N11235
PAPUA NEW GUINEA
[NATIONAL COURT OF JUSTICE]

WS NO. 1350 OF 2015

BETWEEN:
JAKA INVESTMENTS LIMITED
Plaintiff

AND
WESLY LOKO in his Capacity as the Chief Executive Officer of Lufa District AUTHORITY
First Defendant

AND
LUFA DISTRICT AUTHORITY
Second Defendant

AND
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Third Defendant

LAE: DOWA J
12 APRIL, 21 JUNE 2022; 4 APRIL 2025

CIVIL PROCEEDINGS-Plaintiff claims damages for outstanding debt for civil works contract-whether the requirements of Public Finances Management) Act met- failure to meet requirements renders contract invalid and unenforceable -where part payments made, and debt acknowledged-liability established 

DAMAGES – Plaintiff has onus to prove damages with credible evidence-entitled to damages -damages awarded.

Cases cited
Yooken Paklin v The State (2001) N2212 
Samot v Yame (2020) N8266
Fly River Provincial Government v Pioneer Health Services (2003) SC705
National Broadcasting Corporation v Tasion (2019) N8083
 Kopyoto Investment Ltd v National Housing Corporation (2022) SC2339
Paul Tohian -v- Tau Liu (1998) SC566
Habolo Building & Maintenance Ltd v Hela Provincial Government [2016] SC1549
Public Curator of Papua New Guinea v. Kara [2014]. PGSC 58; SC1420

Counsel
G. Topa for the plaintiff
S. Maliaki for the defendants

DECISION

1.	DOWA J: This is a decision on both issues of liability and damages.

The Plaintiff’s Claim

2.	On or about 9th March 2021, the Plaintiff successfully bid and was awarded a contract by Central Supply and Tenders Board (“CSTB”) CSTB:.2381 to upgrade and rehabilitate the Lufa Station to Futufai Road in Lufa District, Eastern Highlands Province. The total value of the Contract was K 6,439,702.50 although the Plaintiff claims it was for K6,838,902.55.

3.	The Plaintiff alleges it commenced work in August 2012, upgrading and rehabilitating the said road. The second Defendants, through its District Treasury, paid the Plaintiff a total of K3,461,325.00 in various payments. The Plaintiff alleges it is yet to be paid the balance of K3,377,577.00.

4.	The Plaintiff alleges it was engaged in a second works contract by the second Defendant on Instructions to Contractor (“ITC”) to carry out Emergency Services including rehabilitation work in the district and this engagement was verbally contracted between the Lufa District Administrator and the Plaintiff.  The Plaintiff alleges the emergency work was carried out in the period between 2012 to 2014. The Plaintiff invoiced the Defendants for a total sum of K 700,248.38. The Plaintiff paid K 153,304.80 for the second contract. The balance of K 549,943.58 has not been settled and remains outstanding.

5.	Aggrieved, the Plaintiff commenced these proceedings seeking recovery of the outstanding debt of K3,377,577.00 for the first CSTB contract and K549,943.58 for the second ITC contract, totaling K 3,927,520.58.

Defence

6.	The Defendants filed a Defence denying the claims, pleading particularly that:

a.	The first Contract is illegal and unenforceable because: 

i. there is Non-compliance of Administrative Guidelines and Financial Instructions under the Public Finances (Management) Act.

ii. The Plaintiff received payment of the contract price in breach of the Public Finances (Management) Act prior to performing the contract. 

iii. Ambiguity in the terms of the contract.

iv. All claims were paid in full

v. The Plaintiff breached the terms of the agreement 

b.	In respect of the second contract, the Defendants plead that the contract is illegal: 

i. For failing to comply with the Administrative Guidelines and Financial Instructions under the Public Finances (Management) Act.

ii. Ambiguity in the terms of the contract.

c.	Failed to serve notice of claim under Section 5 of the Claims By and Against the State Act.

Issues

7.	The main issues for consideration are:

a.	Whether the Plaintiff has served Section 5 Notice under the Claims By and Against the State Act.

b.	Whether the Defendants are liable to settle the K3,377,577.00 in respect of the first contract CSTB2381.

c.	Whether the Defendants are liable to pay K549,943.58 for the second ITC contracts 

Trial
8.	By agreement of parties, the trial was conducted by the tender of their respective Affidavits and submissions thereafter. 

The Plaintiff’s Evidence

9.	The Plaintiff relies on the following Affidavits tendered into evidence:

a.	Affidavit of Jacob Kai sworn and filed 9th November 2016-Exhibit P1.
b.	Affidavit of Jacob Kai Sworn 28th and filed 29th September 2016 -Exhibit P2
c.	Affidavit of Jacob Kai Sworn 7th and filed 8th June 2021-Exhibit P3
d.	Affidavit of Frank Beriso sworn and filed 24th March 2021 -Exhibit P4

10.	This is the summary of the Plaintiff’s evidence. The Plaintiff was awarded a road construction contract by the Central Supply and Tenders Board, (CSTB2381) to complete the upgrade and rehabilitation of the Lufa Station to Futufa Road, Lufa District, Eastern Highlands Province, for a contract price of K 6,838,902.50. The contract was funded by the National Government. All bidding requirements under the Public Finances (Management) Act were met. The works under the contract were completed and a Certificate of Completion was issued in November 2014. The Plaintiff was paid K 3,461,325.00 and the balance of K 3,377,577.50 was outstanding. After further payments, the balance remains outstanding is K 2,392,950.00.

11.	During the performance of the first contract under CSTB 2381, the Plaintiff was given two additional contracts by the Department of Works through Instruction to Contractor, commonly known as ITC, to attend to emergency works like clearing slips and landslides. The first ITC was issued on 23rd January 2012 for slip removal at Rongo village. The work was done, and an invoice was issued for K 428,525.00. The second ITC was issued on 1st January 2014 for slip removal at Kuruka village. The work was completed, and an invoice was issued for K 271,723.38. The total invoices issued for the ITC works is K 700,248.38. The Defendants paid K 153,304.80. The balance of K 549,943,58 remains outstanding. 

12.	The summary of the Plaintiff’s claim is K 2,392,950.00 remains outstanding for CSTB 2381, and   K 549,943.58 for the two ITCs.

The Defendants’ Evidence
13.	The Defendants rely on the following Affidavit evidence:

a.	Salome Maliaki sworn 8th and filed 14th June 2017-Exhibit D1.
b.	Affidavit of Salome Maliaki sworn and filed 14th June 2017-Exhibit D2
c.	Affidavit of Demo Imara 10th February and filed 4th March -Exhibit D3.
d.	Affidavit of Salome Maliaki sworn 3rd and filed 4th March 2021 -Exhibit D4.

14.	This is the summary of the Defendants’ evidence. Mr. Demo Imara is the Chief Executive Officer of Lufa District Administration. He states in his affidavit that the procurement requirements under the Public Finances (Management) Act and the Financial Instructions (FI 2013) must be followed by the District Development Authorities when awarding contracts and any noncompliance renders the contracts invalid. He deposes that in the present case, there is no record of compliance with the procurement requirements for services provided by the Plaintiff to Lufa District Development Authority. 

15.	The Defendants’ second witness is Ms. Salome Maliaki. She is a senior lawyer employed by the State in the Solicitor General’s office. She deposes that the Defendants are not liable to the Plaintiff because of the following reasons:

a.	The Plaintiff did serve notice of claim under Section 5 of the Claims by and Against the State Act within six months.

b.	The third Defendant, the State, is not responsible for the actions of the first and second Defendants as they are separate entities.

Consideration of the issues

a.	Whether the Plaintiff has served Section 5 Notice under the Claims by and Against the State Act.

16.	The Defendants have initially alleged that the Plaintiff failed to give notice of a claim under Section 5 of the Claims by and Against the State Act within six months. It was alleged that the cause of action commenced when the Certificate of Completion was issued on 17th November 2014. The Defendants asserted that the Notice of Claim served on the Solicitors Office on 7th May 2015 is out of time. However, counsel for the Defendants have since abandoned the allegation and did not pursue the matter further.

17.	Despite the issue not being pursued, I will make observatory findings on the matter.

The Law

18.	The relevant law is Section 5, and it reads:

“NOTICE OF CLAIMS AGAINST THE STATE .
(1)  No action to enforce any claim  against the State  lies  against the State  unless notice in writing of intention to make a claim is given in accordance with this section by the claimant to–
(a) the Departmental Head of the Department responsible for justice matters; or
(b) the Solicitor-General.
(2) 	A notice under this section shall be given–
(a) 	within a period of six months after the occurrence out of which the claim arose; or
(b) 	where the claim is for breach of a contract, within a period of six months after the claimant became aware of the alleged breach; or
(c) 	within such further period as–
(i) the Principal Legal Adviser; or
(ii) the court before which the action is instituted,
on sufficient cause being shown, allows.....”

19.	The law on notice under section 5 is clear: No proceedings to enforce a claim based on tort, breach of contract and constitutional rights lie against the State or State entity unless notice of intention to make a claim is served within six (6) months of date of occurrence or breach. Refer:  Kopyoto Investment Ltd v National Housing Corporation (2022) SC2339, Paul Tohian -v- Tau Liu (1998) SC566.

20.	The evidence shows the Plaintiff signed the works contract on 9th March 2012. A Certificate of Completion was issued on 17th November 2014, signed off by the Works Engineer on10th January 2015. The notice of claim under Section 5 dated 31st March 2015 was served on the Solicitors Office on 7th May 2015. The notice was acknowledged by the Solicitor General in his letter of 30th June 2015. In my view, the Plaintiff has given notice of claim within six months of the date of completion and complied with the mandatory requirement of Section 5 of the Claims by and Against the State Act.

21.	Furthermore, notice of claim served on 7th May 2015 is sufficient and met the requirements of Section 5 by virtue of Section 7 of the Frauds and Limitation Act. Section 7 of the Frauds & Limitation Act reads:

“7.	FRESH ACCRUAL OF ACTION ON ACKNOWLEDGEMENT OR PART-PAYMENT.

(1) 	Subject to Subsection (2) and Sections 8, 9 and 10–
(a) 	where–
(i) 	a right of action has accrued to recover a debt or other liquidated pecuniary claim; or
(ii) 	a claim is made to, or to any share or part in, the personal estate of a deceased person; and
(b) 	the person–
(i) 	liable in respect of that debt or other liquidated pecuniary claim; or
(ii) 	accountable in respect of that personal estate,
acknowledges or makes a part payment in respect thereof,
the right to the debt or other liquidated pecuniary claim, or the claim to, or to a share or part in, the personal estate of the deceased person, is deemed to have accrued on, and not before, the date of the acknowledgement or the date of the last payment, as the case may be.
(2) 	Notwithstanding Subsection (1), where in respect of any rent or any interest that is due, a person, at any time, makes a part-payment, that part-payment–
(a) 	shall not extend the period for claiming the remainder then due; and
(b) 	shall, if it is a payment in respect of interest, be treated as a payment in respect of the principal debt.

22.	The law under section 16 (1) of the Frauds and Limitation Act is settled. An action for a simple contract shall not be brought after the expiration of six years commencing on the date on which the cause of action accrued, and the cause of action can accrue on a specific date or recur on subsequent dates or a series of occurrences: see Wialu v Andreas [2020] PGSC 60; SC1970, Habolo Building & Maintenance Ltd v Hela Provincial Government [2016] PGSC 67; SC 1549; and Public Curator of Papua New Guinea v. Kara [2014]. PGSC 58; SC1420.

23.	In the present case, the evidence shows the works contract price was K6,439,702.50. The Defendants made several installment payments, the last of such payment was made on 2nd April 2013. The first and second Defendants acknowledged the Plaintiff’s outstanding claim by letter dated 1st November 2013. The work was continuing until completion in November 2014. It is clear the cause of action was continuous and notice under Section 5 was served within time.

24.	It is clear, notice under Section 5 was served within time and the Defendants have correctly abandoned the allegation.

b.	Whether the Defendants are liable to settle the K3,377,577.00 in respect of the first contract CSTB 2381.

25.	The onus is on the Plaintiff to prove on the balance of probability that the Defendants are liable to pay K 3,377,577.00.

26.	The Defendants submit that they are not liable to the Plaintiff for the alleged debt of K 3,377,577.00 because the Plaintiff failed to comply with the Administrative Guidelines and Financial Instructions 1A/2013 under the Public Finances (Management) Act. The Defendants submit that the Plaintiff’s contract value was over K 5 million, and for the contract to be valid and enforceable, the Plaintiff was required but failed to meet the following requirements:

a.	Project Identification Document
b.	Supporting Letter from the appropriate Authority
c.	Major Contract Agreement
d.	Authority to pre-Commit
e.	NEC Approval
f.	JDP&BDC, DDA Board, meeting minutes and resolutions approving the project.

27.	Despite the contention by the Defendants, the Plaintiff has produced sufficient documentary evidence to prove that it entered a valid contract. The Plaintiff was the successful applicant of a Central Supply and Tenders Board Contract CSTB 2381 for a contract sum of K 6,439,702.50. The Plaintiff produced in evidence the following contract documents: 

a.	Signed CSTB Contract No.2381 dated 9th March 2012.
b.	Plaintiff’s Bid documents dated 18th November 2011
c.	Letter of Acceptance by CSTB dated 7th February 2012
d.	Legal Clearance Letter by State Solicitor dated 1st March 2012
e.	Bill of Quantities  

28.	The Letter of Acceptance by CSTB acknowledges receipt of other bidding documents received from the Plaintiff which form part of the contract like the Bidding Documents, Specifications, Conditions of contract, Bill of Quantities and Drawings. I note that the State Solicitor has examined all the bidding documents and the terms of the contract and certified that Part VII of the Public Finances (Management) Act has been complied with and gave clearance to CSTB to execute the contract. The Contract was accordingly signed between the Plaintiff and the Chairman of the CSTB under seal on 9th March 2012.

29.	I find the works contract CSTB 2381 for the rehabilitation of Lufa Station to Fututai Road in Lufa District, Eastern Highlands Province, entered between the State and the Plaintiff on 9th March 2012 is valid and enforceable.

Whether the Defendants are liable to settle K 3,377,577.50 in Contract CSTB 2381

30.	The next issue to be considered is whether the Defendants are liable to settle K 3,377,577.50. Whilst the issue of liability is settled, the Plaintiff is still required to prove its damages with credible evidence.  Ref:  Yooken Paklin v The State (2001) N2212 and Samot v Yame (2020) N8266.

31.	The Plaintiff’s claim is for a liquidated sum of K 3,377,577.50, being the balance of the outstanding contract price. The evidence, however, does not support the amount claimed. Mr. Jacob Kai, the Managing Director of the Plaintiff company, in his Affidavit filed 9th November 2016 (Exhibit P1), deposed that the outstanding amount was K 3,377,577.50. Mr. Kai maintained the figure of K 3,377,577.50 in his second Affidavit filed 29th September 2020 (Exhibit P2). However, in his more recent Affidavit filed 8th June 2021 (Exhibit P3), Mr. Kai deposed that the only outstanding claim is K 2,392,950.00. The Plaintiff did not produce invoices or a statement to show evidence of the outstanding amount. Mr. Kai deposes and relies on the Bill of Quantities, claiming that the work undertaken under Group 7 of the Bill of Quantities for K2,392,950.00 remains outstanding. 

32.	Mr.  Frank Beriso, the former District Treasurer for Lufa District, who gave evidence for the Plaintiff, deposed that most of the funds were paid except for K 2 million. They could not pay because there was no money.

33.	Mr. Demo Imara, the Chief Executive Officer of Lufa District, who was called to give rebuttal evidence for the Defendants, did not offer any evidence on the merits of the claim as he did not have the records and information pertaining to the subject works contract. 

34.	In the circumstances, how much is the Plaintiff entitled to. The evidence shows the contract value was K 6,439,702.50 despite the Plaintiff’s assertion that it was for K6,838,902.50. From evidence provided by Mr. Kai in his Affidavits (Exhibit  P3), the Plaintiff was paid K 4,481,952.50. This leaves a balance of K 1,957,750.00. A further deduction of K 153,304.80 be made for the payment made to the Plaintiff for the invalid ITC contract referred to in Mr. Kai’s Affidavit (Exhibit P2). The final balance shall be K 1,804,445.80

35.	In the absence of rebuttal evidence, I am satisfied, on the balance of probability, that the Plaintiff is entitled to judgment for the sum of K 1,804,445.80 and an award shall be made in that sum.

Interest.

36.	The Plaintiff claims interest at 8%. The Court has a discretion to award interest on the rate claimed or lesser sum. Section 4 of the Judicial Proceedings (Interest on Debts and Damages) Act 2015 provides that interest in claims against the State be charged at 2 % and no more. I will award interest at a lower rate of 2% per annum. Interest at 2% on K 1,804,445.80 from date of filing of Writ (2nd October 2015) to date of Judgment (4th April 2025), for 3,469 days, is K 342,993.01. Interest is calculated as follows:

•	K 1,804,445.80 x 2% 	=K 36,088.92 per annum
•	K 36,088.92 ÷ 365 days 	= K    98.87 per day
K 98.87 x 3,469 days	=K   342,993.01

37.	 The total judgement shall be K 2,147,438.81.

c.	Whether the Defendants are liable to pay K549,943.58 for the second contract described as Instructions to Carryout (ITC).

38.	The Plaintiff alleges, apart from the main contract CSTB 2381, the Plaintiff was verbally instructed to carry out two emergency works for the landslip removal. The first instructions were issued on 23rd January 2012 for the removal of slip at Rongo village. The Plaintiff alleges they attended to the task and billed the Defendants for K 428,525.00, which remains outstanding. The second instruction was issued on 1st January 2014 for the removal of landslips at Kuruka village which cost them K 271,723.38. The total cost for the two jobs is K 700,248.38. The Plaintiff says it was paid K153,304.80 and the balance of K 549,943.58 remains outstanding. 

39.	I have considered the pleadings, the evidence and submissions of parties and conclude that the Defendants are not liable for the two ITC claims.

40.	The contracts for the ITCs were not documented. There is no evidence that the administrative guidelines and Financial Instructions issued under the Public Finances (Management) Act 2015 were complied with. A contractual undertaking of this magnitude, that is for value between K 50,000.00 and K 500,000.00, would require three written quotes with ILPOCs in the old financial system and pre-Commit and Minor Contract Agreements in the new financial arrangements as per the Financial Instructions 1A/2013. Neither of these requirements were met.

41.	 There is no written instruction from the first and second Defendants. There were no minutes of the decision by the Joint District Planning and Budget Committee for the expenditure. There is no written agreement between the parties on the contract price. There is no Pre-Commit and no execution of the Minor Contract Agreement being executed by the parties.

42.	This, in my opinion, is a gross non- compliance of the  administrative guidelines and financial instructions issued under the Public Finances (Management) Act.  This renders the contract invalid and unenforceable.

43.	The law is settled in this jurisdiction. The requirements of the Public Finances (Management) Act are mandatory and where a contract is entered in breach of those requirements is illegal and is therefore unenforceable. Refer: Fly River Provincial Government v Pioneer Health Services (2003) SC705, National Broadcasting Corporation v Tasion (2019) N8083.

44.	For the foregoing reasons, the Plaintiff’s claim for K 549,943.58 for the two ITCs is dismissed.

Conclusion

45.	The result is the Plaintiff’s claim under contract CSTB 2381 is allowed and the judgment shall be entered for the Plaintiff in the sum of K K2,147,438.81
inclusive of interest. On the other hand, the Plaintiff’s claim for the two ITCs is refused and no award shall be made.

General Damages for Breach of Contract

46.	The Plaintiff makes a claim for general damages for breach of contract. I will make no award under this head of damages. Firstly, there is no proper pleading of facts in the statement of claim. Secondly, the claim is for outstanding debt under a contract for work. The relief in the main contract CSTB2381 is granted. As for the claim under the ITC contract, it has been found to be invalid. In these circumstances, it is not just that an award in general damages be made.

Who should pay the Judgment Debt

47.	The next issue is who should pay the judgement debt. Counsel for the State alleges that the State is not responsible for settlement of the judgment debt because the Eastern Highlands Provincial Government is a separate legal entity established under Section 6 of the Organic Law on the Provincial and Local Level Governments. Furthermore, Section 4 of the District Development Authorities Act establishes District Development Authorities and are a separate legal entity from the Independent State of Papua New Guinea. 

48.	I agree with the third Defendant’s contention. The judgment sum shall be paid by Lufa District Development Authority, the second Defendant, alone. This is because the evidence shows the Department of Finance released a cheque for K 7million for the project to Lufa District Treasury Operating Account on 19th October 2011. Refer Annexure “FB1” in the Affidavit of Frank Beriso-Exhibit P4. The second Defendant was managing the contract and the funds. It was responsible for making payments to the Plaintiff. The second Defendant is a governmental body established under Section 4 of the District Development Authorities Act 2014 and is a separate legal entity from the State and can sue and be sued in that capacity. Although the contract was signed by the Central Supplies and Tenders Board on behalf of the State, the monies were released to the second Defendant for payment to the Plaintiff. For this reason, the State, the third Defendant, cannot be made liable to pay the judgment debt. I will therefore order that the second Defendant pay the judgment debt.

Costs

49.	Cost is discretionary. The Plaintiff has succeeded in its claim and shall be entitled to the costs of the proceedings.

          ORDERS

50.     The Court orders that:

1.	Judgment is entered for the Plaintiff in the sum of K2,147,438.81
inclusive of interest. 
2.	Post judgment interest shall accrue at the rate of 2% until settlement.
3.	The first and second Defendants shall pay the judgment debt. 
4.	The first and second Defendants shall pay the Plaintiff’s costs to be taxed, if not agreed. 
5.	Time be abridged
_____________________________________________________________________
Lawyers for the plaintiff: Miles Legal Services
Lawyer for the defendants: Solicitor General