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National Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
WS NO. 235 OF 2022
BETWEEN:
JOANNE ARPA AND BEN ARPA
-Plaintiff-
AND
KEROWAGI DISTRICT DEVELOPMENT AUTHORITY
- Defendant-
Lae: Dowa J
2023: 11th & 17th August
PRACTICE AND PROCEDURE – application for default judgment-failing to meet the prerequisites of default judgment-relief not available-Court
has discretion to consider and assess evidence to determine issue of liability.
CONTRACT – Contract for supply of goods and services. Breach of procurement requirements under Public Finances (Management)
Act- Contact void and unenforceable - Effect of – Illegal, void ab initio contract – Unenforceable contract –
Quantum meruit claim can be considered for actual performance. No hard and fast rule in determining quantum meruit based on innocence-each
case to be determined on its own merits to do justice- considerations for appropriate and reasonable damages.
Cases cited:
Magiten v Beggie (2005) N2880
Giru v Muta (2005) N2877
Maki v Dokup (2012) N4838
Bala Kitipa v Vincent Auali (1998) N1773
John Kunekene v Michael Rangsu (1999) N1917
Tiaga Bomson v Kerry Hart (2003) N2428
Eliakim Laki v Morris Alaluku (2000) N2001
Kunton v Junias (2006) SC929
Fly River Provincial Government v Pioneer Health Services Limited (2003) SC705
The State vs. Barclay Bros (PNG) Ltd (2004) N2507
Delphi Corporate Investigations Ltd vs. Bernard Kipit (2003) N2480
Leontine Ofoi v Kris Bongare (2007) N3248
Teine vs. University of Goroka (2019) SC1881
Steven Turik v Mathew Gubag (2013) N5132
Counsel:
T. Berem, for the Plaintiff
Nil Appearance
JUDGMENT
17th August 2023
1. DOWA J: The Plaintiffs apply for default judgment under Order 12 Rule 32 of the National Court Rules for a liquidated sum of K503,682.
Facts
2. The Plaintiffs carry on building construction works under their business name styled Steel Works Inc. Between November 2017 and November 2021, the Plaintiffs were engaged by Kerowaghi District Development Authority, the Defendant, to carry on a series of building projects as well as supply of building materials. The Plaintiffs issued invoices for the works, some of which were settled. The Plaintiffs are now seeking recovery of the unpaid invoices totalling K503,682.00.
Application
3. The Plaintiffs, by Notice of Motion, seek default judgment pursuant to Order 12 Rule 32 of the National Court Rules. The Plaintiffs rely on the affidavits of Terry Berem, Ekimbo Domai, and other affidavits filed in support of the application. The application was made ex parte after the Court was satisfied that the Defendant was served copies of the Notice of Motion and other supporting documents.
ISSUES
4. The issues for consideration are:
The law
“32. General. (17/9)
(1) Whatever claims for relief are made by a plaintiff, where a defendant is in default, the Court may, on application by the plaintiff, direct the entry of such judgement against that defendant as the plaintiff appears to be entitled to on his writ of summons.
(2) Notwithstanding Sub-rule (1), the Court shall not, under that Sub-rule, direct the entry of judgement for the possession of land unless satisfied of the matters mentioned in Rule 30(2) and (4).”
Whether the Defendant has defaulted.
Whether the Plaintiffs should be granted default Judgment
Evidence
| PROJECT NO | DESCRIPTION | VALUE (K) | STATUS |
| 1 | Complete refurbishment of Kerowagi Police holding cells | K211,799.50 | Project completed |
| 2 | Extension of Kerowagi District administration complex | K225,134.50 | Project completed |
| 3 | Complete perimeter fencing of Kerowagi District headquarters | K406,747.00 | Project completed |
15. The Defendant did not give evidence in response.
Submissions of Parties
17. When counsel was alerted to the fact that the contract relied on may be found to be illegal, Mr. Berem submitted that the Court can still make an award based on the principles of quantum meruit as the Plaintiffs have rendered services and supplied goods to the Defendant which are not disputed.
Consideration
Whether the Defendant is liable
18. I have considered the evidence and submissions of counsel and here is my ruling on the issue.
19. The evidence shows between November 2018 and November 2019 the Plaintiffs were engaged by the Defendant to do several projects. Apart from the construction and maintenance works, the Plaintiffs supplied building materials to the Defendant at its request for a substantial value. The total value for the works and goods supplied is for K 1,043,682.00. The Defendants paid K540,000.00 and the balance outstanding is K 503,682.00.
20. Although the outstanding debt is an aggregate sum of four individual invoices involving different projects, the contract amount is substantial. A contract for service of this magnitude would require proper procurement and execution process under the Public Finance (Management) Act. The Defendant, Kerowaghi District Development Authority, is established under the District Development Authority Act and has financial responsibility under the Act. Although the Defendant operates as independent entity under the District Development Authority Act with a corporate structure, its officers are required to comply with the minimum procurement requirements and administrative guidelines and financial instructions of the Public Finance (Management)) Act. This is because they are state entities where the Public Finances (Management) Act applies.
21. Section 24 of the District Development Authority Act 2014 provides that the Public Finance (Management) Act applies. It reads:
“24. APPLICATION OF PART VIII OF THE PUBLIC FINANCES (MANAGEMENT) ACT 1995.
Part VIII of the Public Finances (Management) Act 1995 applies to District Development Authorities.”
22. Section 2A of the Claims by and Against the State Act provides prerequisites for a valid contract or claim against the State. It reads:
“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.
(3) The provisions of this section apply to an alleged sale of property or stores or to an alleged supply of goods or services after
1 March 2003.”
23. Section 47B of the Public Finance (Management) Act 1995 is replaced by section 42 of the Public Finance (Management) (Amendment) Act 2018. Sections 44 and 45 of the Act are also relevant in determining the issues before the Court.
24. Sections 42,44 and 45 of the Act are set out below:
“42. AUTHORITY TO PRE-COMMIT EXPENDITURE.
(1) The APC Committee may issue to a Departmental Head an Authority to Pre-commit Expenditure under this Act in relation to the procurement
of goods, works or services where the APC Committee is satisfied that –
(i) the provisions of this part have been complied with in relation to the procurement; and
(ii) funds will be available to meet the proposed schedule of payments for the procurement; and
(2) An Authority to Pre-commit Expenditure under Subsection (1) shall specify –
(3) An Authority to Pre-commit Expenditure under Subsection (1) authorises the Department, to whose Departmental Head the Authority
was issued, to enter into a contract for the procurement of goods, works or services specified in the Authority to the extent of
an amount not exceeding the maximum amount specified in the Authority and in any event not exceeding the threshold limit established
by the National Procurement Act 2018 for that Department.
(4) An Authority to Pre-commit Expenditure under Subsection (1) authorises National Procurement Commission and such other bodies as
are authorised by the National Procurement Act 2018 to enter into a contract for the procurement of goods, works or services specified in the Authority to the extent of an amount not
exceeding the maximum amount specified in the Authority.
(5) An Authority to Pre-commit Expenditure under Subsection (1) shall not exceed the appropriation contained in the National Budget
for the procurement of goods, works or services for the financial year in which the Authority was issued.
44. CERTAIN CONTRACTS NULL AND VOID.
(1) In this section –
(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 or supply –
is of no legal effect.
(3) The provisions of this section apply in respect of contracts entered into, or purported to have been entered into, by or on behalf
of the State, on or after 1 January 2003.
45. CLAIM AGAINST THE STATE NOT ENFORCEABLE IN CERTAIN CIRCUMSTANCES.
(1) In this section -
(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 -
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 purportedly sold to the State or the goods or services
were purportedly supplied to the State on or after 1 January 2003.".
25. Although the defendant did not raise the issue of illegality of the contracts, the Court cannot ignore the flouting of the mandatory requirements of the Public Finances (Management) Act by those doing business with the government and those tasked with management of public funds. Although there is no evidence of whether the Plaintiffs were aware of the requirements of the Public Finance (Management) Act, section 45 of the Act shifts the onus of proof on the supplier of the goods or services to produce evidence of a properly authorized Integrated Local Purchase Order or Claim commonly known as ILPOC or an Authority to Pre-commit Expenditure. The Plaintiffs did not produce any evidence of the government ILPOC nor any evidence of Authority to pre-commit Expenditure. Mr. Domai who gave evidence for the Plaintiffs conceded that it was an open-ended contractual arrangement.
26. It is clear the Plaintiffs had a contractual arrangement with the Defendant for the provision of goods and services without following the procurement requirements under the Public Finance (Management) Act. The law is settled. Where a contract is entered with the State or an Institution of the State for the supply of goods or services without complying with the mandatory requirements of the Public Finance (Management)) Act is illegal and unenforceable: Refer: Fly River Provincial Government vs. Pioneer Health Services Limited (2003), SC705, The State v Barclay Bros (PNG) Ltd (2004) N2507, Delphi Corporate Investigations Ltd vs. Bernard Kipit (2003) N2480 and Leontine Ofoi v Kris Bongare (2007) N3248, Ray v Numara (2018) N7380.
27. In the case Fly River Provincial Government vs. Pioneer Health Services Limited (2003) SC705, the Supreme Court stated the law at paragraphs 2 -5 of the headnotes of the judgment:
“2. The requirements under ss.59 and 61 of the PF(M)A are mandatory and where a contract is entered into in breach of those requirements, it is illegal and is therefore null, void and unenforceable.
28. The Plaintiffs had an ongoing business relation with the Defendant for the supply of building materials and general construction/maintenance works without complying with the mandatory requirements of the Public Finance (Management) Act. It was not open and transparent. The contract was signed without any project identification and no fixed pricing and ambiguous. Further, there is no evidence of whether the Officers who engaged the Plaintiffs had authority to pre-commit financial obligations on behalf of the Defendant.
29. For the foregoing reasons, I find the various supply of goods and service agreements entered between the Defendant and the Plaintiffs illegal and unenforceable pursuant to sections 42, 44 and 45 of the Public Finances (Management) (Amendment) Act 2018.
Should the Plaintiffs be left without remedy.
30. Whilst the contract for services did not meet the contracting practices and statutory requirements of the Public Finances (Management) Act, there is evidence that the Plaintiffs did provide services to the Defendant. It is clear the Defendant has benefited from the services provided and goods supplied. The Defendant has acknowledged its indebtedness to the Plaintiffs by making part payment. They have also signed a Memorandum of Agreement recently acknowledging the debt. Besides, the Defendant has not denied the claim nor defended the proceedings. In the circumstances, the Plaintiffs should not be left without a remedy. Although not pleaded, it is open to the Court to consider an award on quantum meruit to do justice in the circumstances of the case.
31. Quantum meruit is a common law cause of action. It has been applied in cases such as Fly River Provincial Government v Pioneer Health Services Limited (2003) SC705, Teine v University of Goroka (2019) SC1881, 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 and Steven Turik v Mathew Gubag (2013) N5132.
32. In Turik v Gubag, Cannings J set out the following elements of quantum meruit:
33. In the case Fly River Provincial Government vs. Pioneer Health Services Limited (2003) SC705, the Supreme Court said, in appropriate cases, the Court can make alternative awards based on quantum meruit. A summary of the Supreme Court decision from the head notes states in the following:
“6. Where an illegal contract is part performed an action for recovery or restitution is available if not already paid for in equity to avoid unjust enrichment condition on the innocence of the contracting parties.
34. In Teine v University of Goroka (2019) SC1881, the Supreme Court clarified that the Supreme Court in Fly River Provincial Government did not lay down a hard-and -fast rule that all persons dealing with public institutions will be deemed to have knowledge of illegalities for lack of statutory compliances. At paragraph 9 of the judgment the Court said:
” 9. We do not consider that the Supreme Court in Fly River v Pioneer laid down a hard-and-fast rule that all persons dealing with public institutions will be deemed to be aware of the public tender requirements of the Public Finances (Management) Act, so that in each and every instance of an illegal contract, the parties to the contract will be deemed to have knowledge of its illegality. The better view is that any dicta to that effect is confined to the facts of that particular case. It remains important that the evidence in each case be assessed on its merits. Though it might be appropriate to presume knowledge of illegalities, such a presumption can on a proper assessment of the evidence be rebutted. We consider that the trial judge erred by regarding dicta of the Supreme Court in the Fly River Provincial Government case about the parties being deemed to have knowledge of an illegality as a hard-and-fast rule and applying it against the appellants without adequate assessment of the evidence, leading to them being labelled without justification as ‘not innocent’.”
35. In the present case, without repeating the evidence, suffice to say that the Plaintiffs provided goods and services at the request of the Defendant to which the Defendant benefited. Except that the Plaintiff’s services and supply of goods were rendered in breach of the procurement requirements of the PFMA and for that reason renders the contract void, and except for the Plaintiffs not being paid, the parties have otherwise acted on the terms of the contract. There is no evidence to conclude that the Plaintiffs had knowledge of lack of authority of the officers of the Defendant to contract and bind the Defendant. I am of the view that the Plaintiffs should be compensated, if not, grave injustice will be done to the Plaintiffs while the Defendant shall be unjustly enriched. I will therefore make an award of damages in favour of the Plaintiffs on quantum meruit.
How much is the Plaintiff entitled to in Damages?
36. The Plaintiffs claim the sum of K503,682.00. The next issue is how much should the Court award. What is the reasonable amount in the circumstances? What factors should the Court consider in awarding an appropriate sum.
37. In this case the parties do not seem to have any regard for compliance of administration guidelines and financial instructions issued under the Public Finances (Management) Act. It is arguable that the Plaintiffs should not benefit from illegal contracts. On the other hand, the defendant should not enrich itself unjustly from the transaction. It appears both parties have equally contributed to the illegality. I also note the Plaintiffs failed to mitigate their loss. When they first learnt of the failure by the Defendant to pay their earlier invoices, they kept on supplying goods which was not properly sanctioned and for which they had little assurance of being paid. The Plaintiffs have an obligation to mitigate their loss by refusing to provide further services which they failed to do. In the circumstances the Plaintiffs are not entitled to the full sum claimed.
APPROPRIATE FIGURE
38. In my view, the most appropriate figure to fairly compensate the Plaintiffs, and to do justice in the circumstances in terms of money and considering the factors discussed above is to make an award for a fraction of the claim. In balancing the considerations, I am prepared to make an award of damages representing 60 % of the total claim (K503,682.00) which amounts to K302,209.20.
GST
39. The Court notes the debt includes figures for GST. The Plaintiffs have not produced evidence that they are registered taxpayers with Internal Revenue Commission, nor have they been tax compliant. The Plaintiffs are therefore not entitled to the GST component of the claim. The GST component of the claim allowed is K27,473.56. After deducting the GST component, the balance of the amount to be awarded is K 274,735.64.
OTHER CLAIMS
40. The Plaintiffs have pleaded other heads of damages in general damages, exemplary damages, and economic loss in the statement of claim. However, the Plaintiffs have not brought evidence in support of those claims. Besides, in the light of the findings it is not appropriate to make any awards in respect of these claims.
INTEREST
41. The Plaintiffs claim 8 % interest. For the same reasons given in the judgment, I will allow interest at a reduced rate of 4%. Interest at 4% is awarded on the principal sum of K 274,735.64 from date of Writ of Summons (25th May 2022) to date of Judgment (17th August 2023), that is a period of 450 days. By way of calculation, 4% interest on K 274.735.64 is K 10,989.43 per annum which accrues at K30.11 per day. For the total period it amounts to K 13,548.61.
42. The total award inclusive of interest shall be K288,284.24.
COSTS
43. The Plaintiffs have been successful in pursuing this claim. The Plaintiffs are entitled to cost and shall be awarded accordingly.
ORDERS
44. The Court orders that:
____________________________________________________________
Berem Lawyers: Lawyers for the Plaintiff
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