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National Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
WS NO. 307 OF 2020
BETWEEN:
PANGI RENT A CAR LIMITED
-Plaintiff-
AND
NELSON TEREMA in his capacity as CHIEF EXECUTIVE OFFICER OF THE ROAD SAFETY AUTHORITY.
-First Defendant-
AND
ROAD TRAFIC AUTHORITY
-Second Defendant-
Lae: Dowa J
2023: 2nd August & 14th September
CONTRACT – Contract for hire of Motor vehicles. Breach of procurement requirements under Public Finances (Management) Act- Contract
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:
Fly River Provincial Government vs. 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 vs. Kris Bongare (2007) N3248
Teine vs. University of Goroka (2019) SC1881
Steven Turik vs. Mathew Gubag (2013) N5132
Tirima -v- Angau Memorial Hospital Board (2005) N2779
Counsel:
G. Topa, for the Plaintiff
No appearance by Defendants
DECISION
14th September 2023
Facts
3. Despite being served copies of the Writ of Summons on the Defendants; they have not filed any Notice of Intention to Defend nor a Defence.
Trial
Evidence
a. Affidavit of Philip Depis sworn 25th and filed 30th September 2020.
b. Affidavit of Philip Depis sworn and filed 22nd February 2021.
c. Affidavit of Philip Depis sworn 2nd and filed 3rd June 2021.
PANGI RENTA A CAR LTD
Ph: 7239 9310 or 74727618
P O BOX 718, Lae, Morobe Province
CAR RENTAL AGREEMENT
The undersigned Agreement for Hire of a Motor Vehicle is hereby entered between following parties NELSON TEREMA as CEO of National Road Safety Council, P O Box 8560, Boroko NCD and Pangi Rent a Car, P O Box 718, Lae, Morobe Province.
RECITALS
bearing registration No. LBK 887.
TERMS
Both Parties Hereby Agree to the above Terms.
(Signed and Sealed)
.....................................................
Nelson Terema (Leasee)
CEO – NRSC
(Signed and Sealed)
.....................................................
Philip Depis (Lessor)
Pangi Rent a Car Limited
9. Mr. Depis gave additional evidence that the vehicle was brand new when delivered to the Defendants. It was funded by Credit Corporation Limited, and the Plaintiff suffered loss in settling the interest component of the loan without any payment from the Defendants. The vehicle was initially purchased in the name of Ambu- Naiya Limited and registered in that name. Since 2018 the vehicle is now registered in the name of the Plaintiff due to a rationalization program to keep the vehicles under the Plaintiff - name while Ambu Naiyu Limited concentrates on their real-estate business. He explains further that at the time of hire the second defendant was known as National Road Safety Council. Due to policy and legislative changes, the National Road Safety Council became Road Traffic Authority, the second Defendant, in name and style while the staff remained and were transferred to the new statutory body including the first Defendant who remained the Chief Executive Officer.
Issues
Submission of Counsel
11. Ms, Topa, counsel for the Plaintiff, submits this is a liquidated sum for outstanding invoices, based on a standard car rental agreement. Counsel submits that although the requirements of the Public Finances (Management) Act were not followed, the hire services were provided. The Defendants acknowledged their indebtedness by settling part of the debt and the current proceedings are for the balance of the debt. Counsel also submits that the Defendants offered no evidence in rebuttal and therefore liability should not be an issue in the circumstances and that judgement be entered for Plaintiff for the entire claim.
Consideration
Whether the Defendants are liable
12. I have considered the evidence and submissions of counsel and here is my ruling on the issue.
13. There is no dispute that the Plaintiff entered a Car Rental Agreement with the Defendants on 14th February 2014. The agreement was signed by the first Defendant on behalf of the second Defendant. The parties agreed that the daily rate for the hire was fixed at K700.00. The period for the hire was not stated in the written agreement but was contained in the standardised car rental agreement. It was for two and half years, and the defendants kept the vehicle for that period. The total invoices rendered for the entire period of hire amounted to K738,438.00.
14. Although the outstanding debt is an aggregate sum of individual invoices, it is for a lengthy period and the amount is substantial. A contract for service of this magnitude would require compliance of procurement and financial guidelines under the Public Finances (Management) Act 1995. The second Defendant is a public statutory established by section 4 of the Road Traffic Act 2014. Although it operates as an independent body under its enabling Act, with a corporate structure, its officers are required to comply with the minimum procurement requirements of the Public Finances (Management)) Act 1995 by virtue of section 20 of the Road Traffic Act.
15. Section 20 of the Act reads:
“20. APPLICATION OF THE PUBLIC FINANCES (MANAGEMENT) ACT 1995.
(1) Part VIII of the Public Finances (Management) Act 1995 applies to and in relation to the authority.
(2) For the purposes of Section 59 of the Public Finances (Management) Act 1999, tenders must be publicly invited and contracts taken for all works, supplies and services, the estimated cost of which exceeds K500,000.00
or such other figure declared by the Minister responsible for finance matters.”
16. Part VIII of the Public Finances (Management) Act 1995 applies to public bodies like the second Defendant. Sections 59 and 61 of the Act are relevant in determining the issues before the
Court.
17. Sections 59 and 61 of the Act are set out below:
(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.
..........
(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).”
18. The Plaintiff concedes that it has not complied with the procurement requirements of the Public Finances (Management) Act but seeks an award for the entire outstanding debt on quantum meruit as the services were provided which the Defendants have benefitted.
19. It is clear the Plaintiff had a contractual arrangement with the Defendants for the provision of vehicle hire service for an amount exceeding the statutory threshold without following the procurement requirements under the Public Finances (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 Finances (Management)) Act is illegal: Refer: Fly River Provincial Government vs. Pioneer Health Services Limited (2003), SC705, The State vs. Barclay Bros (PNG) Ltd (2004) N2507, Delphi Corporate Investigations Ltd vs. Bernard Kipit (2003) N2480 and Leontine Ofoi vs. Kris Bongare (2007) N3248, Ray v Numara (2018) N7380.
20. In the case, Fly River Provincial Government vs. Pioneer Health Services Limited (2003) SC705, the Supreme Court has clearly stated the law in 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.
21. The Plaintiff entered a business relation with the first Defendant for the supply of vehicle service without complying with the mandatory requirements of the Public Finances (Management) Act. Firstly, the written contract was for an unspecified period. It is open-ended and misleading and lacks certainty. However, the standard rental agreement signed by the first Defendant which is annexed to the Affidavit of Philip Depis filed 30th September 2020 as “Annexure PD7” shows that the contract period was for two (2) years and six (6) months. The contract price in hindsight was for K 738,438.00. It exceeds the threshold figure of K 500,000.00 specified by section 20 of the Road Traffic Act and the Public Finances (Management) Act 1995. It requires compliance of the procurement requirements of sections 59 and 61 of the Public Finances (Management) Act. The parties did not follow the process. The contractual arrangement was not open and transparent. There is no evidence of whether the first Defendant who signed the Car Rental Agreement with the Plaintiff had authority to pre-commit financial obligations to be met by the second Defendant. There is no evidence that the responsible Minister gave consent for the hire.
22. For the foregoing reasons, I find the Car Rental Agreement signed by the first Defendant and the Plaintiff illegal and unenforceable pursuant to section 20 of the Road Traffic Act 2014 and sections 59 and 61 of the Public Finances (Management) Act.
Should the Plaintiff be left without remedy.
23. 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 Plaintiff’s vehicle was hired by the Defendants. The vehicle was used by the first Defendant for official duties on behalf of the second Defendant for the period between 14th February 2014 and 30th September 2016. During this period, the Plaintiff sent 30 different invoices as per the Rental Agreement for settlement. According to the Plaintiff, the Defendants made a part payment of K126,280.00, and the balance of K 612,150.00 remains outstanding.
24. It is clear the Defendants have benefited from the use of the Plaintiff’s vehicle. The Defendants have acknowledged their indebtedness to the Plaintiff by making part payment. Besides, the Defendants have not defended the proceedings. In the circumstances, it is not just and equitable to dismiss the Plaintiff’s claim without a remedy.
25. As stated earlier, counsel for the Plaintiff, while conceding to the illegality of the contract, has urged the Court to consider the Plaintiff’s claim on quantum meruit. Ms. Topa submits that the Plaintiff is entitled to the full claim of K612.150.00 as the defendants have not provided evidence to defend the proceedings; and that it was the first defendant’s responsibility to ensure compliance of the procurement requirements of the Public Finances (Management) Act. Counsel submits further that it was the first Defendant who coerced the Plaintiff into this contractual relation and that the Plaintiff was not aware of the tender and procurement requirements of the Public Finances (Management) Act.
26. In my view, the Plaintiff should not be left without a remedy. I am prepared to consider the Plaintiff’s claim on a quantum meruit.
27. 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:
28. In Turik vs. Gubag, Cannings J set out the following elements of quantum meruit:
29. 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.
30. 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’.”
31. In the present case, there is evidence that Plaintiff’s motor vehicle was hired by the first Defendant for duties of the second Defendant. The Plaintiff delivered the vehicle to the first Defendant’s use as per the terms of the contract in good faith. The first Defendant used the Plaintiff’s vehicle for a period of two and half years and benefited from the use. Except that the Plaintiff’s vehicle was hired out in breach of the procurement requirements of the PFMA and for that reason renders the contract void, and except for the Plaintiff not being paid, the parties have otherwise acted on the terms of the contract. Whilst it is arguable that the Plaintiff cannot benefit from a contract that was in breach of sections 59 and 61 of the PFMA, the Defendants did not challenge the Plaintiff’s claim. The Defendants have not brought evidence disputing the claim by the Plaintiff. I am of the view that the Plaintiff should be compensated, if not, grave injustice will be done to the Plaintiff while the Defendants shall be unjustly enriched. I will therefore make an award of damages in favour of the Plaintiff on quantum meruit.
How much is the Plaintiff entitled to in Damages?
32. The Plaintiff claims the sum of K 612,150.00 for the outstanding invoices. 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. In my view, the following considerations should be applied in determining the appropriate amount:
(a) Rate
33. The evidence shows the hire rate agreed to is K 700.00 per day. From the type of vehicle used, the rate applied is not unreasonable, although, if the first Defendant applied due diligence by seeking competitive rates in the open market from competing service providers, it is possible, the figure would have been reduced.
(b) Hire Period
34. Although the written contract did not have a hire period, the standard hire agreement stipulates that the vehicle would be picked up on 14th February 2014 and returned 30th September 2016. That is for a period of two (2) years and six (6) months. Apart from being illegal, this is bad business practice on the part of the parties, especially for the Defendants. It is not open and transparent. It deprives others in the industry to compete for a share in the business. The second defendant would have saved monies seeking alternative service providers for lesser rates. In my view, it is an unreasonable period for procuring the services of a motor vehicle hire. In my view, a reasonable period would be between 5 and 6 months.
(c) Legitimate Expectation
35. The Defendants have created a legitimate expectation. They entered a business deal with the Plaintiff without applying prudent financial guidelines. They failed to follow the standard procurement requirements. They hired the Plaintiffs vehicle without a sense of accountability. It seems the Plaintiff was led to believe that all was well, and it allowed the defendants to have the vehicle with an expectation that the invoices would be settled in due course. According to the evidence, first Defendant assured the Plaintiff of the payments but did not fulfill their promises.
(d) Fairness
36. As stated in paragraph 35 above, the Plaintiff acted in good faith, trusting that the Defendants would meet their obligations. It is not fair for the Defendants to accept the services without paying for it.
(e) Mitigation of Loss
37. The evidence shows the Defendants did not make any payment for the vehicle during or immediately after the hire period even though invoices were issued. The first payment was made in December 2019, more than five (5) years after the hire of the vehicle. The Plaintiff did not take any action against the Defendants after it became aware that the defendants were not settling the monthly invoices. It is not clear why the Plaintiff kept on allowing the Defendants to keep its vehicle when its existing bills were not settled. It did not enquire why its bills were not settled. It is clear to me that the Plaintiff has voluntarily engaged in a business transaction where there was no assurance that it would be paid. The Plaintiff therefore contributed to the loss. The Plaintiff has an obligation to mitigate its loss by retrieving the vehicle from the defendants which it failed to do.
(f) Appropriate Figure
38. In my view, the most appropriate figure to fairly compensate the Plaintiff, 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. The evidence is clear on the conduct of the contracting parties, especially the Managing director of the Plaintiff company and that of the first Defendant which shows both parties have equally contributed to the loss. In balancing the considerations, I am inclined to make an award more in favour of the Defendants than the Plaintiff. I am prepared to make an award of damages representing 40 % of the total claim (K 612,150.00) which amounts to K 244,860.
GST
39. The Court notes the debt includes figures for GST. Although the Plaintiff has registered with Internal Revenue Commission, as taxpayer, it is not entitled to claim the GST component of the claim due to its illegality. The GST component of the claim allowed (K244,860.00) is K 22,260. After deducting the GST component, the balance of the amount to be awarded is K222,600. 00.
INTEREST
40. The Plaintiff claims interest at 8%. For the same reasons given in the judgment, interest is allowed at 4 % on the principal sum of K 222,600.00 from date of Writ of Summons (1st June 2020) to date of Judgment (14th September 2023), that is a period of 1,200 days. By way of calculation, 4% interest on K222,600.00 is K 8,904.00 per annum which accrues at K 24.39 per day. For the total period it amounts to K29,268.00.
41. The total award inclusive of interest shall be K 251,868.00.
EXEMPLARY DAMAGES
42. The Plaintiff claims exemplary damages. Counsel for the Plaintiff submits that exemplary damages be awarded against the first Defendant for his role in failing to settle the claim. The Plaintiff submits that the first Defendant lured the Plaintiff into a transaction which the Defendants failed to keep their part of the bargain. Exemplary damages is punitive in nature. In my view, it is not an appropriate remedy. The Plaintiff has contributed to the illegal contract and the consequential loss. He took no steps to get out of the contract. If the Plaintiff finds fault in the first Defendant’s conduct, he can be made to pay part of the judgment. For these reasons there shall be no award made under this head of damages.
GENERAL DAMAGES
43. The Plaintiff seeks general damages. General damages is for pain and suffering. This head of damages is not specifically pleaded, and no submissions have been made. Again, this is not an appropriate case for the consideration of an award under this head of damages. There shall be no award made.
COSTS
44. The Plaintiff has been successful in pursuing this claim and is therefore entitled to cost and shall be awarded accordingly.
Whether the second Defendant is vicariously liable for the judgment debt.
45. The next question is whether the second Defendant should be vicariously liable for the actions of the first Defendant. Vicarious liability is a common law principle by which one legal person is held liable for the acts or omissions of another person or group of persons over whom the first person has control or responsibility. Refer Tirima -v- Angau Memorial Hospital Board (2005) N2779.
46. The first Defendant is the Chief Executive Officer of the second Defendant. The second Defendant is established under section 4 of the Road Traffic Act. Section 4 reads:
“4. ESTABLISHMENT OF THE ROAD TRAFFIC AUTHORITY.
(1) The Road Traffic Authority is established.
(2) The Authority –
(a) is a body corporate with perpetual succession; and
(b) has a common seal; and
(c) may acquire, hold and dispose of property; and
(d) may sue and be sued in its corporate name.
(3) All courts, Judges and persons acting judicially must -
(a) take judicial notice of the seal of the Authority affixed to any document; and
(b) presume that the common seal was duly affixed by the authority of the Authority.”
47. The First Defendant is appointed by the Second Defendant under section 17 of the Act. He is responsible for carrying out the
functions of the second Defendant including the powers to enter contracts for services. The Agreement expressly states that the vehicle
was hired by the second Defendant for official use by the first Defendant. As per section 4 (3) of the Act, the Court takes judicial
notice of the Authority’s seal that was affixed to the contract and presumes it to be affixed by the authority of the second
Defendant. For these reasons I find the second Defendant is vicariously liable, if not directly liable.
Who should settle the judgment.
48. The Defendants have not defended the proceedings. They were served the Writ of Summons on 20th June 2020. The first Defendant was served personally. On 18th October 2020, the Defendants were served copies of Notice of Motion for Default Judgment. The documents were received by the first Defendant personally. On 12th July 2023, the Notice of Trial was served on the Defendants. Notice was served on the office of the first Defendant. On each occasion, the defendants made no appearance in Court. They have not filed any documents to defend the proceedings. The responsibility for defending the claim rests with the first Defendant. He as the CEO of the second Defendant has a statutory duty and an employment contractual obligation to defend the proceedings on behalf of the second Defendant. The evidence shows the vehicle was hired for the first Defendant to use it personally whilst performing his official duties of the second Defendant. In the circumstances, the first defendant be made liable to pay part of the judgment. In my view, the first Defendant should pay 20 % of the judgment whilst the second Defendant settles the balance, and the Court shall so order.
ORDERS
49. The Court orders that:
4. The second Defendant shall pay K 201,494.40 being 80% of the judgment debt.
5.The Defendants shall pay the cost of the proceedings in the same proportions, to be taxed, if not agreed.
______________________________________________________________
Myles Legal Services: Lawyers for the Plaintiff
No appearance by the Defendants
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