N9647

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO. 848 OF 2019 (CC1)

BETWEEN
SANTO CONSTRUCTION SERVICES LIMITED
Plaintiff

AND
ROBERT PAIVA, in his capacity as the ACTING CHAIRMAN OF KEREMA DISTRICT DEVELOPMENT AUTHORITY
First Defendant

AND
KEREMA DISTRICT DEVELOPMENT AUTHORITY
Second Defendant

Waigani: Tamade AJ
2022: 7th March, 31st May

CONTRACT – service agreement – plaintiff and defendants entered into an agreement for plaintiff to undertake maintenance work at a primary school in Kerema District – payment given part payment for work undertaken – plaintiff now claims for unpaid component of payment for maintenance services rendered to the school – issue is whether legislative requirements were followed in giving contract – whether second defendant can be sued under the District Development Authority Act - Is there a valid contract of service between Plaintiff and the Second Defendant - service agreement between Plaintiff and the Second Defendant is void on the basis that the provincial Administrator does not have authority on behalf of the Kerema District Development Authority - service agreement so entered shall be set aside – on the basis of quantum meruit, Second Defendant shall make payment in a reasonable sum to the Plaintiff after a formal inspection is carried out by the Second Defendant for the actual work done which  is not yet paid for.

Cases Cited

The following cases are cited in the judgment:

Application by the Honourable Belden Namah [2021] PGSC 111; SC2190 
Selon Ltd v Madang District Development Authority [2020] PGNC 226; N8440 
Anthony Polling v Motor Vehicle Insurance (PNG) Trust [1986] PNGLR 228
Keboki Business Group (Inc) v State [1984] PNGLR 281
Papua New Guinea Banking Corporation (PNGBC) v Tole [2002] PGSC 8; SC694
Maoko v Ling [2008] PGNC 19; N3293
PNGBC v Barra Amevo and Bari Investments t/a Kainantu Pharmacy, Lennie Aparima and Orito Aparima (1998) N1726
Christian Life Centre v Associated Missions Churches of PNG & Ors (2002) N2261
Mase (trading as Issac Mase Trading) v Gab [2021] PGNC 67; N8714

Counsel:	

Mr Copland. S. Raurela, for the Plaintiff
Mr Tony Christie Waisi, for the Defendants

31st May, 2022

1. 	TAMADE AJ: The Plaintiff is a PNG owned company engaged in the business of construction. The Plaintiff claims that it had entered into a service agreement with the Second Defendant, the Kerema District Development Authority on 20 December 2016 for the maintenance and rehabilitation works for the Sir Tore Lokoloko Primary School in the Gulf Province.

2. 	It is a term of the service agreement that the total consideration for the project is One Million One hundred and seventy thousand kina (K1 170 000). It is also a term of the agreement that the Kerema District Authority is required to pay an upfront payment of 100 percent of the project price prior to Plaintiff commencing the project works.

3. 	Notwithstanding the terms of the contract as to payment upfront, the Plaintiff proceeded to commence work under the said agreement to do maintenance and rehabilitation works to the Sir Tore Lokoloko Primary School in the Gulf Province.

4. 	On 16 February 2017, the Second Defendant made a payment of K450 000 to the Plaintiff as partial payment of the contract price of the project. 

5. 	On 15 June 2017, the Department of Finance wrote to the Ombudsman Commission bringing to their attention that the said cheque of K450 000 to the Plaintiff from Kerema District Development Authority had no Kerema District Development Authority Meeting Minutes Resolutions as primary supporting documents to validate the cheque clearance process however the Vetting Committee recommended for clearance for the said payment that there is evidence of a valid agreement with necessary supporting documents and correspondence and that the fact that the cheque was drawn concluded that the Second Defendant agreed to process the payment. 

6. 	On 26 June 2017, the Acting Chief Executive Officer of the Second Defendant also wrote to the Ombudsman Commission to verify that the Plaintiff was engaged to provide service to the Second Defendant and provided a Meeting Minute Resolution of the Second Defendant confirming the engagement of the Plaintiff.

7. 	The Ombudsman Commission then in a letter dated 5 July 2017 wrote to the Chief Executive Officer of the Bank of South Pacific Limited and confirmed that on review of the documentation supporting the payment of K450 000 to the Plaintiff, the Ombudsman Commission was satisfied that the payment was validated and granted clearance for the payment to be made to the Plaintiff. 

8. 	The Plaintiff has therefore claimed that it had received partial payment and had proceeded with the work under the service agreement for maintenance and rehabilitation works to the Sir Tore Lokoloko Primary School however its demands for the balance of the payment under the service agreement were not forthcoming and therefore the Plaintiff has come to Court seeking the balance of the payment due in the sum of K750 000. 

9. 	The Defendants on the other hand have disputed the service agreement as entered into with the Plaintiff and state that the service agreement was not signed by the Chairman of the Board of the Kerema District Development Authority but with an officer of the Gulf Provincial Administration.

10. 	The Defendants, therefore, challenge the validity of the service agreement with Plaintiff and state that there were objections to the part payment of K450 000 to Plaintiff by the late Member of Gulf Province however the payment was processed and paid forthwith.

11. 	At the beginning of the trial of this matter, Defendant sought to rely on the Affidavit of the late Hon. Richard Mendani however the Court ruled in favour on the objections by the Plaintiff that the Plaintiff has objected to this Affidavit by filing and serving a Notice to Cross Examine the deponent and as the deponent is deceased and based on the case of Application by the Honourable Belden Namah [2021] PGSC 111; SC2190 (18 October 2021), where a deponent cannot be produced upon receipt of a Notice to Cross Examine pursuant to section 36(b) of the Evidence Act, the Affidavit relied on therefore cannot be used. The Court ruled accordingly that the Affidavit cannot be relied on at trial.

12. 	The Defendants have raised several preliminary objections to the Plaintiff’s claim, and I will address them as follows:

a)	Does the Second Defendant have the capacity to be sued pursuant to section 21 (1)(a) of the District Development Authority Act 2014?

13. 	The Defendants state that according to the Amended Statement of Claim filed by the Plaintiff on 18 August 2021, the First Defendant is sued as the Acting Chairman of the Second Defendant pursuant to section 21(1)(a) of the District Development Authority Act 2014. The Defendants argue that the First Defendant is not a member of Parliament representing the electorate of Kerema Open and therefore he is not a person within the meaning of section 12(1)(a) of the District Development Authority Act.

14. 	The Defendants also state that section 12(1)(a) of the District Development Authority Act does not provide for an “Acting Chairman” of the District Development Authority. The Defendants state that the First Defendant lacks the capacity to therefore sue in these proceedings and also states that this renders the pleadings in the Plaintiff’s Amended Statement of Claim defective.

15. 	Section 12 (with the relevant section underlined) in the District Development Authority Act 2014 states that:

12. MEMBERSHIP OF A BOARD.

(1) A Board shall consist of the following members:
(a) the Member of Parliament representing the open electorate who shall be the Chairperson of the Board; and
(b) subject to Subsection (2), the heads of Local-level Governments in the district; and
(c) not more than three other members appointed by the Member of the Parliament representing the open electorate.
(2) Where the office of the head of a Local-level Government is or becomes vacant, the deputy head of the Local-level Government is deemed to be a member of the Authority until the office of the head of the Local-level Government is filled.
(3) One of the members appointed under Subsection (1)(c) shall be a woman

16. 	Mr Waisi of the Defendant has not brought to the attention of the Court section 13 of the District Development Authority Act 2014 which states that:

13. VACANCIES.

(1) A vacancy in the membership of the Board must be filled as soon as practicable.
(2) Where the office of the Member of the Parliament representing the open electorate becomes vacant, the members of the Board shall elect the Head of a Local-level Government in the district to act as the Chairperson of the Board until the office of the Member of the Parliament representing the open electorate is occupied.
(3) The performance of the functions, and the exercise of the powers, of an Authority is not affected by reason only of vacancies in the membership of the Board of the Authority.

17. 	I am satisfied that the appointment of the First Defendant as Council President for East Kerema Local Level Government as Acting Chairman of the Kerema District Development Authority at the vacancy of the Member for Kerema Open is valid pursuant to section 13(2) of the District Development Authority Act (underlined above). The Defendants’ objection in this regard is refused.

b)	Wrong legislation pleaded

18. 	The other preliminary objection by Defendant is that Plaintiff has pleaded vicarious liability as against the Second Defendant by the acts and or omissions of the First Defendant but has relied on the wrong legislation as the “Wrongs Miscellaneous Proceedings Act” when there is no such a legislation.  The Defendants, therefore, state that there is only the Wrongs (Miscellaneous Provisions) Act 1975.

19. 	Furthermore, the Defendants state that the Kerema District Development Authority is not the “State” as per the case of Selon Ltd v Madang District Development Authority [2020] PGNC 226; N8440 (5 August 2020). This is the case where Justice Narokobi ruled whether the Madang District Development Authority fell within the meaning of the State pursuant to section 13 of the Claims By and Against the State Act. The Court was of the view that the Madang District Development Authority though it is a governmental body, it is a separate legal entity and can be sued separately.

20. 	The Plaintiff however has pleaded in the Amended Statement of Claim filed on 18 August 2021 that the Second Defendant is a corporation capable of suing and being sued pursuant to section 4(1) of the District Development Authority Act.  I accept from the Plaintiff’s Amended Statement of Claim that the Second Defendant is properly named and is properly before the Court as a corporation with a legal persona. 

21. 	As to the correct legislation whether there exists a “Wrongs Miscellaneous Proceedings Act”, I accept submissions from the Plaintiff’s counsel that there is only the Wrongs (Miscellaneous Provisions) Act 1975 and that there is a clear error on the name as pleaded as it should be the Wrongs (Miscellaneous Provisions) Act 1975. I have no doubt in my mind that the Defendants Counsel understood the legislation to be the Wrongs (Miscellaneous Provisions) Act 1975 and the Court also understood the legislation to be the Wrongs (Miscellaneous Provisions) Act 1975. To my mind, the Defendants are not prejudiced by this misstatement of the legislation and or an error in typing of the correct name, they are also not better off or worse off. 

22. 	In regard to the strict compliance of the rules, I am reminded of the case of Anthony Polling v Motor Vehicle Insurance (PNG) Trust [1986] PNGLR 228, the Court held that “on an application to dispense with strict compliance with the Rules regard should be had, inter alia, to the interests of justice and the impact of the non-compliance on the parties with relevance to whether in reality the other party is in as good a position as if the rules had been complied with, or whether the party has been disadvantaged in regard to its rights in the matter.” I will therefore refuse the Defendants’ objections in this regard as the Defendants are not prejudiced by the incorrect wording of the Legislation and to my mind, they understood as well as the Court understood that the legislation referred to is the Wrongs (Miscellaneous Provisions) Act 1975.

Is there a valid contract of service between Plaintiff and the Second Defendant?

23. 	The Plaintiff has produced in evidence a Service Agreement with the Second Defendant for maintenance and rehabilitation works for the Sir Tore Lokoloko Primary School in Kerema District, Gulf Province. 

24. 	The service agreement was entered on 20 December 2016 and signed by Mr George T Ivaroa as Managing Director for Santo Construction Services Ltd and Mr Marc Avai Orisuru as Provincial Administrator on behalf of Kerema District Development Authority. 

25. 	The Defendants have objected to the signing by Mr Marc Avai Orisuru as the Provincial Administrator and say that Mr Orisuru does not have authority to bind the Kerema District Development Authority.

26. 	The Defendants further state that pursuant to 25(2)(a) of the District Development Authority Act 2014, the Second Defendant is not obliged to pay for the liabilities of the Gulf Provincial Administration who signed the service agreement. The Defendants also add that the section 24 of the District Development Authority Act in terms of the application of Part VIII of the Public Finances (Management) Act was not applied to the procuring of this service agreement.

27. 	The Plaintiff however states in evidence by way of the Affidavit of Mr Eddie Ori that in 2016, he was the District Administrator for Kerema and the CEO of the Kerema District Development Authority and in 2016, in a meeting by the Kerema District Development Authority, it was approved amongst other resolutions for the approval of K1.5 million PIP Funding for the education sector projects to be implemented by the Plaintiff company. He also said that the resolutions were witnessed and signed by the late Hon. Richard Mendani who was the Chairman of the Kerema District Development Authority at that time.

28. 	Mr Marc Avai Orisuru who is the Provincial Administrator of Gulf Province has stated in evidence that as the contract sum was over K500 000, he signed the agreement in his capacity as the Provincial Administrator. There is therefore a clear distinction between the Provincial Government and the Authority. The Defendants have pointed out that under section 25(2) of the District Development Authority Act, the monies of the Authority are to be expended in the discharge or expenses and obligations of the Authority. In this instance, the Provincial Administrator has assumed authority to sign the agreement on behalf of the Kerema District Development Authority. 

29. 	The Plaintiff however submits that the Resolution for the approval of the funding to the Plaintiff was approved by the Chairman of the Kerema District Development Authority and that the Plaintiff was approved to provide the service as agreed, the Plaintiff had taken steps to perform the contract and given reports as to the progress of the project and that there was a partial payment of K450 000 which was approved for payment by the Kerema District Development Authority, cleared by the Department of Finance and also the Ombudsman Commission and paid to the Plaintiff. The Plaintiff now asks for the balance of the project costs in the sum of K750 000 on the basis that the Defendants have acknowledged the existence of the contract and paid out a partial payment.

30. 	There is no issue raised by the Defendants whether there were no services rendered, what the Second Defendant is contesting is that it did not sign the service agreement and that as it was signed by the Provincial Administrator, it should be the liability of the Gulf Provincial Government.

31. 	I now take my mind back to the provisions of the District Development Authority Act. Section 8 of the District Development Authority Act states that:

8. AUTHORITIES TO CO-OPERATE WITH PROVINCIAL GOVERNMENTS.

An Authority shall -
(a) cooperate with the Provincial Government; and
(b) not perform any of its functions or exercise any of its powers in a way that is inconsistent or in conflict with the policies and plans of the Provincial Government.

32. 	Section 5 of the Act sets out the functions of the Authority with a focus on Local Level Governments within the provinces.  

33. 	I find that the work to maintain and rehabilitate the Sir Tore Lokoloko Primary School in the Gulf Province falls within the domain of both the Gulf Provincial Government and the Kerema District Development Authority. In this instance, both the Provincial Government and the Kerema District Development Authority have agreed and endorsed this project, it is not for the benefit of either one per se, it is for the benefit of both, primarily for the people of Gulf Province in which the Provincial Government is duty-bound and in which the Authority is also responsible for specifically for the Districts in Gulf Province. Section 8 of the Act clearly states that the Authority shall co-operate with the Provincial Government and shall not perform its functions in a way that is conflicting with the Provincial Government. This is a matter that clearly shows that there is lack of co-operation between the Gulf Provincial Government and the Kerema District Development Authority.

34. 	On the basis of the evidence before me, I find that Mr Marc Avai Orisuru who is the Provincial Administrator has no authority to bind the Kerema District Development Authority as he has no standing under the District Development Authority Act. Section 25 of the Act gives power to the District Administrator to be the Chief Executive Officer of the Authority for that District. The Provincial Administrator, therefore, plays no executive role in the Authority according to the legislation.

35. 	I, therefore, find that the service agreement between Plaintiff and the Second Defendant is void on the basis that Mr Orisuru does not have authority on behalf of the Kerema District Development Authority. The service agreement so entered shall be set aside.

36. 	The Defendants have made submissions on the principle of privity of contract relying on relevant case law and I uphold those submissions on the law in respect to the principle of privity of contract. The Plaintiff therefore cannot rely on specific performance as the service agreements is void of legal authority to bind the Second Defendant.

37. 	The Plaintiff on the other hand makes submissions for a claim on the principle of quantum meruit. This is a reasonable sum of money paid for services rendered or work done when the amount due is not stipulated in a legally enforceable contract. The Plaintiff relies on the case of Keboki Business Group (Inc) v State [1984] PNGLR 281 where the Court stated that:

“Where a contract is void as being made without authority a plaintiff who has rendered services under it may be entitled to recover on a quantum meruit basis at least for services rendered until such time as the "contract" is refuted.”

38. 	The Defendants strongly object that the Plaintiff has not pleaded a claim for quantum meruit in its Amended Statement of Claim.  The law on pleadings is settled as in the case of Papua New Guinea Banking Corporation (PNGBC) v Tole [2002] PGSC 8; SC694 (27 September 2002) that a party is bound by his pleadings.

39. 	Be that as it is that a part payment of K450 000 was paid to the Plaintiff for work carried out on the Sir Tore Lokoloko Primary School and in the interest of justice, I will exercise my discretion pursuant to Order 12 Rule 1 of the National Court Rules and section 155(4) of the Constitution of the Independent State of PNG and also taking into account section 8 of the District Development Authority Act that the Kerema District Authority and the Gulf Provincial Government are set up to serve the people of Gulf Province, the maintenance and rehabilitation work for the Sir Tore Lokoloko primary school is for the benefit of the children and people of Gulf Province, I will order that the Second Defendant make payment in a reasonable sum as quantum meruit to the Plaintiff after a formal inspection is carried out by the Second Defendant for the actual work done which  is not yet paid for.

40. 	I therefore, make the following orders:

i)	The Plaintiff’s claim as pleaded in the Amended Statement of Claim filed on 18 August 2021 is denied.

ii)	The Plaintiff and the Defendants shall together conduct a joint inspection on the maintenance and rehabilitation work on the Sir Tore Lokoloko Primary School in the Gulf Province and parties shall also include any previous inspection reports and or progress reports from the Plaintiff for the Second Defendant to ascertain the value of the work done within two months from the date of this order.

iii)	Based on the inspection and valuation report as ordered in Term 2 of this order, the Second Defendant shall settle any costs for the actual work done not yet paid for to the Plaintiff for the maintenance and rehabilitation work on the Sir Tore Lokoloko Primary School.

iv)	Each party shall meet its own costs of these proceedings.

Orders accordingly.
_____________________________________________________________	
Raurela Lawyers: Lawyers for the Plaintiff 	
Waisi Lawyers: Lawyers for the Defendants