N2770
PAPUA NEW GUINEA

(IN THE NATIONAL COURT OF JUSTICE)

WS 478 OF 2003

NOAMI VICKY JOHN
Plaintiff

AND

NATIONAL HOUSING CORPORATION
Defendant

LAY J.

MT. HAGEN: 17th December 2004 and
PORT MORESBY: 31st January 2005

Representation
Mr. W. Arua for the Applicant Defendants
Mr. Tamutai for the Respondent Plaintiff

Practice and procedure – application to strike out proceedings – no reasonable cause of action – Claims by and Against the State Act s5 – statutory interpretation - meaning of the term "the State" in Claims by and Against the State Act – whether National Housing Corporation included in the term "the State" – pleading – desirable to plead service of notice under s5 of Claims by and Against the State Act.

Facts

The Defendants applied to strike out the action because it contended that the Defendant was included in the term "the State" in the Claims by and Against the State Act and that the Plaintiff had not served a notice on the designated law officer of the State pursuant to s5 of that Act.

Held

The Supreme Court in SCR No 1 of 1998; Reservation Pursuant to s15 of the Supreme Court Act (2001) applied 6 criteria to determine that a provincial government was included in the term "the State" as used in the Claims by and Against the State Act which were:

1. They are established by the Constitution;

2. They are part of the three tier structure of government enshrined in the Constitution;

3. Like the other tiers of government they are constituted by elected representatives;

4. The National Government exercises some control over provincial governments in political, administrative and financial matters;

5. They fall within the definition of "governmental body" contained in the Constitution.

6. Judgement debts are recoverable from monies allocated in their budgetary process.

The National Housing Corporation does not meet the tests in points 1, 2, 3 and 6 therefore whilst it is a "governmental body" it is not included in the term "the State" as used in the Claims by and Against the State Act. Application refused.

Service of notice pursuant to s5 of the Claims by and Against the State Act is a fact necessary to establish a cause of action against the State and should be pleaded.

SCR No 1 of 1998; Reservation Pursuant to s15 of the Supreme Court Act (2001) interpreted and applied;

Sarkuma Investments Limited t/a Wabusa Mini Tavern v East Sepik Provincial Government and Ors followed and applied;

Mt Hagen Urban Local Level Government v. National Housing Corporation and Okam Sakarius v Chris Tep not followed.

_________________________________________

This is the Defendant’s application that the proceedings be struck out for failing to comply with s5 of the Claims by and Against the State Act. The short facts are that a writ of summons was issued on 15th April 2003 to which the Defendant entered a Notice of Intention to Defend on 18th June 2003. The Defendant filed a Defence on 31st July 2003. Neither the Statement of Claim nor the Defence mentions notice under s5 of the Claims by and Against the State Act ("the Act"). The evidence is that no notice under s5 of the Act was given.

Submissions

The Applicant submits that the National Housing Corporation is part of the State within the meaning of s5 of the Act and I should follow the decision in Mt Hagen Urban Local Level Government v. National Housing Corporation where it was held that the National Housing Corporation is part of the State for the purposes of s13 of the Act. The Respondent Plaintiff submits that the application is an abuse of process, there is no relevant evidence to support the application; the alleged defect is an illegality, it was never pleaded, the Applicant was required to plead pursuant to O8 r14; and the National Housing corporation is a separate entity governed by its own Act and not part of the State. SCR No 1 of 1998; Reservation Pursuant to s15 of the Supreme Court Act (2001) should not be applied to find that the Applicant is included in the term "the State".

Ruling

S5 of the Act requires that written notice of intention to make a claim be served on designated legal officers of the State. In SCR No 1 of 1998; Reservation Pursuant to s15 of the Supreme Court Act (2001) the Supreme Court held that in the Act the term State includes a provincial government. Note that the head note to the unreported judgement is not accurate in stating that the finding was only in respect of s13 of the Act, although the reference was specifically in respect of that Section. The Court said:

"We believe these principles apply equally to a provincial government because it is a part of the governmental body that makes up the government of the Independent State of Papua New Guinea. We agree generally with Injia J's opinion that the total governmental system includes the National, Provincial and Local-Level Governments. In our opinion there are in fact three levels of political governments intended; the National, Provincial and the Local-Level. All three are established by the Constitution. Each is constituted by elected representatives.
A Provincial Government is established by the Constitution under s. 187A. When the Constitutional Amendment was made, it was inserted as Part VI A after Part VI which deals with the structure of the National Government. It is instructive in determining the status of a provincial government to examine the degree of autonomy it has and the nature of control the national government exercises over it, in political, administrative and financial matters.

"We are of the opinion therefore that a provincial government is a "governmental body" making up the Independent State of Papua New Guinea for the purposes of the Claims By and Against the State Act. The power of the people is vested in all "governmental bodies" which administer and exercise them on behalf of the people. These governmental bodies include "the National Government", "a Provincial Government", "an arm, department, agency or instrumentality of the National Government or a Provincial Government" or "a body set up by statute or administrative act for government or official purposes". This power is exercised by these "governmental bodies" on behalf of the same people. The finances administered by a Provincial Government, is for and on behalf of the same people. The National Government administers the National Government funds and assets.

It is to be remembered that this protection does not apply to assets and finances of developmental enterprises of provincial governments that have independent corporate statuses and operate commercially. They are subject to the ordinary laws as corporate citizens. However any profits these developmental enterprises contribute to the provincial budgets become assets belonging to the people and they are also protected from execution processes. In like manner, any tax revenue generated under delegated legislative authority becomes state finances and is protected.
…

Like judgments against the National Government such judgment debts are recoverable from provincial governments from moneys properly allocated in the provincial budgets for meeting its debts."

The following matters appear to have persuaded the Supreme Court that provincial governments are the State:

1. They are established by the Constitution;

2. They are part of the three tier structure of government enshrined in the Constitution;

3. Like the other tiers of government they are constituted by elected representatives;

4. The National Government exercises some control over provincial governments in political, administrative and financial matters;

5. They fall within the definition of "governmental body" contained in the Constitution.

6. Judgement debts are recoverable from monies allocated in the budgetary process of provincial governments.

The words I have placed in italics in the quotation above make it plain that the Supreme Court did not consider that a provincial government owned entity with separate corporate status set up to operate commercially should be a part of the State. No doubt this is so because, although such entities are mostly capitalized with taxation revenues of the provincial governments, their general income is generated commercially from profits and not from taxation of the people. Their day to day financial decisions are made in the interests of making a profit, contrasted with the decisions of a Government, made through the budgetary process for the welfare of the people. There is therefore not the same justification for protection of the commercial entity’s finances. They are also of course not established by the Constitution, nor part of the three tier system of government, there is no direct constitutional control over them by the National Government, and they do not have a budgetary process to set aside a specific sum of public funds for payment of judgement debts.

Points 4 and 5 of my analysis of SCR No 1 of 1998; Reservation Pursuant to s15 of the Supreme Court Act (2001) apply to the Applicant Defendant but not points 1, 2, 3 and 6.

In Mt Hagen Urban Local Level Government v. National Housing Corporation his Honour said:

"There is no doubt in my mind that the National Government exercises some degree of political and financial control over the affairs of the National Housing Corporation."

His Honour then went on to demonstrate how that is so by an analysis of the National Housing Corporation Act 1990 and the Public Finances (Management) Act with which I respectfully agree and concluded that:

"All these instances lead me to conclude that the term "the State" in s13 (1) of the Claims by and Against the State Act does include an agency or instrumentality of the State like the National Housing Corporation. The National Housing Corporation is an instrumentality of the State."

But is it enough, to fulfill the criteria set down by SCR No 1 of 1998; Reservation Pursuant to s15 of the Supreme Court Act (2001) that the entity meets only 2 of the 6 points set out in that decision? And where else is the trend leading if the Plaintiff is held to be "the State"? Would such entities as the Agriculture Bank or the Central Bank, the National Gaming Control Board, the Harbours Board, Kokanas Industri Koporesen, the Maritime College and many other statutory bodies and State owned companies also be "the State" as distinct from being "governmental bodies"? A determination of each would turn on the precise facts of each case, but it is as well to keep in mind that this decision might have a much wider application. A decision in respect of one section of the Act will generally be expected to affect the meaning of the term "the State" in other sections of the Act. 

In respect of a number of former government institutions the position is now much clearer than it would have been a few years ago because of the trend to corporatisation of State enterprises and superannuation funds. Applying the "commercial purposes" exception, mentioned by the Supreme Court (in italics above), to National Government entities, these corporatised entities would now more clearly not be "the State".

I note that in the case of Okam Sakarius v Chris Tep it was held that the Cocoa and Copra Extension Agency, a company owned by the State, was held to be included in the term "the State" in a s13 of the Act. That was said to be so because the Company relied on the State for its annual financial grants. As a matter of record I note here that there is no evidence before me of what the sources of the Defendants revenues are and what proportion, if any, comes from the State and what proportion from commercial activities.

I do not consider that the Supreme Court in SCR No 1 of 1998; Reservation Pursuant to s15 of the Supreme Court Act (2001) intended to include in the term "the State" an entity which met only two or three of the criteria which it adopted to conclude that provincial governments were included in that term. The first criteria relied upon was that provincial governments are part of the three tiered system of government and that they are established under the Constitution. I infer from the fact that those criteria were the first mentioned, that they are the more important considerations. Whilst reference was made to the definition of "governmental body" in Schedule 1 to the Constitution, that definition was not adopted by the Supreme Court as being synonymous with the term "the State". Provincial governments were included because they met all of the criteria mentioned.

I do not follow Okam Sakarius v Chris Tep nor Mt Hagen Urban Local Level Government v. National Housing Corporation because in my view, to meet the test applied by the Supreme Court, it is not enough that an entity is financially dependent on the State and controlled by the State, it must also itself be part of the three tier structure of constitutional government. 

I conclude that the National Housing Corporation is a governmental body within the meaning defined in the Constitution but that it is not included in the term "the State" as used in the Act on the tests applied by the Supreme Court in SCR No 1 of 1998; Reservation Pursuant to s15 of the Supreme Court Act (2001). For that reason I refuse the application.

It is not necessary then for me to deal with the balance of the arguments presented. However I mentioned above that neither pleading referred to notice under s5 of the Act. A properly served notice pursuant to s5 of the Act is an essential pre condition to constituting the cause of action. Without that notice there is no cause of action. On that issue I follow and apply the observations in Sarkuma Inevstment Limited t/a Wabusa Mini Tavern v East Sepik Provincial Government and Ors at page 9 where, having noted the lack of service of the notice, his Honour observed "As a result the plaintiff has no cause of action and the entire proceedings must be dismissed." Whether or not a s5 notice has been served in accordance with the requirements of the Act is a question of fact. A statement of claim should allege all the matters of fact which give rise to the cause of action in law. If a fact essential to the cause of action is not pleaded and the opposing party takes objection to evidence being led on that issue, the evidence may not be permitted to be led. Therefore it is the better practice for Counsel drawing a Statement of Claim against the State to plead that the notice under s5 of the Act has been served.

ORDER:

Application refused. Costs follow the event.

________________________

Lawyers for the Applicant Defendant: Mawa lawyers
Lawyers for the Respondent Plaintiff: Tamutai lawyers