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Reservation Pursuant to Section 15 Supreme Court Act [2001] PGSC 8; SC672SCRNo1of1998 (8 November 2001)

SC 672

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

SCR NO. 1 OF 1998

RESERVATION PURSUANT TO SECTION 15 OF THE SUPREME COURT ACT

WAIGANI : AMET CJ, LOS, SHEEHAN, SALIKA, & SAKORA JJ
1999 : 23 MARCH
2001 : 8 NOVEMBER

SUPREME COURT ACT – Section 15 – Reservation for the opinion of the Court – Differing opinions by the Court – Whether "the State" includes the Provincial Governments.

CONSTITUTION – Provincial Governments – Whether part of Governmental Body constituting the Independent State of Papua New Guinea.

Issue: Whether the term, "the State" in Section 13(1) of the Claims By & Against the State Act 1996 includes a Provincial Government, for the purposes of any suit, execution or attachment or a process in the nature of execution, or attachment against a Provincial Government.

Held: The term, "the State" also includes a Provincial Government.

Counsel:
J Kwimberi, for the Plaintiff.
J Kawi, for the Defendants.

9 November 2001

BY THE COURT: The National Court has referred the following question, pursuant to s. 15 of the Supreme Court Act, for the opinion of the Court:

Does the term "the State" in Section 13(1) of the Claims By and Against the State Act 1996 includes a "Provincial Government" as defined in the Organic Law on Provincial and Local-Level Government?

This became necessary as a result of the following differing opinions by the National Court. In 1995, in Pato v. Enga Provincial Government [1995] PNGLR 469; Kapi DCJ ruled that the term "the State" in s. 6(1) of the Claims By and Against the State Act (the former Act) does not include a "Provincial Government". In 1996, the former Act was repealed and replaced by the Claims By and Against the State Act 1996, (the Act).

The terms of s. 6(1) of the former Act was retained in s. 13(1) of the Act, which states that:

In any suit, execution or attachment, or process in the nature of execution or attachment, may not be issued against the property or revenue of the State.

In 1997, in Pupune v. Makarai & Ors, N1647, Injia J ruled that the term "the State" in s. 13(1) does include a "Provincial Government". Subsequently, in 1998 in Ruta & J Menanike v. Eastern Highlands Provincial Government, Sawong J followed the opinion of Kapi DCJ.

The judgment creditors in Pupune v. Makarai & Ors, applied to Injia J for leave to issue garnishee notice against the bank accounts operated by the Eastern Highlands Provincial Government, asking His Honour to reconsider his earlier decision. His Honour consequently referred the issue for the opinion of this Court.

The judgment creditor submitted that the opinions of Kapi DCJ and Sawong J correctly state the law and should be affirmed; that is that the term "the State" in s. 13(1) of the Act does not include a "Provincial Government" as defined in the Organic Law. He submitted that as a creature of the Organic Law the Provincial Government is a separate legal entity from the State, which means the Independent State of Papua New Guinea as defined by the Interpretation Act. It was submitted that apart from some political and administrative control from the National Government, the Organic Law vested a Provincial Government with full capacity as a separate governmental body. It had legal capacity to sue and be sued in its own name, powers to acquire, hold and dispose of property and to make laws to run its own affairs. In such a situation, it was submitted, there can be no ambiguity that s. 13(1) is not intended to apply to Provincial Governments.

The State submitted that the term "the State" included Provincial Governments. This was so because the properties and funds, the subject of enforcement proceedings, are public assets owned by the people of Papua New Guinea themselves. The State suggested that the test as to whether Provincial Governments are part of the State for the purposes of s. 13 is not whether Provincial Governments are so defined, but rather the degree of political and financial control the National Government exercised over them.

It was submitted that whilst an elaborate political and administrative system is established for Provinces, there is a high degree of National Government control through the relevant Ministers over the affairs of Provincial and Local Level Governments. For instance the provincial Governor is constitutionally responsible to the Minister responsible for Provincial and Local Governments. The National Government also controls the Provincial and Local Government through the powers of suspension and withdrawal of powers under Part VI A of the Constitution and the Organic Law. The National Government also controls the administrative system by retaining the power to appoint Provincial Administrators.

The principal source of the funds for the Provincial and Local Level Governments is through the various grants under the Constitution from the National Government which it can control. For instance the National Executive Council can withdraw financial powers of a Provincial and Local Level Government, and Provincial Government budgets are also subject to approval of the National Minister for the Finance before it is implemented. The provincial government funds are therefore public funds and are subject to the prohibition imposed by s. 13 of the Act.

In Rimbink Pato v. Enga Provincial Government (supra) Kapi DCJ held that, for the purposes of Claims By and Against the State Act, the term "the State" means the National Government or an arm, department, agency, or instrumentality of the National Government, and that this did not include a Provincial Government. He concluded that therefore any suit, execution or attachment, or process in the nature of execution or attachment may be issued against the Provincial Government.

His Honour found also that because Enga Provincial Government passed the Legal Proceedings By and Against the Provincial Government Act 1978 which provides for the manner in which the Provincial Government may sue and be sued but made no provision prohibiting, in any suit, execution or attachment or a process in the nature of execution or attachment, issuing it.

In Pupune & Ors. v. Ubum Makarai and PNGBC, Injia J declined to follow Kapi DCJ. His Honour held that in the absence of a definition of the term "the State" in the Claims By and Against the State Act, the definition of "the State" in the Interpretation Act as "the Independent State of Papua New Guinea" should apply. His Honour held that the term "the State" or "the Independent State of Papua New Guinea" meant the "government" of Papua New Guinea. His Honour concluded that the collective governing power of the people of Papua New Guinea is vested in their duly elected representatives who comprise the two forms of government; the national and the provincial. His Honour concluded that the term "the Independent State of Papua New Guinea" should be read liberally and fairly to mean all forms of government established under the constitution, which include the National, Provincial and Local Level Governments.

In relation to the power to acquire and hold property or receive and generate revenue, both the National Government and Provincial Governments have legal ability. The property that they acquire and hold, revenue that they generate and expend ultimately belongs to the people of Papua New Guinea and it is appropriate that they be protected.

Subsequently, in Ruta v. Eastern Highlands Provincial Government, Sawong J had a similar application by the judgment creditor for leave to issue execution against the accounts of the Eastern Highlands Provincial Government. The Provincial Government claimed protection under s. 13(1). Both the decisions of Kapi DCJ and Injia J were referred to His Honour. His Honour decided to follow the opinion of Kapi DCJ.

The Constitution does not define "the State", but it defines the name "Papua New Guinea" to mean "the Independent Sate of Papua New Guinea". The Constitution also defines "governmental body" to mean –

(a) the National Government; or
(b) a provincial government body; or
(c) an arm, department, agency or instrumentality of the National Government or a provincial body; or
(d) a body set up by statute or administrative act for governmental or official purposes.

The Claims By and Against the State Act 1996 does not define "the State". The Interpretation Act defines "the State" as "the Independent State of Papua New Guinea." A provincial government is thus at least a "governmental body". Is it a part of "the State"? Is it a part of the governmental body making up the "Independent State of Papua New Guinea?" We believe it is and therefore it’s assets and finances must be protected from execution in the same way as the assets and finances of the National Government. The State therefore must also include a provincial government.

The policy justification for protecting state assets and finances was discussed briefly by Sheehan J in Wagambie and Kupo v. General Rockus Lokinap and Ors. [1991] PNGLR 145. In a motion seeking orders for payment into court of a judgment debt against the State and summons seeking to examine the Secretary for Finance as to availability of funds to meet the judgment debt, His Honour held that s. 6 of the Act was clear, that no execution or like process can issue against the State. His Honour said:

"Why should this be so? Why is the State exempt form execution process? Essentially it is because the State of PNG is a sovereign nation, endowed with the power of its people and, as the Constitution states, resolute in maintaining its national identity, integrity and self-respect.

While the State can sue and be sued in the courts established under the Constitution it, nonetheless remains a sovereign State representing the whole of this country’s people. It is part of the State’s integrity to accept the judgements of the Court created under the Constitution. But the dignity of a sovereign nation does not permit or require that it be subject to examination in the courts as to its means or ability to pay judgement debts. The Claims By and Against the State Act confirms that".

We believe these principles apply equally to a provincial government because it is a part of the governmental body that makes up the government of the Independent State of Papua New Guinea. We agree generally with Injia J’s opinion that the total governmental system includes the National, Provincial and Local-Level Governments. In our opinion there are in fact three levels of political governments intended; the National, Provincial and the Local-Level. All three are established by the Constitution. Each is constituted by elected representatives.

A Provincial Government is established by the Constitution under s. 187A. When the Constitutional Amendment was made, it was inserted as Part VI A after Part VI which deals with the structure of the National Government. It is instructive in determining the status of a provincial government to examine the degree of autonomy it has and the nature of control the national government exercises over it, in political, administrative and financial matters.

The provincial assembly or legislature is constituted by all the Members of the National Parliament representing electorates in the Provinces and heads of local level governments in the Province. The head of the Provincial Government is the Governor who is the National Member of Parliament representing the Provincial Electorate. Whilst an elaborate political and administrative system is established for Provinces, there is a high degree of National Government control through the Minister for Provincial and Local-Level Government, Minister for Finance and Treasury, the National Executive Council and the National Parliament.

For instance, under s. 22 of the Organic Law, the Governor of a province is constitutionally responsible to the national Minister responsible for provincial and local-level government matters although he is politically responsible to the Provincial Assembly for the overall development and good government of the province. The National Government also controls the Provincial and Local-Level Governments through a very elaborate system of suspension of the Provincial and Local-Level Governments, under Part VI A of the Constitution and Division 9 of the Organic Law. The National Government has also retained the power to appoint Provincial Administrators and District Administrators.

Provincial Governments also have limited financial autonomy. The principal sources of Provincial Government funds are provided by the National Government through the various forms of financial grants and assistance specified under Ss. 91 and 95A of the Organic Law. They are:

(a) Administrative Support Grants – s.92;
(b) Development Grants – s.93;
(c) Town and Urban Services Grants – s.94;
(d) Other Complimentary Support Grants – s.95;
(e) District Support Grants – s. 95A; and

(f) Economic Grants – s. 97.

These financial grants are guaranteed annually through the national budget and administered and disbursed by the National Government to the Provincial and Local-Level Governments in accordance with the Public Finance (Management) Act.

Under s. 51 of the Organic Law, where a Provincial Government or a Local-Level Government refuses or fails to comply with a direction issued by the National Executive Council to rectify any matter pertaining to the government or management of the Provincial Government, the National Executive may:

(a) withdraw all or any of the powers of; or
(b) withdraw and withhold all or any finances to; or
(c) withdraw all or any of the powers and functions of, and withdraw and withhold all or any finances to,

the Provincial Government or the Local-Level Government, as the case may be. The Provincial Government budget is also subject to the approval of the National Treasurer before it is implemented. The principal source of funding for the Provincial and Local-Level Governments is the grants from the National Government through the national budget. These are public funds which ought and should be protected from execution process in the same way as funds and assets of the National Government. They are funds and assets that belong to the same people that constitute the Independent State of Papua New Guinea, represented by the next political level government.

We are of the opinion therefore that a provincial government is a "governmental body" making up the Independent State of Papua New Guinea for the purposes of the Claims By and Against the State Act. The power of the people is vested in all "governmental bodies" which administer and exercise them on behalf of the people. These governmental bodies include "the National Government", "a Provincial Government", "an arm, department, agency or instrumentality of the National Government or a Provincial Government" or "a body set up by statute or administrative act for government or official purposes". This power is exercised by these "governmental bodies" on behalf of the same people. The finances administered by a Provincial Government, is for and on behalf of the same people. The National Government administers the National Government funds and assets.

In principle therefore the assets and funds administered by the Provincial Government belong to the same people of Papua New Guinea that the Claims By and Against the State Act protects from execution. The term ‘State’ therefore includes Provincial and Local–Level Governments for the purposes of the Act.

It is to be remembered that this protection does not apply to assets and finances of developmental enterprises of provincial governments that have independent corporate statuses and operate commercially. They are subject to the ordinary laws as corporate citizens. However any profits these developmental enterprises contribute to the provincial budgets become assets belonging to the people and they are also protected from execution processes. In like manner, any tax revenue generated under delegated legislative authority becomes state finances and is protected.

Like judgments against the National Government such judgment debts are recoverable from provincial governments from moneys properly allocated in the provincial budgets for meeting its debts.
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Lawyer for the Plaintiff: Paulus Dowa Lawyers
Lawyer for the Defendents: Solicitor General