N10779          

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS NO. 216 OF 2021

BETWEEN:
EMMANUEL SOLWAI MAMBEI TRADING AS SOLWAI CAR RENTALS
-Plaintiff-

AND
NEIL ELLERY, AS CHIEF EXECUTIVE OFFICER OF LAE CITY AUTHORITY
-First Defendant-

AND
LAE CITY AUTHORITY
-Second Defendant-

Lae: Dowa J
2022: 14th March
2024:  26th April

CIVIL PROCEEDINGS-plaintiff seeks declaratory orders for the settlement of judgment debt by third party –whether transfer of municipal functions from Lae ULLG to Lae City Authority included transfer of liabilities-Doctrine of privy of contract discussed and applied-exceptions to doctrine of privy of contract-Held privity of contract excluded the Lae City Authority from liability-proceedings dismissed. 

Case Cited:  

Makao v Ling (2008) N3293
PNGBC v Barra Amevo(1998) N1726
Christian Life Centre v Associated Mission Churches of PNG (2002) N2261

Counsel:

  E. Mambei, the Plaintiff in person
 N. David, for the Defendants
 
DECISION

26th April 2024					

1.	DOWA J:  The Plaintiff applies for the Judgment debt of K231, 850.00 in proceedings-WS No 96 of 2019 against Lae Urban Local Level Government to be transferred to Lae City Authority for settlement. It is a contested hearing. Here is my decision.

Background facts

2.	The Plaintiff commenced proceedings against Lae Urban Local Level Government in proceedings-WS No 96 of 2019-Emmanuel Solwai Mambei trading as Solwai Car Rentals-v-Lae Urban Local Level Government, for outstanding car rentals invoices. On 15th December 2020, judgement was ordered in favor of the Plaintiff in the sum of K231,850.00. The Lae Urban LLG did not settle the judgement debt. The Plaintiff was informed by the Lae Urban LLG that they are unable to settle the judgment debt as all its revenue collection functions are taken over by Lae City Authority, the Second Defendant.

3.	On 19th November 2019, the members of Lae Urban LLG, passed a resolution that the Second Defendant would collect its revenue and manage its assets. This includes collecting revenues and paying for municipal services and staff wages. On 7th September 2021, the Lae Urban LLG and the Lae City Authority entered a Memorandum of Understanding whereby the Lae City Authority would take over the municipal functions of the Lae Urban LLG, the collection of revenue and delivery of municipal services. Due to the change in the revenue collection function resulting in the delay in settling the judgment debt, the Plaintiff opted to seek an order against the Lae City Authority for the settlement of the judgment debt.  

4.	The proceedings were contested by the Defendants on the grounds that the Lae City Authority is not a party to the proceedings in WS No 96 of 2019, and secondly the liabilities of Lae Urban LLG were not transferred to Lae City Authority for settlement.

Issues

5.	The issues for considerations are: 

a.	Whether the doctrine of privy of contract applies to the present circumstances.

b.	If the doctrine applies, do the present factual circumstances present any exceptions to the doctrine of privy of contract.

Consideration of the Issues

6.	The facts are not disputed. The Plaintiff obtained a judgement in his favour against the Lae Urban LLG in proceedings-WS No 96 of 2019 in the sum of K231,850.00 for car hire services rendered.  The judgement debt remains unsettled. The reason. The Manager for Lae Urban LLG informs the Plaintiff that Lae Urban LLG is unable to settle the judgement debt because their revenue collection functions are taken over by Lae City Authority initially under a resolution of the full Council made on 19th November 2019, and thereafter by a Memorandum of Understanding  executed between the Lae City Authority and Lae Urban LLG on 7th September 2021 whereby the Lae City Authority would take over the full municipal functions of the Lae Urban LLG. Under this arrangement, the Lae City Authority will be responsible for revenue collection and for the provision of municipal services. 

7.	The Plaintiff submits that by taking over the municipal functions of the Lae Urban LLG including the collection of revenues and for delivery of municipal services, the Lae City Authority has by implication taken over the liabilities of Lae Urban LLG as well. The Plaintiff reasons how can the Lae Urban LLG settle its debt when its revenue collection function is taken over by the second Defendant. 

8.	Ms. David, counsel for the Defendants, submits that the transfer of functions did not include the transfer of liabilities. And the second Defendant is not responsible for the judgment debt as it is not a party to the contractual arrangements which gave rise to the initial proceedings.

9.	 The Memorandum of Understanding to transfer the municipal functions of the Lae city from Lae ULLG to Lae City Authority is executed pursuant to Section 4 of the Lae City Authority Act. Section 4 of the Act reads:

“4.   FUNCTIONS OF THE AUTHORITY.
(1) The Authority is primarily responsible for providing municipal services in the Lae area in accordance with a memorandum of understanding entered into by the Authority with the Lae Urban Local Level Government and the Rural Local-level Governments in the Province.
(2) Municipal services include, but are not limited to -
a)	the collection of rubbish; and
b)	the management of the municipal dump; and
c)	the cleaning and lighting of roads, streets, and paths; and
d)	the maintenance of public parks and recreation areas; and
e)	the control of cats, dogs, and other domesticated animals.
…..”

10.	I have perused the Memorandum of Understanding and note it is consistent with Section 4 of the Act and there is no expressed provision made for the transfer of existing liabilities of the Lae Urban LLG to Lae City Authority for settlement.

11.	Should the second Defendant be made liable to settle the judgment debt of Lae ULLG just because the latter’s revenues are now reduced and is no longer in a financial position to settle the judgment debt.

12.	It is trite law of natural justice that a person is not liable and cannot be compelled to settle a judgment debt where he is not a party to the proceedings.

13.	It is also trite law of contract that a person who is not a party to a contract cannot acquire rights or be subjected to its obligations arising under the contract. It is called the doctrine of privy of contract in common law which is adopted and applied in this jurisdiction as part of the underlying law. Refer: Makao v Ling (2008) N3293, PNGBC v Barra Amevo(1998) N1726, and Christian Life Centre v Associated Mission Churches of PNG (2002) N2261. 

14.	In PNGBC V Barra Amevo (supra) Sevua J, as he then was, defined the doctrine of privy in the following terms: 

“The second defendant is not a party to that 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”.

15.	There is no dispute that the debt giving rise to the judgment stems from hire car services rendered by the Plaintiff to Lae Urban Local Level Government. The second Defendant, Lae City Authority, is not a party to the contractual agreement. I accept the submissions by counsel for the 2nd Defendant that Lae City Authority is not a privy to the service contract between Lae Urban LLG and the Plaintiff. It follows therefore that the second Defendant is not liable to settle the judgement debt.

16.	Again, based on the doctrine of privy of contract I find that the second defendant is not a privy to the contract between the Plaintiff and Lae ULLG. Accordingly, that contract imposed no obligation on the second Defendant. Privity of contract excludes the second defendant from any liability and the obligation to settle the judgment debt.

The next issue is whether the Lae City Authority is liable to settle by virtue of the exception to doctrine of privy of contract.

17.	As I have found, the doctrine of privy of contract applies to the present case. There are however exceptions to the doctrine of privy of contract which include agency relationships, trusteeship, assignment, and statutory law.

18.	The Plaintiff argues that although the second defendant is not a party to the earlier proceedings, it is nevertheless liable to settle the debt by virtue of transfer of the municipal functions previously performed by the Lae ULLG under the terms of the Memorandum of Understanding. The Second Defendant has taken over the municipal functions of the Lae Urban LLG including the collection of revenues and the payment of staff wages and by extension, the settlement of liabilities. 

19.	In my view, none of the exceptions to the rule exist in the present case. The second Defendant is not an agent nor a trustee for Lae ULLG. There is no evidence of the assignment of debt either. Further, the Lae City Authority Act did not create a legal obligation on the second Defendant to settle the Lae ULLG’s debt apart from the obligations clearly spelt out in Section 4 of the Act and the Memorandum of Understanding signed pursuant to that provision. There is no ambiguity in the interpretation and application of section 4 of the Act.

20.	 The purpose of the Memorandum of Understanding is clearly spelt out in clause 5 of the agreement which is for a shared partnership and corporative working relationship to ensure effective service delivery for the Lae city. The obligations or functions transferred are clearly set out in clause 6 of the agreement which does not include the transfer of liabilities of Lae Urban LLG. In the absence of any express agreement for the transfer of the liabilities, Lae City Authority is not responsible nor under any legal or contractual obligation to settle the judgment debt of Lae Urban LLG.

21.	Except for the transfer of its municipal obligations, the Lae ULLG remains a vibrant legal entity and governmental body with capacity to function as a local level government, capable of meeting its legal and financial obligations including settling its legitimate debts. 

Conclusion

22.	 For the foregoing reasons I am not satisfied that the Plaintiff is entitled to the reliefs sought in the proceedings and will therefore dismiss the proceedings with costs to the Defendants.

Orders

23.	    The Court orders that:

1.	The Plaintiff’s proceeding is dismissed.

2.	The Plaintiff shall pay the Defendants’ costs to be taxed, if not agreed.

3.	Time be abridged.

Emmanuel Solwai Mambei:	Plaintiff in person
David & David & Co Lawyers:  Lawyers for the Defendants