Pinpar Developer v TL Timber Development [2006] SCA 99

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    Supreme Court rejected an appeal by Pinpar Limited and its parent company, Rimbunan Hijau against an earlier National Court finding they had breach a logging and marketing agreement with landowners from the Ormand Lako Timber Permit Area in Central Province.

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  • SC1892
    PAPUA NEW GUINEA
    [IN THE SUPREMECOURT OF JUSTICE]

    SCA NO. 99 OF 2006

    BETWEEN
    PINPAR DEVELOPER PTY LTD
    First Appellant

    AND
    RIMBUAN HIJAU (PNG) LTD
    Second Appellant

    AND
    TL TIMBER DEVELOPMENT PTY LTD
    Respondent

    Waigani: Kassman, Nablu and Berrigan JJ
    2018: 18th December
    2019: 20th December

    SUPREME COURT – Appeal – Circumstances in which the corporate veil
    may be lifted or pierced – Agency – Sham, fraud and unconscionable conduct
    – Damages – Duty to take all reasonable steps to mitigate – Onus.

    Cases Cited:
    Papua New Guinea Cases

    C.B.S Inc. and C.B.S Records Australia Limited and Bali Merchants Pty ltd –v-
    Ranu Investments Pty Ltd [1978] PNGLR 66
    Pinpar Developer Pty Ltd v TL Timber Development Pty Ltd [1999] PNGLR
    139
    Odata Ltd v Ambusa Copra Oil Mill Ltd (2001) N2106

    Overseas Cases

    British Westinghouse Electric and Manufacturing Co Ltd v Underground
    Electric Railways Co of London Ltd [1912] AC 673
    Jamal Moolla Dawood, Sons & Co. [1916] A.C 175
    Smith Stone & Night Ltd v Birmingham Corporation [1939] 4 All ER 116

  • Page 2 of 15

  • Re FG (Films) Ltd [1953] 1 All ER 615
    Firestone Tyre & Rubber Co Ltd v Llewellin (Inspector of Taxes) [1957] 1 All
    ER 561
    Kargotich v Mustica [1973] WAR 167
    Brewarrana v Commissioner of Highways (1973) 4 SASR 476, at 480.
    Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd [1976] 1
    NSWLR 5
    Industrial Equity Ltd v Blackburn (1977) 137 CLR 567
    Woolfson v Strathclyde Regional Counsel [1978] SC 90 (HL) at 96
    Adams v Cape Industries plc [1990] 1 Ch 433 (CA) at 539
    Pialba Commercial Gardens Pty Ltd v Braxco Pty Ltd & Ors [2011] QCA 148

    References Cited

    S. 3 Supreme Court Act
    S. 46 Forestry Act, 1991

    Counsel

    Mr I. Molloy and Ms E. Heagi, for the First and Second Appellants
    Mr S. Soi, for the Respondent

    DECISION ON APPEAL

    20th December, 2019

    1. KASSMAN J & BERRIGAN J.: This decision arises from an appeal
    from the decision of Justice Gavara-Nanu of 9 August 2006 in National Court
    proceedings WS 1088 of 1996: Pinpar Developer Pty Ltd v TL Timber
    Development Pty Ltd (2006) N3075.

    2. As outlined further below, the matter has a long history. In terms of the
    appeal, leave was granted by the Supreme Court on 28 September 2009 and
    within time as extended by the Court. On 9 September 2016 the Supreme Court
    (Logan, Poole and Higgins JJ) dismissed an application for dismissal of the
    appeal by the Respondent finding that there had been no want of prosecution by
    the Appellants.

    3. The appeal was heard on 18 December 2018 before a Supreme Court
    constituted by Kassman, Nablu and Berrigan JJ. The Court reserved its
    decision. On 28 July 2019 Nablu J. died. After being requested to inform the
    Court of their position, all parties agreed that the remaining judges should
    continue to hear the appeal pursuant to s. 3(1) of the Supreme Court Act. The
    judgement of the Court is now given.

  • Page 3 of 15

  • Procedural and Factual Background

    4. The Respondent, TL Timber Development Pty Ltd (TL), a landowner
    company, entered into a logging and marketing agreement (LMA) as permit
    holder for the Ormand Lako Timber Permit Area with the First Appellant,
    Pinpar Developer Pty Ltd (Pinpar), as contractor, in 1992. The Ormand Lako
    Timber Permit Area is located in the Kupiano District, Central Province.

    5. A dispute subsequently arose and in 1996 Pinpar claimed damages
    against TL for breaching clause 34 of the LMA under which it was agreed that
    Pinpar would finance and build a sawmill in the Timber Permit Area (TPA)
    which would be wholly owned by TL. The cost of the sawmill was to be repaid
    to Pinpar by TL, without interest, within three years according to a repayment
    schedule to be agreed. The timber permit also provided that Pinpar would
    ensure that there was a steady supply of logs for the sawmill.

    6. Pinpar claimed that it had built a sawmill in the TPA at a total cost of
    K751,280 but that, in breach of the agreement, TL had failed and refused to pay
    the costs of the sawmill, and furthermore had refused Pinpar access onto the
    land to conduct logging operations, in breach of the LMA.

    7. On 6 March 1997 TL filed a defence and a cross-claim for K8,000,300.00
    in lost project benefits for the balance of the LMA as a direct result of Pinpar’s
    withdrawal from the TPA. It also claimed that on 29 August 1996, in separate
    proceedings between Pinpar and TL, Pinpar sought to “legitimise” its
    withdrawal from the TPA by obtaining an ex-parte National Court order
    requiringTL to deliver to Pinpar its machinery and equipment in the TPA or to
    permit Pinpar to remove the machinery and equipment.

    8. On 10 April 1997 Pinpar filed its cross-defence to the cross-claim,
    denying that TL suffered loss and damage and claiming, inter alia, that TL was
    still in possession of merchandise timber in the TPA which it could harvest by
    engaging another contractor.

    9. On 12 March 1999 TL applied for the Second Appellant, Rimbunan Hijau
    (PNG) Ltd (RH) to be joined as a party to the proceeding. The basis of the
    application was that RH was the parent and controlling company of Pinpar. The
    application was granted by Kapi DCJ (as he then was), following which TL
    filed an amended cross-claim against both Pinpar and RH: Pinpar Developer
    Pty Ltd v TL Timber Development Pty Ltd [1999] PNGLR 139 (Pinpar Joinder
    Decision).

    10. RH and Pinpar failed to file an amended cross-defence to the amended

  • Page 4 of 15

  • cross-claim and on 27 March 2000 default judgement was sought but stayed
    pending an appeal against the decision to join RH as a party. On 20 February
    2001 the Supreme Court unanimously dismissed the appeal.

    11. On 1 March 2001 TL gave notice of its intention to pursue default
    judgement against RH and Pinpar on the basis that they had still not filed an
    amended cross-defence.

    12. The application for default judgement was heard on 21 March 2001 at
    which RH and Pinpar argued that Pinpar’s cross-defence to TL’s cross-claim
    was sufficient as it automatically enjoined all the issues arising from the
    amended cross-claim. In addition, RH and Pinpar argued that the amended
    cross-claim was defective for being filed without leave. Amet CJ found that the
    amended cross-claim was valid as it was the consequential effect of the order
    made by Kapi DCJ which had the effect of re-opening the pleadings and
    therefore the cross-claimant was entitled to amend its cross-claim. Similarly,
    RH and Pinpar were entitled to file their amended cross-defence to the amended
    cross-claim on the basis that the amended cross-claim necessarily implicated
    RH as being vicariously liable as a parent or the controlling company of Pinpar.

    13. Despite these findings his Honour declined to order default judgement on
    the basis that the cross-defence sufficientlyenjoined all issues arising from the
    amended cross-claim.

    14. The trial was heard in the National Court by Justice Gavara-Nanu on 6
    October 2004.

    15. At the trial before the National Court, Pinpar discontinued its claim
    against TL. The hearing proceeded on TL’s amended cross-claim against both
    Appellants for breach of the LMA.TL called four witnesses. The Appellants
    relied on the affidavit evidence of one witness from Pinpar.

    16. The learned trial judge found in favour of TL. He found that Pinpar was
    the agent of RH, and that it was purposely incorporated to give it corporate
    status so that it could execute the LMA for RH to conduct logging business. RH
    was the undisclosed principal of RH, which was the parent and controlling
    company which ran and managed all the affairs of Pinpar. Furthermore, there
    was an element of fraud in the conduct of Pinpar and RH in having the
    landowners sign the LMA which was formulated by Pinpar and RH with little or
    no involvement, if any, by the landowners, which was unconscionable. In
    addition, there was constant breach of the LMA by Pinpar and RH. In that
    regard the landowners had legitimate concerns, which they tried to raise, but
    which were ignored by Pinpar and RH. The legislative scheme reflected in s. 46
    of the Forestry Act 1991 provides for all parties dealing with resource owners to

  • Page 5 of 15

  • respect their rights. These rights were not embodied in the LMA but were totally
    disregarded by Pinpar and RH as “not important”.

    17. In those circumstances, the learned trial judge found that RH should not
    have the protection of its corporate veil, and that it should be lifted so that it
    does not avoid its legal obligations. Furthermore, that RH is bound by the
    actions of Pinpar and is vicariously liable to TL.He awarded damages and
    interest in the amount of K3, 170, 166.20 for breach of the LMA.

    Grounds of Appeal

    18. The Appellants rely on eighteen (18) grounds of appeal, all of which have
    been considered in rendering this decision. The grounds, which allege errors of
    fact only,may be summarised as follows:

    (a) Grounds 3(a), (g), (h), (i): – the learned trial judge erred in fact in
    finding that Pinpar entered into the LMA as agent of RH;
    (b) Grounds 3(c), (j), (n), (o) and (p): – the learned trial judge erred in fact
    in finding sham, fraud and unconscionable conduct;
    (c) Grounds 3(b), (e), (f), (k), (l), (m), (q) and (r): – the learned trial judge
    erred in fact in finding that Pinpar and RH breached the LMA; and
    (d) Ground 3(d): – the learned trial judge erred in fact in finding that TL
    suffered the alleged (or any) damage, that damages were the appropriate
    remedy, and in the calculation of damages.

    Grounds 3(a), (g), (h) and (i): Finding that Pinpar entered into the
    LMA as agent of RH

    19. The Appellants submit that the learned trial judge erred in fact in finding
    that Pinpar entered into the LMA as agent of RH.

    20. The grounds are expressed in very general terms. Ground 3(a) simply
    states that the primary judge erred in finding that the First Appellant entered
    into the LMA as agent on behalf of the Second Appellant and “in the application
    of the correct principles in determining this issue”. Neither the principles nor
    the basis upon which they are said to have been incorrectly applied are
    articulated. Nor were any authorities provided during submissions to assist
    either this or the lower court.

    21. Grounds 3(g) and (h) express the matter in alternative terms, such that his
    Honour “should have found there was no agency” and “that the facts and
    circumstances do not justify the inference that the First Appellant entered into
    the LMA as agent for the Second Appellant” but take the matter no further.

  • Page 6 of 15

  • Ground 3(i) submits that his Honour’s finding that Jimmy Wong and James
    Wong, who signed the LMA on behalf of the First Appellant, were illiterate was
    against the evidence and the weight of the evidence.

    22. The House of Lords in Salomon v Salomon & Co [1897] AC 22 affirmed
    the legal principle that upon incorporation a company is generally considered to
    be a separate legal entity distinct from its shareholders and directors: Salomon v
    Salomon & Co [1897] AC 22. The principle of separate legal personality is “the
    fundamental starting point” and any proposed departure from it should be
    treated with caution: per Kandakasi J (as he then was) in Odata Ltd v Ambusa
    Copra Oil Mill Ltd (2001) N2106.

    23. There are circumstances, however, which may warrant the lifting or
    “piercing” of the veil of incorporation, to set aside the separate legal personality
    of a company. Whilst it is neither possible nor desirable to categorise with any
    precision the circumstances in which there may be a departure from the general
    principle, the courts have refused to be bound by the fact or form of
    incorporation in cases involving: agency; fraud; sham or facade; and the
    interests of justice. See again the comments by Kandakasi J (as he then was) in
    considering joinder in Odata (supra). See also the discussion in C.B.S Inc. and
    C.B.S Records Australia Limited and Bali Merchants Pty Ltd –v- Ranu
    Investments Pty Ltd [1978] PNGLR 66; and Pinpar Joinder Decision (supra),
    also decisions on joinder.

    24. As above, one such basis is where it is established that there is a
    relationship of agency between a company and its controller, most commonly
    where a parent company controls its subsidiary or subsidiaries. In those
    circumstances a parent company may be liable for the actions of its subsidiary.
    This was the primary basis upon which liability was imposed upon RH in this
    case.

    25. In this regard the learned trial judge rightly observed that the mere
    relationship of parent and subsidiary is not of itself sufficient to establish
    agency. Furthermore, that such agency may be express or implied.

    26. His Honour found that there was no express agency in this case. In
    determining that there was an implied agency the learned trial judge had regard
    to the decision in Smith Stone & Night Ltd v Birmingham Corporation [1939] 4
    All ER 116, which has often been referred to by courts in the United Kingdom,
    Australia and New Zealand in determining whether an implied agency exists
    between a parent and subsidiary company.

    27. Whether a subsidiary is carrying on the business as the parent’s business
    or as its own is a question of fact. For the purposes of determining the issue

  • Page 7 of 15

  • Atkinson J in Smith Stone & Night (supra) formulated six questions to be
    considered:

    (a) Were the profits treated as the profits of the parent?
    (b) Were the persons conducting the business appointed by the parent?
    (c) Was the parent the head and the brain of the trading venture?
    (d) Did the parent govern the venture, decide what should be done and
    what capital should be embarked on the venture?
    (e) Did the parent make the profits by its skill and direction?
    (f) Was the parent in effectual and constant control?

    28. It is clear from the face of the questions that there is a considerable
    degree of overlap amongst them, but the key issue is whether the parent has
    such a degree of control that the acts of the subsidiary are deemed to be the acts
    of the parent. See also Firestone Tyre & Rubber Co Ltd v Llewellin (Inspector
    of Taxes ) [1957] 1 All ER 561 where an assessment of tax was upheld where
    the business of both the parent and subsidiary were carried on by the subsidiary
    as agent for the parent company; and Re FG (Films) Ltd [1953] 1 All ER 615,
    also referred to in his Honour’s decision, in which the British subsidiary was
    brought into existence for the sole purpose of obtaining British classification for
    a film made in reality by its American parent company. In this regard the
    subsidiary is sometimes described as the “alter ego” of the parent: see for
    example, Bray CJ in Brewarrana v Commissioner of Highways (1973) 4 SASR
    476, at 480.

    29. In the present case the primary judge adopted and applied the questions,
    together with a further one having regard to the Australian High Court authority
    of Industrial Equity Ltd v Blackburn (1977) 137 CLR 567: whether the
    subsidiary has no office and staff of its own and all its affairs, including its
    finances, are either directly or indirectly run and managed by the parent
    company.

    30. In doing so he found at [106] that (emphasis added):

    “When looking closely at the evidence before the Court, it is clear
    that all the above factors were present in this case. For instance;
    the first cross-defendant had no office and staff of its own; the
    second cross-defendant was running and managing all the affairs
    of the first cross-defendant; the profits made by the first cross
    defendant from the logging and the sawmill operations were
    controlled and kept by the second cross-defendant, thus they were
    regarded and treated as belonging to the second-cross-defendant;
    the persons who signed the LMA on behalf of the first cross
    defendant namely, Jimmy and James Wong were appointed or

  • Page 8 of 15

  • sanctioned by the second cross-defendant through the first cross-
    defendant thus in truth, they were servants of the second cross-
    defendant. Again, this is inferred from the fact that they
    were “small boys” who only did what they were told to do. It
    becomes quite clear from this that the two men were appointed by
    the second cross-defendant through the first cross-defendant to
    serve its interests viz, to execute the LMA with the landowners; the
    negotiations were led by the second cross-defendant’s servants,
    thus they were the head and brain behind the logging and sawmill
    operations; the second cross defendant determined how the
    logging and sawmill operations were to be managed. This is
    evidenced by the fact that one of its subsidiaries; viz, Niugini
    Lumber Ltd was engaged and involved in the running and
    management of the logging operations and further, the second
    cross-defendant got its other subsidiary company, viz, Timbers
    PNG Ltd, to pay the bank guarantee for the first cross-defendant;
    the second cross defendant provided administrative facilities
    including office, finance and staff to run the affairs of the first
    cross-defendant and determined its capital expenditure; the
    profits were clearly made by the skills and expertise of the second
    cross-defendant because its servants managed the logging and
    sawmill operations; the second cross-defendant was therefore in
    effectual and constant control of the first cross-defendant.”

    31. The findings were open on the evidence, which his Honour considered in
    detail above and elsewhere in his judgement. Whether or not as alleged in
    Ground 3(i) the finding that Jimmy Wong and James Wong were illiterate was
    against the weight of the evidence, which in our view it was not, is beside the
    point.

    32. Evidence that James and Jimmy Wong were only involved in the first
    meeting which took place in Pinpar’s office, which was a “burnt down” shed
    was not challenged by the Appellants. Nor was evidence that other than tables
    and chairs, there were no staff, nor anything you would normally expect to find
    in an office, like photocopy machines or computers. Nor was evidence that the
    spoken English of Jimmy and James Wong was poor. Nor, moreover, was
    evidence as to the nature, location, participants or content of subsequent
    meetings and negotiations, including that meetings took place at RH
    headquarters with representatives from RH, including its General Manager. Nor
    did the Appellants lead evidence to contradict any of these matters. The
    evidence tendered by Pinpar through the affidavit of David Chin, as one of its
    Managers, was silent as to all such matters.

    33. In addition, documentary evidence showed that RH and Pinpar shared the

  • Page 9 of 15

  • same registered office. Company searches showed that the Company Secretary
    for Pinpar held the same position with RH and Timbers (PNG) Ltd.

    34. Documentary evidence further showed that RH paid royalties both to TL
    and the Central Provincial Government on behalf of Pinpar. Similarly,
    documentary evidence showed that RH obtained insurance cover for itself and
    15 companies including Pinpar, and that it was RH who managed the claim with
    respect to one of the landowners who was injured at the site of the logging
    operations.

    35. It was not in dispute that it was not Pinpar but Timber PNG Pty Ltd who
    obtained the bank guarantee required under the LMA. Nor that Niugini Lumber
    Ltd, which was also associated with RH, was involved in running and managing
    the logging operations.

    36. There were no errors of fact. His Honour’s finding that Pinpar entered
    into the LMA as agent of RH was open on the evidence.

    37. Grounds 3(a),(g), (h) and (i) are dismissed.

    Grounds 3(c), (j), (n), (o) and (p): Findings of sham, fraud and
    unconscionable conduct

    38. The Appellants submit that the primary judge erred in finding that Pinpar
    was a sham or mere façade.

    39. It is well established that the courts will not allow the corporate form to
    be used for the purposes of fraud, or as a device to evade a contractual or other
    legal obligation: see the discussion in Odata, Pinpar (joinder) and CBS (supra).
    Or in other words, to “mask” the real purpose of the corporate controller. If
    incorporation has been used to avoid legal obligations or allow conduct that
    would otherwise be prohibited, a court may disregard the separate legal
    personality of the company to reverse the effects of the “sham” arrangement:
    Woolfson v Strathclyde Regional Counsel [1978] SC 90 (HL) at 96. This has
    been regarded by the courts as an alternative basis upon which to pierce the
    corporate veil.

    40. In this case the learned trial judge was satisfied that Pinpar was a “front”
    for the RH and was a sham. At [98] he said: “For in truth, all the affairs of first
    cross-defendant were being run and managed by the second cross-defendant.”
    He was satisfied that the timber project was set up for the benefit of RH and that
    Pinpar existed in name only, and thus RH should not be allowed to avoid
    liability under the LMA.

  • Page 10 of 15

  • 41. The evidence from which the findings were made was essentially the
    same as that set out above. As above, the evidence was largely uncontested and
    the learned trial judge’s findings were open on that evidence.

    42. Nor do we find any error on the part of the learned trial judge in finding
    that the negotiations surrounding the LMA were unconscionable, having regard
    to the evidence regarding those matters discussed above.

    43. Grounds 3(c), (j), (n), (o) and (p) are dismissed.

    Grounds 3(b), (e), (f), (k), (l), (m), (q) and (r): Appellants’ breach of the
    LMA

    44. Having found that RH controlled Pinpar as its agent, RH could be held
    liable for Pinpar’s breaches of the LMA.

    45. As a preliminary matter, it is noted that the Appellants’notice of appeal
    seeks that the judgement and orders of the National Court be quashed. Pursuant
    to Clause 4(b) of the Notice of Appeal, the Appellants seek in lieu thereof, an
    order that TL’s cross-claim be dismissed and there be judgement on Pinpar’s
    cross-claim for the Appellants. The relief sought is misconceived. As above,
    Pinpar discontinued its claim against TL for breach of the LMA at the
    commencement of the trial.

    46. The misconception is reflected in a number of the grounds of appeal.
    Putting that aside, in summary, the Appellants argue that the learned trial judge
    erred in finding that the Appellants had breached the LMA, or alternatively, in
    failing to find that the cessation of logging and sawmill operations was a result
    of unreasonable demands made by TL and/or the landowners to take control of
    such mill operations and for the LMA to be reviewed prematurely.

    47. The learned trial judge found that there were repeated, ongoing and
    “constant” breaches of the LMA, and that the Appellants “disregarded the
    LMA”.

    48. He found that Pinpar failed to obtain the insurance cover and bank
    guarantee, required pursuant to the LMA, which were instead secured by RH
    and Timbers (PNG) Ltd, respectively. Further that another company, Niugini
    Timber Ltd, was engaged in logging operations without the consent of TL, in
    direct contravention of the LMA. He found that Pinpar failed to pay royalties,
    to maintain a Forest Working Plan, to submit log returns, to build a site office,
    and to provide manpower and appropriate technical expertise for the logging
    and sawmill operations. His Honour was satisfied that Pinpar was operating a
    sawmill despite the fact that there was no sawmill agreement in place as

  • Page 11 of 15

  • required pursuant to the LMA. He found that the requirement to have in place a
    Forest Working Plan and a sawmill agreement were conditions precedent to
    legal logging and sawmill operations and were two of the main concerns the
    landowners were raising, as resource owners, when Pinpar terminated the LMA
    on 29 August 1996.

    49. His Honour specifically considered the Appellants’ argument that TL and/
    or the landowners had no complaints prior to December 1995 but dismissed it
    on several grounds, including the fact that a letter from the PNG Forest
    Authority to the General Manager of Pinpar showed that the landowners had
    raised concerns prior to November 1994. He was also satisfied that the
    evidence showed that TL’s representatives had expressed concerns about the
    failure of James and Jimmy Wong, with whom they had entered the LMA, to
    attend any subsequent meetings. His Honour was satisfied that concerns and
    complaints arose soon after the signing of the LMA and continued up to
    September 1996, when the Appellants eventually withdrew their machinery and
    vacated the TPA.

    50. His Honour also specifically considered the Appellants’ argument that the
    withdrawal of the timber operations by Pinpar was a direct result of the
    unreasonable demands made by TL to take control of the logging and sawmill
    operations and for the LMA to be reviewed prematurely.

    51. In doing so he considered the evidence relied upon by the Appellants and
    deposed to in the affidavit of David Chin that the cessation of works under the
    LMA was brought about by the conduct of the landowners at the site but went
    on to accept the evidence adduced by TL.

    52. At [126] to [127] he said (emphasis added):

    “I accept the evidence adduced by the cross-claimant that the
    landowners genuinely tried to negotiate better deals in the
    logging operations and in the draft Sawmill Agreement. I also
    accept the cross-claimant’s evidence that the landowners did
    not set up blockades and stoppages and that they did not
    threaten to burn the machinery or threatened the employees of
    the first cross-defendant when they went to remove the
    machinery from the project site in September 1996. The
    witnesses for the cross-claimant have corroborated each other
    on this and I accept their version of events over what was
    deposed in David Chin’s affidavit, which has been strongly
    denied by the claimant. Mr. Duri has also said that David Chin
    never went to the campsite. Also, there cannot be any doubt
    about the second cross-defendant’s corporate status because it is

  • Page 12 of 15

  • proved by the company search made by Mr. Ubuna (Ex. ‘L’).

    As regards the two notes written by Mr. Duri …; according to
    Mr. Duri, they were written because the cross-defendants were
    operating the sawmill without the Sawmill Agreement and the
    removal of the machinery from the project site was in breach of
    the LMA. I accept those explanations by Mr. Duri. Also, for the
    reasons already given, I do not consider the two notes as an
    attempt by Mr. Duri to interfere with the logging operations,
    and I do not see anything unreasonable about them. The notes
    were in my view raising and reasserting genuine and legitimate
    concerns of the landowners.”

    53. In addition, his Honour found that whilst Pinpar gave TL notice that it
    was winding up its operations in the TPA in August 1996, correspondence sent
    by another company within the corporate group, Timbers PNG Ltd, to the PNG
    Forest Authority, showed that Pinpar had ceased operations even earlier, in
    1995.

    54. The learned trial judge had the opportunity to hear and observe the
    witnesses called by TL. He considered in detail the documentary material in
    evidence. The finding was open to him on the evidence, much of which was not
    challenged. There were no errors of fact.

    55. Grounds 3(b), (e), (f), (k), (l), (m), (q) and (r) are dismissed.

    Ground 3(d): Damages

    56. As above, his Honour found that Pinpar prematurely terminated the LMA
    in August 1996, if not earlier. For the purpose of calculating damages, he
    adopted the figures obtained by the accountant called by TL on the trial, using
    rates contained in the Timber Permit and the LMA. His Honour initially
    determined the total project benefit lost that would have been derived per year
    from the date the LMA was terminated, for the period claimed. He then
    deducted a third to take into account what could have been derived if TL had
    engaged another contractor to continue with the logging operations. He made
    further deductions to accommodate unexpected events which could have
    affected production or logging, such as force majeure. In the exercise of his
    discretion the primary judge awarded interest. Despite recognising that TL had
    lost business and that in such circumstances interest at a rate of about 8 % might
    be awarded, he decided to award interest at 4 % because the cross-claim was
    filed in response to the initial claim, since abandoned, by the Appellants.

  • Page 13 of 15

  • 57. In determining damages his Honour had regard to the principle outlined
    in Lord Wrenbury in Jamal Moolla Dawood, Sons & Co. [1916] AC 175:

    “It is undoubted law that a plaintiff who sues for damages owes
    the duty of taking all reasonable steps to mitigate the loss
    consequent upon the breach and cannot claim as damages any
    sum which is due to his own neglect. But the loss to be
    ascertained is the loss at the date of the breach. If, at that date,
    the plaintiff could do something or did something which
    mitigated the damage, the defendant is entitled to the benefit of
    it”.

    58. The Appellants argue that the true measure of any loss was the difference
    between the benefit to be derived under the LMA and what could be derived if
    the respondent engaged another contractor. They complain that no attempt was
    made to adduce that evidence, and that the onus was on TL.

    59. As a general rule, in assessing the damages flowing from the breach of a
    contract, the onus lies on the plaintiff to show the extent of the loss suffered:
    Kargotich v Mustica [1973] WAR 167.

    60. In British Westinghouse Electric and Manufacturing Co Ltd v
    Underground Electric Railways Co of London Ltd[1912] AC 673, 689,Viscount
    Haldane LC referred to compensation as the basic principle of damages and
    continued (emphasis ours):

    “But this first principle is qualified by a second, which imposes
    on a plaintiff the duty of taking all reasonable steps to mitigate
    the loss consequent on the breach, and debars him from
    claiming any part of the damage which is due to his neglect to
    take such steps.”

    61. Depending on the circumstances, what would be reasonable steps to
    mitigate loss caused by breach of contract may include seeking substituted
    performance: see also Pialba Commercial Gardens Pty Ltd v Braxco Pty Ltd &
    Ors [2011] QCA 148 at [96].

    62. As the Court pointed out in the latter case, however, at [97]:

    “Although it is commonly said that an injured party has “a
    duty” to mitigate its loss, as Irvine CJ said in Driver v War
    Service Homes Commissioner (1923) 44 ALT 130 at 134:

    “…This expression, I think, does not mean that he is

  • Page 14 of 15

  • under any duty in the ordinary sense, towards the party
    breaking the contract, but that he cannot be said to have
    really incurred any loss which might have been avoided
    by his taking such steps as a reasonably prudent man in
    his position would have taken to avoid further loss to
    himself; and the best test is, what would such a man do
    to avoid such a further loss to himself, supposing that,
    from insolvency of the other party, or from some other
    reason, he could not get any damages.”

    63. Moreover, it is our view that once the breach is established, the onus
    shifts to the defendant to show that the plaintiff has not fulfilled this duty, and
    the extent to which he has not: Pialba (supra) adopted and applied.

    64. The task of proving that a plaintiff might have taken particular steps, and
    thus reduced the losses he suffered, may for many reasons be difficult to
    discharge. Nevertheless, the “plaintiff is not under any obligation to do
    anything other than in the ordinary course of business, and the standard is not a
    high one, since the defendant is the wrongdoer”: Sacher Investments Pty Ltd v
    Forma Stereo Consultants Pty Ltd [1976] 1 NSWLR 5 at 9 per Yeldham J
    adopting the views of James LJ in Dunkirk Colliery Co v Lever (1878) 9 Ch. D
    20 at 25.

    65. In this case no attempt was made by the Appellants to establish those
    matters. In the circumstances, we see no error in the primary judge’s approach
    to reduce the claim by one third to reflect TL’s failure to mitigate its loss.

    66. There was no error of fact. Ground 3(d) is dismissed.

    Conclusion

    67. Having dismissed all grounds of the appeal, the appeal is dismissed.

    68. Formal orders of the Court:

    1. The appeal is dismissed.
    2. The decision of 9 August 2006 in National Court proceedings WS
    1088 of 1996, Pinpar Developer Pty Ltd and Rimbunan Hijau (PNG)
    Ltd v TL Timber Development Pty Ltd is confirmed.
    3. The Appellants shall pay the Respondent’s costs of the appeal, such
    costs shall be assessed on a party and party basis and shall be taxed if
    not agreed.

  • Page 15 of 15

  • _______________________________________________________________
    Ashurst: Lawyer for the First and Second Appellants
    Soi & Associate Lawyers: Lawyer for the Respondent