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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