N10311
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS. NO. 315 OF 2010

BETWEEN
STARREACH CORPORATION LIMITED
Plaintiff

AND
SECRETARY FOR THE DEPARTMETN OF EDUCATION
First Defendant

AND
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Second Defendant

Waigani: Makail, J
2022:  15th November
2023: 8th June

LIABILITY – Breach of contract – Contract of services – Contract for renovation and maintenance of teacher’s house – Rehabilitation of Educational School Infrastructure (RESI) programme by Department of Education – Defence of unenforceability of contract – Non-compliance with procurement process – Privity of contract – Lack of notice of claim – Date of accrual of cause of action – Public Finances (Management) Act, 1995 – Sections 39(2)(b) & 47C (2) – Claims By and Against the State Act, 1996 – Sections 2A (2) & 5 

ASSESSMENT OF DAMAGES – Quantum meruit – Contract performed – Services rendered – Award of damages based on actual costs incurred for services performed 

Cases Cited:
 
Fly River Provincial Government v. Pioneer Health Services Limited (2003) SC705

Counsel:

Mr. R. Doko, for Plaintiff
No appearance, for First Defendant
Ms. Z. Waiin, for Second Defendant

JUDGMENT
08th June, 2023

1.	MAKAIL J: This is one of the proceedings that was listed for summary determination in 2019 for lack of activity but was returned to the directions hearings list to be progressed to trial.  After directions were issued and complied with by the parties, the parties agreed that the trial on liability and quantum will be on paper with decision to follow thereafter. Parties have filed written submissions, and this is the decision.

Plaintiff’s Claim

2.	On 25th March 2010 the plaintiff filed a writ of summons for breach of contract of services for renovation and maintenance work carried out on a teacher’s house at Badihagua High School in National Capital District between March and October 2008 in consideration in the sum of K50,930.00.  The plaintiff alleged that the contract was performed and seeks judgment in the sum of K50,930.00 with interest and costs.

First Defendants’ Defence

3.	The first defendant did not file a defence.

Second Defendant’s Defence

4.	The Solicitor General filed a defence on behalf of the second defendant.  The second defendant denied liability on the grounds that: 

(a)	The contract is null and void because it was not awarded by following the procurement and tender process under the Public Finances (Management) Act, 1995 (“PFM Act”).

(b)	The second defendant is not a party to the contract.  If any, the District Education Board was the party who entered into the contract with the plaintiff and should be liable for its breach and damages.

(c)	The notice of claim in the letter of 28th January 2010 was rejected.  Despite this, the plaintiff commenced this proceeding, but it is null and void for want of notice under Section 5 of the Claims By and Against the State Act, 1996 (CB&AS Act”).

5.	Finally, it does not admit or deny the allegation that the plaintiff provided renovation and maintenance services to Badihagua High School in the sum claimed.

Parties’ Evidence

6.	Pursuant to a Notice to Rely on Affidavits filed 19th December 2022 the plaintiff relied on the following affidavits:

(a)	Affidavit of Eunice Tarutia sworn and filed 12th July 2022, 
(b)	Affidavit of Boga Nou sworn 29th August 2022 and filed 31st August 2022, 
(c)	Affidavit of Maru Bala sworn 29th August 2022 and filed 31st August 2022, 
(d)	Affidavit of Mar Apolos Pena sworn 29th August 2022 and filed 31st August 2022, 
(e)	Affidavit of Kila Avei sworn 29th August 2022 and filed 31st August 2022, 
(f)	Affidavit of Maria Hayes sworn 29th August 2022 and filed 31st August 2022, 
(g)	Affidavit of Eunice Tarutia sworn 29th August 2022 and filed 31st August 2022, and 
(h)	Affidavit of Eunice Tarutia sworn 01st December 2022 and filed 09th December 2022.

7.	The second defendant did not file and rely on any affidavits.

8.	According to the affidavits filed on by the plaintiff, the District Education Board (“DEB”) Housing Committee was a Directorate established under the Department of Education (“DOE”) and reported to the Chairman of the DEB who then reported to the NCD Education and then to the DOE.

9.	The DEB was established for the purposes of rehabilitating and carrying out maintenance work on existing institutional houses for teachers in NCD as part of the ongoing Rehabilitation of Educational School Infrastructure (“RESI”) programme by DOE.

10.	Under the chairmanship of Mrs. Maria Hayes the DEB was authorised to approve contracts of up to K50,000.00.  

11.	The plaintiff was one of the applicants who applied to the DEB to be awarded contract to renovate and maintain four teachers’ house at Badihagua High School in NCD.  The plaintiff was selected to renovate and maintain four of the teachers’ houses.  One of them is the one occupied by Mrs. Mar Apolos Pena and subject of this proceeding.

12.	The document constituting the contract comprised of a letter from the DEB Housing Committee to the plaintiff dated 14th March 2008, contract between the DEB and the plaintiff dated 22nd March 2008 and Central Supply and Tender Boards (CSTB) Short Form Contract for Services (“CSTB Contract”) of K50,930,00.

13.	The plaintiff completed the renovation and maintenance work on the house occupied by Mrs. Pena.  This is verified by Mrs. Pena as the beneficiary of the services rendered by the plaintiff.  In addition, a physical inspection of the site was conducted by Mrs. Hayes supported by photographs of the renovation of the house.

14.	On 20th November 2008 the plaintiff submitted an invoice to the first defendant for payment of the agreed sum but did not receive any payment to date.

15.	The Court accepts the plaintiff’s witnesses’ account of the events because it is quite detail and verified by supporting documents in relation to the award of the contract, performance and completion of the contract and failure by the defendants to pay the agreed sum.  

16.	It follows the Court finds the plaintiff and the DEB entered into a contract of services for the plaintiff to renovate and maintain one of four teachers’ houses at Badihagua High School at the cost of K50,930.00.  The plaintiff rendered the services between March and October 2008.  The plaintiff submitted an invoice of K50,930.00 to the defendants to pay but they have failed to pay.

Liability

17.	As there is a contract, the question is whether it is enforceable against the defendants.

Failure to comply with procurement process

18.	There are two parts to this ground.

(a)	Lack of authority of DEB to enter into a contract up to K10,000.000.00.  The body that is authorised to enter into a contract of this sum is the Central Tender and Supply Board pursuant to Section 39(2)(b) of the PFM Act.

(b)	Lack of ILPOC and APCE forms pursuant to Section 47C (2) of the PFM Act and Section 2A (2) of the CB&AS Act.

19.	As to the DEB’s lack of authority to enter into a contract over K10,000,000.00 it may be that it lacks authority and the contract is null and void pursuant to Section 39(2)(b) of the PFM Act but where the contract was performed, the question is whether the plaintiff be awarded damages based on quantum meruit.

20.	The second defendant further relied on a defence that was not pleaded in its’ defence that the contract does not bear the common seal or signature of the Secretary of DOE as the head of the DOE under Section 31 of the Education Act and that the Chairman of the DEB lacks authority to enter into the contract on behalf of the DOE.  However, this defence was not pleaded and is disregarded.  In any event, irrespective of the contract being illegal for the reasons given but has been performed, the question is whether the plaintiff should be awarded damages based on quantum meruit.

21.	Secondly, there is no evidence of an ILPOC and APCE forms to verify that the plaintiff complied with the requirements of obtaining an ILPOC and APCE forms prior to contracting with the DEB.  Be that as it may, again, the question is whether damages should be awarded to the plaintiff for the work done based on quantum meruit.

22.	The Chairman of the DEB Mrs. Hayes and one of the officers of the DEB Mrs. Kila Avei verified that the plaintiff was awarded the contract after meeting the requirements for tender.  None of them informed the plaintiff to comply with the procurement process under the PFM Act or if the plaintiff was aware of this requirement and on purpose, avoided complying with it.  In the absence of evidence of the plaintiff conspiring with the Chairman and officers of the PEB to procure the contract by fraud or defraud the DOE, it is open to find that the plaintiff was an innocent party when it entered into the contract with the DEB.  In other words, this was a genuine contract and claim for payment but was rejected for some unexplained reason: Fly River Provincial Government v. Pioneer Health Services Limited (2003) SC705.

Privity of Contract

23.	Learned counsel for the second defendant submitted that the contract is unenforceable against the second defendant because it is not a party to the contract.  According to the doctrine of privity of contract, a contract cannot confer rights or impose obligations arising under it on any person except the parties to it.  In this case, the party to the contract is the DOB and not the second defendant.  There is no question as to the soundness of learned counsel’s submissions, but it overlooks that fact that the contracting parties are the DEB and the plaintiff.  The contract is expressed to be in the name of the DEB under the DOE.  Secondly, in the CSTB contract, the execution clause refers to “For and on behalf of the Independent State of Papua New Guinea”.

24.	As Mrs. Hayes has explained, the DEB is a directorate in the DOE and DOE is responsible for the RESI programme.  The DOE is the second defendant in this proceeding.  The contract is enforceable against the DOE who is the second defendant in this proceeding.  Secondly, the plaintiff may enforce the CSTB contract against the DOE and the State as the second defendant for breach of contract because the State is a party.  Furthermore, it does not make sense when the DOE who is the first defendant in this proceeding is unrepresented and yet the head of the DOE has filed an affidavit in defence of the second defendant only.  It is not up to the Solicitor General to pick and choose which defendant to represent.  The decision not to represent the first defendant is objectionable and must be rejected.  There is no merit in this defence, and it is dismissed.

Notice of Claim out of time

25.	Learned counsel for the second defendant submitted that the notice of claim is out of time because when the DOE allegedly refused to pay the plaintiff when it received the invoice, time started to run.  The purported notice of claim was given on 28th January 2010.  That is about one year and two months from the alleged breach of contract.

26.	While it may be that the DOE allegedly refused to pay the plaintiff when it received the invoice, the contract does not say when payment is due before time will run to compute the time to give notice of claim to the State.  The evidence that is available and reliable is that between 20th November 2008 and 20th December 2009 negotiations proceeded between the parties with a view to have the matter settled.  Due to the lack of response from the first defendant, the plaintiff issued a letter of demand to the former on 18th December 2009.

27.	It is possible that in the absence of a due date for payment in the contract, the date of the accrual of the cause of action, that is, the alleged breach of contract was 18th December 2009 or thereafter when the first defendant failed to comply with the letter of demand of 18th December 2009 and settle the claim. Shortly, thereafter, the plaintiff gave notice of a claim to the State by way of a letter dated 26th January 2010.  This was about one month and one week after the letter of demand of 18th December 2009.  This was within the period of six months under Section 5 of the CB&AS Act.  This defence has no merit and is dismissed.

Summary

28.	The second defendant has not made out its defence that the contract is unenforceable on the grounds that first, it was not a party to the contract and secondly, the plaintiff’s notice of claim was given out of time under Section 5 of the CB&AS Act.  However, the contract may be unenforceable against the defendants because the plaintiff failed to comply with the procurement process under Sections 39(2)(b) and 47C (2) of the PFM Act.    

29.	Notwithstanding this, as the plaintiff performed the contract and the defendants benefited from it, it is unjust and unfair that the plaintiff should be left without a remedy.  For this reason, there shall be a judgment in favour of the plaintiff for damages to be assessed on the principles of quantum meruit.

Assessment of Damages

30.	 According to the principles of quantum meruit, damages will be assessed and awarded based on actual costs incurred in performing the contract.  In this case, the contract was performed.  The house was renovated and maintained at the cost of K50,930.00.  The plaintiff submitted an invoice in the sum of K50,930.00 for payment and remains due and outstanding to date.

31.	The Court awards the plaintiff damages in the sum of K50,930.00.

Interest 

32.	The plaintiff sought interest at the rate of 2% from the date of loss of 20th November 2008 to date of settlement.  However, except for the plaintiff’s managing director following up with the defendants for payment over a period of more than three years and then passing on in June 2018 and letters of administration had to be applied for, and granted in December 2019, there was no active and meaningful steps taken by the plaintiff to progress the matter to trial.  Because of this, the matter was listed for summary determination in 2019.  On 12th July 2022 the matter was removed from the summary determination list and directions were issued by the Court for the matter to be progressed to trial.  This was the first time the plaintiff took active and meaningful steps to prosecute the matter.

33.	Given this, it should be held partly responsible for the delay in prosecuting this matter and interest will be awarded at the rate of 2% on the judgment sum of K50,930.00 for part of the period, that is, from date of directions hearing of 12th July 2022 to date of final settlement pursuant to Sections 4 and 6 of the Judicial Proceedings (Interest on Debts and Damages) Act, 2015.

Costs

34.	As the successful party, the defendants are ordered to pay costs of the proceedings to the plaintiff, to be taxed, if not agreed.
Order

35.	The terms of the final order are as follows:

1.	Judgment is entered against the defendants in the sum of K50,930.00.

2.	The defendants shall pay interest at the rate of 2% on the judgment sum of K50,930.00 from the date of directions hearing of 12th July 2022 to date of final settlement pursuant to Sections 4 and 6 of the Judicial Proceedings (Interest on Debts and Damages) Act, 2015.

3.	 The defendants shall pay costs of the proceeding, to be taxed, if not agreed.
________________________________________________________________
Resolution Legal Lawyers:  Lawyers for Plaintiff 
Solicitor General:	Lawyers for Second Defendant