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Mase (trading as Issac Mase Trading) v Gab [2021] PGNC 67; N8714 (29 January 2021)

N8714

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS NO 321 OF 2019

BETWEEN:
ISSAC MASE trading as ISSAC MASE TRADING
Plaintiff

AND:
KALYN GAB
First Defendant

AND:
DUMIT BENIG, AS ACTING EXECUTIVE OFFICER, PROVINCIAL SUPPLY & TENDERS BOARD, MADANG
Second Defendant

AND:
MADANG PROVINCIAL GOVERNMENT
Third Defendant

Madang: Narokobi J
2020: 14 December
2021: 29 January

DOCTRINE OF PRIVITY OF CONTRACT – non-party to a contract suing – whether permitted– only a party to a contract may sue and be sued unless exceptions shown
ORDERS – Nature of orders – duty of the court - to do justice in the circumstances of the case

The Plaintiff commenced a grass and tree cutting contract with the Third Defendant in 2013, a one-year contract. In 2017 he incorporated another entity and continued the services. The First Defendant claims they are business partners with the Plaintiff and the new entity created by the Plaintiff should reimburse moneys it received and has therefore filed a Cross-Claim. The Second Defendant now wishes to advertise the contract on the basis that the initial contract has expired.

Held:

(1) The Plaintiff’s claim is dismissed in that he is not a party to the contract with the Third Defendant and cannot sue or be sued on the basis of the doctrine of privity of contract (Christian Life Centre v Associated Mission Churches of PNG [2002] PNGLR 219).

(2) The First Defendants Cross-Claim is against an entity not a party to the proceedings and is accordingly refused.

(3) The initial injunction is discharged forthwith and in the interests of justice the temporary arrangement is to remain for the next 12 months after which time the Third Defendant employs the tender process to secure new contractors.

Cases Cited:
Papua New Guinea Cases

Christian Life Centre v Assicated Mission Churches of PNG [2002] PNGLR 219
Lamana Development Limited v Kavana (2007) N3180
Noki v Paraka (1993) N1168

Overseas Cases

Dunlop Pnewmatic Tyre Co. Ltd. –v- Selfridge & Co. Ltd. [1915] UKHL 1; (1915) A.C. 847

Statutes Cited:
Companies Act 1997
Partnership Act Ch 148
Constitution

TRIAL

This is a trial on liability.

Counsel
Mr B Tabai, for the Plaintiff
Mr D Wa’au, for the First Defendant
No appearance for the Second and Third Defendants

JUDGEMENT

29^th January, 2021

1. NAROKOBI, J: This case arose as a result of disagreement between the Plaintiff and the Defendants (mainly the first defendant) as to who has the right to perform and benefit from a contract entered into between the Madang Provincial Government (Third Defendant) for grass cutting and carrying out general cleaning work at three (3) locations in Madang – the Angmai Bilas Complex, the Bato Bultin Complex and the Madang Provincial Lands Office.
   
2. I set out my decision, addressing the following areas:
   
   1. BACKGROUND
   2. ISSUES
   100. THE LAW
   4. THE EVIDENCE
   5. SUBMISSIONS
   6. FINDINGS OF FACTS
   7. DETERMINING THE ISSUES
   8. CONCLUSION
   9. ORDERS
      
3. The outcome of the case will depend on how I resolve the issues I have identified in this case.
   

A BACKGROUND

4. The following is the factual background of the matter, at least in so far as the undisputed evidence shows.
   
5. Issac Mase trading as Mase Trading entered into a one-year contract with the Madang Provincial Government in 2013 to provide grass cutting and general cleaning at three locations in Madang.
   
6. The First Defendant claims that she is a partner of the Plaintiff in this business. They provided the initial capital and assets to kick the business off. They signed the initial documents. The only reason the business is in the name of the Plaintiff is that because at the time they sought business from the Madang Provincial Government, they did not have a registered business name nor incorporated a company or even have an account.
   
7. In 2014, the First Defendant and her husband registered their own business name and sought work from the Third Defendant.
   
8. The Plaintiff also created another entity and continued running his business under the name Issanmena Investment Ltd in 2017 and not Issac Mase trading as Issac Mase Trading.
   
9. From 2014 until the court proceedings was commenced in 2019 it appears that both the Plaintiff and the First Defendant were doing work, but the payment was being made to the Plaintiff’s account which forced the First Defendant and her husband to confront the Plaintiff to withdraw money from his account and pay the First Defendant and her husband.
   
10. In 2019 (31 January 2019), the plaintiff was served termination of contract notice for grass-cutting at Sir Bato Bultin Complex and Sir Angmai Bilas Complex.
    
11. On 20 February 2019, the termination notice dated 31 January 2019 was revoked and Issanmena Ltd is advised to continue grass-cutting and cleaning at the allocated sites, ie Sir Bato Bultin Complex and Sir Angmai Bilas Complex.
    
12. The Second Defendant signed a temporary contract (memorandum) dated 13 March 2019 for the plaintiff to service Sir Angmai Bilas Complex and First Defendant to service Sir Bato Bultin Complex. The Provincial Land office was left optional.
    
13. The Plaintiff then filed proceedings by Originating Summons (filed 10 May 2019), where the Plaintiff seeks the following orders:
    

“1.A declaration that the contract to cut grass and do general cleaning at three (3) locations namely Angmai Bilas Complex, the Bato Bultin Complex and the Madang Provincial Lands Office, was legally awarded to the Plaintiff by the Third Defendant through the Provincial Supply and Tenders Board in the year 2013.

2.A declaration that the First Defendant is not a business partner of the Plaintiff and that she had been doing grass cutting and carrying our general cleaning work at the said three (3) locations illegally and without the consent and permission of the Plaintiff.

3.A declaration that the Second Defendant’s decision to transfer the gras cutting contract at the Sir Bato Bultin Complex is illegal as the Provincial Supply & Tenders Board, Madang, has never passed any such resolution,

4.That the first and second defendants pay the plaintiffs damages for stress, mental anxiety and financial hardship caused.

5.Costs of the proceedings.

6.Such further or other orders that Court deems fit.”

14. The First Defendant has filed a Notice of Intention to Defend (15 August 2019), and has gone further to file a Cross-Claim on 20 September 2019. In the Cross-Claim the First Defendant says that there was a simple oral partnership in existence between the plaintiff and the First Defendant and her husband Maddy Gabb. That partnership was breached when the Plaintiff created a new entity. The First Defendant wants an account for the moneys received under the new entity Isaanmena Investment Limited. Further the First Defendant seeks an order for the repayment of K12,000 paid to Issanmena Investment Ltd.
    
15. A Defence to the Cross-Claim was filed on 25 November 2019 denying the relief sought by the First Defendant, following which a Reply was then filed on 6 December 2019, taking general issue with the Plaintiff’s Defence to the Cross-Claim.
    
16. On 22 October 2019, interim orders were made in favour of the Plaintiff:
    

“1.Pursuant to Section 155(4) of the Constitution the first defendant, its associates, servants and agents are restrained forthwith from cutting grass and carrying out general cleaning work at Sir Angmai Bilas Complex, Sir Bato Bultin Complex and Madang Provincial Lands Office and are restrained from assaulting, intimidating and harassing the Plaintiff, his servants and agents and are restrained from interfering in any manner with the plaintiff in the operation and management of his business and are restrained from interfering in any manner with the plaintiff’s contract to carry out grass cutting and general cleaning work in the 3 locations referred to above.”

17. The above is a brief background and general outline of where the proceedings now stand as the matter comes to trial before me.
    

B THE ISSUES

18. After considering the originating process, the evidence and the submissions, I take the following to be the issues I must determine to resolve this matter:
    

1.Whether the Plaintiff has standing to make a claim in this proceeding on the basis of the doctrine of privity of contract?

2.Whether the First Defendant is precluded from making a Cross-Claim against an entity that is not a party to the proceeding?

3. What Orders should the court make in the circumstances?

19. In my view, the conclusion I reach on each issue will guide me to resolve the present dispute before me, one way or the other.
    

C THE LAW

20. It is trite law that only a party to a contract can sue and be sued on the contract. In other words, rights and obligations arising from a contract can only be litigated by the parties thereto (Dunlop Pnewmatic Tyre Co. Ltd. –v- Selfridge & Co. Ltd. [1915] UKHL 1; (1915) A.C. 847). Unless an entity can show that it has come within the exceptions to the doctrine of privity of contract, it can neither sue nor be sued on the contract. An entity that is not a party to the contract is regarded as a third party. Common examples where a third party can sue in a contract include collateral contracts, trusts, agency and third party insurance.
    
21. It is also trite law that once a company is incorporated under the Companies Act 1997, it assumes a separate legal entity and can sue and be sued in its own name and style (Companies Act 1997, Section 16).
    
22. I also take into account s 158(2) of the Constitution which states that in interpreting the law the courts shall give paramount consideration to the dispensation of justice. I take this duty into account with s 155(4) of the Constitution which confers on me an inherent power to make, in such circumstances as seem to me proper, orders in the nature of prerogative writs and such other orders as are necessary to do justice in the circumstances of a particular case.
    

D THE EVIDENCE

23. The trial has commenced by way of affidavits. There are a total of seven (7) affidavits tendered – two (2) by the plaintiff and five (5) by the defendants. I will summarise the contents of each affidavit in table form below, starting with the plaintiff’s evidence first.
    

Plaintiff’s Evidence

24. As I said above the Defendants have filed five (5) affidavits, and I summarise them in the following manner.
    

Defendants’ Evidence

25. I will determine the facts, after I consider what each party has submitted in relation to the evidence tendered before the court.
    

E SUBMISSIONS

1. Plaintiff’s Submissions
   
26. The Plaintiff raises five issues in its submissions filed on 15 December 2020. However, these five issues can be summarised into three main issues, and they are – whether there was a business partnership between the Plaintiff and the First Defendant and her husband, and secondly, whether the Plaintiff currently has a valid contract with the Third Defendant for grass-cutting for the three areas referred to above. The third issue is whether the interoffice memorandum dated 13 March 2019, dividing the contract is valid?
    
27. The Plaintiff submits that the evidence presented does not show that there is a business partnership between the Plaintiff and the First Defendant. There is no signed documents tendered in evidence to indicate their partnership. For the lawn mowers provided by the First Defendant, the Plaintiff says that he was hiring them. The workers were also forcefully provided by the First Defendant and her husband. For those reasons, there cannot be a business partnership.
    
28. The Plaintiff then submits that he has a valid contract which has been in existence since 2013 as evidenced from the Provincial Supply and Tenders Board Resolution No. 4.04.2013 and the contract confirming this. This contract continues to this day. It was on this basis that the court issued temporary orders.
    
29. In relation to the memorandum dated 13 March 2019, the Plaintiff submits that it has no force or effect as the PSTB has never sat and resolved to transfer the contract to the First Defendant and her husband. The decision was unilaterally made by the Second Defendant, which was wrong.
    
    2. Defendant’s Submissions
       
30. The First Defendant has identified two issues for the court to deliberate on. The issues are, firstly whether the plaintiff is entitled to the relief sought, and secondly whether or not the entire proceedings should be dismissed?
    
31. I gather from the First Defendant’s submissions that there are three underlying issues – firstly, whether the Plaintiff has established a primary right to enable it to seek declaratory relief (Lamana Development Limited v Kavana (2007) N3180). On this issue, the First Defendant submits, as I understand from their submissions, there is no primary right to ground the relief it claims for him to be entitled to declaratory orders. The First Defendant contends that the contract issued in 2013 was for a one-year period and it expired in 2014, and therefore there is no legal basis for the Plaintiff to come to Court.
    
32. Secondly, the issue of whether the Plaintiff has unjustly enriched himself as there was no valid contract between the Plaintiff under his new business entity (Issanmena Investment Ltd) and the Third Defendant from January 2014 onwards? This issue will support the First Defendant’s Cross Claim. From this issue the First Defendant submits that PSTB has not awarded any contract to Issanmena Investment Ltd. The documentation that the Plaintiff tendered does not conclusively show that the Third Defendant has entered into a contract with this entity.
    
33. The Third Issue raised is whether the Second Defendants Memorandum dated 3 March 2019 should determine the future relationship of the Plaintiff and the First Defendant. In the First Defendant’s view this should be the way forward until the PSTB goes through the normal tender process to settle the matter.
    
34. The Second and Third Defendant maintained during the pretrial stage that they are nominal defendants and did not participate at the trial or make submissions. But I note that the Second Defendant has filed an affidavit which the First Defendant relies on (Exhibit D5).
    

F FINDINGS OF FACTS

35. After considering the evidence and submissions of parties, I make the following findings of facts in relation to this matter as is related to the issues I have identified.
    
36. It is not disputed that the grass-cutting and general cleaning contract that commenced in 2013 was started under the business name Issac Mase trading as Issac Mase Trading. This is confirmed from the contract that was tendered in evidence by both the Plaintiff and the First Defendant.
    
37. It is also undisputed evidence on the face of the contract that the initial contract commenced in 2013 was for a period of one (1) year:
    

“Whereas in this case the employer pays contractor K36,000 per annum on every month basis (K3,000 per month) commencing 11^th November, 2013 up until 03^rd October, 2014 for the period of twelve (12) months.”

38. The subsequent years from the expiry of the initial contract of 2013 did not follow a formal renewal process. There is no new signed contract similar to the one in 2013. What is in existence is a document dated 21 August 2017 from the Madang Provincial Administration to Issanmena Investment Ltd entitled:
    

“NOTICE OF SUCCESSFUL 2017/2018 PRE-QUALIFIED CONTRACTORS/SUPPLIERS/CONSULTANCIES”

39. The effect of such a recognition is that a contractor is allowed to bid for a contract from the Third Defendant. It is not a contract document.
    
40. It appears that Issanmena Investment Ltd has used that letter to continue the same contract work that it was doing from 2013 to the earlier part of 2017.
    
41. Obviously Issanmena Investment Ltd is a different entity altogether from Isaac Mase Trading as Issac Mase Trading. The initial contract issued to it was for a one-year period. The Plaintiff appears to concede this point as it has gone on and created a new entity altogether. Interestingly the Plaintiff did not choose to use this entity to file this proceeding.
    
42. The only formal document indicating the existence of a contract is the letter from the Second Defendant dated 13 March 2019 stating that they have split up the contract between Issanmena Investment Limited and the First Defendant.
    
43. On the basis of these findings, I now apply the law in relation to the facts, applicable to the circumstances of this case.
    

G DETERMINING THE ISSUES

44. Both the Plaintiff and the First Defendant have raised a number of issues, which I have referred to above. In my respectful view, these issues do not reflect the evidence that is before the court. In my view the pertinent issues are more threshold issues, which must be attended to first as a matter of course. These issues as I have identified in the earlier part of my judgement will now be addressed.
    
    1. First Issue
       
45. The primary basis upon which the Plaintiff comes to court is clear from the first order he seeks in its originating summons, that is to say, he seeks an order declaring that he has been awarded a contract by the Third Defendant in 2013 and that contract continues to this day.
    
46. It is the Plaintiff’s own evidence that since 2017 he has continued business under a new entity known as Issanmena Investment Ltd. This is the entity that has been doing business with the Third Defendant since then. That would mean that the entity Issac Mase trading as Issac Mase Trading no longer has a contract with the Third Defendant.
    
47. In Christian Life Centre v Associated Mission Churches of PNG [2002] PNGLR 219, Lenalia J observed that:
    

“in the law of contract, a contract creates rights and obligations only between the parties to it. A contract does not confer rights on a stranger nor does it impose any obligations on the same. It is a fundamental principle of common law, that no person can sue or be sued on a contract unless he or she is a party to it”

48. Now Issac Mase trading as Issac Mase Trading is seeking to enforce a contract between him and the Third Defendant which he claims was entered into in 2013. The evidence before the court is that Issac Mase trading as Issac Mase Trading has ceased doing business with the Third Defendant. There cannot therefore be any basis in law for the Plaintiff now to make a claim against the Third Defendant. The operation of the doctrine of privity of contract precludes the Plaintiff from doing that. No exceptions to the doctrine can be identified from the evidence. The Plaintiff’s claim must therefore fail.
    
    2. Second Issue
       
49. On the second issue, the Cross-Claim is made against Issanmena Investment Ltd. Even if Issac Mase is the sole shareholder and director of Issanmena Investment Ltd, under the Companies Act, s 16 it is a separate legal entity. That entity is not a party to the proceeding and therefore the Cross-Claim must also fail.
    
    3. Third Issue
       
50. I have dismissed the Plaintiff’s case and I have also dismissed the First Defendant’s Cross-Claim. What Orders should I then make? In my view the orders I must make must be in the interest of justice as this is the overriding duty of the court under s 158(2) of the Constitution. Accordingly, the resulting orders I make will be fashioned in the interests of justice (Constitution, s155(4)).
    
51. On the final issue, I find that there was a one-year contract between the Plaintiff and the Third Defendant from January 2013 to January 2014. The basis of this finding is from the term of the contract, which states:
    

“Whereas in this case the employer pays contractor K36,000 per annum on every month basis (K3,000 per month) commencing 11^th November, 2013 up until 03^rd October, 2014 for the period of twelve (12) months.”

52. The initial contract began with Issac Mase trading as Isaac Mase Trading. It is not clear how the contract ended up with Issanmena Investment Ltd. It is also not clear how the First Defendant is contracted. But we have gone past that stage now and the issue is not before me. Furthermore, Issanmena Investment Ltd is not a party to the proceeding.
    
53. What has been happening all this time is not entirely clear. What I can see from the evidence is that there are no new contracts in the form that was issued in 2013, to cover the period from 2014 up until the present- for either the Plaintiff or the First Defendant.
    
54. A representative of the Third Defendant in the Second Defendant (Dumit Benig) has expressed in a memorandum dated 13 March 2019 that the way forward now is for Issanmena Investment Ltd to do work for Sir Angmai Bilas office premises and Maddy Gabb and Kalyn Maddy be contracted for Sir Bato Bultin office premises. My view is that this should continue. This is fair to both parties and, considering the vague state of affairs, would be in the interests of justice in the meantime. This means that the injunctions issued by the court on 22 October 2019 must discharged forthwith.
    
55. My conclusion therefore is that this arrangement by the Second Defendant in his memorandum dated 13 March 2019 should continue for the next 12 months after which the Third Defendant can advertise and call for open tender. Again, I determine this on the basis of the interests of justice. Both parties have been locked in litigation since 2019, and the First Defendant has been locked out as it were from a court injunction and should be given an opportunity to benefit from the contract at least for the next 12 months after which time the normal tender process ought to commence.
    

H CONCLUSION

56. I would like to make some closing remarks by way of obiter on the question of partnership for purposes of any future business undertaking by the parties.
    
57. I have sought some assistance from the Partnership Act, Ch 148. I have also read the case of Noki v Paraka (1993) N1168. What I can say is that there may have been an arrangement of some sort from the evidence between the parties, but the term “partnership” is a specific legal term that confers certain rights and responsibilities if it is established to exist.
    
58. If there is to be a partnership, it is preferrable that it is in writing. The agreement must have clear and unambiguous terms and should cover the following areas – the parties to the agreement, the duration of the agreement, who manages the business, what are the assets and capital contributions of each partner, and how will the liabilities be borne and importantly how much each of the partner is entitled to from the proceeds of the business and how to account for the profits.
    
59. I finish off my obiter remarks by repeating what Woods J said in Noki, “if you are going to enter into modern commercial arrangements it may be necessary to use modern methods of organization.” I make these comments to assist the parties in any future business ventures. If you do not get a clear understanding right from the start, you suffer the real likelihood of being exposed to unwarranted loss and liabilities.
    

I ORDERS

60. On the question of costs, it is a matter of discretion, and the general rule is that it follows the event, but in this case, I order that each party will bear their own costs as neither side has come out clearly with a victory and the Second and Third Defendant has not taken an active interest in the proceeding.
    
61. In light of the circumstances of this case as I have considered and discussed, I make the following orders:
    
    1. The injunction issued by the court on 22 October 2019 is discharged forthwith.
    2. Issanmena Investment Ltd will provide grass and tree cutting services for Sir Angmai Bilas office premises for the next 12 months commencing from the date of this order, after which time the Madang Provincial Supply and Tenders Board shall call for public tender.
    3. Maddy Gabb and Kalyn Maddy will provide grass and tree cutting services for Sir Bato Biltin office premises for the next 12 months commencing from the date of this order, after which time the Madang Provincial Supply and Tenders Board shall call for public tender.
    4. It is at the discretion of the Provincial Supply and Tenders Board, after satisfying its legal processes to determine who should be awarded temporary grass and tree cutting services for the Provincial Lands office.
    5. Each party will bear their own costs.
    6. The matter is considered determined and the file is closed.
    7. Time is abridged.
       

Judgement and orders accordingly.

Tabai Lawyers: Lawyers for the Plaintiff

D.F.W Lawyers: Lawyers for the First Defendant

Thomas More Ilaisa Lawyers: Lawyers for the Second and Third Defendants