss that could conceivably be proved to
    have followed from the breach. (Illustration given by Lord
    Halsbury in Clydebank Case.

    (b) It will be held to be a penalty if the breach consists only
    in not paying a sum of money, and the sum stipulated is a sum
    greater than the sum which ought to have been paid (Kemble
    v. Farren). This though one of the most ancient instances is
    truly a corollary to the last test. Whether it had its historical
    origin in the doctrine of the common law that when A.
    promised to pay B. a sum of money on a certain day and did
    not do so, B. could only recover the sum with, in certain

  • Page 12 of 17

  • cases, interest, but could never recover further damages for
    non-timeous payment, or whether it was a survival of the time
    when equity reformed unconscionable bargains merely
    because they were unconscionable, – a subject which much
    exercised Jessel M.R. in Wallis v. Smith – is probably more
    interesting than material.

    ( c ) There is a presumption (but no more) that it is penalty
    when “a single lump sum is made payable by way of
    compensation, on the occurrence of one or more or all of
    several events, some of which may occasion serious and
    others but trifling damage” (Lord Watson in Lord Elphinstone
    v. Monkland Iron and Coal Co.).

    On the other hand:

    (d) It is no obstacle to the sum stipulated being a genuine
    pre-estimate of damage, that the consequences of the
    breach are such as to make precise pre-estimation almost
    an impossibility. On the contrary, that is just the
    situation when it is probable that pre-estimated damage
    was the true bargain between the parties (Clydebank
    Case, Lord Halsbury; Webster v. Bosanquet, Lord Mersey).
    [Footnote references omitted]

    41. It is, for example, this passage from the Dunlop Pneumatic Tyre Case which
    informs the discussion of principle in Law of Contracts Cheshire & Fifoot, 2nd
    Edn, 767), cited with approval by this Court in Post PNG Ltd v. Yama Security
    Services Ltd.

    42. Recently, in Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC
    67; [2016] AC 1172 at [36] – [38] (Cavendish Square). Lord Neuberger PSC and
    Lord Sumption JSC (with whom Lord Carnwath JSC agreed) acknowledged that,
    though there was “a case” for judicial abrogation of the penalty rule, as expounded
    in the Dunlop Pneumatic Tyre Case, on the basis that it is “antiquated, anomalous
    and unnecessary, especially in the light of the growing importance of statutory
    regulation”, nonetheless the rule should be retained because it served the useful
    purpose of preventing a party from exercising a remedy where “the adverse impact
    of [the remedy] on the defaulter significantly exceeds any legitimate interest of the
    innocent party.”

    43. Cavendish Square is also notable for its emphatic disagreement with a view

  • Page 13 of 17

  • earlier expressed this decade in the High Court of Australia in Andrews v
    Australia and New Zealand Banking Group Ltd [2012] HCA 30; (2012) 247 CLR
    205 that the penalty rule may operate in the absence of a breach of contract. This
    disagreement remains, as the more recent judgment of the High Court of Australia in
    Paciocco v Australia and New Zealand Banking Group Limited [2016] HCA 28;
    (2016) 258 CLR 525 (Paciocco) attests. Paciocco is noteworthy for its affirmation
    at 539 to 540 of the existence of a “common law of Australia”, the heritage of
    which is in the common law of England but which may permissibly develop in ways
    which reflect a different understanding or development of that heritage from the
    courts of the United Kingdom. In this jurisdiction, it is the common law of England,
    not that of Australia, which forms a constitutionally stipulated foundation of our
    underlying law. Fortunately, it is not necessary for us in this case to delve further into
    the ramifications of that stipulation where a difference of understanding of the
    common law is evident in judgments of the courts of the United Kingdom and
    Australia. That is because we are concerned here with a breach of contract.

    44. The submissions made to us also make it unnecessary for us to explore in
    depth, as do the judgments delivered in Paciocco, the possible jurisprudential
    foundation, as a matter of legal history, of the penalty rule expounded in the Dunlop
    Pneumatic Tyre Case. We accept that Lord Dunedin’s “tests” were only ever
    intended as a guide and should not be applied rigidly to the exclusion of a
    consideration of the circumstances of an individual case. In particular, it may be
    accepted that the mere fact that a clause in a contract stipulating a lump sum
    amount of damages may be made applicable irrespective of the nature of the
    breach does not necessarily render it a penalty and thus invalid. It is an indicator but
    there may be circumstances where different types of breach may cause real loss to a
    party none of which is readily quantifiable either in advance or at all such that it is
    convenient for the parties to recognise both the potential for such losses and their
    uncertainty in quantification by providing in advance by contractual stipulation for
    the payment of a fixed lump sum for any breach. That is not this case. The question is
    always one of construction of the clause in question, to the end of answering
    whether, at the time of contract, the principal purpose served by the clause was one
    of deterring a party from terminating the contact or, instead, to compensate an
    innocent party for a breach of contract: Lordsvale Finance Plc v Bank of Zambia
    [1996] Q.B. 752 at 762.

    45. This case is of a straightforward kind. Clause 12(d) provides for a lump sum
    the amount of which will vary according to the balance of the remaining term of the
    Security Contracts to be paid irrespective of whether a breach is trifling or not. In
    any possible circumstance of application and certainly in the present, the lump
    sum for which cl 12(d) provides is beyond the compensatory. It makes no
    allowance for the obligation which would otherwise fall even on an innocent party
    to mitigate the amount of any loss flowing from a breach. Instead, it looks
    uncritically to payment in full of that which would be payable for the remaining
    balance of the term of the contract, even though the resultant lump sum will be paid

  • Page 14 of 17

  • for services which are never rendered. In this fashion, its purpose can be seen to
    coerce the other party to maintain the contractual relationship for its full term,
    not to compensate an innocent party for a breach. The clause is in no sense a genuine
    pre-estimate of damages. Having regard to the principles adopted for this jurisdiction
    in Post PNG Ltd v. Yama Security Services Ltd, cl 12(d) provides for a penalty and is
    invalid.

    46. Contrary to Yama’s submission, it is no answer to this conclusion that the
    Security contracts, including cl 12(d) were drawn by the Commission and that these
    contracts were made between, arm’s length, parties, one a public authority and the
    other a large commercial entity. Of course, the subject of a contract and the nature of
    the parties to it can be relevant in determining whether a particular contractual
    damages clause is penal. Butthey are not determinative. Here, the features of the
    clause which we have described render it penal. It was always ill drawn.

    47. The learned primary judge ought to have inquired into the nature of cl
    12(d) so as to determine whether it was truly compensatory in character. He did
    not. Had he so done, as the Commission submitted at trial that he should, the
    resultant conclusion in law should have been that the clause was invalid.

    48. That conclusion has very particular consequences for Yama, given the way
    in which it chose to conduct its case at trial. Its evidence was directed to the proof of
    the amount which it alleged would have been payable to it over the remaining balance
    of the Security Contracts. It made no endeavour to present evidence as to what,
    if the Commission’s penalty submission were upheld, its loss nonetheless was at a
    minimum. It adduced no evidence as to the market for security services at the time
    of the breach of contract, to the work otherwise available to it or, as the case may be,
    not available or otherwise how, if at all it reasonably could and did mitigate its loss
    flowing from the Commission’s termination of the Security Contracts. As it is, there
    is reason to think, as the Commission’s submissions put forward, that the rates
    adopted by Yama in the evidence which it led as to its loss are at odds with those for
    which those contracts provided. The deficiency though is of the more fundamental
    kind described. Further, Mr Ravi’s evidence, which ought to have been given
    attention by the primary judge, demonstrated that some of Yama’s claimed loss had
    been mitigated by its taking up and being paid in full for alternative work for the
    Commission after the date of the termination of the Security Contracts.

    49. That cl 12(d) is invalid with the result that damages were assessed on a
    false premise necessarily means that the foundation for the award of interest
    disappears. That makes it unnecessary to consider separately whether, in any event,
    as the Commission also submitted, the primary judge erred in his allowance of
    compound interest. There was no contractual provision for such interest.
    Ordinarily, any interest allowed under statute in respect of past loss would be
    calculated at simple, not compound, rates.

  • Page 15 of 17

  • 50. The result is that the appeal must be allowed. The orders made on 2 March
    2016 must be set aside.

    51. Even though it does not affect the outcome of the appeal, one feature of the
    orders of 2 March 2016 and his Honour’s related reasons for judgment should not
    pass unremarked. One order which will be set aside is Order 4, which provides that
    Yama, as plaintiff “is to have its costs of these proceedings to be paid by the
    Defendant Commission, such amount of costs, if not agreed to be taxed”. That
    correctly reflects the order in respect of costs pronounced orally by the primary
    judge on 2 March 2016 at the conclusion of his delivering his reasons for judgment
    ex tempore. That and the other orders pronounced orally on 2 March 2016 were
    entered on 3 March 2016. For the purposes of the appeal, the appellant sought and
    obtained from the chambers of the primary judge his Honour’s reasons for judgment
    as revised by him from transcript. In that revision, his Honour has added at the
    conclusion of his reasons for judgment, “The plaintiff’s [Yama’s] costs of and
    incidental to this proceedings in the amount of K5,000,000.00 be paid by the
    defendant [the Commission]”. There was, with great respect, no warrant for this
    addition on the revision.

    52. The settled practice in respect of the revision by a judicial officer of reasons
    for judgment delivered ex tempore is stated in the Australasian Institute of
    nd
    Judicial Administration’s (AIJA) Guide to Judicial Conduct, 2 Ed, at paragraph
    4.5.1:

    4.5 Revision of oral judgments
    4.5.1 Oral judgments
    A judge may not alter the substance of reasons for
    decision given orally. That is the basic principle. Subject to
    that, a judge may revise the oral reasons for judgment where,
    because of a slip, the reasons as expressed do not reflect what
    the judge
    meant to say, or where there is some infelicity of expression.
    Errors of grammar or syntax may be corrected. References to
    cases may be added, as may be citations for cases referred to
    in the transcript.

    The judiciary of Papua New Guinea is represented on the Council of the AIJA by
    the Deputy Chief Justice. The recitation in the revised reasons for judgment of a
    radically different order in respect of costs appears to have been an error of
    recollection by his Honour. An order for the fixing of costs had been sought by
    Yama but, as the transcript of proceedings on 2 March 2016 reveals, his Honour
    expressly declined to make such an order. Even had the orders pronounced that
    day not been entered, such a change would have gone beyond the limits of what is

  • Page 16 of 17

  • permissible upon the revision of reasons for judgment pronounced orally.

    53. Further, though, via s 155(4) of The Constitution, s 9 of the National Court
    Act 1975 and the power to dispense with the operation of rules of court found in
    Order 1, rule 7 of the National Court Rules, it may be allowed that the National
    Court does have power, in the singular circumstances of a given case, to fix costs;
    the ordinary position, found in Order 22 of that court’s rules, is that costs are, in
    the absence of some agreement between the parties as to the amount, ordered to be
    taxed. The power must though be exercised judicially by which we mean by
    offering the parties an opportunity to be heard and on proper materials. It is not
    necessary in the circumstances of this case further to expound on the practice
    generally or its purported exercise in this case. We do no more than note that helpful
    guidance as to the practice is to be found in Leary v Leary [1987] 1 WLR 72 and
    Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119.

    54. The remaining question is whether the case should be remitted for re-trial on the
    subject of damages. In our view, there should be no such remitter. The exercise of
    judicial power required that Yama (and for that matter the Commission) should be
    given an opportunity to be heard in respect of the assessment of such damages as
    flowed from what the default judgment concluded was a wrongful, premature
    termination of the Security Contracts. Yama has had that opportunity. From the
    inception of its claim and up to and including the trial it has cast its claim for
    damages on a false premise. Reflecting that vulnerability, it chose at trial to, in
    effect, put all of its eggs in the one basket, leading evidence accordingly. That
    evidence went to nothing more than an invalid construct, cl 12(d). Yama could have,
    but did not, run an alternative evidentiary case. The loss, if any, beyond the post-
    termination, alternative work it was offered, undertook and for which it was paid
    would require the investigation in evidence of circumstances prevailing some two
    decades ago. It is axiomatic that, over such time, to the extent that relevant actors may
    remain alive, memories fade and relevant documents are either difficult to locate
    or have exceeded archival or revenue law retention requirements. There has been
    quite enough devotion of the Nation’s limited judicial resources to the resolution of
    this dispute. The time has come to bring it to an end. There should be no re-trial. The
    purpose of damages is compensatory. Of course a court must do the best it can on
    the evidence adduced to quantify a loss but there must be some evidentiary
    foundation for that quantification. Yama has had an opportunity to prove a loss known
    to law. It has failed so to do. In such circumstances, the practice is that a plaintiff is
    entitled to a verdict but for nominal damages only (in England, usually assessed as £2
    th
    – A G Guest (editor), Anson’s Law of Contract, 26 ed. (Oxford: Clarendon, 1984) at
    491) In this jurisdiction, the nominal amount should be K1.00.

    55. The orders should therefore be:

    1. The appeal be allowed.

  • Page 17 of 17

  • 2. The orders of the National Court made on 2 March 2016 be set aside.
    3. In lieu thereof, it be ordered that the appellant (defendant) pay to the
    respondent (plaintiff) by way of damages the sum of K1.00.
    4. The respondent pay the appellant’s costs of and incidental to the
    appeal and of the trial in the National Court in respect of the
    assessment of damages, including reserved costs, if any, to be taxed if
    not agreed.
    _____________________________________________________________________
    Kuman Lawyers: Lawyer for the Appellant
    Lomai & Lomai Attorneys: Lawyer for the Respondent