N2315

PAPUA NEW GUINEA

[In the National Court Justice]

APPEAL NO. 51 OF 2000

BETWEEN:

BERNARD NURI
First Appellant

AND:

WESTERN HIGHLANDS PROVINCIAL GOVERNMENT
Second Appellant

AND:

KAIPEL DU
FOR AND ON BEHALF OF 106 OTHERS
Respondents

MT. HAGEN:	KANDAKASI, J.
2003: 	07th & 17th January

APPEALS – PRACTICE & PROCEDURE – Appeal from District Court – Application to amend notice of appeal – Wrong reference to parties - Power to allow amendments governed by relevant provisions of the District Court Act – No objection to amendment sought – Amendment allowed – District Courts Act ss. 232. 

CONTRACTS – Purported contract with provincial government – No expressed authority vested in servant or agent of provincial government to enter into contract - No usual or apparent authority in agent to entered into contracts and bind the principal - Contracts with public authorities required to meet requirements of the Public Finances (Management) Act 1995 and other statutory requirements as well as approval by the relevant authorities having the power to bind them – No evidence of these requirements being met in this case – No enforceable contract between the parties – District Court erred in awarding judgement for the respondent – Appeal upheld. 

EQUITY – Though equity can do what the law can not, there must be something such as a contract which is otherwise valid but for a failure to meet statutory requirements – District Court erred in award damages after having correctly found there was no contract.

Papua New Guinea Cases Cited:
Samson Dacany v. Noah Taia of National Fisheries Authority CIA No. 51 of 2002 (Unreported judgement and yet to be numbered) delivered on 13th December 2002.
Sylvanus Gorio v. National Parks Board [1982] PNGLR 364.
Panga Coffee Factory Pty Ltd v. Coffee Industry Corporation Limited (Unreported but numbered judgement delivered on 6 October, 1999) SC619.
Wag v. Mount Hagen Town Authority [1996] PNGLR 385.
Jack Livinai Patterson v National Capital District Commission (2001) N2145.
The Independent State of Papua New Guinea v Barclay Brothers (PNG) Ltd (2001) N2090.
Tian Chen Limited v. Tower Limited (unreported judgement delivered 08/11/02) N2313.
Papua New Guinea Banking Corporation v. Barra Amevo & Ors (unreported judgement delivered 26/03/98) N1726.
Putput Logging Pty Ltd v. Philip Ambalis [1992] PNGLR 159.

Overseas Cases Cited:
Credit Suisse v. Allerdale BC [1996] All ER 129.

Counsel:
Mr. P. Kak for the Appellant.
Respondent in Person. 

17th January 2003

KANDAKASI, J:	This is an appeal against a decision of the Mt. Hagen District Court delivered on 22nd March 2002. The District Court found and entered judgement for the Respondent in a cumulative sum of K5, 500.00 in two separate but related District Court complaints. 

Preliminaries

The reference to the parties in this proceedings are wrongly stated in terms of Kaipel Du and the 106 others as being shown as the appellants whilst the Western Highlands Provincial Government (the WHPG) and Mr. Nuri are shown as the respondents. The correct position, which is apparent from the body of the notice of appeal and the other documents, is the other way around. Counsel for the WHPG and Mr. Nuri applied for an amendment to correct that error at the outset of the hearing. The Respondent took no objection to the application. I therefore allowed that application effectively by consent pursuant to s. 232 of the District Court’s Act 1963. This provision does vest the Court with a power to allow such amendments as a necessary to do justice in a particular case on its merits. See Samson Dacany v. Noah Taia of National Fisheries Authority C I A. NO. 51 OF 2002 (Unreported judgement and yet to be numbered) delivered on 13th December 2002, for a detailed discussion on s. 232 of the District Courts Act.

Background 

In the District Court, the respondents claimed K10,000.00 for damages to Mr. Du’s land and a further K8, 025.00 for labour costs for clearing and preparing the land by Mr. Du and the others for the construction of an aid post. The respondent’s requested the WHPG to build an aid post in their area. They undertook to provide the land and the labour required for clearing and preparing the land for the building free of charge. The respondents claimed that the WHPG through Mr. Nuri agreed to build the requested aid post and asked them to clear the land and make it ready for the construction to take place. On that basis, the respondents further claim that they cleared Mr. Du’s land. Furthermore, they claim that instead of building the aid post on Mr. Du’s land, the WHPG built an aid post in a different location, about 13 to 15 kilometres away from the respondents’ area. This they claim resulted in damages to Mr. Du’s land and the wastage of his and the other respondents’ labour. 

The District Court in finding for the respondents found that the claims could not be sustain in law because there was no contract between the parties. But the learned District Court Magistrate found for the respondents in what he called "equity" on the basis of the representations of Mr. Nuri and two of his colleagues, who he found, were the servants and or agents of the WHPG. 

Arguments of the Parties

The appellants now argue that the learned magistrate erred in law when he found for the respondents. They advance three grounds for that argument, which are their grounds of appeal. First, they argue that there was no evidence to form the necessary foundation to find the WHPG liable. Secondly, they argue that Mr. Nuri and his colleagues did not have any authority to bind the WHPG. Finally, they argue that there was no agreement binding the WHPG. 

The respondents argue that, the first appellant and two other senior officers employed by the WHPG did have the necessary authority and or power to speak on behalf of the WHPG and their actions were binding against the WHPG. They say they relied on the representations of the WHPG’s servants and or agents and they took steps to their detriment. They therefore argue that, the appellants are liable to them in damages.

Issues

These arguments present four issues. These are:

1.	Was there a legally binding contract for the construction of an aid post on the respondent’s land and for the respondents to provide the necessary and required labour toward the construction?

2.	After having found against there being a contract between the parties, was the learned magistrate correct in finding for the respondents in equity?

3.	Whether Mr. Bernard Nuri and his colleagues had the apparent and usual authority of the WHPG to enter into the purport contract with the respondents or make representations on behalf of the WHPG?

4.	Did the District Court had before it sufficient evidence disclosing an apparent or usual authority in Mr. Nuri and his colleagues to enter in the purported contract and made representations for and on behalf of the WHPG?

I will deal with each of these issues in the order stated. 

Was there a contract?

It is settled law that, there must be a clear and definite offer and acceptance in order for there to be a legally enforceable contract. There is no restriction as to what form this could take. They could be communicated either orally or in writing. It is also settled law that, where there is a relevant and applying legislation the requirements of any such legislation must be met in order for the contract to be enforceable at law. A failure to comply with any requirements of any relevant and applying legislation renders the contract unenforceable. This is more so in cases where public authorities or bodies are involved.

Bredmeyer J in Sylvanus Gorio v. National Parks Board [1982] PNGLR 364 at pages 368 – 369 correctly stated the law generally in relation to a contract with a public body outside its powers. His Honour said:

"I consider that the English Common Law on the powers of statutory corporations is apposite and applicable to the circumstances of Papua New Guinea; indeed it is most important and highly desirable that bodies established by statute should not exceed the powers given to them by Parliament. The law is conveniently stated in Halsbury’s Law of England (4th ed.) Vol. 9, par. 1333:

‘The powers of a corporations created by statute are limited and circumscribed by the statutes which regulate it, and extend no further than is expressly stated therein, or is necessarily and properly required for carrying into effect the purposes of its incorporation, or may be fairly regard as incidental to, or consequential upon, those things which the legislature has authorised. What the statute does not expressly or impliedly authorise is to be taken to be prohibited.’"

A similar view was expressed by the Supreme Court in Panga Coffee Factory Pty Ltd v. Coffee Industry Corporation Limited (Unreported but numbered judgement delivered on 6 October, 1999) SC619. In that case, the respondent relied upon its own lack of power to enter into a contract to exempt the appellants from paying levies. At page 7 of its judgement, the Supreme Court said:

"We agree with the learned trial judge that the Act gives no power to the Corporation to exempt particular coffee exporters, it only gives the power to exempt in relation to a type or form of coffee. The Corporation is public authority with a power to deal in monies for which it has obligations to the members of the public engaged in the Industry. It can only enter into arrangements and contracts in accordance with its powers under its enabling legislation as referred to above. There was a clear lack of capacity to enter into the arrangement set out in clause 3 (a). See Credit Suisse v. Allerdale BC [1996] All ER 129."

In the case of Credit Suisse v. Allerdale (supra), the English Court of Appeal held that a contract of guarantee entered into by a local authority was void and unenforceable. Hobhouse LJ at page 165 said:

"Where a statutory corporation purports to enter into a contract which it is not empowered by the relevant statute to enter into, the corporation lacks the capacity to make the supposed contract. This lack of capacity means that the document and the agreement it contains does not have effect as a legal contract. It exists in fact but not in law. It is legal nullity. The purported contract which is in truth not a contract does not confer any legal rights on either party. Neither party can sue upon it."

At home, in Wag v. Mount Hagen Town Authority [1996] PNGLR 385 the plaintiff was appointed to a contract position not in accordance with clearly established statutory provisions per the Mount Hagen Town Authority Act 1989. The Court, (Injia J at pages 393- 394) held the contract was void for non-compliance of the mandatory statutory procedure and refused to enforce the contract.

What is apparent from these authorities is that, where a contract is prohibited by reason of not being made in accordance with the provisions of a relevant and applying legislation, there is no discretion whether to enforce it or not. It is simply void and unenforceable. Thus, it cannot be the law that, the legislation sometimes depends on what is "fair" and it does not matter whether, the public authority itself raises the issue of statutory non-compliance or not: see Panga Coffee Factory, (supra) at page 8.

A number of cases have already establish in our jurisdiction that the Public Finances (Management) Act is an important Act, which requirements must be met in order for there to be a valid contract with a public authority or public body. Recent pronouncements of this position are the judgements in Jack Livinai Patterson v National Capital District Commission (2001) N2145, a judgement by myself and The Independent State of Papua New Guinea v Barclay Brothers (PNG) Ltd (2001) N2090. These judgements follow the earlier National and Supreme Court judgements such as the one in the Panga Coffee case (supra). They also emphasis the point that the governing body of the relevant public body or authority must approve contracts or arrangements that concern them if they are to be enforced at law. 

As I observed in the case of Paterson v. NCDC (supra), the purpose of these requirements of the law is to ensure transparency in all dealings with public bodies or authorities. It is also to give opportunity to all people in the country to bid for public works or services and supplies contract through public tenders and to enable the public bodies or authorities to secure the best kind of services and goods at the best possible price. Additionally, it is to enable proper control on the public funds so as to avoid unnecessary and wasteful spending. 

In the present case, there is no evidence of any clear offer and acceptance in relation to the construction of an aid post on Mr. Du’s land. There is also no evidence of what, if any, was the offer and acceptance in relation to the provision of labour by the respondents and at what rate. It seems clear to me that, there were some discussion between the respondents and Mr. Nuri and two other employees of the WHPG on the possibility of building an aid post on the respondent’s request. There was some indication by Mr. Nuri and his colleagues that an aid post could be built subject to a feasibility report supporting it. Although the respondents claim in their statement of claim that a feasibility study was done and furnished to the WHPG, there is no evidence or a copy of such a report being produced in Court. Similarly, there is no evidence of any public tender for the aid post and the provision of labour by the respondents.

Further there is no evidence of the WHPG either having endorsed or authorised the alleged representations of Mr. Nuri and his colleagues. 

In these circumstances, it is clear to me that no legally binding contract came into existence. There was no definite offer and acceptance and there was no valuable consideration passing between the parties. Instead, the respondents offered and did provide their land and labour free to enable the WHPG to build an aid post. There is no clear evidence of the WHPG agreeing to build an aid post on the respondent’s land. The District Court was therefore, correct in finding that there was no contract between the parties. The respondents have not appealed against that finding. Therefore, that finding stands unchallenged. 

But the District Court found for the respondents to be "fair" and the learned magistrate did so purportedly in equity. He however, did not discuss and apply any particular principle of equity. Whether he was right in doing that would in my view depend on whether there was a valid contract but for meeting the requirements of say the Public Finances (Management) Act 1995. It would also depend on whether Mr. Nuri and his colleagues had the necessary usual or apparent authority to represent and bind the WHPG. I have already found that the District Court was correct in find there was no contract at all. This therefore leaves only the issue of usual or apparent authority to be considered.

Usual or Apparent Authority of Mr. Nuri & Others?

As I very recently said in Tian Chen Limited v. Tower Limited (unreported judgement delivered 08/11/02) N2313, at page 10 of the judgement:

"It is settled law … that a principal is liable on the contracts made by his agent although the principal has not authorised his agent to make them … In such a situation one need only be satisfied that a representation of authority has been made in fact by the agent as having the authority to act for its principal and that the representation has been made to a third party who has relied on the representation without knowing any lack of authority in the agent." 

In the present case, the respondents requested the WHPG to build an aid post in their area. Mr. Nuri and his other colleagues were only employees of the WHPG. They were not involved in the administration of the WHPG’s affairs. Neither of them were people in the higher hierarchy of the WHPG having any usual or apparent authority to enter into negotiations and contracts for and on behalf of the WHPG. 

Expenditures and or projects at the provincial level come under the control and or power of their respective Joint Provincial Planning and Budget Priorities Committees as provided for in s. 25 (2) of the Organic Law on Provincial and Local-level Governments. This is to ensure provisions being made in the provincial budget and spending according to the priorities and provisions made in the budget. This in turn allows for a well coordinated and controlled spending for a provincial government so as to avoid misuse of public funds and forcing them into unexpected debt positions. It is therefore important that, provision be first made in the provincial plan and eventually the budget for all projects requiring a provincial expenditure. 

There is no evidence of Mr. Nuri or any of his colleagues representing to the respondents that, they had the authority and approval of the WHPG or its Joint Provincial Budgets Priorities Committee to enter into the negotiations and arrangements with them. There is also no evidence of Mr. Nuri or any of his colleagues usually having the authority to enter into negotiations and eventually contracts for and on behalf of the WHPG. This is critically important in my view because, if the law were to permit any person in the employ of a provincial government to enter into contracts or arrangements that requires a provincial and therefore a public expenditure, it would open the flood gate to unbudgeted and unplanned expenditure. That would result in financial chaos for provincial governments. Consequently, it would lead to a denial of properly planned and budgeted delivery of goods and services to the people in the provinces in an equitable manner as may be determined by the provincial governments. 

In this case, there is no evidence of any provision being made in the provincial budget for the construction of an aid post in the respondent’s area.

Further, all contracts with public authorities are subject to the requirements of the Public Finances (Management) Act 1995 and the Organic Law on Provincial and Local-level Governments. There was no evidence placed before the District Court showing that these requirements were met.

As noted, the learned magistrate found for the respondents in what he called "equity". He said he was doing that to be fair. It is settled law that equity must give way to any relevant and clearly applying principle of law, which includes the requirements of an Act of Parliament. There is ample case law that clearly allows for relieves to be granted in equity. This is so especially in cases where there exists a valid contract but for the lack of meeting the requirements of an Act of Parliament such as the Public Finance Management Act 1995 or the Land Registration Act (Chp.191). This is based on the equitable principle of quantum meritum to avoid unjust enrichments especially in cases where there has been part performance of an otherwise valid contract or to prevent unfair advantage being gain by one of the parties to such a contract. See for examples of authorities on point Papua New Guinea Banking Corporation v. Barra Amevo & Ors (unreported judgement delivered 26/03/98) N1726 and Putput Logging Pty Ltd v. Philip Ambalis [1992] PNGLR 159.

In this case, the learned magistrate found there was no contract. I have already found that the learned magistrate was correct in that finding. Having so found, there was nothing that could be enforced in equity. All that the respondents did was that they offered their land for the purpose of building an aid post. There is no evidence that the land was to be paid for by the WHPG and at what price. They then proceeded to clear the land and prepared it for the construction of an aid post on the purported representations of Mr. Nuri and his colleagues. The learned magistrate found that, the respondents also offered and did provide the land and labour required for the construction of an aid post. This is why there is neither any evidence nor is there any claim of there being an agreement on the costs of labour. The costs of labour and costs of damages to the land came up only when the respondents failed to get an aid post built in their area. 

It is clear to me that, Mr. Du was prepared to give his land away for free in the absence of any evidence to the contrary. Similarly it seems clear to me that, the respondents were prepared to give their labour free. It reasonably follows therefore that, they did not suffer any detriment, loss or damage. The only loss is that they did not get an aid post built in their area. But even in that case, there is no evidence of a clear and definite indication from the WHPG that an aid post would be built in their area. If despite the lack of evidence there were such representations, any damages, (if any) the respondents could have suffered, is not clearly indicated and would in any case be too remote.

Summary

In summary I answer each of the issues raised in these proceedings as follows:

1.	There was no legally binding contract between the parties for the construction of an aid post in the respondents’ area for which they offered and did provide the land and labour required in preparing the land for the building of an aid post free of charge. This is because, there was no definite offer and acceptance of the terms and conditions of the alleged agreement. Also, there is no evidence of any valuable consideration passing between the parties.

2.	After having found there was no legally binding contract, the learned magistrate erred in finding for the respondents in equity, since there was nothing for equity to recognise and enforce.

3.	There is no evidence of Mr. Nuri and his colleagues having the usual and or apparent authority of the WHPG to represent and bind the WHPG in contracts with third parties.

4.	The District Court did not have before it sufficient or any evidence before it showing that Mr. Nuri and his colleagues had and have the usual and or apparent authority to bind the WHPG.

In these circumstances, I find that the learned magistrate erred in finding for the respondent and ordered judgement for them in the way he did. I therefore, uphold the appeal on all the grounds advanced. Consequently, I order a dismissal of the claims under complaint numbers 133 and 134 of 2000. I also order costs of the appeal and District Court proceedings against the respondents.
__________________________________________________________________________
Lawyers for the Appellant:			Paulus M. Dowa Lawyers.
Lawyers for the Respondents:		 	In Person.