N4220

PAPUA NEW GUINEA
IN THE NATIONAL COURT OF JUSTICE

OS (JR) No. 533 OF 2009

BETWEEN:

MOUNTAIN CATERING LIMITED
Plaintiff

AND:

FREDERICK M PUNANGI,
Secretary, Department of Defence
First Defendant

BRYAN KIMMINS
as Chairman of and the Members of the CENTRAL SUPPLY AND TENDERS BOARD
Second Defendant

AND:

PATRICK PRUAITCH,
MP Minister for Treasury and Finance
Third Defendant

AND:

THE NATIONAL EXECUTIVE COUNCIL
Fourth Defendant

AND:

THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Fifth Defendant

AND:

NCS HOLDINGS LIMITED
Sixth Defendant

Waigani: Gavara-Nanu, J
2010: 16 July
2011: 11 February

ADMINISTRATIVE LAW – Delegated powers – Application by a tenderer to provide catering and hospitality services (contract) to Papua New Guinea Defence Force (PNGDF) – Central Supplies and Tenders Board's (CSTB) decision on the tender – Member of the Defence Technical Evaluation Committee (DTEC) co-opted to CSTB upon recommendation made by the Secretary for Defence – The appointment of DTEC members made pursuant to s. 42 (2) of the Public Finances Management Act – The task for the DTEC confined to advising the CSTB on the tenders – Overall responsibility of the Secretary for Defence to efficiently administer, control and account for all public expenditure for the administration of the Department of Defence and PNGDF – Defence Act, s.9-Members of DTEC recommended by the Secretary for Defence from senior managers and officers of the Department of Defence and PNGDF – Secretary for Defence having overall authority over DTEC.

Cases Cited:

Dr Rose Kekedo –v- Burns Philip (PNG) Ltd [1988 – 89] PNGLR 122
Papua Club Inc.-v- Nusaum Holdings Ltd (No.2) (2004) N2603
Richard Manui v. ANZ Banking Group (PNG) Ltd (2008) N3405

Counsels:

R. Bradshaw, for the plaintiff
J. Nandape, for the first to fifth defendants
R. Pato, for the sixth defendant

11 February, 2011

1.	GAVARA-NANU J: 	The Central Supplies and Tenders Board ("the CSTB") on 18th November, 2008, on behalf of the Papua New Guinea Defence Force ("the PNGDF"), caused an advertisement to be placed in the Post Courier to invite tenders for the supply of catering and hospitality services ("the contract") to the PNGDF.

2.	Four tenders were initially received. Two of those tenders were the plaintiff and the sixth defendant. When the tenders were eventually considered by the CSTB two were eliminated leaving the plaintiff and the sixth defendant as the final bidders for the contract. 

3.	On or about 12 March, 2009, the CSTB approved and recommended the sixth defendant to the National Executive Council ("the NEC") to be awarded the contract. 

4.	On or about 26 August, 2009, the NEC by its decision No. 134 of 2009, endorsed that the contract be awarded to the sixth defendant. The plaintiff is now challenging the awarding of the contract to the sixth defendant.

5.	In his submission, Mr. Bradshaw of counsel for the plaintiff argued that the decision by the CSTB to award the contract to the sixth defendant was unduly influenced by the first defendant. The nature of the alleged influence is discussed below.

6.	For CSTB to properly consider the tenders for the contract, it had to co-opt a Defence Technical Evaluation Committee ("DTEC") whose obligation was to advise and assist the CSTB decide on which bidder or tender should be awarded the contract. The co-opting of the DTEC is a requirement under s. 42 (2) of the Public Finances Management Act, 1995 ('the PFM Act"). The DTEC was made up of senior officers and managers of the PNGDF and the Department of Defence. They were appointed upon a recommendation made by the Department of Defence through the then Acting Secretary for Defence, Mr. Billy Porykali who later became a member of the DTEC. The recommendation was made to the Chairman of the CSTB, who is the second defendant herein in a letter dated 5 January, 2009. Subsequently, on 21 January, 2009, the second defendant wrote to the first defendant who by then was the Secretary for Defence and advised that all the members who were recommended to comprise DTEC had been approved by the CSTB except for Mr. David Porykali. The second defendant in that letter in part said:

"The final evaluation and recommendation report must be signed by all members of the appointed evaluation committee and submitted to the Board with a signed cover letter from the Secretary as the Chief Accounting Officer. 

The Board will review the evaluation report whether all requirements have been fulfilled and will include the submission at its next scheduled Board meeting. The Board will endorse and decide for the award of the contract.

Reference is made to the final paragraph of your letter. We wish to draw your attention that the CSTB is the only entity mandated by law to make procurement decision for and on behalf of the State".

7.	Consequently, on 3 February, 2009, the DTEC commenced evaluating and assessing the initial four tenders for the contract, which later resulted in two of the tenderes being eliminated. 

8.	In evaluating and assessing the tenders, the DTEC used and considered 18 criteria or requirements provided in the Good Procurement Manual which was developed by the CSTB for Government Departments, Provincial Administrations, Public Bodies and Special Supply and Tenders Boards to assist them achieve "value for money" outcomes in any contracts they establish. The DTEC completed its evaluation of the two tenders and forwarded its report, which was signed by three of the six members of the DTEC together with their written submission to the first defendant to be forwarded to the CSTB.

9.	It is to be noted that the DTEC report was submitted to the CSTB by the first defendant in the form it was prepared by the DTEC. But in regard to DTEC submission, it was amended by the first defendant in which he recommended that the sixth defendant be awarded the contract on the basis that the plaintiff was not well known to the PNGDF in so far as its services and the quality of its services to provide catering and hospitality services to PNGDF were concerned. The DTEC had in its submission recommended that the plaintiff be awarded the contract, thus the recommendation by the first defendant for the contract to be warded to the sixth defendant in the amended submission was contrary to the recommendation made by the DTEC.

10.	It should be noted that DTEC in its report also recommended that the plaintiff be awarded the contract. 

11.	The CSTB in a meeting on 12 March, 2009, considered the DTEC report and submission which the first defendant amended and decided to award the contract to the sixth defendant. The decision was based on the advice and reasons given by the first defendant in the amended submission. This is the reason why Mr. Bradshaw has argued that CSTB's decision to award the contract to the sixth defendant was unduly influenced by the first defendant.

12.	On 8 April, 2009, the then Minister for Finance and Treasury wrote to the Chairman of the CSTB (the second defendant) and informed him that two members of the DTEC namely, Mr Billy Porykali and Mr Andrew Kadiesany had lodged a complaint with him complaining that the tender process was hijacked by people with ulterior motives and advised that in the exercise of the powers given to him under the PFM Act, he was instructing him (second defendant) to rescind the CSTB's recommendation to the NEC to award the contract to the sixth defendant and that he had endorsed the DTEC's recommendation to award the contract to the plaintiff.

13.	On 14 April, 2010, the second defendant responded in writing to the Minister's letter setting out the chronology of the events and gave the reasons why the CSTB approved and recommended that the sixth defendant be awarded the contract. Upon receiving that letter and having satisfied himself with the reasons given by the second defendant for awarding the contract to the sixth defendant, the Minister rescinded the direction he gave to the second defendant in his letter of 8 April, 2009, in which he endorsed the DTEC's recommendation for the contract to be awarded to the plaintiff and re-endorsed the decision by the CSTB to award the contract to the sixth defendant. 

14.	Subsequently, on 26 August, 2009, the NEC in its meeting No. 6 of 2009 awarded the contract to the sixth defendant. On 21 September, 2009, the plaintiff commenced these proceedings. 

15.	It is noted that on 9 March, 2009, the State (the fifth defendant) and the sixth defendant entered into a contract for the sixth defendant to provide catering and hospitality services to the PNGDF.

16.	 The principal issue before the Court relates to the submission made by the DTEC to the CSTB which the first defendant amended to recommend the sixth defendant for the contract. 

17.	 It was submitted by Mr. Bradshaw that the CSTB's decision to award the contract to the sixth defendant was flawed as it was influenced by the amendments made by the first defendant to the DTEC's submission to the CSTB. Mr. Bradshaw further argued that the amendments which the first defendant made to the DTEC's submission to the CSTB were made fraudulently. Mr. Bradshaw argued that the decision by the CSTB to award the contract to the sixth defendant was against the DTEC's advise and recommendation and further argued that the DTEC was the only legitimate body to assess and evaluate tenders for the contract and advise the CSTB on which tender should be accepted. It was argued that the involvement of the first defendant and the Defence Council of which the first defendant was a member in making representation to the CSTB through the amended submission was wrong and fraudulent. Mr. Bradshaw relied mainly on the affidavits sworn by Mr. Porykali and Mr. Kadiesany for this argument. These two men, more particularly Mr. Porykali who was the Chairman of the DTEC had as I said earlier, complained to the then Minister for Treasury and Finance that awarding of the contract to the sixth defendant was influenced by people with ulterior motives, obviously referring to the first defendant who amended the DTEC's submission which was later submitted to the CSTB. Mr. Bradshaw highlighted the differences between the original submission by the DTEC which was given to the first defendant to submit to the CSTB and the amended or edited version of the same submission by the first defendant which the first defendant submitted to the CSTB. Mr. Bradshaw submitted that the first defendant fraudulently amended the DTEC's submission to influence the CSTB to award the contract to the sixth defendant. The fundamental difference between the DTEC's original submission and the amended version by the first defendant was the recommendation for the sixth defendant to be awarded the contract. This as noted earlier was contrary to the recommendation made by the DTEC in its original submission, which favoured the plaintiff.

18.	The first defendant has sworn an affidavit in which he denies that he personally amended the DTEC'S submission, he says the amendments to the submission were made by the Defence Council. He also denies that he fraudulently amended the submission, he says he made the amendments in consultation with the Defence Council, which he says had the right to express its views to the CSTB on who should be awarded the contract. He therefore says the amended submission which recommended the sixth defendant for the contract was made by the Defence Council.

19.	Mr. Bradshaw in response argued that the amendments to the DTEC's submission were made by the first defendant personally because the Defence Council did not meet to discuss the submission.

20.	The second defendant has also sworn an affidavit in which he denies that the CSTB was influenced by the amended submission. 

21.	The second defendant says in his affidavit that there were reasons why the plaintiff was not recommended for the contract, one of which was that in its quote for the contract, it did not include the GST. He says had the plaintiff included the GST, its quote would have been much higher than the quote by the sixth defendant. The other reason is that the tender requirements were not met by the plaintiff. 

22.	It was argued by Mr. Pato of counsel for the sixth defendant that the first defendant as the Secretary for Defence and as the chief accounting officer for the Department of Defence and the PNGDF was empowered under the Defence Act, Chapter No. 74 ('the Defence Act") to make his own recommendations on which tender should be accepted for the contract. Mr. Pato relied on s. 9 (1) (b) of the Defence Act, which provides that it is the responsibility of the Secretary for Defence (the first defendant) to efficiently administer, control and account for all public moneys appropriated or otherwise legally available for the purposes of defence administration. 

23.	I remind myself that what is under review here is the process in which the decision was made by the CSTB to award the contract to the sixth defendant: Dr Rose Kekedo –v- Burns Philp (PNG) Ltd [1988-89] PNGLR 122. Part of that process was the decision by the Minister for Treasury and Finance to endorse the CSTB's recommendation for the sixth defendant to be awarded the contract. The reviewable decision here is the decision by the CSTB to award the contract to the sixth defendant.

24.	In the amended submission, the first defendant recommended that the contract be awarded to the sixth defendant because the plaintiff was unknown to the PNGDF. This was contrary to the DTEC's recommendation that the contract be awarded to the plaintiff. Mr. Bradshaw submitted that the amendments made to the DTEC's submission by the first defendant were made fraudulently. As I intimated to Mr. Bradshaw during hearing that allegations or assertions of fraud against the first defendant have to be proved with cogent and convincing evidence because fraud is criminal in nature: Papua Club –v- Nusaum Holdings Ltd (No.2) N2603. The first defendant told the Court that amendments to the DTEC's submission were made by the Defence Council and there was no fraudulent intention by the Defence Council in making those amendments.

25.	 It was further argued by Mr Pato that because the contract involved public funds, even without the involvement of the Defence Council in amending the DTEC's submission, the first defendant as the chief accounting officer of the Department of Defence had the overall authority to comment or express his own views on the submission. Therefore even if the amendments to the DTEC submission were made personally by the first defendant, he had the authority to make such amendments.

26.	The DTEC members were appointed pursuant to s. 42 of PFM Act. Sub-section (2) sets out the process by which the tenders are to be considered by the CSTB. It is therefore convenient to set out s. 42 of the Act.

42.	Consideration of tenders.

(1)	Where under this Part tenders have been invited, the Secretary of the Board concerned shall, as soon as possible after the closing date for the receipt of tenders, prepare for the Chairman details in schedule form of the tenders received for presentation to the Board at the meeting at which the tenders are to be considered.

(2)	The Board shall co-opt, or seek the advice of, persons with specialized knowledge to assist the Board in its consideration of tenders received.

(3)	The Board shall consider a tender in the light of conditions of tender and the specifications and plans (if any) of the matter or thing in respect of which tenders were invited and shall apply to the consideration of all tenders the criteria supplied by the Minister.

(4)	Any representations by a tenderer to amend his tender after the closing time for tenders shall be immediately reported to the Board.

(5)	In examining a tender, the Board shall give consideration to the capacity, experience, integrity, financial status and past performance of the tenderer and such other matters as it thinks relevant.

(6)	Where—

(a)	the amount of the most cost-effective tender—

(i)	exceeds the upper limit of authority of the Board specified under Section 39(2)(a),; and the Chairman of the Board shall refer that tender to the Small Contracts Award Board to be dealt with in accordance with Section 43.

(8)	Where, in the opinion of the Board, it is in the best interests of the State to do so, the Board may, subject to directions issued by the Minister under Section 39—

(a)	where the amount of the tender does not exceed the prescribed amount—

(i)	accept a tender; and

(ii)	reject all other tenders,

and the reasons for the acceptance and rejection shall be detailed in the minutes of the meeting of the Board; and

(b)	where the amount of the tender exceeds the prescribed amount recommend to the Minister responsible—

(i)	the acceptance of the tender; and

(ii)	the rejection of all other tenders,

and the reasons for the recommendation shall be detailed in the minutes of the meeting of the Board.

(9)	Where a Minister receives a recommendation from a Board under Subsection (8)(b), he shall submit to the National Executive Council the recommendation together with particulars of other tenders received and the National Executive Council shall decide which tender shall be accepted.

(10)	Where, after consideration of the tenders—

(a)	two or more tenders appear satisfactory; and

(b)	in the opinion of the Board, there is no advantage to the State in preferring a particular satisfactory tender over the other satisfactory tenders, the Board—

(c)	where the amount of a tender does not exceed the prescribed amount, may accept one or more tenders except that the Board may, in its discretion and to ensure as far as practicable a fair division of business within an area where it is satisfied that the action is warranted, divide the acceptance between two or more satisfactory tenders, and in any such case the reasons for the acceptance shall be detailed in the minutes of the Board; or

(d)	where the amount of a tender exceeds the prescribed amount, shall recommend to the Minister responsible the acceptance of a satisfactory tender except that the Board may, in its discretion and to ensure as far as practicable a fair division of business within an area, where it is satisfied that the action is warranted, recommend to the Minister responsible the division of acceptance between two or more of the satisfactory tenders, and in any such case the reasons for the recommendation shall be detailed in the minutes of the meeting of the Board and in the recommendation.

(11)	Where a Minister receives a recommendation under Subsection (10)(d), he shall submit to the National Executive Council the recommendation together with particulars of all tenders received and the National Executive Council shall decide which tender or tenders shall be accepted.

(12)	Nothing in this section derogates from any other provisions of this Act or from any other law requiring a written contract or agreement to be entered into in respect of the subject of a tender.

28.	The pertinent part is Sub-Section (2).

29.	Mr. Bradshaw also argued that the CSTB had delegated its powers to the DTEC when it co-opted the members. This contention requires proper construction of s. 42 (2) of the PFM Act. I am of the firm opinion that this contention by Mr. Bradshaw is not open on the proper construction s.42 (2). To my mind, the operative words in the Sub-section are "..seek advice of .." i.e for the CSTB to seek advice of the DTEC and for the DTEC to ".. assist the Board in its consideration of the tenders received." These operative words as highlighted state the purpose for co-opting the DTEC members to the CSTB, which was to advice and assist the CSTB in its determination of the tenders received, more particularly advice on the technical aspects of those tenders. But it is also implicit from these operative words that the CSTB was not bound to accept every advice given to it by the DTEC, thus it was still up to the CSTB to make a final decision on which tender should be awarded the contract. The DTEC clearly by necessary construction and application of s. 42 (2) had no authority to make decisions for and on behalf of the CSTB because its function was limited by s. 42 (2) to only offer advise and assist the CSTB reach an informed decision on which tender should be awarded the contract. 

30.	For the same reason, the DTEC report and submission based on its assessment and evaluation of the tenders were only for purposes of advising, assisting and guiding the CSTB to decide which tender should be accepted for the contract. Thus the CSTB still had wide discretion when deciding whether to accept the DTEC report and submission, even if the submission was submitted to the CSTB in its original form.

31.	I am also of the opinion that the CSTB also had the power to look at sources outside of the DTEC for advice and assistance if it (CSTB) was of the opinion that such information and or advice would assist it to properly decide which tender should be accepted for the contract. Thus the CSTB was not restricted to the DTEC report and submission. In my opinion, the Secretary for Defence and the Defence Council were two such sources from which the CSTB could seek and obtain assistance and advice on the tenders. They are two highest authorities in the Department of Defence and PNGDF which had direct interest in the tenders as they were going to be directly involved in the implementation of the contract. Thus, in my opinion there was nothing improper in the Secretary for Defence and the Defence Council expressing legitimate views on the tenders to the CSTB, but again such views and advices were not binding on the CSTB because ultimately the decision was for the CSTB to make. 

32.	The relevance and the overall authority of the Secretary for Defence in the tender process in my opinion cannot be denied. He had a legitimate role to play in the process. This is reflected clearly in his involvement in the selection of DTEC members to be co-opted to the CSTB. This was a proper administrative process which is consistent with s. 42 (2) of PFM Act and s. 9 of the Defence Act. The letter by the then Acting Secretary for Defence Mr. Porykali to the CSTB dated 5 January, 2009, also affirms and supports this view. It was also for this reason that the DTEC's report and submission had to be submitted to the Secretary for Defence to be later submitted to the CSTB. It is also to be noted that in regard to the DTEC report, it was signed by three of the DTEC members but in regard to the DTEC submission, it was prepared for the first defendant to sign. So in regard to the submission, it was prepared by the DTEC for and on behalf of the Secretary for Defence, this is clear even when one looks at the unedited version of the submission. Mr. Porykali confirms this in paragraph 13 of his affidavit sworn on 19 February, 2010, in which Mr. Porykali says the submission was sent to the Secretary for Defence for his (first defendant) signature. Although Porykali says the submission was sent to the Secretary "as a matter of protocol", it is clear that it was sent to the first defendant to endorse and sign before submitting it to the CSTB. As a matter of law and good governance, the first defendant could not be expected to sign and endorse a submission which he could not agree with. It was still subject to his views as the overall authority in the Department of Defence. This is also consistent with his powers and functions under s. 9(1) (b) of the Defense Act and the requirements under the tender process as I have alluded to earlier.

33.	Another evidence of the first defendant's pivotal and relevant role in the tender process is that, after the CSTB had awarded the contract to the sixth defendant, the CSTB asked the first defendant to prepare a Statutory Business Paper for the National Executive Council.
 
34.	The above role of the first defendant in the tender process is in harmony with his responsibilities in regard to the public funds as spelt out under s. 9 (1) (b) of the Defence Act, which is: - "efficient administration of and control and accounting for all public moneys appropriated or otherwise legally available for the purposes of defence administration…". This responsibility covered the administration and control of public funds which were going to be made available to pay for the services that were to be provided by the successful bidder for the contract. 

35.	For the foregoing reasons, I am of the opinion that the first defendant had the right to have a say on the DTEC submission. However, that said, I am also of the opinion that if the first defendant disagreed with the submission, I do not think he had the exclusive right to amend the submission without first consulting and discussing his views with the members of the DTEC. So the question is did the first defendant make amendments to the DTEC submission without consulting the members of the DTEC? This question is answered by Mr. Porykali in paragraphs 13 and 14 of his affidavit, where Mr. Porykali says the first defendant informed Mr. Andrew Kadiesany that he was not happy with the submission and told Mr. Kadiesany that he wanted the DTEC to revisit the submission with the view to making amendments to it. That request was refused and it was after that refusal that the first defendant made the changes to the submission. The amended submission reflects the view held by the first defendant for which he gave his reasons to recommend the sixth defendant instead of the plaintiff who was recommended by DTEC for the contract. The principal reason given by the first defendant for recommending the sixth defendant was that the sixth defendant was already providing the same services to the PNGDF and was well known to the PNGDF. 

36.	Mr. Bradshaw has argued that the amendments to the DTEC submission were made fraudulently but there is no evidence that the first defendant acted fraudulently in amending the DTEC submission. There was no secrecy in the way the amendments were made, they were made openly and were made for the CSTB to consider. The first defendant also said that the changes were infact made by the Defence Council, there is evidence in support of this claim. There is evidence that the Defence Council met and decided to recommend to the CSTB that the sixth defendant be awarded the contract. I therefore see no impropriety in the involvement of the Defence Council.

37.	Although the first defendant has been accused of committing fraud in amending the DTEC submission, the plaintiff has failed to prove its assertion. That is the law: Richard Manui v. ANZ Banking Group (PNG) Ltd (2007) N3405. It seems clear to me that allegations of fraudulent conduct made against the first defendant were made only because he amended the DTEC submission to recommend that the contract be awarded to the sixth defendant. Amending the DTEC submission by the first defendant to recommend the sixth defendant for the contract to the CSTB for a genuine reason could not constitute or amount to fraud. There is no evidence that the first defendant made the amendments for his own benefit. There is also no evidence at all of any ulterior motive in the first defendant making those amendments. The reasons he gave for making amendments to the submission and for recommending the sixth defendant for the contract appear perfectly legitimate. There is no other evidence before the Court which can support Mr Bradshaw's assertion of fraudulent conduct by the first defendant in amending the submission. 

38.	The report by the DTEC which recommended the plaintiff for the contract was submitted to the CSTB so when the CSTB made its decision, it was aware from the report that DTEC preferred the plaintiff for the contract. In other words, the DTEC's report was given due consideration by the CSTB together with the amended submission when it decided to award the contract to the sixth defendant. 

39.	The gist of the complaint made against the contract being awarded to the sixth defendant by Mr. Porykali and Mr. Kadiesany was that the soldiers did not like the food the sixth defendant was providing. This is evident from the letters written by the two men to the first defendant and the Minister. Those complaints were duly considered and rejected by the Minister. This application is in essence based on those same issues or complaints. 

40.	The foregoing reasons are sufficient basis for me to dismiss the application. It is therefore not necessary for me to consider the other issues raised in defence of the application.

41.	The application is therefore dismissed with costs to the defendants. 

____________________________

Bradshaw Lawyers: Lawyers for the Plaintiff
Nandape & Associates Lawyers: Lawyers for the First to Fifth Defendants
Steeles Lawyers: Lawyers for the Sixth Defendant