N2895

PAPUA NEW GUINEA

[In the National Court of Justice in Madang]

WS 501 OF 2003

BETWEEN:

ALBERT ARENG
(Plaintiff)

AND:

GREGORY BABIA
(First Defendant)

&

NATIONAL HOUSING CORPORATION
(Second Defendant)

MADANG : SAWONG, J.
2004 : 15th October
2005 : 22nd June

PRACTICE & PROCEDURE – Claim against National Housing Corporation for Damages for Breach of Contract – Notice of Intention to make a Claim against the State – Claims by and Against the State Act – s.5 – Not Applicable.

PRACTICE & PROCEDURE – Proceedings against Statutory Corporations – Claim against National Housing Corporation – Proceedings against National Housing Corporation – Housing Corporation Act 1990 as amended to date.

HELD:

1.	The provisions of s.5 of the Claims by and against the State Act do not apply to Statutory Corporation such as the National Housing Corporation.

2.	The Failure to give such a Notice on the State will not render nugatory proceedings instituted against a statutory corporation.

3.	There are exception either in equity by statute to the principles of privity of contract.

CASES CITED:
Mt. Hagen Urban Local Level Government v. The National Housing Corporation (Unreported and Unnumbered National Court Judgment dated 20th April, 2004 by Mogish J. (WS 1194 of 2002).
Reservation Pursuant to s.15 of the Supreme Court Act, SCR No. 1 of 1998 (Unreported Judgment of the Supreme Court) No. SC672.

COUNSEL:
K.P. NUGI, for the Applicant/Defendants
W.AKUANI, for the Plaintiff/Respondent

DECISION

22nd June, 2005

SAWONG, J: By an undated Notice of Motion filed on the 19th of August, 2004 the applicant seek the following orders:

1.	The proceedings be dismissed as the plaintiff is not a proper party; i.e. has no standing to bring proceedings.
2.	The proceedings be dismissed for non-compliance of s.5 of the Claims by and Against the State Act 1996.
3.	In the alternative default judgment entered on the 16th July, 2003 be set aside.
4.	Leave be granted to the defendants to file a Defence out of time.

In support of the application, counsel for the applicants relied on her own affidavit sworn on the 16th of August, 2004.

The plaintiff/respondents opposes the application. Mr Akuani relies on four (4) affidavits. These were the affidavits of the plaintiff sworn on the 28th March 2004, 9th of September 2004 and the 10th of October 2004 and the affidavit of Michael Areng, filed on 9th September, 2004. 

Both counsels filed written submissions and also made oral remarks or submissions. 

The background to these applications may be briefly stated as follows. The plaintiff is the eldest son and next of kin of Michael Areng and his wife who were the purchaser of a property from the National Housing Corporation (NHC) located at Section 67 Allotment 28 town of Madang (the property). They entered into a contract for the sale and purchase of land with the NHC. The contracts and other relevant documents were duly stamped and ministerial approval was given in 1985. They paid for the property but the NHC have yet to transfer the Title Deed to the plaintiff. Despite many requests to NHC, over the many years the NHC has procrastinated and delayed the transfer. A period of over 17 years lapsed without an end insight. They therefore authorized their son, the plaintiff to institute the present proceedings. Consequently, the plaintiff issued proceedings claiming damages for breach of contract etcetera. Those proceedings were filed on the 24th of April, 2003. The defendants were duly served with the proceedings. They did not file their Notices of Intention to Defend nor their Defenses at all. Consequently, the plaintiff moved by way of Notice of Motion to have default judgment entered against the defendants for damages to be assessed. Subsequently, on 16th July, 2003 the Court granted default judgment to the plaintiff for damages to be assessed and also ordered the defendants to pay the plaintiffs costs. The matter was awaiting the trial of assessment of damages, when the Defendants filed the present application on the 19th of August, 2004. 

The applicants raise several grounds in support of the application. The first ground is that the present plaintiff is not a proper party to bring the present proceedings. In other words, the plaintiff has no standing to bring the proceeding. The second ground is that, the plaintiff has not complied with the mandatory requirements to give Notice of Intention to make a claim against the State as required by s.5 of the Claims by and Against the State Act (CB&ASA). And thirdly, the applicants say that the entry of default judgment was irregular because of the preceding grounds and therefore ought to be set aside.

I deal with each of the grounds. The first ground is that as the plaintiff is a third party, in that he was not privy to the contract between the NHC and his parents. Ms Nugi submits that the plaintiff, Albert Areng, has no standing to bring these proceedings against the defendants as the contract for the sale and purchase of the said property was between his parents and the defendants and not between him and the defendants. That being the case, she submits that, the present plaintiff has no standing to bring the action. She has relied on several overseas and Papua New Guinean authorities in support of her submission. See Dunlop Pneumatic Tyre Co. Limited v Delfridge & Co. Ltd (1915) AC847, Tweddle v Atkinson (1861) 1VS at p.398, Papua New Guinea Banking Corporation v Bara Amevo & Bari Investments T/A Kainantu Pharmacy & Lenny Aparima & Orito Aparima (Unreported National Court Judgment) No. N1726 and AGK Pacific (NG) Pty Limited v ET Taylor Construction Pty Limited (Unreported Judgment of the National Court) No. N871.

Mr Akuani in his written submissions does not address this issue at all. 

The authorities Ms Nugi relied on, arise from the principles of privity of contract. In Papua New Guinea Banking Corporation v Bara Amevo & Ors (supra) Sevua J said at p..

"The second defendant is not a party to the contract. The doctrine of privity of contract is that, as a general rule, a contract cannot confer rights or impose obligations arising under it on any person except the parties to it. The scope of the doctrine means only that a person cannot acquire rights, or be subjected to liabilities, arising under a contract to which he is not a party."

Whilst I accept the proposition and the principles of privity of contract, there are exceptions to that principle. These exceptions come either from statute or from equity. In other words, the doctrine of privity of contract is subject to many exceptions. For instance, a third party can acquire rights and/or obligations under contract by virtue of a number of equitable or statutory exceptions to the doctrine of privity.

In the present case, the agreement for the sale and purchase of the property was between the NHC and the parents of the plaintiff. That is clear from the Deed of Mortgage and other relevant documents which is annexed to Albert Areng’s affidavit of the 11th October, 2004. It is clear that the contract was indeed between Mr & Mrs Areng and the defendant. But that is not the end of the matter. For there are other evidence which go to the issue of standing. 

Albert Areng also annexes to that affidavit a statutory declaration from Michael Areng dated 27th January, 2003 authorizing Albert Areng to act on his behalf and to do all necessary things regarding the said property. Mr Michael Areng has also filed an affidavit authorizing the plaintiff to act on his behalf and to take all necessary steps to facilitate the transfer of this property. The evidence also shows the plaintiff taking proactive role in dealing with this matter with the Defendants over many years. They took no issue of standing with him.
 
I accept the evidence from Albert Areng of his father’s authority to take his place and assume the obligations and rights under the contract to finalize this matter. There is overwhelming evidence from both sides that the contract for purchase and sale of land together with the instrument of transfer were in-fact approved in 1986. The contract ought to have been settled immediately soon after. The plaintiff’s parents had in fact paid the purchase price, but it was the NHC which did not do its part by delivering to the plaintiff’s parents the stamped and approved Transfer Instrument and the original Title Deed. The purchasers have been waiting for these ever since settlement took place. The question then arises as to why it has taken so long for the NHC to do its part to transfer the property. There is an unacceptable long delay on the part of the defendants. The arguments they now raise, in my view, are a belated attempt on their part to distance themselves from the performance of their obligations. In my view, this is unacceptable and the principle of doctrine of privity should not be relied on to negate their obligations. In equity it would be plainly unjust to dismiss the proceeding merely because Albert Areng was not a party to the original contract. In my view, to dismiss the proceedings on this basis in the circumstances of this case would amount to an inequitable and unjust conclusion.

The next ground is whether the provisions of s.5 of the Claims by and Against the State Act (CB&ASA) applies to the applicant. Counsel for the applicant submits, in general that the provisions of s.5 of the CB&AS Act, applies to the applicant. It is submitted that, as the plaintiff had not given a notice of intention to make a claim against the State within the period stipulated in s.5, before filing of the present proceedings were incompetent. She further submits that, as the NHC is an instrumentality of the State, the provisions of s.5 applied to it, such that, any claim against it ought to comply with s.5 before proceedings ought to be filed. She submits that as no notice has been given in accordance with s.5 of the Act, then the proceedings that are issued would be rendered nugatory by operation of s.5. She relied on two authorities to support her submission. These were the decisions of the National Court in Mt. Hagen Urban Local Level Government v National Housing Corporation (Unreported and Unnumbered Judgment of the National Court dated 20th April, 2004 in Mt. Hagen (Mogish J)) and Pupune v Makarai & Ors (Unreported Judgment of the National Court) No. N1647.

In her supporting affidavit, counsel for the applicant deposes that she had attended the offices of the Solicitor General office and made enquiries as to whether a Notice of Intention to make a Claim had been served on the State. She found out that no such notice had been served.

Counsel for the respondent/plaintiff submits that in order to answer the issues posed, one has to consider the relevant and applicable legislations and authorities. For the immediate purpose the relevant statutes are, the CB&AS Act 1996, the NHC Act 1990, the Interpretation Act and the Constitution of Papua New Guinea. He submitted that whilst s.5 of the CB&AS Act provides for notices to be given for Claims Against the State, s.70 of the NHC Act of 1990 provides for services of notices and processes on the NHC. He submits that s.5 of the CB&AS Act does not apply to or in regard to claims by and against the NHC. He raises three (3) grounds in support of his submission. 

Firstly, Mr Akuani submits that the applicant is a corporation established by an Act of Parliament namely, the NHC Act of 1990. He submits that pursuant to s.5 and 6 of that Act, the applicant is a corporation and amongst its capacities, is capable of suing and being sued in its corporate name and style. He submitted that the practical effect of s.6 (1), (e) of that Act is that the State cannot be sued or sue for actions or omissions in law of the applicant or its employees in vicarious liability. As the applicant is a legal entity in itself, it can be sued for its own or on its own or its employees’ actions. He submits that because of the statutory provisions in s.5 and 6 of the NHC Act, it is a distinct corporate body from other offices of the public service or the instrumentality of the government. He submits that the applicant is a corporate body and is distinct and separate legal entity from the State for the purposes of s.5 of the CB&AS Act of 1996. Therefore s.5 of the CB&AS Act does not apply to the applicant. 

Secondly, he submitted that because the applicant has a corporate status, s.5 of the Claims By and Against the State Act did not apply. 

Mr Akuani submitted that the applicant is a developmental enterprise of the State which is an independent corporate status given to it under s.5 and 6 of the National Housing Corporation Act and operates commercially in the business of housing to the public. Because of its corporate status, it is subject to the ordinary laws as a corporate body. Therefore the ordinary laws relating to corporate bodies would apply. He submits that the only protection to the NHC is the profits, if any, it makes. Any profits it makes are contributed to the National Budget and becomes assets belonging to the people of Papua New Guinea and are therefore protected from execution process under s.13 (1) of the Claims By and Against the State Act 1996. It is only the profits that are to be protected and not any other assets including monies owned by the corporation.

He relied on the remarks of the Supreme Court in SCR 1 of 1998 (Unreported Judgment of the Supreme Court) No. SC672.

The third ground Mr Akuani relies on is under s.70 of the NHC Act of 1990. He submits that both the NHC Act and the CBASA are Acts of Parliament and neither of them is superior nor subordinate to the other. He submitted that any Notice of Intention to make a claim or service of proceedings against the NHC could only be done by service of that notice or proceedings, as the case may be on the corporation pursuant to s.70 of the NHC Act. 

He submitted that the case of Mt. Hagen Local Level Government (supra) can be distinguished on the facts and the issues decided in that case, to the facts and issues in the present case. He submitted that, that case was not concerned with the issue of giving a Notice of Intention to Claim pursuant to s.5 of the CB&AS Act. The Court there was concerned with the issue of whether the NHC was exempted from being served a garnishee order pursuant to s.13 (1) of the CB&AS Act. He submitted that His Honour was there, concerned with the application of s.13 (1) of the CB&AS Act 1996 on the applicant. He submitted that therefore, the reasoning in that case are not applicable nor relevant to the issue being considered in the present case. He submitted that His Honour in his judgment made reference to, adopted and applied the opinion of the Supreme Court as regards the term "the State" to include statutory corporations, such as the NHC for the purposes of s.13 (1) of the CB&AS Act. It was submitted that His Honour did not consider whether s.5 of the CB&AS Act 1996 applied to the applicant. 

He further submitted that the Supreme Court decision in SCR No.1 of 1998 (supra) did not consider the application of s.5 of the CB&AS Act 1996 on statutory corporations like the NHC. The cases cited in the Supreme Court judgment was only concerned with and deliberated on the application s.13 (1) of the CB&AS Act and not the application of s.5 of that Act.

He submitted that for the above reasons the provisions of s.5 of the CB&AS Act do not apply to the applicant. And that they offer no defence at all nor does that constitute a defence on the merit which can come to the defence of the applicant. 

I think the answer to this issue lies in a proper reading and understanding of the Supreme Court decision in SCR 1 of 1998 SC672 (supra). The facts of that case was concerned with whether the expression "the State" appearing in s.13 (1) of the CB&AS Act, includes a Provincial Government.

It is to be noted that the issue before the Supreme Court in SC672 was whether the term "the State" in s.13 (1) of the CB&AS Act includes the Provincial Government for the purposes of any suits, execution or attachment or a process in the nature of execution or attachment against a Provincial Government. The Court there was not concerned with whether s.5 of the CB&AS Act applied to a Provincial Government or a statutory corporation.

In the course of its judgment the Supreme Court said at p.10:

 "… It is to be remembered that this protection does not apply to assets and finances of development 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 budget 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 become State’s finances and is protected." (Emphasis added)

I am of the view that the decision in Mt Hagen Urban Local Level Government v The National Housing Corporation (supra) is not applicable to the present case. The facts of that case are distinguishable to the facts in the present case. There his Honour was considering the application of s.13 (1) of the CB&AS Act and not the application of s.5 of that Act. The same can be said of Pupune v Makarai (supra).

To my mind the Supreme Court stated clearly that the protection given by s.13 (1) of the CB&AS Act does not apply to assets and finances of development enterprises of Provincial Governments that have independent corporate statuses and operate commercially. The above highlighted passage indicates to me that statutory corporate bodies are to be treated differently to the State or its organizations. In my view, where a statutory corporation is to be sued, a claimant need not give a s.5 Notice to the State. 

I would add that the protection given by s.5 of that Act do not apply to statutory corporations such as the applicant who have independent corporate statuses and who operate commercially. These are subject to the ordinary laws as corporate citizens. As a corporation, it is a separate or distinct legal entity. And as such a claimant need not serve a notice on the State in accordance with s.5 of the CB&AS Act before filing or issuing proceedings against a statutory corporation.

It follows from this reasoning that the argument put forward by the applicant cannot be sustained. This ground is also dismissed. 

The third ground is to set aside the default judgment on basis that the default judgment was irregular in that the plaintiff was not a proper party to bring the suit and the plaintiff had not complied with s.5 notice. Ms Nugi submitted that the default judgment ought to be set aside on the basis that it was irregular, because the plaintiff has no standing or in the alternative he had not complied with s.5 of the CB&AS Act. 

Mr Akuani in his written submissions does not address the issue of setting aside irregular default judgments. His submissions were in relation to setting aside regularly entered default judgments. His submissions are therefore not really on the point that has been raised by counsel for the applicant.

It is trite law that an irregular default judgment must be set aside as a matter of law. That principle is established in this jurisdiction.

In the present case, the issue is whether the default judgment that was entered, was irregular. The submissions by the applicant was on the basis that as the plaintiff/respondent had not given his Notice of Intention to make a claim against the State and as the plaintiff was not privy to the contract, the default judgment was irregular. 

I have rejected the arguments raised on those aspects. Those same arguments were raised on this ground. As I have rejected those grounds, the arguments raised under this ground cannot stand. Therefore this ground is also dismissed. 

In view of my conclusions, I consider it unnecessary to consider the other grounds advanced by the applicant.

For the reasons I have given I dismiss the application. I make the following orders. 

(1)	I dismiss the Application.

(2)	The applicant shall pay the plaintiff/respondents costs of this application.

____________________________________________________________________
LAWYER FOR THE APPLICANT/DEFENDANT: NATIONAL HOUSING CORPORATION
LAWYER FOR THE PLAINTIFF/RESPONDENT: AKUANI LAWYERS