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National Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
WS NO. 78 OF 2014 (COMM)
BETWEEN:
ROADSTABILIZERS (PNG) LIMITED
Plaintiff
V
DAVID WEREH AS ACTING SECRETARY FOR
DEPARTMENT OF WORKS
First Defendant
AND:
HON. FRANCIS AWESA AS MINISTER FOR WORKS
Second Defendant
AND:
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Third Defendant
Waigani: Anis J
2021: 7th September, 12th October, 21st November
2023: 27th February
CONTRACT –alleged breach of contract – contract to repair road – a total of 79 contracts – general terms and conditions – contracts worth in total K17,086,101.89 – contract signings and values not disputed – dispute concerns validity or legality of the contracts – whether the contracts were entered in breach of the mandatory provisions of the Public Finance (Management) Act 1995 amended to date namely section 59 and 61 - whether the contracts were illegal, void ab initio and unenforceable at law – whether the plaintiff entitled to its alternative claim for quantum meruit – subject to issues on liability, whether the plaintiff is entitled to relief sought and how much should be awarded
Cases Cited:
Patterson v National Capital District Interim Commission [2001] N2145
Fly River Provincial Government v Pioneer Health Services Limited (2003) SC705
Cresseri and Korowi v Halla Resources Corporation [1985] PNGLR 294 at 298
PNG Tropical Wood Products Ltd v Manuel Gramgari (2013) SC1145
Gago Teine v University of Goroko (2019) SC1881
Steven Turik v Mathew Gubag (2013) N5132
Counsel:
T. Elemi, for the Plaintiff
W Mapiso, for the Defendants
DECISION
20th February, 2023
1. ANIS J: This was a trial on liability and quantum. Parties called witnesses, presented their evidence and arguments. I heard closing submissions on 21 November 2021, and reserved my ruling thereafter.
2. This is my ruling.
BACKGROUND
3. The plaintiff was engaged by the defendants to repair roads in the Nation’s Capital Port Moresby in 2012, at the time when the Country was preparing for a Royal visit by Charles, Prince of Wales and his wife Camilla, Duchess of Cornwall, as they were then, now King Charles III and Queen Camilla. The visit was to commemorate the late Queen, Her Majesty Queen Elizabeth II’s Dimond Jubilee which was celebrated throughout the Commonwealth Nations.
4. A total of 79 contracts were signed on or about 31 May 2012 between the parties, that is, out of a total of 19 identified arterial roads within the city. Each of the 79 contracts was valued below K300,000.
5. The problem started soon after the contracts were signed, that is, after the plaintiff had requested the defendants to make advance payment for work to commence. The defendants refused to make any advance payments in response. As a result, the plaintiff did not perform any work under the contracts. The plaintiff claims it had, in anticipation of receiving the advance payments under the contracts, incurred costs, and thus suffered losses as a result. It then commenced this proceeding seeking damages and various other relief for breach of contract. As an alternative cause of action, the plaintiff seeks recompense based on quantum meruit.
6. It seeks the following relief (my summary):
(1) The total value of the 79 contracts, that is, K17,686,101.89;
(2) Loss of business for a sum of K38,021,000;
(3) Special Damage in the sum of K2,189,000;
(4) General Damages;
(5) Interest at 8% per annum pursuant to Judicial Proceedings (Interest on Debt and Damages) Act;
(6) Cost.
COMMON GROUND/ISSUES
7. The significant common ground are as follows. First, the signing and execution of the 79 contracts are not disputed by the parties. Secondly, the parties do not dispute the circumstance that existed at the material time of signing of the contracts. There was going to be a Royal visit and the Government then was racing against time to do preparatory work. Patching or sealing of potholes or repair work to the roads in the Nation’s Capital Port Moresby became urgent. As a result, the plaintiff was engaged under these 79 contracts to carry out the various identified road works. It was on that basis that the requirement for public tender was exempted or discarded by the defendants, and the contracts were awarded to the plaintiff below the mandatory requirements or limits. I note that these were conceded to by witnesses of the defendants who had given evidence in Court.
8. The disputes, however, concern (i), the legality of these contracts, (ii), whether the defendants breached the terms of the contracts by not making advance payments to the plaintiff to commence work on the 79 contracts, (iii), regardless or in the alternative to the first 2 issues, whether the plaintiff has a valid cause of action for quantum meruit to seek recompense, and (iv), if liability is established, whether it be on the principal action or otherwise, what type of damages should be awarded to the plaintiff and how much?
9. I note that the parties have, in their filed Statement of Agreed and Disputed Facts and Legal Issues, identified the issues. I restate them here as follows:
“1. Whether by reason of the failure of the parties to comply with requirements of Sections 59 and 61 the Public Finances (Management) Act 1995, the Contracts are illegal and therefore null, void and unenforceable?
EVIDENCE
10. Evidence tendered in Court were both written and oral. Witnesses were also cross-examined. All the exhibits that were tendered were identified and given individual exhibit numbers.
DID THE PARTIES BREACH THE LAWS IN QUESTION?
11. Let me address the main legal argument. The provisions of and the law in question are ss 59 and 61 of the Public Finance (Management) Act (PFMA/Act). I note that both provisions have since 2016 been repealed by the Public Finance (Management)(Amendment) Act 2016 (No. 5 of 2016) (the 2016 Amendment). The parties did not address the Court on this. But when I consider this issue, I note firstly that s 124 of the 2016 Amendment Act created new provisions of the PFMA, namely, ss 134, 135, 136 and 137. Of relevance for this purpose is s 137 which essentially regarded the applications of ss 59 and 61. It reads:
“137. CONTINUANCE OF FORMER ACTS, ETC.
All acts, matters of things done or suffered of deemed to have been done or suffered or taken, procedural steps taken under or for the purposes of a provision of the Public Finance (Management) Act 1995 and having effect immediately before the coming into operation of this Act, shall, after that coming into operation, be deemed to have been done or suffered or taken under, or for the purpose of this Act.”
12. Having clarified that, let me now state ss 59 and 61 herein:
“59. CONTRACTS FOR WORKS AND SERVICES.
(1) Subject to Subsection (2), tenders shall be publicly invited and contracts taken by a public body to which this Act applies for all works, supplies and services the estimated cost of which exceeds such sum as is specified in its constituent law or declared by the Minister.
(2) Subsection (1) does not apply to any works, supplies and services–
(a) that are to be executed, furnished or performed by the State, or an arm, agent or instrumentality of the State approved by the Minister for the purposes of this subsection; or
(b) in respect of which the public body certifies that the inviting of tenders is impracticable or inexpedient.
......
61. APPROVAL REQUIRED FOR CERTAIN CONTRACTS.
(1) The provisions of this section apply to and in respect of all public bodies notwithstanding any provision to the contrary in any other law and notwithstanding and without regard to any exceptions, limitations, conditions, additions or modifications contained in any other law.
(2) Subject to Subsection (3), a public body shall not, except with the approval of the Minister, enter into a contract involving the payment or receipt of an amount, or of property to a value, (or both) exceeding–
(a) K100,000.00; or
(b) in the case of a public body declared by the Head of State, acting on advice, by notice in the National Gazette, to be a public body to which this paragraph applies–K500,000.00.
(3) The provisions of Subsection (2) do not apply to a contract relating to investment by a public body (including a subsidiary corporation) the subject of a declaration under Section 57(3).
(4) [34][Repealed.]”
13. In view of the common ground and what is pleaded, the defendants’ basis for arguing that the contract is illegal or void, is made in totality to the 79 contracts. It claims that because the contract value of all 79 contracts was K17,686,101.89, that it (i.e., K17,686,101.89) had exceeded the mandatory requirement of K300,000 or K500,000 which was prescribed by s 61(2) of the PFMA. It also claims that it also breached the Financial Instructions 11.19 that was issued under s 117. I note that no evidence or submissions were made by the defendants in regard to the latter argument. I therefore can only assume that the argument has been abandoned.
14. The defendants also cited case authorities that have ruled on ss 59 and 61; cases which they say support their contention (i), regarding mandatory limitation of authority to commit funding or enter into contracts by the State for provision of goods and services (s 61), and (ii), of practices that may be deemed as illegal or that breach the provisions of the PFMA such as want of public tendering of contracts (s 59). The main cases cited are Patterson v National Capital District Interim Commission [2001] N2145 and Fly River Provincial Government v Pioneer Health Services Limited (2003) SC705. In summary, the defendants contend that because the contracts’ total was K17,686,101.89, that it exceeded the K500,000 within the requirement under s 61(2)(b) thus required ministerial approval, and also, that it required public tender under s 59. It submits that these were not obtained thus the contracts were illegal or void.
15. I note the submissions of the parties.
CONSIDERATION - LIABILITY
16. I see what I would term as ‘a significant misconception of a fact’ in this matter. This relates to the defendants’ perception of the value of the contracts. Their argument, which is premised on the total value of the 79 contracts, is, in my view, misconceived and incorrect. The defendants did not sign a single contract which is worth over 17 million Kina. The parties signed 79 individual contracts whereby each contract was valued at a sum which was less than K300,000. These were individual contracts, and they have been pleaded as such in the statement of claim by the plaintiff. In my view, the individual contracts as pleaded, and like any other legally binding contract or agreement, must be treated separately.
17. The evidence adduced by both parties regarding the intentions of the parties are clear. The defendants had 5 months or less to seal or upgrade the roads for the Royal visit. This fact is not disputed. The fact that the contracts had to be reduced to sums less than K300,000 is also not a hidden secret to the parties. It was deliberately done given the urgency of the situation. The parties had to undertake these measures in order to meet the mandatory requirements that were prescribed under the PFMA. The steps that the parties took, in fact were done to comply with the provisions of the PFMA. In so doing, the requirements of s 59 and 61 were met, which was why the contracts were signed as planned.
18. I simply fail to see how the 79 contracts, which were signed in compliance with the requirements of the PFMA may be termed as illegal contracts. I also fail to see how the cases Patterson v National Capital District Interim Commission (supra) and Fly River Provincial Government v Pioneer Health Services Limited (supra) may assist the defendants. These cases state the obvious, which is, the mandatory requirements that are to be complied with in regard to contracting with the State or its bodies.
19. In this case, the parties knew exactly what they were doing; of what the mandatory requirements were under the PFMA. They had the contracts exempted under s 59(2)(b) and further, they negotiated sums that were below the mandatory requirements of s 61(2)(b) of the Act.
20. When I consider the evidence in totality including the sworn testimonies, I get this impression that the defendants are the ones who are being disingenuous by raising these arguments. The evidence of Chris Sanddlier, Francis Awesa, and Michelle Monsor for the plaintiff, and the evidence of Jason Vela and David Wereh for the defendants, all go to support the intentions of the parties which was for the defendants to urgently engaged the plaintiff to reseal or repair road works before the Royal visit. Both parties performed their roles to ensure that the contracts conform to the requirements under the PFMA. And I must ask myself this. “Where is the illegality committed here? Or what is illegal about the parties entering into 79 contracts whose individual values are below K300,000 or K500,000 which are well within the legal bounds of the law?” I would not term the acts or the contracts illegal but rather acts or contracts that were carried out or signed by the parties with the full understanding of the law. And when I take into account the urgency of the situation at that time which the parties had also acknowledged or had taken into account at that time, it all appears to make practical sense. Take tax as an example. Companies would pay handsomely to seek expert opinions on how they could have their tax reduced as much as possible but within the bounds of law. Their deliberate actions to avoid excessive tax within the bounds or confines of the law does not therefore mean that they have engaged themselves in illegal practices. And this. How can the defendants accuse the plaintiff of entering into these illegal contracts when they were in it together for what appears to be not only a good reason but a significant one, that is, for the benefit of the country and the public, namely, preparatory work to receive the Royals to celebrate the late Queens Dimond Jubilee celebrations which Papua New Guinea was part of.
21. I find that the 79 contracts were signed by the parties in compliance with the requirements of the PFMA. In this case, the challenge by the defendants are based specifically on ss 59 and 61. I find no breaches there. I find that the 79 contracts were not illegal nor void. I find that they were binding. I also find the defendants’ consideration or treatment of the contract as one that was worth K17,686,101.89 to be misconceived. There were 79 individual contracts that were worth less than K300,000 each. As such, they were within the confines of ss 59 and 61 of the PFMA.
CONSTRUCTIVE TERMINATION/ BREACH OF CONTRACT
22. The next question I have is this. Did constructive termination occur for these 79 contracts? This defence was raised by the defendants. The issue, in my view, may be considered after this next issue, that is, whether the contracts were performed or part performed by the plaintiff. And again, to answer that, I will need to consider whether there were clauses in the 79 contracts for advance payments. And then I would go on to determine whether the defendants breached the terms of the contracts by not making advance payments to the plaintiff. With that, I may come back to determine termination.
23. But having said all that, I think it will be less complicated if I address the issues or questions together or in a manner as I would prefer.
24. The 79 contracts are all standard and are the same except for their respective sums and work descriptions. They are annexed to Exhibit P3 (annexure C1 to C79 to M Monsour’s affidavit filed on 28 October 2014). Let me consider one of the contracts as a sample for the 79 contracts. The defendants through Exhibit D3 (annexure A to D Wereh’s affidavit filed on 28 July 2021) have also annexed one as a sample contract. The contract description or PROJECT TITLE states, Emergency Maintenance Works along the Hubert Murray Highway from Ch 0.0km to Ch 0.5km (2 Direction Lanes) in NCD. The contract, like the rest, was signed on 31 May 2012. When I consider the terms, the relevant clauses for this purpose are clauses 3 and 4. They read:
“3. COMPLETION
The contractor shall attend to the works commencing from the date materials are available and batches in National District Captal (sic), and upon Employer issues a notice to commence works programme and works completed within 1 (one) week for this contract per agreed programme and works completed to the satisfaction of the Employer’s nominated Engineer.
4. PAYMENTS
The employer will pay to the Contractor the sum of PGK 234,189.40 respects of the works completed by the Contractor to the satisfaction of the Employer’s nominated Engineer to supervise the Works. Such payments will be made within (7) days after the last day of the month during the period of this Agreement. Amount shall be calculated using the rates and Quantities given in the BOQ and payment made as one (1) lump sum payment upon the Signing of this Contract of full value of this Agreement.”
25. The clauses, in my view, are express. If we read the last line of clause 4, it talks of how payment shall be calculated based on the determined rate, and that payment will be made as one lump sum ‘upon the signing of this Contract’. That simply means, in my view, after the signing of the Contract. And it is supported or further clarified by the sentence before that which states that payment is to be made within 7 days after the last day of the month of the contract period. The contract period is 7 days, so payment is expected within 7 days thereafter. But these sentences in clause 4 are further qualified or refined by the first sentence. The first sentence is express which is that the full contract sum will be paid in respect of work that has been ‘completed by the Contractor’. Not only that, but the work must also be completed to the satisfaction of the Defendants’ nominated engineer. So, in summary, the defendants will pay the plaintiff the full contract value of each individual signed contracts (79 in total) after their executions. However, payment shall be made within 7 days after the contract period, which is 7 days, but only after the plaintiff has completed the contract to the satisfaction of the nominated engineer of the defendants.
26. In this case, evidence adduced shows that no work was ever completed for the 79 contracts. There was evidence of admission of that fact adduced by the defendants. In fact, this was not a disputed fact by the parties.
27. Not only that, but evidence adduced also shows that the plaintiff had demanded from the defendants on the date of execution of the contracts, an advance payment of K10,890,000. The sum would have amounted to about 64% of the total value of the 79 contracts. And so, I ask myself this. Which clause(s) of the 79 individual contracts provides for that? The question, however, is senseless given that each of the 79 contracts was valued at less than K300,000. Further to that, there is no provision in the 79 contracts for advance payment. However, payment for each of the contracts, according to clauses 3 and 4, shall be made in lump sum only, but only after work has been completed and approved by the defendants’ designated engineer.
28. Evidence adduced shows that no work had been performed in relation to the 79 contracts before or after the request for advance payment was made by the plaintiff. This to me shows that it was the plaintiff who had not kept to the terms and conditions or the clauses of the contracts; that the plaintiff had demanded payments outside the terms and conditions of the contracts.
29. If the plaintiff is to allege that there were implied terms in the contracts for advance payments to be made, then I note that it has not pleaded that in the claim. Further, even if the plaintiff is to allege that its claim for advance payment was orally or separately agreed to between the parties, I would still make the same observation and finding, which is that these have not been duly pleaded in the statement of claim. See cases: Cresseri and Korowi v Halla Resources Corporation [1985] PNGLR 294 at 298 and PNG Tropical Wood Products Ltd v Manuel Gramgari (2013) SC1145. It is confirmed (i.e., the plaintiff’s intention to only rely on the contracts) at para 23 of the statement of claim (as amended) which states and I read in part: By reason of the Defendant’s failure to pay the Plaintiff pursuant to the Contracts, the Defendants have breached the terms and conditions of the Contracts.... .
30. I would uphold the submissions as well as the evidence that have been adduced by the defendants. Except for the legality of the contracts which I find and hold in favour of the plaintiff, I find that the defendants have sufficiently or to my satisfaction defended themselves against the claim for breach of contract. My findings on the material facts for this matter are as follows. The situation that had existed that had led to the signing of the 79 contracts was urgent, that is, it was at a time where a Royal visit was imminent to commemorate the Dimond Jubilee celebrations of the late Queen. The event was of great significance to the country Papua New Guinea. It was on that basis that the Defendants had made this special arrangement with the plaintiff in terms of meeting the requirements of ss 59 and 61 of the PFMA. The special arrangement was effected by the drafting of the 79 individual contracts with each valued below the mandatory requirements under s 61. Special consideration included the waiver or allowance of the contracts to be procured without going through the public tender as required by s 59. It was intended that the plaintiff would immediately commence work as it had undertaken to the defendants from its bids for each of the contracts, and that the defendants would pay the plaintiff the full value of each individual contract upon completion of work and after meeting the required work standards which would be assessed and confirmed by the defendants’ appointed engineer; that since no work was carried out by the plaintiff and that the plaintiff had demanded an advanced payment of K10,890,000, the defendants ceased dealing with the plaintiff and had to engage other persons who had attended to the tasks.
31. I find no breaches in the terms and conditions of the contract by the defendants, that is, based on the allegations as raised by the plaintiff in the statement of claim. Evidence adduced and the express terms of the contracts suggest that it was the plaintiff who had made demands that were contrary to the express terms of the contracts. As a result, the defendants refused to pay, which they were entitled to do so, following or given clauses 3 and 4 of the contracts.
QUANTUM MERUIT
32. The plaintiff also makes an alternative claim for quantum meruit. It is of course a legal action or claim that seeks equitable recompense. The equitable remedy or compensation that is awarded under this claim aims to provide restitution against unjust enrichment. Damages awarded are usually premised in monetary values that are considered reasonable. The sole purpose or aim would be to recompense a person or a company who had provided services in a quasi-contractual relationship.
33. The Supreme Court in Gago Teine v University of Goroko (2019) SC1881 endorsed Cannings J’s decision in Steven Turik v Mathew Gubag (2013) N5132, that is or in particular, the tests that a Court should apply, determine and award damages that are premised on quantum meruit claims. At para 13, the Supreme Court stated:
“13. If the approach in Putput Logging is not taken, it would be necessary to apply quantum meruit principles to the facts of this case. Quantum meruit is an identifiable cause of action applied in cases such as The State v Barclay Bros (PNG) Ltd (2004) N2507, Delphi Corporate Investigations Ltd v Bernard Kipit (2003) N2480 and Leontine Ofoi v Kris Bongare (2007) N3248. We adopt the elements of a cause of action in quantum meruit set out by Cannings J in Steven Turik v Mathew Gubag (2013) N5132:
· A has done something of benefit for B;
· the thing done by A relates to an arrangement of some sort with B (the arrangement might be but is not necessarily a contract, and might be an illegal contract);
· it would be unjust to allow B to retain the benefit without some remuneration or reward for A.”
34. I would adopt and apply these as relevant considerations to this case. However, given my findings, and in particular, given that services had not been rendered by the plaintiff, I find that the alternative claim for quantum meruit does not meet the 3 requirements. The plaintiff has not done any work for the defendants in regard to the 79 contracts. This means that the first element has not been met. Without satisfying the first element, the 2 elements then become irrelevant considerations, thus could not be satisfied as well.
35. I note that the plaintiff may have incurred costs or preparatory work in regard to the bidding or related costs that may be associated with the 79 contracts. It has adduced evidence in that regard. However, the terms of the contracts were specific which is and if I may paraphrase “we will pay you in full for each contract or work that is performed” so to speak. In this case, no work was performed. I do not therefore see, based on the evidence that have been adduced, where the defendants have gained or benefited from the actions or services whether in full or in part, that should warrant consideration and application of this relief. It can also be implied from the 79 contracts, given the urgency of the task then, that the plaintiff would without delay get ready with its equipment and materials and attend to the work without delay, and then upon completion of the work, receive the full sum for each of the contract that it performs within a week.
36. Therefore, and to conclude, any contention by the plaintiff in relation to preparatory work under the claim of quantum meruit is also rejected.
OTHER CLAIMS/ISSUES
37. Given my findings and reasonings, it is not necessary to consider the other matters or issues raised by the parties herein.
SUMMARY
38. This claim will therefore fail. I will dismiss it.
COST
39. An award of cost herein is discretionary. I will order cost to follow the event on party/party basis which may be taxed if not agreed.
ORDERS OF THE COURT
40. I make the following orders:
The Court orders accordingly
________________________________________________________________
Elemi Lawyers: Lawyer for the Plaintiff
Guardian Legal Services: Lawyer for the Defendants
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