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National Court of Papua New Guinea |
PAPUA NEW GUINEA
[NATIONAL COURT OF JUSTICE]
WS NO. 1094 OF 2015
BETWEEN
ANTHONY YANS
First Plaintiff
AND
YANKUNDI CONSTRUCTION LIMITED
Second Plaintiff
AND
MICHAEL PHASA, National Project Director, School Infrastructure Programme of Education Department
First Defendant
AND
DR UKE KOMBRA, ACTING SECRETARY FOR DEPARTMENT OF EDUCATION
Second Defendant
AND
HON. NICK KUMAN, MINISTER FOR EDUCATION
Third Defendant
AND
THE DEPARTMENT OF EDUCATION
Fourth Defendant
AND
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Fifth Defendant
WAIGANI: MAKAIL J
18 MARCH, 14 APRIL 2022; 4 FEBRUARY 2025
CONTRACT – Liability – Contract for services – Provision of construction of building works and re-lay of pavement blocks – Non-payment of services – Breach of – Enforceability of – Defence of non-compliance with statutory procurement procedure – Public Finances (Management) Act – 1995 – Sections 47B-D – Claims By and Against the State Act, 1996 – Section 2A
UNJUST ENRICHMENT – Contract awarded in breach of statutory procurement procedure – Effect of – Contract unenforceable – Innocent party entitled to damages for unjust enrichment
ASSESSMENT OF DAMAGES – Quantum meruit – Unjust enrichment – Contract performed – Services rendered – Damages assessed on quantum meruit basis – Damages awarded based on actual work done
CAUSE OF ACTION – Breach of contract – Accrual of cause of action – Time to give notice to make a claim against the State – Six months – Time when cause of action accrued – Claims By and Against The State Act, 1996 – Section 5
Cases cited:
Bara Construction v. Timothy Numara & The State (2018) N7380
Fly River Provincial Government v Pioneer Health Services Limited (2003) SC705
Glennel G Mari trading as Wani Connection v. Timothy Numara & The State (2019) N8089
Jhelson Ray trading as Bara Construction v. Timothy Numara & The State (2018) N7380
Seken Kewa v. Minister for Community Development & The State (2019) N7753
Counsel
Mr F Yapao for plaintiffs
No appearance, for first defendant
Ms R Mesa for second to fifth defendants
JUDGMENT
1. MAKAIL, J: This is a trial on liability and assessment of damages for breach of contract of services.
Allegations of Breach of Contract
2. The plaintiffs alleged that they entered into two contracts with the defendants:
(a) The first contract was for construction of a new 1 x 6 storey classroom at Marienville Secondary School, National Capital District in the sum of K1.2 million on 14th October 2012.
(b) The second contract was for repair and re-lay of pavement block in an area of about 460 square metres at the main entrance of the National Library and Archives, Waigani, National Capital District in the sum of K292,538.00 on an unspecified date.
3. Further, they alleged that it was a term of the first contract that a sum equivalent to 40% for CPI will be added to the original contract sum to cover for any delay after five months period.
4. Next, they alleged that on 15th October 2012 they commenced construction work at their own expense and later, on 23rd December 2012 the defendants paid a sum of K299,000.00 for mobilisation costs. During the construction work, the parties agreed to vary the first contract to include a further sum of K260,000.00 for additional work not covered in the first contract.
5. Finally, they alleged that they completed the construction of the classroom, but the defendants failed to pay the balance of the contract sum and are in breach of the contract.
6. As to the second contract, the plaintiffs alleged that they completed the work, but the defendants failed to pay the sum of K292,538.00 and this sum is due and outstanding.
7. In summary, the plaintiffs claimed a sum of K1,151,000.00 as due and owing for the first contract and a sum of K292,538.00 as due and owing for the second contract.
Defence
8. In their defence filed 03rd March 2015, the second to fifth defendants have tacitly denied the allegations by alleging that they do not know and cannot admit if the plaintiffs entered into two contracts with them in the description as alleged. Given this, this puts the allegations into contest and the plaintiff must prove each and all of them.
Evidence
9. The plaintiffs tendered two affidavits by the first plaintiff, one sworn and filed on 08th November 2021 as exhibit “P1” and the other sworn and filed on 23rd February 2022 as exhibit “P2”.
10. The second to fifth defendants tendered an affidavit of Milfred Wangatau sworn 18th June and filed on 26th June 2018 as exhibit “D1” and the other by Roddy Mesa sworn and filed on 19th September 2019 as exhibit “D2”.
Existence of Contract
11. The plaintiffs referred to annexure “A” to the affidavit of the first plaintiff (exhibit “P1”) which they assert is a copy of the written contract for the first contract and submitted that there is a contract between the parties for the construction of the classroom at Marianville.
12. As to the second contract, they referred to annexure E1” of the same affidavit (exhibit “P1”) and assert that it is a copy of the written contract for the maintenance and re-laying of red paving blocks for the National Library and Archives. Based on this, they submitted that there is a contract between the parties for the maintenance and repair works of red paving blocks at the National Library and Archives.
13. The second to fifth defendants do not contest the existence of each contract. Consequently, it is the finding of the Court that the parties entered into two contracts, first for the construction of the classroom at Marienville in the sum of K1,680,000.00 inclusive of CPI increase and secondly, for the maintenance and re-laying of the red paving blocks at the National Library and Archives in the sum of K292,538.00.
Enforceable Contract – Section 5 Compliance
14. The first major issue is whether the proceedings to enforce the contracts are barred by Section 5 of the of the Claims By and Against the State Act 1996 (“CB&AS Act”).
15. Section 5 states:
“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.” (Italics added).
16. The defendants rely on Section 5 of the CB&AS Act and submitted that the proceedings are bad for want of notice within a period of six months after the accrual of the cause of action. In this case, pursuant to the Schedule of Payment in the first contract, the first payment was due upon signing of the first contract. The first contract was signed by the parties on 14th October 2012. However, payment was delayed until 23rd December 2012 when a sum of K299,000.00 was paid by the defendants.
17. The balance of the first contract sum was supposed to be paid based on a monthly interim certificate. As the first payment was on 23rd December 2012, the second payment was due at the end of January 2013 upon an interim certificate. This did not occur. The defendants submitted that the cause of action accrued at the end of January 2013. The time to give notice within a period of six months from the date of accrual of cause of action expired at the end of July 2013. The plaintiffs did not give notice until 15th July 2015 and are late by two years.
18. The defendants have not referred me to a case precedent to support the view that in a case of a breach of contract, notice must be given within six months from the due date of payment under the contract because that is when the cause of action accrues. For this reason, I am not satisfied that the plaintiffs are required to give notice by or before the end of July 2013 prior to commencing these proceedings. In any case, I have read the contract, and I note that there is no expressed provision that in the event of default (non-payment of contract value), the plaintiffs must commence proceedings from the due date of payment. The absence of an expressed provision in the contract to that effect does not support the defendants’ submission.
19. On the other hand, a cause of action may accrue from the date a defaulting party refuses to pay for the services rendered under the contract. The act of refusal may be expressed or implied. In the present case, it is not disputed that after the payment of K299,000.00 on 23rd December 2012 the defendants did not pay the balance of the first contract. This was despite repeated requests for payment by the plaintiffs. One example was on 1st May 2013 when the plaintiffs resubmitted the invoice for payment of the two contracts that the first defendant informed them that payment had been delayed because of an internal investigation by the fourth defendant.
20. A further follow up with the third defendant by letter dated 16th June 2015 also received no response and on 7th July 2015 the plaintiffs gave notice to the State to sue the defendants for the unpaid contract value in each case. In my view, in the absence of an expressed provision in both contracts to the contrary, it was open to the plaintiffs to compute time based on last follow-up letter to the third defendant dated 16th June 2015 to give notice to the State. This was when the cause of action accrued, and the six months would have expired on 16th December 2015.
21. For these reasons, I am not satisfied that the defendants have made out their defence under Section 5 of the CB&AS Act.
Enforceable Contract – Contract Procurement Process Compliance
22. The second major issue is whether these contracts are enforceable. The defendants submitted that each contract is unenforceable because the plaintiffs failed to comply with the procurement process of a contract under Sections 47B, 47C and 47D of the Public Finances (Management) Act 1995 and Section 2A of the CB&S Act.
23. Section 47B states:
“47B. AUTHORITY TO PRE-COMMIT EXPENDITURE.
(1) The Departmental Head of the Department responsible for financial management may issue to a Departmental Head an Authority to Pre-commit Expenditure in relation to the purchase of property or stores or to the supply of goods or services where the Departmental Head of the Department responsible for financial management is satisfied that –
(a) in the case of proposed expenditure exceeding K100,000.00 –
(i) in the provisions of this Part have been complied with in relation to the purchase or supply; and
(ii) funds will be available to meet the proposed schedule of payments for the purchases or supply; and
(b) in the case of proposed expenditure not exceeding K100,000.00, the circumstances of the proposed expenditure are such that it is appropriate to authorize the Department, to the Departmental Head of which the Authority to Pre-Commit Expenditure was granted, to enter into a contract for the purchase of property or stores or for the supply of goods or services notwithstanding that the full amount of funds to meet the payment required under the contract is not immediately available but it is within the appropriation for the year to which the Authority to Pre-commit Expenditure relates for the item to which it relates.
(2) An Authority to Pre-Commit Expenditure under Subsection (1) shall specify –
(a) the purchase of property or stores of the supply of goods or services to which it relates; and
(b) the maximum amount to which the Authority extends.
(3) Subject to Subsection (4), an Authority to Pre-commit Expenditure under Subsection (1) authorizes the execution, in accordance with and subject to compliance with the procedures specified in this Part, of a contract for the purchase of property or stores or for the supply of goods and services specified in the Authority to the extent of an amount not exceeding the maximum amount specified in the Authority.
(4) A contract under Section 47 shall not be entered into unless –
(a) an Authority to Pre-commit Expenditure under Subsection (1) relating to the contract has been issued; and
(b) all other requirements of this Part relating to the contract have been complied with”.
24. Section 47C states:
“47C. CERTAIN CONTRACTS NULL AND VOID.
(1) In this section –
“Authority to Pre-commit Expenditure” means an Authority to Pre-commit Expenditure issued under Section 47B;
“Integrated Local Purchase Order and Claim (ILPOC)” means Financial Form 4A – Integrated Local Purchase Order and Claim issued in accordance with the Financial Instructions.
(2) A contract for the purchase of property or stores or for the supply of goods or services entered into, or purported to have been entered into, by or on behalf of the State, in respect of which purchase of supply no Authority to Pre-commit Expenditure has been issued or no Integrated Local Purchase Order and Claim has been issued, is null and void.
(3) The provisions of this section apply in respect of contracts entered into, or purported to have been entered into, or purported to have been entered into, by or on behalf of the State, on or after 1 March 2003”.
25. Section 47D states:
“47D. CLAIM AGAINST STATE NOT ENFORCEABLE IN CERTAIN CIRCUMSTANCES.
(1) In this section –
“Authority to Pre-commit Expenditure” means an Authority to Pre-commit Expenditure issued under Section 47B;
“Integrated Local Purchase Order or Claim (ILPOC)” means Finance Form 4A – Integrated Local Purchase Order or Claim issued in accordance with the Financial Instructions.
(2) A claim for the price arising from the sale of property or stores or for the supply of goods or services to the State shall not be enforceable, through the courts or otherwise, unless the seller of the property or stores or the supplier of the goods or services produces –
(a) an Integrated Local Purchase Order or Claim (ILPOC); or
(b) an Authority to Pre-commit Expenditure,
relating to the property or stores or goods or services, the subject of the claim, to the full amount of the claim.
(3) The provisions of this section apply where the property or stores were purported sold to the State or the goods or services were purportedly supplied to the State on or after 1 March 2003”.
26. The related provision is Section 2A of the CB&AS Act which states:
“2A. Claim against the State not enforceable in certain circumstances.
(1) In this section —
"Authority to Pre-commit Expenditure" an Authority to Pre-commit Expenditure issued under Section 47B of the Public Finances (Management) Act 1995;
"Integrated Local Purchase Order and Claim (ILPOC)" means Finance Form 4A—Integrated Local Purchase Order and Claim issued in accordance with the Finance Instructions under the Public Finances (Management) Act 1995.
(2) A claim for the price arising from the sale of property or stores or for the supply of goods or services to the State shall not be enforceable, through the courts or otherwise, unless the seller of the property or stores or the supplier of the goods or services produces—
(a) a properly authorized Integrated Local Purchase Order and Claim (ILPOC); or
(b) an Authority to Pre-commit Expenditure,
relating to the property or stores or goods or services, the subject of the claim, to the full amount of the claim.
27. In short and in the context of this case, Section 47B(1)(a) provides for an Authority to Pre-commit Expenditure Claim (APCE) and the Departmental Head of the Department of Finance may issue to a Departmental Head an APCE where the proposed expenditure exceeds K100,000.00 for provision of services.
28. In a case where the proposed expenditure does not exceed K100,000.00 Section 47B(1)(b) provides that the Departmental Head of the Department of Finance may issue an APCE and authorise the Departmental Head of the Department to enter into the contract for supply of services.
29. By Section 47C a contract for services is null and void if no APEC has been issued or an Integrated Local Purchase Order and Claim (ILPOC) has been issued.
30. Section 47D provides that no claim for provision of services to the State is enforceable through the Courts or otherwise unless the supplier of the services produces an APCE and ILPOC for the full amount of the claim.
31. Finally, Section 47D is replicated in Section 2A of the CB&AS Act, to reinforce the notion that a claim for provision of services without an APCE and ILPOC is not enforceable in Court or otherwise.
32. In the case of the first contract, it is noted that the value of the contract exceeded K100,000.00. Thus, it is necessary for the plaintiffs to produce an ILPOC and APCE forms from the Departmental Head of the Department of Education to comply with Section 47B(1)(a) and for there to be an enforceable contract.
33. Similarly, in the case of the second contract, it is noted that the value of the contract exceeded K100,000.00. Thus, it is necessary for the plaintiffs to produce an ILPOC and APCE forms from the Departmental Head of the Department of Education to comply with Section 47B(1)(a) and for there to be an enforceable contract.
34. It is the finding of the Court that the plaintiffs have not produced an APCE and ILPOC forms issued by the Departmental Head of the Department of Finance to the Departmental Head of Department of Education. In the absence of an APCE and ILPOC and by virtue of Sections 47B, 47C and 47D and Section 2A above, it is the further finding of the Court that the contract is null and void and unenforceable. See also Jhelson Ray trading as Bara Construction v. Timothy Numara & The State (2018) N7380 and followed in Glennel G Mari trading as Wani Connection v. Timothy Numara & The State (2019) N8089.
Quantum Meruit/Unjust Enrichment
35. However, it is open to the plaintiffs to seek damages for the actual services rendered, or work performed under the principles of quantum meruit and unjust enrichment. The Courts have long recognised that a genuine service-provider to the State must not be left without a remedy but be given something in return for actual services rendered or work performed to the State, even though the contract is void. See Fly River Provincial Government v Pioneer Health Services Ltd (2003) SC705.
36. In, Seken Kewa t/a Kopiam Hire Cars v Minister for Community Development & Ors (2019) N7753 the plaintiff sued the defendants for breach of contract for provision of hire car services. Services were rendered, invoices were rendered but were not settled. Judgment on liability was entered with damages to be assessed on the principle of unjust enrichment after a trial. Thereafter, in Seken Kewa t/a Kopiam Hire Cars v Minister for Community Development & The State (2022) N9421, damages were awarded based on the actual services rendered from the sum stated in the invoices.
37. In Seken Kewa v. Minister for Community Development & The State (2019) N7753 the National Court applied the Supreme Court decision in Fly River Provincial Government v. Pioneer Health Services Limited (supra) and held that on the principle of unjust enrichment, it would be unjust to allow the defaulting party not to pay for the services rendered by the aggrieved party if it can be established that:
(a) the defaulting party has been enriched by the receipt of a benefit,
(b) the defaulting party has been enriched at the aggrieved party’s expense, and
(c) it would be unjust to allow the defaulting party to retain the benefit.
38. There is no evidence that the plaintiffs were not an innocent party or that they were aware that they needed to comply with the statutory procurement procedure in Sections 47B-D and Section 2A above but avoided it. On the other hand, it is the further finding of the Court that the defendants invited the plaintiffs to undertake the work under each contract which they did and successfully completed without any objection or dissatisfaction from the defendants.
39. Moreover, the plaintiffs performed the two contracts and were advised that they would be paid and were paid or received a sum of K299,000.00 as part-payment for the first contract but the defendants failed to pay the balance of K1,151,000.00. As to the second contract, there is no contest as there is overwhelming evidence that works was done and completed. However, the defendants failed to pay the sum of K292,538.00 due under the contract. Above all, the defendants benefited from the provision of services by the plaintiffs and should not be permitted to unjustly enrich, themselves.
40. In the circumstances, the plaintiffs are entitled to be paid for the unpaid claim under the principle of unjust enrichment for the first contract in the sum of K1,151,000.00 and for the second contract in the sum of K292,538.00. The total sum due and payable is K1,443,538.00. Judgment on liability is entered against the defendants in the total sum of K1,443,538.00.
Interest
41. Next, given that the State is a party and vicariously liable for the breach of contract, there shall be an award for pre-judgment and post-judgment interest at the rate of 2% based on Section 4(1) and Section 6(1) of the Judicial Proceedings (Interest on Debts and Damages) Act, 2015. Accordingly, interest is awarded at the rate of 2% on the total judgment sum of K1,443,538.00 from the date of issue of writ to summons to date of judgment and until final settlement.
Costs
42. Finally, there will be an order for costs of the proceeding in favour of the plaintiff, to be taxed, if not agreed.
Order
43. The orders of the Court are:
5. Time shall be abridged.
________________________________________________________________
Lawyers for plaintiffs: Fydan Lawyers
Lawyers for second to fifth defendants: Solicitor General
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