N9424
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO. 984 OF 2018

BETWEEN
NIVANI LIMITED
Plaintiff

AND
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
First Defendant

AND
STEVEN PUP, Department of Works Acting First Secretary Operations, in as capacity as Superintendents for the Contract
Second Defendant

AND
JOHN SITIPAI, Department of Works Islands Regional Manager, in his capacity as Superintendent’s Representative for the Contract
Third Defendant

Waigani: Makail, J
2021: 17th August
2022: 4th February

CONTRACT – Contract for services – Provision of heavy patching and reseal road works – Non-payment of services – Pay payment of services – Breach of – Enforceability of – Defence of non-compliance with statutory procurement procedure – Public Finances (Management) Act – 1995 – Sections 47B-D – Claims By and Against the State Act, 1996 – Section 2A

ADJUDICATION & ARBITRATION – Contract – Breach of – Dispute in relation to term of contract – Contracting parties agreeing to adjudicate or arbitrate dispute – Contract – Clause 24 –Arbitration Act, 1951 – Section 5 

UNJUST ENRICHMENT – Contract awarded in breach of statutory procurement procedure – Effect of – Contract unenforceable – Innocent party entitled to damages for unjust enrichment 

Cases Cited:

Jhelson Ray trading as Bara Construction v. Timothy Numara & The State (2018) N7380
Glennel G Mari trading as Wani Connection v. Timothy Numara & The State (2019) N8089
Seken Kewa v. Minister for Community Development & The State (2019) N7753
Fly River Provincial Government v. Pioneer Health Services Limited (2003) SC705
Lasco Development (15) Ltd v. Total E & P PNG Ltd (2019) N7987

Counsel:

Ms. G. Norum, for Plaintiff
Ms. R. Mesa, for Defendants
JUDGMENT
4th February, 2022

1.	MAKAIL, J: By this proceeding commenced by writ of summons on 28th August 2018, the plaintiff seeks the following relief:

“1.	A declaration pursuant to Order 12 Rule 1 of the National Court Rules and/or Section 155(4) of the Constitution that the Plaintiff and First Defendant have entered into an agreement to submit their disputes, in relation to the Contract, to adjudication/arbitration by a single adjudicator/arbitrator and are bound by that agreement.	

2.	A declaration pursuant to Order 12 Rule 1 of the National Court Rules and/or Section 155(4) of the Constitution that the Institute of Engineers of Papua New Guinea (IEPNG) be the appointing authority for an adjudicator under the Contract, the subject of the Notice of Referral to Adjudication dated 25 August 2017 served by the Plaintiff on the First Defendant.

3.	Alternatively to paragraph 2, an order pursuant to Section 5 of the Arbitration Act, that Joseph Hamilton be appointed sole adjudicator of the dispute under the Contract, the subject of the Notice of Referral to Adjudication dated 25 August 2017, served by the Plaintiff on the First Defendant.

4.	Alternatively, an order pursuant to Section 5 of the Arbitration Act, that such other persons, as may be nominated by the parties, be appointed sole adjudicator of the dispute under the Contract, the subject of the Notice of Referral to Adjudication dated 25 August 2017 served by the Plaintiff on the First Defendant.

5.	An order pursuant to Order 12, rule 1 of the National Court Rules and/or Section 155(4) of the Constitution that the parties do all such things as may be required to proceed with the adjudication/arbitration of the dispute under the Contract, the subject of the Notice of Referral to Adjudication dated 25 August 2017 served by the Plaintiff on the First Defendant, including the appointment of an adjudicator/arbitrator and compliance with the directions and requirements of the adjudicator/arbitrator.

6.	The First Defendant pay the Plaintiff’s costs of this proceeding.

7.	Such further or other orders as the Court deems appropriate.

8.	The time for entry of these orders be abridged to the time of settlement by the Registrar which shall take place forthwith”.

2.	At the trial, parties elected to rely on affidavits that have been filed with no cross-examination of witnesses.  Parties were then directed to file written submissions and decision to follow suit.  The plaintiff has filed its submissions but none by the defendants.

Parties’ Evidence

3.	The plaintiff relied on two affidavits by Christopher Edward Stein filed on 29th November 2018 and 1st October 2021 and one affidavit by David John Stein filed on 17th July 2019.  

4.	The defendants did not file any responding affidavits but in their defence filed by the Solicitor General on 26th April 2019, they alleged that the contract signed by the parties is unenforceable because it did not comply with Sections 47B, C and D of the Public Finances (Management) Act 1995 and Section 2A of the Claims By and Against the State Act 1996.

Undisputed Facts

5.	From the affidavits, the undisputed facts are, on 25th August 2014 the plaintiff and the first defendant entered into a written contract of services to carry out construction for Heavy Patching and Resealing Works of a road from Hoskins Junction to Koimumu Wildlife in West New Britain Province.  

6.	The contract was prepared by the first defendant and delivered to the plaintiff with an invitation for the plaintiff to attend the WNB Provincial Administrator’s office.  The contract was signed by Mr David John Stein on behalf of the plaintiff and the second defendant on behalf of the first defendant.

7.	It was witnessed by Mr Williamson Hosea, who is the Chairman of WNB Provincial Supply and Tenders Board and witnessed by Ian O’Hanlon who is also a member of the WNB Provincial Supply and Tenders Board and the President of the WNB Chamber of Commerce.

8.	The total value of the contract was K4,960,366.40.

9.	The plaintiff commenced work on 25th August 2014 and submitted several claims for payment on different occasions to the defendants comprising of claim # 1 on 21st October 2014, claim # 2 on 21st November 2014 and claim # 3 on 12th December 2014.

10.	On 31st March 2015, the plaintiff received a part payment of K1,000,000.00 against the outstanding amounts due for claim #1 and claim # 2.  The plaintiff then submitted claim # 4 on 20th January 2015.

11.	On 1st October 2015, the plaintiff received another payment of K1,011,740.69 against the outstanding amount due for claim # 3.

12.	The plaintiff submitted claim # 5 on 23rd March 2015 and claim # 6 on 18th December 2015.

13.	Due to delay by the first defendant in making payment, Mr Christopher Edward Stein as one of the directors of the plaintiff held a series of discussions with the third defendant, Wayne Knox and Aura Panka either by telephone or in person between April 2016 and 2nd June 2017 to sort out payment of the claims.  He was advised that as soon as funds became available, the plaintiff would be paid.  

14.	The plaintiff submitted claim # 7 on 20thSeptember 2016 and claim # 8 on 2nd June 2017.

15.	A dispute arose between the parties because despite the defendants’ promise, they failed to certify the claims and make payments within the time frames as stated in the contract, or at all.  

16.	It was a term of the contract:

(a)	under clause 24 that disputes be referred to adjudication with either party having the option to further refer the adjudicator’s decision to arbitration within 28 days of adjudicator’s written decision failing which the adjudicator’s decision is final and binding, and.

(b)	under clause 25.3 that arbitration is to be carried out in accordance with the Papua New Guinea Arbitration Act 1951.

(c)	under clause 26.1 that if the parties cannot agree upon the adjudicator, the adjudicator shall be appointed by the Appointing Authority in the contract data.

17.	The contract data did not nominate an Appointing Authority therefore in a letter dated 25th August 2017, the plaintiff wrote to the defendants:

(a)	referring disputes to adjudication.

(b)	gave written notice to the first defendant of referral of disputes to adjudication under clause 24.1 of the conditions of the contract.

(c)	nominating the Institute of Engineers of PNG (IEPNG) as the Appointing Authority under the contract.

18.	The defendants responded to the plaintiff by way of a letter dated 30th October 2017 denying any form of dispute however, did not certify and make payment of the claims, nor agreed to the IEPNG being the Appointing Authority.

19.	On 24th January 2018 the plaintiff again wrote to the defendants requesting for claims to be certified within the time frames stated on clause 42 of the conditions of the contract or else agree to IEPNG being the Appointing Authority for an adjudicator.

20.	The defendants did not response to the plaintiff’s requests and the matters in dispute were not resolved which led the plaintiff to commence these proceedings.

Issues

21.	The questions which arise are:

(a)	whether there is anenforceable contract between the parties, and 
(b)	that the contracting parties should be ordered to submit to adjudication under clause 24 of the contract or arbitration pursuant to Section 5 of the Arbitration Act.

Plaintiff’s Submissions

22.	The plaintiff submitted that there is a contract and it is enforceable on the following grounds:

(a)	it was a written contract and prepared by the first defendant,

(b)	it was signed by both parties on 25th August 2014,

(c)	it was verified by being affixed with common seal of the parties,

(d)	it was executed in conformity to standard Government procurement procedures as required by the Public Finances (Management) Act, 1995,

(e)	the conduct or performance of the contract was spelt out in the contract under clause 1.1 of section III – Conditions of Contract, 

(f)	it was performed, and
(g)	part payments were made by the defendants.

23.	For these reasons, the contracting parties should be ordered to submit to adjudication under clause 24 of the contract or arbitration pursuant to Section 5 of the Arbitration Act.

Defendant’s submissions

24.	As noted, the defendants did not file written submissions but in their defence, they denied that there is a valid contract because the plaintiff did not comply with the statutory procurement procedure under Sections 47B-D of the Public Finances (Management) Act, 1995 and Section 2A of the Claims By and against the State Act, 1996.

Enforceability of Contract

As these provisions are pertinent to the issues, it is necessary to set them out in full below:

25.	Section 47B states:

“47B. AUTHORITY TO PRE-COMMIT EXPENDITURE.

(1) The Departmental Head of the Department responsible for financial management may issue to a Departmental Head an Authority to Pre-commit Expenditure in relation to the purchase of property or stores or to the supply of goods or services where the Departmental Head of the Department responsible for financial management is satisfied that –
(a) in the case of proposed expenditure exceeding K100,000.00 –
(i) in the provisions of this Part have been complied with in relation to the purchase or supply; and
(ii) funds will be available to meet the proposed schedule of payments for the purchases or supply; and
(b) in the case of proposed expenditure not exceeding K100,000.00, the circumstances of the proposed expenditure are such that it is appropriate to authorize the Department, to the Departmental Head of which the Authority to Pre-Commit Expenditure was granted, to enter into a contract for the purchase of property or stores or for the supply of goods or services notwithstanding that the full amount of funds to meet the payment required under the contract is not immediately available but it is within the appropriation for the year to which the Authority to Pre-commit Expenditure relates for the item to which it relates.
(2) An Authority to Pre-Commit Expenditure under Subsection (1) shall specify –
(a) the purchase of property or stores of the supply of goods or services to which it relates; and
(b) the maximum amount to which the Authority extends.
(3) Subject to Subsection (4), an Authority to Pre-commit Expenditure under Subsection (1) authorizes the execution, in accordance with and subject to compliance with the procedures specified in this Part, of a contract for the purchase of property or stores or for the supply of goods and services specified in the Authority to the extent of an amount not exceeding the maximum amount specified in the Authority.
(4) A contract under Section 47 shall not be entered into unless –
(a) an Authority to Pre-commit Expenditure under Subsection (1) relating to the contract has been issued; and
(b) all other requirements of this Part relating to the contract have been complied with”.

26.	Section 47C states:

“47C. CERTAIN CONTRACTS NULL AND VOID.

(1) In this section –
“Authority to Pre-commit Expenditure” means an Authority to Pre-commit Expenditure issued under Section 47B;
“Integrated Local Purchase Order and Claim (ILPOC)” means Financial Form 4A – Integrated Local Purchase Order and Claim issued in accordance with the Financial Instructions.
(2) A contract for the purchase of property or stores or for the supply of goods or services entered into, or purported to have been entered into, by or on behalf of the State, in respect of which purchase of supply no Authority to Pre-commit Expenditure has been issued or no Integrated Local Purchase Order and Claim has been issued, is null and void.
(3) The provisions of this section apply in respect of contracts entered into, or purported to have been entered into, or purported to have been entered into, by or on behalf of the State, on or after 1 March 2003”.
27.	Section 47D states:
“47D. CLAIM AGAINST STATE NOT ENFORCEABLE IN CERTAIN CIRCUMSTANCES.
(1) In this section –
“Authority to Pre-commit Expenditure” means an Authority to Pre-commit Expenditure issued under Section 47B;
“Integrated Local Purchase Order or Claim (ILPOC)” means Finance Form 4A – Integrated Local Purchase Order or Claim issued in accordance with the Financial Instructions.
(2) A claim for the price arising from the sale of property or stores or for the supply of goods or services to the State shall not be enforceable, through the courts or otherwise, unless the seller of the property or stores or the supplier of the goods or services produces –
(a) an Integrated Local Purchase Order or Claim (ILPOC); or
(b) an Authority to Pre-commit Expenditure,
relating to the property or stores or goods or services, the subject of the claim, to the full amount of the claim.
(3) The provisions of this section apply where the property or stores were purported sold to the State or the goods or services were purportedly supplied to the State on or after 1 March 2003”.

28.	The related provision is Section 2A of the Claims By and Against the State Act 1996 which states:

“2A.	Claim against the State not enforceable in certain circumstances.

(1)	In this section—

"Authority to Pre-commit Expenditure" an Authority to Pre-commit Expenditure issued under Section 47B of the Public Finances (Management) Act 1995;

"Integrated Local Purchase Order and Claim (ILPOC)" means Finance Form 4A—Integrated Local Purchase Order and Claim issued in accordance with the Finance Instructions under the Public Finances (Management) Act 1995.

(2)	A claim for the price arising from the sale of property or stores or for the supply of goods or services to the State shall not be enforceable, through the courts or otherwise, unless the seller of the property or stores or the supplier of the goods or services produces—

(a)	a properly authorized Integrated Local Purchase Order and Claim (ILPOC); or

(b)	an Authority to Pre-commit Expenditure,
relating to the property or stores or goods or services, the subject of the claim, to the full amount of the claim.

29.	In summary and in the context of this case, Section 47B provides for an Authority to Pre-commit Expenditure Claim (APCE) and the Departmental Head of the Department of Finance may issue to a Departmental Head an APCE where the proposed expenditure exceeds K100,000.00 for provision of services.

30.	By Section 47C a contract for services is null and void if no APEC has been issued or an Integrated Local Purchase Order and Claim (ILPOC) has been issued.

31.	Section 47D provides that no claim for provision of services to the State is enforceable through the Courts or otherwise unless the supplier of the services produces an APCE and ILPOC for the full amount of the claim.

32.	Finally, Section 47D is replicated in Section 2A of the Claims By and Against the State Act, 1996 to reinforce the notion that a claim for provision of services without an APCE and ILPOC is not enforceable in Court or otherwise.

33.	In this case, the value of the contract exceeded K100,000.00 under Section 47B and would require the necessary approvals for procurement of funds by way of an issuance of an APCE by the Departmental Head of the Department of Finance to the Departmental Head of the Department of Works which include an ILPOC under Section 47C.

34.	It is clear from the evidence of the plaintiff that there are no APCE and ILPOC issued by the Departmental Head of the Department of Finance to the Departmental Head of Department of Works.

35.	In the absence of an APCE and ILPOC and by virtue of Sections 47B, 47C and 47D and Section 2A above, the contract is null and void and unenforceable.

36.	This view is reinforced by the National Court decision in Jhelson Ray trading as Bara Construction v. Timothy Numara & The State (2018) N7380 and followed in Glennel G Mari trading as Wani Connection v. Timothy Numara & The State (2019) N8089.

Unjust Enrichment

37.	However, the plaintiff has performed the contract and the defendants have benefited from the contract and it would be unfair and unjust for the defendants to enrich themselves if they do not pay for the services.

38.	In Seken Kewa v. Minister for Community Development & The State (2019) N7753 the National Court applied the Supreme Court decision in Fly River Provincial Government v. Pioneer Health Services Limited (2003) SC705 and held that on the principle of unjust enrichment, it would be unjust to allow the defaulting party not to pay for the services rendered by the aggrieved party if it can be established that:

(a)	the defaulting party has been enriched by the receipt of a benefit,

(b)	the defaulting party has been enriched at the aggrieved party’s expense, and

(c)	it would be unjust to allow the defaulting party to retain the benefit.

39.	There is no evidence that the plaintiff was not an innocent party as it knew of the statutory procurement procedure in Sections 47B-D and Section 2A above and avoided them.  On the other hand, the defendants prepared the contract, delivered it to the plaintiff with an invitation to attend at the WNB Provincial Administrator’s office to execute it which the plaintiff did.

40.	Moreover, the plaintiff performed the contract and was paid part of the value of the contract by way of part payments over the period of the contract until the defendants stopped paying and the plaintiff was advised that there were no funds and, it would be paid when fund became available.  Above all, the defendants benefited from the provision of services by the plaintiff.

41.	In the circumstances, the plaintiff is entitled to be paid for the unpaid claims under the principles of unjust enrichment.

Adjudication or Arbitration of Dispute

42.	As noted above, the plaintiff seeks by way of relief, an order for the dispute to be adjudicated by an adjudicator or arbitrated by an arbitrator.  However, as the contract was held to be unenforceable there will be no order to issue to give effect to the clauses of the contract in relation to parties submitting to adjudication or arbitration. cf: Lasco Development (15) Ltd v. Total E & P PNG Ltd (2019) N7987, a case where the National Court relied on a clause in a contract which provided for arbitration and stayed the proceedings and ordered parties to submit to arbitration.

43.	On the other hand, it is within the Court’s discretion pursuant to Order 12, rule 1 of the National Court Rules and Section 155(4) of the Constitution to order parties to agree on the sum to be awarded for the unpaid claims within one month of the order and return with a consent order for the Court’s endorsement.  In the event that parties are unable to agree, parties shall file and serve affidavits to assist the Court assess the sum to be awarded before the return date.  The matter will be adjourned to Friday 4th March 2022 at 9:30 am for further hearing.

Costs

44.	The defendants shall pay costs of the proceeding, to be taxed, if not agreed.

Order

45.	The orders of the Court are:

1.	Parties shall agree on the sum to be awarded for the unpaid claims within one month of the order and return with a consent order for the Court’s endorsement.  

2.	In the event that parties are unable to agree, parties shall file and serve affidavits to assist the Court assess the sum to be awarded before the return date.  

3.	The matter is adjourned to Friday 4th March 2022 at 9:30 am for further hearing.

4.	The defendants shall pay the costs of the proceeding, to be taxed, if not agreed.
________________________________________________________________
In-House Legal Counsel: Lawyers for Plaintiff
Solicitor General:	Lawyers for Defendants