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Supreme Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]
SCA No. 73 of 2000
BETWEEN:
FLY RIVER PROVINCIAL GOVERNMENT
-Appellant-
AND:
PIONEER HEALTH SERVICES LIMITED
- Respondent-
WAIGANI: AMET, CJ., SAWONG, KANDAKASI, JJ.
2001: 9th & 23rd April
2003: 24th March
APPEALS – PRACTICE & PROCEDURE – A party seeking to raise arguments on appeal not raised in the Court below – In fairness, a party is obliged to raise all the relevant issues and or arguments that should be raised in the Court below first – A failure to do so precludes such a party from raising it on appeal.
LAW OF CONTRACT – Contract governed by Statute - Contract for provision of service with a provincial government – Tender and ministerial approval under the Public Finance (Management) Act 1995 not complied with – Contract amounted to an illegal and void contract – Contract is null and void – Restitution is only remedy available for part performance and to avoid unjust enrichment provided the private contracting party is innocent.
Terms of contract – Construction of – Fair and liberal approach appropriate so as to give effect to agreement of the parties – Court not there to destroy agreement of parties – Court can supply missing terms and or strike out meaningless clause or words in a contract - Whether price uncertain in present case – Machinery to ascertain price certain - No basis to find contract void for uncertainty.
Facts
The National Court dismissed an action by the Appellant seeking to declare a contract between itself and the Respondent void. The Appellant’s action was on the basis of non-compliance of tender and ministerial approval requirements under the Public Finance (Management) Act 1995 (PF(M)A or the Act) and uncertainty in its price. The contract was part performed and paid for but the Appellant could not make any payments on further invoices due to lack of funds or its inability to secure the necessarily funds to complete the contract.
Held
Papua New Guinea Cases Cited:
Yama Security Services Limited v. Motor Vehicle Insurance (PNG) Trust Ltd (unreported judgement).
The State v. Keboki Business Group Incorporated & Morobe Provinsel Gavman [1985] PNGLR 369.
Visvanathan Subendranathan v. The State (unreported judgement delivered 27/10/99) SCA 106 of 1998.
Motor Vehicle Insurance (PNG) Trust v. John Etape [1994] PNGLR 596.
Motor Vehicles Insurance (PNG) Trust v. James Pupune [1993] PNGLR 370.
Sylvanus Gorio v. National Parks Board [1982] PNGLR 364.
Panga Coffee Factory Pty Ltd v. Coffee Industry Corporation Limited (unreported judgement) SC619.
Jack Patterson v. National Capital District Commission (05/10/01) N2145.
Inakambi Singorom v. John Kalaut [1985] PNGLR 238.
PLAR No. 1 of 1980 [1980] PNGLR 326.
Norah Mairi v. Alkan Tololo & Ors [1976] PNGLR 125.
The State v. Barclay Bros (PNG) Ltd (unreported judgement delivered 06/06/02) N2090
Rainbow Holdings Pty Ltd v. Central Province Forest Industries Pty Ltd [1983] PNGLR 34.
Putput Logging Pty Ltd v. Ambalis [1992] PNGLR 159.
Open Bay Timber Pty Ltd v. The State [1993] PNGLR 249.
Tian Chen Limited v. The Tower Limited (N0.2) (unreported judgement delivered 20/01/03) N2319.
Ombudsman Commission Investigations of the Public Prosecutor [1978] PNGLR 345.
Independent State of Papua New Guinea v. Barclay Brothers (PNG) Ltd (06/06/01) N2090.
Overseas Cases Cited:
Credit Suisse v. Allerdale BC [1996] All ER 129.
Cowan v. Mibourn [1848] EngR 492; (1867) L.R. 2 Ex 230).
Liverpool Borough Bank v. Turner (1860) 2 D.F. & J 502.
St John Shipping Corp. v. Joseph Rank Ltd [1957] 1 Q.B. 267 at page 316.
Wade v. Gold Coast City Council (1971) 26 LGRA 349.
Westdeutsche Bank v. Islington LBC [1996] UKHL 12; [1996] AC 669.
Scammel & Nephew Ltd v. Ouston [1941] AC 25.
Hillas (W.N.) and Co. Ltd v. Arcos Ltd [1932] UKHL 2; (1932) 38 Com. Cas 23.
York Air Conditioning and Refrigeration (A/asia) Pty Ltd v. Commonwealth (1949) 80
Upper Hunter County District Council v. Australian Chilling and Freezing Co. Ltd [1968] HCA 8; (1968) 118 CLR 429.
Life Insurance Co of Australia Ltd v. Philips [1925] HCA 18; (1925) 36 CLR 60 at page 72.
Whitlock v. Brew [1968] HCA 71; (1968) 118 CLR 445 at page 461.
Counsel:
Mr. I. Molly for the Appellant
Mr. G. Toop for the Respondent
BY THE COURT: This is an appeal from a decision of the National Court given on 5th December 2000. By an originating summons, (O.S. 155 of 1999) the Appellant (FPG) applied for orders in the form of a declaration that an alleged contract between the parties made on 16th January 1998 (the contract) was void. Two grounds were advanced for the application. First, it is void for failure to comply with the Public Finances (Management) Act 1995 (the PF(M)A or the Act). Secondly and or in the alternative that, it is void for uncertainty. That application was dismissed resulting in this appeal.
Arguments and decision of the National Court
Two provisions of the PF(M)A were relied on to support the FPG’s argument that the contract is void and unenforceable. Firstly it argues that, there was a failure to call for public tenders for works or services as required under s.59 of the Act. Secondly, there was a failure to obtain ministerial approval of the contract under section 61 of the Act.
In relation to the second and or alternative ground, the FGP argued that the contract was bad for uncertainty in the contract price because that could not be easily ascertained.
The learned trial judge in dismissing the FPG’s application decided that the issue of obtaining approval under the PF(M)A was not "unsolvable". He was of the view that, it is an issue between the Provincial Government and the Minister for Finance. Then he made reference to a decision of Sevua J in Yama Security Services Limited v. Warupi & Motor Vehicle Insurance (PNG) Trust Ltd (unreported, and unnumbered judgement) W.S. 225 of 199 and said, it was a matter of "fairness and justice". No mention was made of the failure to call tenders as required by s.59 of that PF(M)A.
Arguments before this Court
The FPG argued that the learned trial judge erred in not granting the relief sought for two reasons. Firstly, the case is mainly one of interpretation and the application of the clear wording of the PF(M)A. It was also argued that the Respondent (PHS), without reliance on the agreement, which contravenes the PF(M)A, can address any unfairness through alternative claims. The failure to comply with the requirements of the Act rendered the contract void and unenforceable. Further it was argued that, there is no issue concerning the applicability of the provisions of the Act to the contract.
Secondly, and in the alternative, the FPG argued that the learned trial judge erred in failing to find the contract is bad for uncertainty, particularly because of uncertainties in ascertaining the agreed price.
On the other hand, PHS argued that, the FPG abused the process of the National Court by filing OS. 155 of 1999. The FPG should have, filed and served a defence and raise the issues it raised in OS. 155 of 1999 under the proceedings it brought against the Appellant. For the substantive appeal, PHS argued that the National Court did not fall into any error. This was because, the duty to ensure compliance of the PF(M)A rested with the FPG. Therefore a failure to ensure compliance should not operate against it. It argues in any event that, the issues presented here were authoritatively decided in The State v. Keboki Business Group Incorporated & Morobe Provinsel Gavman [1985] PNGLR 369 and Visvanathan Subendranathan v. The State (unreported and unnumbered) SCA 106 of 1998, delivered27/10/99. Based on these cases, PHS argues that, the failure to comply with the requirements of the PF(M)A does not render the contract void.
In relation to the uncertainty in the contract price, PHS argued that the relevant terms of the contract are certain as the essential elements of that aspect of the contract are certain and as such the learned trial judge correctly rejected the FPG’s argument.
The arguments give rise to a number of issues. These are:
Relevant facts
The relevant facts from which these issues arise are not in dispute. The parties entered into a written contract on 16th January 1998 for supply and provision of mobile medical and consultancy services to the people of the Western Province. Mr. Makmop, then Governor off that Province signed the contract on behalf of the FPG. That followed negotiations of the terms of the contract between the former Governor, Mr. Dere Wamaro and later Mr. Makmop. Neither a public tender was called for and considered in accordance with s.59 of the PF(M)A, nor was approval under s.61 of that Act sought and granted.
The contract was for 5 years and the agreed price was K3 million annually, payable quarterly in advance plus any variation or extension to the contract at commercial rates.
In pursuance of the contract, PHS established on Stuart Island Tapilla, a medical team. The team comprised of a qualified medical doctor, 3 health extension officers and 3 nurses who conducted medical patrols, medical educations and other programs such as vaccinations and treatments and referral of patients to Daru Base Hospital. It also supplied two dinghies, medical kits, and vaccines, patrol boxes, eskies, deep freezers and other items for the provision of the required services. It further provided a Piper Chieftain fixed wing ten seater aircraft for medical evacuation and humanitarian flights, a fully fitted Bell Helicopter, three barges and four support boats and six fibre glass boats.
PHS issued invoices to the FPG for services rendered. On 4th February 1998, the FPG made a payment of K750, 000.00 followed by two subsequent payments totaling K180, 000.00. Apart from these payments, the FPG fell into substantial arrears and made payments on an irregular basis. Despite that, PHS continued to provide the services. The FPG sought financial assistance from the National Government without success. Eventually it became clear that, the FPG could not make any further payments. So on 27th January 1999, PHS suspended further performance of the contract.
By 1st March 1999, PHS issued a writ of summons against the FPG seeking to recover sums in excess of K1 million which were due and owing. After it was served with the writ of summons, the FPG Responded with the issuance of OS. 155 of 1999. On the basis of those proceedings the FPG successfully sought a stay of the PHS’s proceedings and the parties proceeded with a hearing of the FPG’s proceedings. PHS did not take any issue on the propriety of the steps taken by the FPG. It is raising issues on this for the first time in this appeal. This leads me to consider the first issue of whether the issue of the FPG’s proceedings was an abuse of process.
Whether the issue of the FPG’s proceedings was an abuse of process?
It is settled law that, unless a party has raised an issue in the court below, he is not at liberty to raise it on appeal. There are many authorities on point. An example of that is Motor Vehicle Insurance (PNG) Trust v. John Etape [1994] PNGLR 596 at p. 599 which followed and reaffirmed an earlier decision of the Supreme Court in Motor Vehicles Insurance (PNG) Trust v. James Pupune [1993] PNGLR 370 at pp. 374 to 775.
In the present case, the PHS had the opportunity to raise this issue in the National Court. It did not make use of that opportunity. Instead it participated in the hearing on the main issues presented. A determination has been made on the issues presented. The FPG is not happy with the decision of the National Court and it has lodged this appeal. In an attempt to defeat the FPG’s appeal without a consideration of the merits of the appeal, the PHS is now raising an argument it failed to raise in the Court below. This argument is highly technical and in any event most unfair especially when in fairness it was not raised in the court below.
In any case, we are of the view that the issues raised in the FPG’s argument could have been raised as a preliminary point if the parties wished, under the PHS’s action. The issues raised by the FPG’s action were determinative of the PHS’s proceedings. Logically therefore, it could have been a better approach for the parties to have those issues determined first by way of a preliminary issue. Then based on a determination of those issues, the PHS’s action could have been determined. Alternatively, it could have formed a part of the defence and therefore one of the issues for trial in the PHS’s action. Either way, the issues raised by the FPG could still have been raised.
For these reasons we would dismiss the abuse of process argument. This leads us to consider the other issues presented. We start with a consideration of the second and third issues together as they can be dealt with conveniently that way.
Effect of Non-compliance of Statutory Requirements and Past Decisions
Sections 59 and 61 of the PF(M)A are at the center of the first and second issues. They read in relevant parts as follows:
"59. Contracts for works and services.
(1) Subject to Subsection (2), tenders shall be publicly invited and contracts taken by a public body to which this Act applies for all works, supplies and services the estimated cost of which exceeds such sum as is specified in its constituent law or declared by the Minister.
(2) Subsection (1) does not apply to any works, supplies and services –
- (a) that are to be executed, furnished or performed by the State, or an arm, agent or instrumentality of the State approved by the Minister for the purposes of this subsection; or
- (b) in respect of which the public body certifies that the inviting of tenders is impracticable or inexpedient."
"61. Approval required for certain contracts.
(1) The provisions of this section apply to and in respect of all public bodies notwithstanding any provision to the contrary in any other law and notwithstanding and without regard to any exceptions, limitations, conditions, additions or modifications contained in any other law.
(2) Subject to Subsection (3), a public body shall not, except with the approval of the Minister, enter into a contract involving the payment or receipt of an amount, or of property to a value, (or both) exceeding –
- (a) K1000,000.00; or
- (b) In the case of a public body declared by the Head of State, acting on advice, by notice in the National Gazette, to be a public body to which this paragraph applies – K500,000.00.
It is important to note at the outset that s.48 provides that, notwithstanding any provision to the contrary, the provisions of the Act in question apply. The relevant part of that section is subsection (4), which reads:
"48. Application of this Part.
...
(4) Where any provision in this Part is stated to apply to all public bodies notwithstanding any contrary provision in any other law, then such provision shall apply, notwithstanding any provision to the contrary and notwithstanding and without regard to any exceptions, limitations, conditions, additions or modifications in any other law."
Sections 59 and 61 fall into the part s.48 (4) speaks of. The part is Part VIII, which commences with s.48 and ends with s.64 under the subheading "Public Bodies". Hence, there can be no room for any argument that the requirements of ss.59 and 61 apply to all contracts of the type spoken of in that part of the Act. We note, there is correctly no dispute on this.
Provincial and Local-level Governments are established by the Organic Law on Provincial Governments and Local-level Governments, and are public bodies within the meaning of the PF(M)A. Indeed the preamble to that Act provides that, the purpose of the Act is to provide for the management of public finances including that of Provincial and Local Level Governments. Again correctly, there is no contest that these provisions apply in the present case. What is in contested however, is the effect of non-compliance of those requirements.
The FPG argues that, it being a public body was required to meet the requirements of the Act but it failed to meet those requirements. Accordingly, it argues that the contract was illegal and hence void. Therefore, the contract is not binding on the FPG and as such, it should be set aside. Again, there is no dispute on that from the PHS. The only argument from the PHS is that the obligation to ensure its compliance rested with the FPG. As such, any non-compliance of that Act is of no consequence to the PHS as a private contracting party. It argues that, this position was authoritatively settled in its favour by this Court in The State v. Keboki Business Group Incorporated & Morobe Provinsel Gavman (supra) and Visvanathan Subendranathan v. The State (supra).
The contract involved payment by the Provincial Government of amounts exceeding well over K100, 000.00 and indeed K500, 000.00. There is also no dispute that the relevant amounts exceeded the amounts specified in s.61. Likewise, there is no dispute that no public tender was called for. Similarly, there is no dispute that no approval under s.61 was sought and obtained for the contract.
Since there were no tenders called for the supply of services to the PHS as required by s.59, and because the relevant minister did not approve the contract under s.61, the contract was an illegal contract. In other words, by reason of the failure of the parties to comply with the requirements of ss.59 and 61 of the Act, the contract is a prohibited contract.
But the PHS’s argument is to the contrary relying as it does on authoritatively decided by this Court in The State v. Keboki Business Group Incorporated & Morobe Provinsel Gavman (supra) and Visvanathan Subendranathan v. The State (supra).
The question to be resolved then is what, is the consequence that should follow from that? It is trite law that, an illegal contract or prohibited contract is null and void and is therefore unenforceable from the beginning: see G.H. Treitel, The Law of Contract, 5th Ed, Stevens & Sons 1979, pages 316 to 386. Bredmeyer J in Sylvanus Gorio v. National Parks Board [1982] PNGLR 364 at pages 368 to 369 correctly stated the law generally in relation to a contract with a public body outside its powers. His Honour said:
"I consider that the English Common Law on the powers of statutory corporations is apposite and applicable to the circumstances of Papua New Guinea; indeed it is most important and highly desirable that bodies established by statute should not exceed the powers given to them by Parliament. The law is conveniently stated in Halsbury’s Law of England (4th ed.) Vol. 9, par. 1333:
‘The powers of a corporations created by statute are limited and circumscribed by the statutes which regulate it, and extend no further than is expressly stated therein, or is necessarily and properly required for carrying into effect the purposes of its incorporation, or may be fairly regard as incidental to, or consequential upon, those things which the legislature has authorised. What the statute does not expressly or impliedly authorise is to be taken to be prohibited.’"
A similar view was expressed by this Court in Panga Coffee Factory Pty Ltd v. Coffee Industry Corporation Limited (Unreported but numbered judgement delivered on 6 October, 1999) SC619. In that case, the appellant relied upon its own lack of power to enter into a contract to exempt the respondent from paying levies. At page 7 of its judgement the Supreme Court said:
"The Corporation is public authority with a power to deal in monies for which it has obligations to the members of the public engaged in the Industry. It can only enter into arrangements and contracts in accordance with its powers under its enabling legislation as referred to above. There was a clear lack of capacity to enter into the arrangement set out in clause 3 (a). See Credit Suisse v. Allerdale BC [1996] All ER 129."
In the case of Credit Suisse v. Allerdale (supra), the English Court of Appeal held that a contract of guarantee entered into by a local authority was void and unenforceable. Hobhouse LJ at page 165 said:
"Where a statutory corporation purports to enter into a contract which it is not empowered by the relevant statute to enter into, the corporation lacks the capacity to make the supposed contract. This lack of capacity means that the document and the agreement it contains does not have effect as a legal contract. It exists in fact but not in law. It is legal nullity. The purported contract which is in truth not a contract does not confer any legal rights on either party. Neither party can sue upon it."
Based on these authorities, Kandakasi J said in Jack Livinai Patterson v. National Capital District Commission (unreported judgement delivered 05/10/01) N2145, at page 13:
"... where a contract is prohibited by reason of not being made in accordance with the provisions of a relevant and applying legislation, there is no discretion whether to enforce it or not. It is simply void and unenforceable. Thus, it cannot be the law that the legislation sometimes depends on what is "fair" and it does not matter whether the public authority itself raises the issue of statutory non-compliance or not: see Panga Coffee Factory, (supra) at page 8."
Generally, a contract that goes against any clear public policy is null and void and is therefore unenforceable. Public policies are usually expressed in legislation. In most cases this is closely knitted to or if not, is the legislative intent behind whatever the legislation is.
It is also trite law in our jurisdiction that, all legislative provisions must be given their fair and liberal meaning so as to give effect to the legislative intent. There is a long list of cases on this. For examples of these, see Inakambi Singorom v. John Kalaut [1985] PNGLR 238 at 241, per Kidu CJ; PLAR No. 1 of 1980 [1980] PNGLR 326 and Norah Mairi v. Alkan Tololo & Ors [1976] PNGLR 125 at 136.
So what is the legislative intent behind ss. 59 and 61 of the PF(M) Act? In the Jack Patterson (supra) case, Kandakasi J considered these provisions and said this about their meaning at page 14:
"... going by the suggestion given by the name of the Act itself there can be no room for any doubt that the intent behind the Act is to control and manage the finances of the State, its arms, instrumentalities and any other public body. A quick perusal of the various provisions of the Act makes it clear that the Act is aimed at proper budgetary appropriations and spending according to budget. It is also to ensure the maintenance of proper records and accounts of public finances both in terms of incomes and expenditures. The sections in question are parts of that intend."
His Honour also discussed ss.58, 61, and 48(4) of the PF(M)A and concluded at page 15 that:
"These provisions were enacted, in my view to ensure transparency in all dealings with public authorities and persons or parties who is or are not the State, an agent of the State, or an arm or instrumentality of the State, approved by the Minister to provide the works, supplies or services. The benefits of these requirements is not only to ensure transparency but is more importantly, intended to ensure that all who are able to provide the kind of works, supplies or services under consideration are given the opportunity to get the best works, supplies and or services as the case may be, at the best possible price subject to its budget. A closed dealing may not necessarily provide for the best possible works, supplies and or services at a price that is reasonably justified and may facilitate fraud or corruption.
The intent therefore of Parliament in enacting these requirements of the Act, was in my view, to ensure that public authorities do not enter into contracts having monetary values that exceeded the limits set without first meeting the requirements for tender and approval of the Minister. In other words, Parliament by enacting the provisions of sections 59 and 61 of the Act, prohibited contracts over K100, 000.00 for some and K500, 000.00 for others with private persons with a public authority unless put through tender and approved by the Minister for Finance. It follows that, a contract that does not meet the tender and ministerial approval requirement is illegal and also because it goes against an important public policy in the vital area of public finance it is void and unenforceable."
In the end His Honour dismissed Mr. Patterson’s claim of K4.3 million in legal fees on the basis, inter alia, that, the requirements for public tender and approval under the PF(M)A were not met. Similarly, the Deputy Chief Justice, Sir Mari Kapi, held that a construction contract entered into with an agent of the State without complying with the PF(M)A was null and void in The State v. Barclay Bros (PNG) Ltd (unreported judgement delivered 06/06/02) N2090.
Both of these judgements came to this Court on appeal. The appeal in the Jack Patterson (supra) case was dismissed on a successful objection to competency of the appeal. The appeal against the judgement in the Barclay Bros (supra) case was also dismissed after a hearing on its merits. This Court upheld the National Court’s judgement in its judgement in The State v. Barclay Bros (PNG) Ltd (unreported judgement delivered 31/12/02). In so doing, it said at page 7 of its judgement:
"... a public body which includes the State cannot act or bind itself to act outside powers authorised by statute. It cannot extend its powers in contract for example by creating or attempting to condone an estoppel. Nor can any one purporting to act as an agent bind that public body to do what is by statute ultra vires. Nor again can a public body by acting through an agent avoid duties, responsibilities and or processes prescribed by statute. That is, statutory procedures must be given legal effect, otherwise anyone could with impunity enter such contracts with full knowledge of the contravention and yet insist the contract made is valid and enforceable."
We now deal with the two cases relied on by the PHS. In the first case, The State v. Keboki Business Group Incorporated & Morobe Provinsel Gavman (supra), this Court, on appeal from the National Court held that a contract for the provision of garbage and sanitary services entered into between Keboki Business Group and the State was binding on the State. In that case, the contract was not personally "executed" by the designated officer, Chairman of the National Tenders Board, but some body else did on his behalf after the Board had approved the tender and therefore the contract.
The Court, per Pratt J with whom Cory J agreed reasoned at page 373:
"I can find nothing in the Government Contracts Act, s 4, which either explicitly or by necessary implication required a personal signature from the chairman. Nor has any authority been cited for what I consider a totally unrealistic suggestion."
This was in response to an argument that, the contract was void because the chairman of the National Tenders Board had not personally executed the contract documents. Woods J expressed a similar view in these terms at pages 380 to 381 of the judgement:
... we do have evidence of his [chairman’s] participation in the offer and acceptance by his endorsement with his Board of their approval on the document of 20 April 1983. So how can it be said that he has not entered into a contract on behalf of the State.
We have the elements of a contract. We have an offer and acceptance and a consideration. ... The specific person within the Government who has the delegation for the amount involved has considered the offer and approved the acceptance of the offer so he must be held to have accepted for the State."
His Honour then added:
"I am reluctant to let a party with the advantage of complicated procedures take advantage of a minor emphasis of interpretation to avoid an obligation where the other party to the agreement has done everything correctly and been led to believe there was an agreement."
The Court referred to a number of overseas authorities and said, where a public authority enters into a contract with a private person, the court will strife to uphold the contract as having being made in due compliance of the relevant procedure. That is however, subject to evidence that may be produced to prove to the contrary. The Court also considered the position as analogous to the doctrine of estoppel, which would operate to prevent a public authority to raise a defence of lack of authority. Even then, the Court said, that was subject to there being no act which is ultra vires the authority’s powers and or illegal: per Pratt J at page 376 of the judgement. We consider these observation were obiter dictum only as the case was decided on the basis of the requirements of the relevant legislation being met.
In Visvanathan Subendranathan v. The State (supra), this Court also had on appeal a claim for breach of a written consultancy contract. The National Court dismissed the claim because it found that statutory law prohibited the contract.
The relevant Act being the PF(M)A and particularly s.40 of that Act. As noted earlier, that provision makes it mandatory for the State to call for public tenders before awarding contracts for the supply of goods and services to the State.
In unanimously upholding the appeal and quashing the trial judge’s decision finding the contract null and void, the Court at page 13 said:
"We are of the opinion that where a contract has been entered into between an individual or a corporate entity and the Independent State of Papua New Guinea represented by the appropriated delegated officer or institution such as the Head of State in this instance, upon advice of the National Executive Council, the State cannot purport to contend that the agreement was in breach of statutory provisions and thus invalid or illegal. The State is bound by actions, represented by the relevant officers or institutions."
That immediately followed a finding in the earlier parts of the same page that:
"The uncontested evidence from Mr. Bai showed that the State through its duly authorised servants or agents had followed the proper procedures allowed by law, the same laws the Respondent now relies to invalidate the Agreement."
The evidence was that, the appellant offered to provide free services to the State but the State through Mr. Bai opted to pay for his services. The contract went through various bodies including the Ombudsman Commission and the National Executive Council (NEC) and was approved. Then finally, upon the advice of the NEC, the Head of State signed the contract. In view of that, the Court said also at page 13:
"When, as in this instance, the highest constitutional institutions endorsed and signed the agreement, binding the State, it can safely be presumed to have been with full legal advice as to the validity and lawfulness of the contract."
The contract in that case had passed through the office of the Solicitor General obviously for appropriate legal advice and clearance before it got to the NEC. In view of that, the Court said "[t]he State cannot then seek to avoid liability by contending that it invalidly or unlawfully entered into the agreement." Therefore the court said:
"[t]he State simply has to assume the liability for the possible procedural irregularities on the part of its members. It cannot seek to deny responsibility for the liability incurred. It must deal with possible irregularities on institutional procedures internally and not seek to deny liability under agreements validly entered into."
These comments, as noted in this Court’s judgement in the Barclay Bros (supra) case, were only obiter dictum and in any case, relevant and correct only in the particular circumstances of the case itself. They are therefore of no general application.
Hence, the judgements in these two cases could authoritatively stand for the proposition that, as long as the requirements of the PF(M)A are met, a contract with the State or a public authority is valid. A contract would also be valid if it passes through the various authorities, it should go through for the purpose of the PF(M)A. The recent judgement of this Court in the Barclay Bros (supra) case, now makes it clear that all contracts with the State or a public authority must meet the requirements of the PF(M)A. These requirements can not be ignored or excused on the grounds of the parties’ ignorance of the requirements of the Act or that State or the public authority had failed to ensure compliance of all of the requirements of the Act. This is because the requirements of the Act is a public statement to Papua New Guinea and the world as to how the State and a public authority will deal with them for the provision of goods and services to the State and any other public authority. All parties contracting with the State or a public authority are thus, equally responsible to ensure compliance of the requirements of the Act. A non-compliance of the requirements of the Act renders a contract with the State or a public authority null and void and therefore unenforceable.
In this case, the National Court had no evidence of tenders being called for and considered by the appropriate tenders’ board. That was contrary to the requirements under s.59 of the PF(M)A. There was no evidence of proper and appropriate legal advice and clearance being sought and received either from FPG’s legal officer or the Solicitor General’s Office or any other lawyer. There was no evidence of any consultations between the Department of Finance and the FPG over the proposal to enter into the contract with the PHS. No approval as required under s.61 of the PF(M)A was sought and obtained for the contract.
The contract carried an annual financial commitment of K3 million, over 5 years adding to a total of K15 million, which was very substantial. From Mr. Marten’s evidence, it is clear that the contract was negotiated and concluded first with the then Governor of the Western Province, Mr. Dere Wamaro in 1996. He lost in the 1997 National Elections, and Mr. Norbert Makmop became Governor of the Western Province. The PHS pursued the matter with Mr. Markmop. There is no evidence of the contract being properly debated and approved by the Provincial Assembly (PA) or the Provincial Executive Council (PEC). More importantly, there is no evidence of what advice the PEC and PA received and accepted in relation to the tender and the Minister for Finance’s approval under ss. 59 and 61 of the PF(M)A. Similarly, there is no evidence of how the PEC and the PA voted to get around those requirements. There is no evidence of the PHS requiring the FPG to ensure these authorities addressed those requirements.
Mr. Martens, the proprietor of the PHS, claims in his evidence that he always ensured to comply with all relevant and applying law in Papua New Guinea for his business in the country after having come to the country in 1970. This means in the words of this Court in the Barclay Bros (supra) case at page 15 he and his company can be:
"... presumed to know the law and the realities of public statute controlling dealings with the State are readily ascertainable including just what assurances are necessary to establish validity of contracts.
Therefore they knew:
"For example a party contracting with the State for the supply (sic) goods and services will surely be aware of whether he is contracting pursuant to a tender process or not. He will also very easily learn of what evidence of exemption from the prerequisites of the tender process is necessary to confirm validity of his contract. And he will quickly ascertain from s. 47 of the Act the status of the official required to execute a valid contract on behalf of the State. ‘A contractor dealing with the Government is chargeable with notice of all statutory limitations on the powers of the public officers.’ R.v. Woodham 29 SCR 112, McKay v. AGBC 1922 1 AC 457."
If what the evidence reveals in this case is the way in which the PHS’s proprietor and his companies carried on business in the country, it runs contrary to their claim of always ensuring to comply with the requirements of the country’s laws. It was clearly in breach of an important requirement in the matter of public finances and securing public contracts. This is the kind of practice that facilitates corruption and abuse of set procedures and requirements intended to achieve transparency and good governance. If a party is not prepared, as in this case to independently ensure that all relevant and applying legislative and other requirements are met as a reasonable and prudent businessman or a person should, then the Courts and the law should not allow enforcement.
Consequently, the facts of the present case, are in our view, distinguishable from the cases the PHS says authoritatively determined the issues presented. The tender procedures were complied with in the The State v. Keboki Business Group Incorporated & Morobe Provinsel Gavman (supra), case with the relevant tender boards approving the contract. In the Visvanathan Subendranathan v. The State (supra), case though the requirements of the PF(M)A were not strictly met, the relevant officers had signed and or approved the contract. This included clearances and approvals from the Ombudsman Commission, the Solicitor General, and ultimately the NEC on which advice the Head of State signed the contract. There is no evidence of any of these things happening in the present case. The present case is one in which no step was taken to comply with the requirements of ss.59 and 61 of the PF(M)A, despite the substantial amounts of money involved.
It follows therefore that, the contract in the present case was a prohibited and hence amounted to an illegal contract to the extent that it failed to meet the mandatory requirements of PF(M)A. The contract went against the clear Parliamentary intent that all public works, supplies or services contracts should be secured through public tender with the approval of the Minister for Finance where the contract price exceeded the prescribed limits.
The failure to comply with these requirements, not only rendered the contract illegal and void but also made it difficult for the FPG to secure the required funds and or assistance from the National Government to discharge the FPGs obligations under the illegal and void contract. This is evidenced by a number of letters to National Departments and Ministers, which failed to secure a response and or funds the FPG required to met its illegal obligations. Also, by reason of the parties’ failure to ensure compliance of the requirements under ss.59 and 61, no provision could be properly made under the appropriate budgetary appropriations of the FPG and the National Government. As this Court noted in the Barclay Brothers case, PHS knew or had reason to know that the contract was illegal, null and void for non compliance of the requirements of the PF(M)A.
What then should be the consequence of this? PHS argues that, this should be of no consequence as against its right to enforce the contract. This is on the basis that, the duty to ensure compliance of those requirements rested with the FPG. Therefore, it argues that the FPG’s failure should not operate against its right to enforce the contract, which is otherwise valid. Effectively, PHS is arguing that the FPG is now prevented from pleading non-compliance after having failed to ensure compliance.
We make three observations. First, the argument goes against, the authoritative statements of the law as late as the judgement of this Court in the Barclay Bros (supra) case as already noted. In summary, the PF(M)A is a public statement to the those interested in doing business with the State or a public authority to comply with its requirements. That obligation is on both the State and a public authority and a private contracting party.
Secondly, it is trite law that an illegal contract cannot be enforced. Clearly, a guilty party to an illegal contract cannot enforce it (Cowan v. Mibourn [1848] EngR 492; (1867) L.R. 2 Ex 230). A person would be a guilty party to a contract for the purposes of not enforcing an illegal contract, where it fails to take steps it should have taken to protect its interest. This consequence follows even as against an innocent party. There is therefore, no such a thing as estoppel by conduct as against the need to put an end to an illegal contract. The judgement in Barclay Bros (supra) case, after having regard to a number of authorities made that clear in this way at page 16:
"But as for pleading illegality, it clearly is the law that the State or any party can repudiate a contract on grounds of its own illegality. This is simply because Courts must always ensure there is no impediment to the cessation of unlawful action and restoration of legality."
In the present case, we already said PHS and its proprietor, Captain Fred Arthur Martens was in a position to appreciate and know of the requirements of the nation’s laws in relation to million Kina contracts such has the one his company entered into with the FPG. He was hence well aware of requirement for all works, supplies and service contracts with the State or a provincial government or a public authority to pass through the tender and Minister for Finances’ approval requirements under the PF(M)A.
There is no evidence of PHS requiring and ensuring that its K15 million contract with the FPG which, is a public authority did meet the public tender and approvals by the Minister for Finance requirements under ss.59 and 61 of the PF(M)A. PHS could have applied for and obtained a certificate of impracticability or inexpediency under s.59 of the Act but did not do that. Further PHS could have, given its claim of having always complied with all the laws of Papua New Guinea, made the contract subject to approval under s.61 of the Act but was not done.
As we already said, if this is the way in which PHS’s proprietor and his companies carried on business in the country, it runs contrary to their claim of always ensuring to comply with the requirements of the country’s laws. It was clearly in breach of an important requirement in the matter of public finances and securing public contracts. If a party is not prepared as in this case to independently ensure that all relevant and applying legislative and other requirements are met as a reasonable and prudent businessman should then, the Courts and the law should not allow him to enforce his contractual rights.
Thirdly, it is also settled law that, where the requirements of a statute is considered not merely "directory" but "obligatory", a non-compliance of its requirements renders the contract null and void and is therefore unenforceable. This is often the accepted effect even though this effect is not specified in the legislation itself: see Liverpool Borough Bank v. Turner (1860) 2 D.F. & J 502. The law has been able to arrive at that effect by principally having regard to the object of the legislation in question. If upholding a contract would not offend against the object of the relevant and applying legislation, the contract may be upheld. If however, the opposite is likely to result then, the contract can not be up held: see St John Shipping Corp. v. Joseph Rank Ltd [1957] 1 Q.B. 267 at 316.
In this case, the requirements under ss.59 and 61 of the PF(M)A are mandatory. It obliges all public authorities to secure public works, supplies and service contracts through tender and if it exceeds the limits set under s.61 obtain the approval of the Minister for Finance. These requirements apply "notwithstanding any contrary provision in any other law". They are therefore very important public policy statements aimed at ensuring transparency in securing the best job for the best price in the awarding of contracts and proper control and management of public funds. As was already said by this Court in Barclay Brothers case at page 11 the Act in question:
" ... is a public act – not just a prescription for government officials on how to manage public accounts. It is the statement to Papua New Guinea and indeed to the world as to how the State will and must conduct its finances, and the procedures by which it will contract with citizens and non-citizens are like. It is a law of Papua New Guinea and all a persons whether private citizen, corporation or public official have a legal duty to comply with it."
Accordingly, a failure to meet these requirements renders the contract null and void and unenforceable. Hence, the contract in this case is null and void and is unenforceable for failing to meet these requirements. To hold otherwise is to allow for a total breach and offence against the intent and purpose of the Act.
In view of this, we find that the learned trial judge erred in his judgement. We also find that the case of Yama Security Services v. Warupi & Motor Vehicle Trust, WS. 225 of 1999, which was cited in support of his judgement cannot be of any assistance, for three main reasons. Firstly, that judgement with respect fails to note that the Supreme Court judgement in The State v. Keboki Business Group Incorporated & Morobe Provinsel Gavman (supra), Visvanathan Subendranathan v. The State (supra), cases were cases in which all the necessary legislative requirements and or procedures were met. The Yama case, did not meet the requirements of the PF(M)A. When that was the case, the correct consequence to follow was that, the contract was null and void and therefore unenforceable.
Secondly, the Yama case had no regard to the intent and or purpose of the requirements of s. 61 of the PF(M)A. If it did then, it would have arrived at the view that, upholding the contract would be contrary to the obligatory requirements of that Act.
Thirdly, the Yama case was determined on the basis of what the Court considered was fair and just. With respect, that judgement overlooked the fact that fairness and justice can only be arrived at in accordance with the law and not ones perception of what is fair and just. If the Courts were to decide according to their own perception of what is fair and just without regard to the relevant and applying law, there would be chaos, confusion and uncertainly in the rule of law. In order to be fair and just to all of the parties involved, a court of law must have regard to the conduct of the parties in relation to the steps they have taken to ensure compliance of the relevant and applying laws. If the conduct of a party to a contract is such that he failed to take steps to ensure compliance of any relevant statutory requirement or has indeed facilitated a breach of such requirements then, it would be fair, reasonable and justice not to allow him to benefit under the contract.
In the present case, we find that the learned trial judge erred in finding that the "issue should be between the provincial government and the Minister for Finance and not the Pioneer Health Services" and therefore the "issue of obtaining approval under the Act and the amount of money...are not unsolvable issue." The learned trial judge did not have any regard to the intent and purpose of the requirements of the s.59 and 61 within the context of the PF(M)A. With respect, the learned trial judge also failed to find that the requirements for tender and approval under that Act applied to the contract "notwithstanding any contrary provision in any other law". In so failing, the learned trial judge also failed with respect, to find that it was a question of either complying with the mandatory requirements of these sections and therefore have a legally enforceable contract or fail to comply and have no such contract. Since every reasonable and prudent businessman carries out what is normally known as "due diligence" before entering into any contractual commitments, it is only fair and just that such a persons’ failure to ensure compliance of statutory requirements should render the contract void. This would accord well with the intent and purpose of the Act.
We agree with FPGs submission that anyone contracting with a public body would know whether or not tenders had been called. Ss.59 and 61 of the PF(M)A were not enacted to protect persons dealing with public bodies. Instead they were intended to provide protection to the public by regulating amongst others the manner and extent to which public bodies may deal with monies they collect. In so doing, we do not accept the suggestion that these provisions impose public authorities such as the FPG responsibilities to call for tender and obtain the requisite approval under ss.59 and 61 of the Act, with no adverse consequence to follow if there is no compliance. It is up to each contracting party to see that the law is complied with. On accepted principles of statutory interpretation, contravention of ss.59 or 61 renders a contract invalid: Rainbow Holdings Pty Ltd v. Central Province Forest Industries Pty Ltd [1983] PNGLR 34.
The question then is, when does the invalidity or nullity take effect? Is it from the beginning of the contract or when the Court so finds and makes the appropriate orders? It is trite law that until a court declares a contract null and void, a contract is otherwise valid. This is where the concept of fairness and equity comes into play especially, in a case where the parties have begun to discharge their respective duties. It is trite law that an innocent party to an illegal or void contract would not be left without any remedy. In Wade v. Gold Coast City Council (1971) 26 LGRA 349 at page 351, the court referred to a claim based on a quantum meruit, that is, reasonable remuneration for work done. Recent cases in the United Kingdom, of which Credit Suisse v. Allerdale BC (supra) is one, dealing with borrowing powers of local governments, have led to claims and pronouncements of the law in respect of unjust enrichment: Westdeutsche Bank v. Islington LBC [1996] UKHL 12; [1996] AC 669. For PNG cases recognizing claims for unjust enrichment see Putput Logging Pty Ltd v. Ambalis [1992] PNGLR 159; Open Bay Timber Pty Ltd v. The State [1993] PNGLR 249.
A bona fide contractor who has provided services of value is not left without a remedy. There is no unfairness in upholding the legislation in such circumstances and allow an innocent party to recovery damages on a quantum meruit basis to avoid unjust enrichment by the other if the contract has been part performed.
Some authorities describe this principle as the right of restitution. The decision in the Barclay Brothers case discusses this at page 17 of the judgement as a right in equity to claim restitution for it lies outside the parameters of a contract. Such a right is not to enforce a contract but because justice and equity demands it. A party seeking restitution must be able to establish at the least that it is not responsible for or not an equal participant in the illegality. The converse of that is that restitution is not available to a party, which knowingly or cynically entered into an illegal contract. Thus where a Court finds willing participation in an illegal contract there will be no recovery.
In the present case, the contract was part performed and substantial costs and expenses were incurred. The issue of whether PHS was an innocent contracting party was not raised before the National Court and that Court did not determine the issue in any way. Hence, it is not an issue properly before this Court. Therefore, this Court is not the appropriate Court to determine that issue.
What is clear however, is that the FPG gained substantially from the part performance of the illegal contract in terms of goods and service to the people in its Province in the field of mobile health services. Invoices were rendered for goods and services supplied by PHS under the illegal contract and were part paid. No issue was taken on the non-compliance or otherwise of the provisions of the PF(M)A, until it became apparent that the FPG did not have the money or could not secure the necessary finance to meet the invoices in full and allow for a completion of the contract.
In these circumstances, we consider it inequitable and unfair that PHS should be left with no remedy subject to a determination of the issue of whether it is an innocent party to the illegal contract and what steps if any it took to ensure compliance of the requirements of the PF(M)A . We consider the provisions of section 155(4) of the Constitution are wide enough to enable this Court and the National Court to do what is equitable in the circumstances to do justice. A failure to do so will sanction an unjust enrichment by the FPG in terms of goods and services it has received from PHS which have not yet been paid for in full. We therefore, consider it appropriate that PHS should be allowed to proceed with its claim against the FPG seeking a recovery of the costs and expenses it has incurred but only for the part performed of the illegal contract for which it has not been paid in full. This is conditional on PHS establishing by appropriate evidence that it is innocent of the breaches of the PF(M)A and that it did what it could to ensure compliance of the Act. In any case, it has no right to any claim in respect of the balance of the illegal contract, which is null and void.
We note that a writ of summons has been issued by PHS against the FPG. That is pending before the National Court awaiting the outcome of these proceedings. For reasons already given, we are of the view that PHS should be allowed to pursue that claim. Also as already noted it does of course, has the burden to establish its claim including it innocence of the breaches of the PF(M)A and its damages in accordance with the National Court rules.
In view of the above, it would appear unnecessary for me to consider the next and final issue on which this appeal turns. That is FPG’s claim of uncertainty in the price of the contract. But we consider it important to address that issue since that issue has been raised before this Court.
Void for uncertainty in price
FPG argues that the contract is void for uncertainty in the price. PHS argues to the contrary. This issue can be resolved by reference to the relevant parts of the contract and the relevant law. This involves a construction of the words used by the parties to the contract.
As I noted in Tian Chen Limited v. The Tower Limited (N0.2) (unreported judgement delivered 20/01/03) N2319 at page 18:
"A classic statement on the construction of the terms of a contract is in Chitty on Contracts 24th edition at pages 700-701, in the following terms:
‘The object of all construction of the terms of a written agreement is to discover there from the intention of the parties to the agreement...the cardinal presumption is that the parties have intended what they have in fact said, so that their words must be construed as they stand. That is to say, the meaning of the document or of a particular part of it is to be sought in the document itself: "One must consider the meaning of the words used, not what one may guess to be the intention of the parties.’"
In Scammel & Nephew Ltd v. Ouston [1941] AC 25, the words "this order is given on the understanding that the balance of purchase price can be had on hire purchase terms over a term of two years" was held to be vague and could not stand alone and be given a definite meaning: per Viscount Simon LC at p. 254. Viscount Maugham in the same case said at p. 255:
"... in order to constitute a valid contract the parties must so express themselves that their meaning can be determined with reasonable degree of certainty. It is plain that unless this can be done it would be impossible to hold that the contracting parties had the same intention; in other words the consensus ad idem would be a matter of mere conjecture."
But not all contracts can be precise. That does not necessarily mean that they are bad for uncertainty. In the Hillas (W.N.) and Co. Ltd v. Arcos Ltd [1932] UKHL 2; (1932) 38 Com. Cas 23, Hillas agreed to buy from Arcos "22 standards of soft-wood goods of fair specification over the season 1930." The written agreement contained an option to buy 100,000 standards in 1931, but without particulars as to the kind or size of timber or the manner of shipment. In holding that the contract was not void for uncertainty, Lord Tomlin with whom Lords Warrington and Macmillan agreed said at p.29:
"...the problem of a court of construction must always be so to balance matters, that without violation of essential principles the dealings of men may as far as possible be treated as effective, and that the law may not incur the reproach of being the destroyer of bargains."
The law has developed in this way to accommodate the commercial realities. In so doing, they have shown a readiness to uphold a contract where it has been part performed. They have therefore shown a readiness to adopt a wider interpretation of the words used by the parties to a contract.
Australian courts have adopted a similarly positive approach. An example is the York Air Conditioning and Refrigeration (A/asia) Pty Ltd v. Commonwealth [1949] HCA 23; (1949) 80 CLR. 11. After a reviewing of nearly all of the authorities on point including Scammel & Nephew Ltd v. Ouston (supra) the Court said, if the court "comes to the conclusion the parties intended to make a contract, it will if possible give effect to their intention no matter what difficulties of construction arise." (per Williams J. at page 26) see also Barwick C.J, at page 437 in the Australian High Court case of Upper Hunter County District Council v. Australian Chilling and Freezing Co. Ltd [1968] HCA 8; (1968) 118 CLR 429.
After following this development of the law, I concluded in Tian Chen Limited v. The Tower Limited (supra) at pages 20 – 21 that:
It is clear from these authorities that, it is the duty of the Court to uphold the agreement of the parties regardless of whatever difficulties there might be in the construction of their contract. In the exercise of that duty, the Courts must endeavour to uphold the agreement of the parties, particularly in commercial arrangements. This is because the Courts are not there to destroy the agreement of parties but to uphold them. This should readily be the case where the parties have not only agreed but have gone further into implementing their agreement resulting in expenses being incurred by either or both of the parties. In so doing, the Courts can and have ignored words or clause that are meaningless or superfluous (Nicolene v. Simmonds (1953) 1 QB 543) and supply terms or words as appear reasonable and necessary in the circumstances to give effect to the parties agreement."
In the present case the relevant clauses of the contract are clause 4.1 to 4.5. They read as follows:
"4. FEE AND OUTLAYS
4.1 In consideration of the Consultant providing the services referred to above, the FRPG will pay to the Consultant.
4.2 An Annual Fee of K3, 000,000 million (three million kina) paid quarterly in advance ("Annual Fee") plus any variations or extensions to the Contract at commercial rates as agreed to by the FRPG and the Consultant.
4.3 The FRPG will reimburse the Consultant at commercial rates for all monies out layed or disbursed by the Consultant in excess of the Annual Fee in facilitating the performance of its obligations under this Agreement and in the event of unforeseen natural disaster or an epidemic involving large numbers of people.
4.4 The contract will be expressed in Kina, however due to the heavy dependence of the contract on imported fuel, medicines, equipment and materials, the exchange rate of K1 = A$0.95 will be used as an indicator in evaluating any variations due under the terms of the contract. Variations in the exchange rate will be adjusted on a quarterly basis at the end of each quarter for the contract amount of K3,000,000 plus any variations agreed to by both FRPG and the Consultant.
4.5 The Annual Fee shall be reviewed every six (6) months to allow for any increase in the Consumer Price Index (CPI)."
There appears to be some uncertainty in these clauses. Nevertheless, we do not consider them serious enough to render the entire contract void. The parties have part performed the contract and could have continued to do so if it were not for the FPG’s inability to pay. Given that, this Court is duty bound to give effect to the words used by the parties to the agreement in the context of their agreement so as to give effect to their agreement. Of course, if the court is of the view that, even on a fair and reasonable interpretation of the words employed by the parties is incapable of leading to a conclusion that there is no contract only then can the Court decide not to uphold the contract.
Going by the words employed in clause 4.1 and 4.2, it is clear to my mind that the contract sets an annual fee of K 3 million payable quarterly in advance. Clause 4.2 also provides for payment of any variations and extensions of the contract, which are to be paid at commercial rates on a quarterly basis. According to the FPG, this clause is so uncertain as to have any meaning and the contract is therefore void.
There appear to be some basis for this argument. There is no indication as to whether the variation is to apply retrospectively for the completed quarter or to set a revised fee for the following quarter. This can be easily resolved by construing the term to mean the review is for the following quarter and not the past given that nothing can be made retrospective unless it is expressly provided for.
Another area in which there appears to be some uncertainty is in relation to the kind of "variations" and "extensions" contemplated. However, on any reasonable interpretation, "variations" although not defined can be taken to mean in the context of the contract, adjustments to the annual fee caused by say movements in the Kina against currencies like the Australian Dollar and any movements in the Consumer Price Index (CPI). Equally, "extensions" can be taken to mean work undertaken and costs incurred by PHS beyond the scope of the contract relating to Western Province, and including such activities as emergency relief in other parts of PNG and general assistance to the FPG. The next clause 4.3 compliments and clarifies the position by specifically providing for disbursements and outlays incurred for the purposes of implementing PHS’s obligations under the contract.
A further area of possible uncertainty is in relation to the reference to "commercial rates". If these words are considered only in the context of clause 4.2 there is certainly some uncertainty. However, if it is considered in the context of the contract and in particular the whole of clause 4, the intention of the parties is clear. This relates to variations to the annual fee to allow for disbursements and outlays which are provided for in the immediately following sub-clause 4.3. This also relates to a variation to the fees for other reasons the parties may agree to. Indeed, it is usual for parties to a contract to agree to a variation of their contract during the currency of their contract. Clause 9 of the contract in this case, states that the terms of the contract can be varied in writing and signed by the parties.
Clause 4.3 may appear to be uncertain in that it does not specify the kind of disbursements and outlays intended to be covered. There can however, be no uncertainty as to the kind of disbursements and outlays intended to be covered. It is usual for parties to allow for reasonable and necessary disbursements and outlays to be incurred to give effect to their agreement and their respective obligations. Hence, in the absence of any expressed agreement to the contrary, the clause should be construed to mean that any reasonable and necessarily incurred disbursements or outlay by PHS in the performance of its obligations are recoverable from the FPG. In any event it is also clear that, any such disbursements, outlays and consequential variations are to be agreed to by the parties having regard to the terms of the contract.
The next clause 4.4 then provides for the effect of any fluctuation in the Kina as against the Australian Dollar, on the annual fees and the additional payments due under the contract in disbursements, outlays which may form the basis for a variation in the annual fee. Parties agreed to peg them to the Australian Dollar. The rate of K1.00 is to $0.95 has been agreed to and have established the annual fee at Australian $2.85 million, or Australian $712,500 per quarter. It is clear from the terms of the contract and the nature of PHS’s business that, although it operates in PNG, the contract’s annual fee is effectively established in Australian Dollar. For this reason, clauses such as clause 4.5 are designed to mitigate PHS’s exposure to any uncontrollable increases in its cost base.
The final clause 4.5 then provides for a review of the annual fee every six months to allow for any increases in Consumer Price Index (CPI) which may also affect the agreed fees, disbursements and outlays. There also appears be some uncertainty in relation to this clause because there is no indication as to whether it is the Australian or the Papua New Guinean CPI that applies. Clause 13 of the contract resolves that issue in that it states that Papua New Guinean law governs the contract. It follows therefore that, the reference to CPI is the Papua New Guinean CPI.
There appears to be a further uncertainty in this clause. It is not clear whether the six months review is for the past six months or the following. This can easily be resolve in my view, by reference to the well-known principle that unless there is expressed provision for it, nothing can be made retrospective, as is the case in legislative provisions. That means the provision can be interpreted to mean the review is for the following period. This does make sense because the past performance can form the basis to review the contract for future purposes.
The FPG refers to a number of other provisions to argue that the terms of the contract which render the price uncertain. These are clause 3.3 and clauses 11.1 and 11.2. These provisions read:
"3.3 FRPG will discharge the Consultant’s obligations to provide medical services and consultative services to the FRPG under this Agreement.
FORCE MAJEURE
11.1 If a party to this Agreement is prevented from carrying out any obligation under this Agreement because of a Force Majeure Delay, the affected party must immediately give the other party notice of the occurrence of the Force Majeure Delay and the details of the event.
11.2 The obligations of the affected party to the extent that they are affected by the Force Majeure, will be suspended for the duration of that Force Majeure Delay and no event of default will be held to have occurred."
Clause 3.3 may appear nonsensical especially when the entire contract is for PHS to provide the services it contracted to provide. The parties part performed the contract and could have continued with their relations save for the non-payment of PHS’s fees or costs. It was clear to the parties that PHS was to provide the services it contracted to provide. There was no doubt in the minds of the parties as to what they were respectively required to do. This clause is inconsistent with that intention and is therefore meaningless. In our view, this clause can be struck down without affecting the contract in any way.
At first glance, this clause appears to have no relation to the provision on price in clause 4. However, to the extent that, the clause appears to "discharge" PHS of its "obligations to provide medical services and consultative services" to the FPG, it could mean no payment on one view. On another view, the PHS gets paid for nothing. This uncertainty could be resolved by striking out this clause, which falls in line with the parties’
This can be done because the term can be severed without affecting the intention of the parties. It is settled law that if a contract is divisible, the part, which is void, may be separated from the rest and it does not affect its validity. See Life Insurance Co of Australia Ltd v. Philips [1925] HCA 18; (1925) 36 CLR 60 at page 72 per Knox CJ, cited with approval by Taylor, Menzies and Owen JJ. in Whitlock v. Brew [1968] HCA 71; (1968) 118 CLR 445 at 461 and Tian Chen Limited v. The Tower Limited (supra) atp.21 as well as Panga Coffee Factory Pty Ltd v. Coffee Industry Corporation Limited SC619 (unreported, 6 October, 1999) at pp. 9 to 10 for authorities on point.
Clause 11.1 and 11.2 concern "force majeures" which is defined by clause 1.2.5 to include "any political factor or government acts or omissions." It is not unusual for parties to a contract to provide for force majeures. The terms under consideration here are certain. If the kinds of event contemplated occurs, the ordinary effects of any force majeure takes place. This has nothing to do with ascertaining the contract price, which is separately covered under clause 4. With respect, we do not see the basis for counsel for the FPG drawing the Court’s attention to this clause.
The above exercise would make it clear that the terms argued by the FPG as being bad for uncertainty are in fact certain in terms of their meaning and the contract generally. We would therefore reject these arguments and order a dismissal of this ground of the appeal.
Summary
In summary, we find as follows:
___________________________________________________________________
Lawyers for the Appellant : Henao Lawyers
Lawyers for the Respondent : Gregory Thomas Toop Lawyers
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