SC835

PAPUA NEW GUINEA

[IN THE SUPREME COURT OF JUSTICE]

SCA NO. 46 OF 2004

BETWEEN:

NATIONAL CAPITAL DISTRICT COMMISSION
Appellant

AND:

YAMA SECURITY SERVICES LIMITED
Respondent

Waigani: Jalina, Sawong and Lay JJ
2004: 30 September
2005: 9 December

CONTRACTS – Deed of Release – Entered into after judgment for damages to be assessed – Whether Deed of Release a "Contract" for purposes of the Public Finance (Management) Act s. 61 requiring Ministerial approval.

CONTRACTS – Deed of Release – Entered into after judgment for damages to be assessed – Whether Deed of Release invalid for failure to obtain Ministerial approval under s.61 of Public Finance (Management) Act.

Cases cited:
Fly River Provincial Government –v- Pioneer Health Services Ltd, SC705
National Capital District Commission –v- Yama Security Services Pty Limited, SC707

Counsel:
F. Waleilia for the Appellant
B. Lomai for the Respondent

9 December, 2005

1. BY THE COURT: This is an appeal against a decision of the National Court dated 30 April 2004 (Sevua J) which found that a Deed of Release entered into between the Appellant and the Respondent under which the Appellant was to pay K8.5 million was valid and binding on the Appellant with a further order for the Appellant to pay to the Respondent that sum of money.

2. A brief history of these proceedings is that on or about 5th February 1998 and 27 March 1998, the Respondent and the Appellant entered into two Security Contracts, one being the principal and other supplementary, whereby the Respondent was to provide security services to the Appellant for a period of 48 months and 39 months respectively.

3. The Appellant terminated the two Security contracts on the 9 February 1999.

4. Upon termination of the Security Contracts by the Appellant, the Respondent sued the Appellant for breach of contract in proceedings WS No. 1221 of 1999 on 29 October 1999 claiming the sum of K7, 513, 835.84 being the amount the Respondent was to have been paid during the full term of the Security Contracts with interests and costs.

5. The then City Administrator, Jamie Maxton Graham and the present Appellant (then in suspension) were made the first and second defendants while the National Executive Council and the State were made the third and fourth defendants respectively.

6. The third and fourth defendant's Notice of Intention to Defend was filed by the Solicitor General on 10th November 1999 whilst that of the first and second defendants were filed by A.G. Corren & Co on 12 November 1999.

7. On 7 December 1999 the first and second defendants filed a motion seeking leave to file their Defence out of time and on 9th December 1999 the Court granted an extension of time of 30 days from the original date of expiry of the time required for filing of the Defence. 

8. On 7 January 2000 the Solicitor General filed the third and fourth defendant's Defence denying that it entered into any contracts with the plaintiff (now the Respondent) and further stating that the second defendant was capable of being sued and suing in its own name and style under s.3 of the NCDC Act 1990. It also relied on the failure by the plaintiff to give notice under s. 5 of the Claims By and Against the State Act in addition to saying that the second defendant was solely liable for any damages suffered by the plaintiff, and that the proceedings did not disclose any reasonable cause of action against them.

9. On 12 January 2000 the plaintiff, after conducting a search at the National Court Registry and discovering that the first and second defendants had not filed their Defence within the extended time referred to above, filed a Notice of Motion seeking default judgment against the first and second defendants for K7, 513,735.84 for failure to file their Defence and costs.

10. On the same day, 12 January 2000, the first and second defendants filed their Defence. In their Defence, apart from denying the claim and denying any breach of contract and further stating that the claim did not disclose any reasonable cause of action, the first and second defendants pleaded in the alternative the provisions of the Public Finance (Management) Act 1995 including the failure to obtain ministerial approval under s. 61of the Act.

11. On 19 January 2000 the plaintiff filed an amended Notice of Motion seeking default judgment for the above sum or alternatively default judgment for damages to be assessed and costs against the first and second defendants. 

12. On 31 January 2000 the first and second defendants filed a Notice of Motion seeking a further extension of time to file their Defence out of time in the event that the Court found the Defence they had filed on 12 January 2000 which we have referred to above, to have been filed out of time.

13. Both the plaintiff's motion for default judgment and the first and second defendants' motion for further extension of time to file their Defence were heard by Los J on 10 March 2000. On 17 March 2000, His Honour rejected the defendants' application and entered default judgment in favour of the plaintiff for damages to be assessed.

14. It should be noted that for more than a year since the decision of Los J on 17 March 2000 up to 25 November 2001when the second defendant's Board of Commissioners passed a resolution to settle the claim by either re-engagement of the plaintiff, reduction of the amount payable under the contracts or payment by instalments, the defendants took no steps at all to challenge the decision by way of an appeal to the Supreme Court or to apply to the National Court to set the default judgment aside on the basis that they had a defence on the merits.

15. Following this resolution, 3 days later Hon. Philip Taku on behalf of the Appellant and Mr. Peter Yama on behalf of the Respondent executed a Deed of Release on the 28 November 2001 to settle the Respondent's claim for K8, 500, 000 inclusive of interest.

16. A few days after the execution of the Deed of Release, Hon. Philip Taku and his Commissioners were displaced by legislative changes made to the Appellant.

17. The Appellant did not pay the Respondent following the change in its administration and management and the Respondent filed an application by way of Notice of Motion on 7 March 2002 seeking the enforcement of the Deed to compel the Appellant to pay the sum settled in the Deed or alternatively that judgment be entered in the amount agreed to in the Deed. That application was opposed by the Appellant.

18. On 20 March 2002 the Notice of Motion was heard by Los J in the National Court and judgment was entered for the Respondent for K8.5 million on 27 March 2002.

19. The Appellant then appealed that decision in April 2002 to the Supreme Court in SCA No. 24 of 2002 but did not obtain a stay of the National Court decision until mid November 2002.

20. Prior to the stay order the Appellant in August 2002 made two payments to the Respondent being K500, 000.00 on 8 August 2002 and K1.5 million on 21 August 2002.

21. On 6 June 2003, the Supreme Court upheld the appeal by the Appellant and made the following orders:

1.	"The Appeal is allowed;

2.	The decision of the National Court be made on 27 March 2002 is quashed;

3.	The question of assessment of damages pursuant to the judgment entered in favour of the Respondent on 1 December 2000 shall not proceed to trial until the validity of the Deed of Release entered into between the Appellant and the Respondent on 25 November 2001 is determined by the National Court. 

4.	The Respondent and / or the Appellant take steps to either amend the pleadings in WS No. 1221 of 1999 or institute fresh proceedings by way of Writ of Summons to plead the Deed of Release and the issue of the validity of the Deed of Release be determined by the National Court on the merits.

5.	The Respondent shall pay the Appellant's costs of this Appeal, 

6.	if not agreed, to be taxed.

7.	Certify the appearance of Southern Counsel."

22. Following the Supreme Court decision on 6 June 2003 in SCA No. 24 of 2002, the Appellant filed an application on 18 August 2003 as a "stated" case under Order 10 Rule 21 of the National Court Rules in WS No. 1221 of 1999.

23. This application was heard on 11th September 2003 by Davani J and on 22 September 2003, Her Honour dismissed the application on the basis that the issue of the validity of the Deed of Release needed to be properly heard or argued at trial.

24. Following that decision, the Respondent made an election pursuant to the Supreme Court decision in SCA No. 24 of 2002 and took out a fresh set of proceedings in the National Court in WS No. 1209 of 2003 on 26 August 2003 wherein the Deed was pleaded. The Original proceedings WS No. 1221 of 1999 was never discontinued and is still current or is still on foot to date.

25. The Appellant filed its Notice of Intention to Defend and Defence and Cross Claim but for some unknown reasons WS No. 1209 of 2003 was discontinued on 6 October 2003 with costs.

26. Then on 29 October 2003 the Respondent again issued fresh proceedings in WS No. 1548 of 2003 (i.e. The present proceedings the subject of this appeal) with pleadings in the same terms as the discontinued proceedings in WS No. 1209 of 2003.

27. The Respondent then filed its Notice of Intention to Defend and Defence and Cross Claim in WS No. 1548 of 2003 on 11 November 2003. In its Defence and Cross- Claim, the Appellant pleaded amongst other things, illegality pertaining to compliance with s.61 of the Public Finance ( Management ) Act, s. 5 of the Claims by and Against the State Act and s. 7 (j ) of the Attorney General Act 1989.

28. Then on 17 December 2003 the Respondent filed a Notice of Motion seeking summary judgment in WS No. 1548 of 2003 which application came before Sevua J on 19 December 2003 and His Honour ordered that the question of validity of the Deed of Release be set down for trial.

29. On 9 March 2004, Sevua J heard the arguments on the validity of the Deed of Release and on 30 April 2004 ruled that the Deed was valid.

30. It is that decision which is the subject of this appeal.

Grounds of Appeal

31. The Notice of Appeal and the Supplementary Notice of Appeal are quite lengthy but they essentially are in similar terms. Those grounds fall under the following broad categories.

1.	Error of Law relating to the application of s. 61 of the Public Finance (Management) Act 1995 (the "Public Finance Act.")

2.	Error of law and fact by the trial judge taking into account and placing undue weight on irrelevant considerations.

3.	Error of law and fact by the trial judge in his failure to give sufficient weight and consideration to the uncontested evidence that the Appellant acted beyond or ultra virus its powers in the absence of ministerial approval.

4.	The judgment for K8. 5 million was bad in law when there was clearly evidence of part-payment of K2 million before him.

5.	Error of law on the part of the trial in failing to find that the Deed of Release constituted a "compromise" and as such it merged the right and interest of the parties.

32. We now consider the various grounds in the order we have set out above.

Ground 1 – Errors of law relating to the Application of s. 61 of the Public Finance (Management) Act 1995.

33. Section 61 is in the following terms:

"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)	K100, 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.

(3)	The provisions of Subsection (2) do not apply to a contract relating to investment by a public body (including a subsidiary corporation) the subject of a declaration under Section 57(3).

(4)	"

34. In relation to s.61 of the Public Finances Act the learned trial judge said (see pp 541 to 543 of Appeal Book):

"In relation to the section 61 argument, I would prefer the submissions of Mr. Lomai, counsel for the plaintiff in the light of my agreement with the views expressed by Los J. I consider that sections 59 and 61 should be read together although I acknowledge that section 59 is not made subject to section 61. And I have quoted both provisions in full in the judgment on page 13 to 15.

It seems to me that at least 2 cases have considered that these two provisions are to be read conjunctively even though the courts did not specifically express it in that way. Those cases are Fly River Provincial Government against Provincial (sic) Health Services Limited, SC705, unreported, 24 March 2003 and Jack Livinai Patterson against National Capital District Commission, N2145, unreported, 5 October 2001.

In the Fly River Provincial Government case, the Supreme Court discussed sections 59 and 61 at pages 13 to 16 of its judgment. It seems to me that what the Supreme Court said there was that there must be a public tender in accordance with section 51(sic) before the section 61 approval is sought. The court said at page 13 " Since there were no tenders called for the supply of services to the PHS as required by section 59 and because the relevant minister did not approve the contract under section 61, the contract was an illegal contract. In other words, by reason of the failure of the parties to comply with the requirements of sections 59 and 61of the act, the contract is a prohibited contract." I highlighted part of that excerpt in the judgment.

In my view the plaintiff's submission cannot be clearer than that. I am of the view therefore that one cannot isolate section 61 from section 59. Instead the two provisions go hand in hand in determining whether a contract is valid or not. The statement of the law pronounced by the Supreme Court reinforces my own view that has been expressed here, that is the issue of illegality under the Public Finance (Management) Act ought to have been raised by the defendant from the beginning in WS 1221 of 1999. That is where the issue of public tender under section 59 and ministerial approval under section 61ought to have been raised by the defendant."

35. After stating that the court in the Jack Livinai Patterson case impliedly held that sections 59 and 61 must be read together where consideration exceeds K100,000 or K500,000, in which case ministerial approval was required, the trial judge continued towards the centre of p.542 (of Appeal Book):

"The present case does not fall into the category of contracts dealt with in those two cases. As I said, and I will reiterate it, the calling of public tender and approval by the minister have not been done at the time or prior to the execution of the contract between the parties in February 1999. The 28th day of November 2001 which is the date the deed of release was executed is not the time when the plaintiff had tendered the security contract. Therefore the section 59 consideration cannot apply in my view. The essence of the date is that the parties decided to settle their dispute by the payment of K8.5 million by the defendant to the plaintiff. It is not as if the parties were executing the security contract.

It is my opinion therefore that both sections 59 and 61 must be read together when considering a contract involving a public body like the defendant in the present case. It therefore follows that the contention by the defendant in isolating section 61 from section 59 ought to be rejected. In the light of that I am of the view that the execution of the deed did not initiate or create a new contractual network- it should be a new contractual relationship between the parties. I consider that the deed is not the beginning of a new legal relationship thus requiring sanction under section 61 of the Public Finances (Management) Act because the money involved is not in consideration for works or services to be supplied by the plaintiff to the defendant but is a means of settlement out of court which the parties opted to rather than a formal assessment of damages. I do not agree that it created a completely new relationship between the parties."

36. His Honour also discussed the provisions of the Attorney General Act and basically rejected its application for the above reasons. Any suggestion by the defendant that approval was not properly obtained was also rejected as the defendant was at the time of the execution of the deed of release run by commissioners who were legally constituted or appointed. His Honour also became critical of the defendant seeking to have a second bite at the cherry as it were as Los J had considered all those arguments the defendant was now raising and rejected them. 

37. It is not disputed by the parties that the Appellant was a "public body" to which the Public Finances (Management) Act applied. It is also not disputed that the Appellant did not obtain ministerial approval under s.61 of the Act prior to the entry into and execution of the deed of release. 

38. It is however submitted by the Appellant, that the learned trial judge erred when he sought to distinguish the Supreme Court decision in Fly River Provincial Government –v- Pioneer Health Services Ltd, SC705 on the premise that Sections 59 and 61 of the Act should be read together. It was further submitted that the deed of release was a separate contract and as such it was subject to ministerial approval under Section 61 of the Act.

39. In Fly River Provincial Government –v- Pioneer Health Services Ltd 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 with tender and ministerial approval requirements under the Public Finances (Management) Act 1995 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 necessary funds to complete the contract. It was held that:

1.	A party is not at liberty to raise a point on appeal that should have been raised in the Court below in the interest of fairness and to do justice. By his conduct, a party who fails to raise all the issues that should have been raised in the court below is precluded from raising them on appeal.

2.	The requirements under s59 and s61 of the Public Finances (Management) Act 1995 are mandatory and where a contract is entered into in breach of those requirements, it is illegal and therefore null, void and unenforceable.

3.	The requirements under the Public Finances (Management) Act 1995 are to enable transparency in all public contracts and to safeguard against corruption and enable securing of fair contracts with public institutions and or bodies for the best services at a competitive or best price.

4.	A person dealing with the State or any of its arms or instrumentalities or a public institution to which the Act applies, is bound to comply with the requirements of the Act and every person dealing with such institutions or bodies is deemed to be aware of these requirements.

5.	A failure to ensure compliance with the requirements of the Act operates to the detriment of the party contracting with the State or a public authority to which the Act applies.

6.	Where an illegal contract is part performed, an action for recovery or restitution is available if not already paid for in equity to avoid unjust enrichment conditional on the innocence of the contracting parties.

7.	In the present case, the contract between the Appellant and the Respondent is null and void for non–compliance with the public tender requirements and Minister for Finance's approval under the Public Finances (Management) Act 1995.

8.	However, since the contract was part performed and the Appellant received goods and services from the Respondent, in equity the Respondent is entitled to pursue its claim for a recovery of the costs and expenses it has incurred by way of restitution. But this is conditional on showing its innocence in the creation of the illegal contract.

9.	In the construction of words used in a contract, the court is duty bound to adopt a fair and liberal approach with a view to upholding the agreement of the parties, if the intention of the parties can be ascertained. For the courts are there to uphold the agreement of parties and not to destroy it. In so doing, the court can supply any reasonable term missing from the contract or strike out meaningless words or clauses in a contract. A part performance of a contract speaks in favour of a contract existing more than not. In the present case, there are sufficient details as to the price of a contract and/or how it is to be ascertained. Therefore, there can be no uncertainty about such a term.

40. The Respondent on the other hand sought to demonstrate through its submissions that Section 61 of the Act did not apply to the deed of release by defining what a deed was and the effect of that deed. It submitted that a deed was an instrument that went beyond a mere contract that bound the relationship of the parties but that it was a document that the parties agreed to with the most solemn act possible on a subject matter which, once executed, immediately and unconditionally bound their relationship. Its validity and enforceability was dependent on the existence of essential elements of an ordinary contract although not to be read or treated as an ordinary contract. It relied on what Injia, DCJ said in National Capital District Commission –v- Yama Security Services Pty Limited, SC707 at p.9:

"A deed of release constitutes a settlement or compromise of a pending action. It is a contract which is enforceable on its own force. Its validity or enforceability is dependent on essential elements of ordinary contracts such as the legal capacity of the contracting parties, the intention of the parties to create legal obligations, valuable considerations offered by each party and in cases where these element are regulated by statute, compliance with any statutory requirements imposed on Contracting parties."

41. It went on to submit in respect of the contract the subject of the proceedings in this case that, there were no terms and conditions that warranted compliance with any statute particularly the Public Finances (Management) Act for the simple reason that it was an agreement between the parties in a court action where they agreed to settle a matter out of court after entry of judgment against the Appellant The agreement was not to contract for works or services between the parties.

42. We consider, with respect, that the Respondent has misconceived the application of s.61 of the Act. The position in law in our view regarding the application of the Act, particularly ss.59 and 61, has been decided by this Court in Fly River Provincial Government –v- Pioneer Health Services Ltd (supra) which we, with respect, endorse.

43. Whilst we accept the Respondent's submission founded on what the learned Deputy Chief Justice said about what a deed of release is in the National Capital District Commission –v- Yama Security Services Pty Limited (supra), His Honour went on to qualify that by saying that where the contract is regulated by statute, the statutory requirements have to be satisfied. So in this case, whilst the Appellant had the legal capacity to enter into contractual relations, it being a creature of statute, its freedom as it were to enter into contracts the consideration for which exceeded K100, 0000. Was regulated or prohibited by s.61of the Act which are in mandatory terms because of the word "shall". The rationale behind the need to comply with the requirements of the Public Finance (Management) Act has clearly been set out by this Court in the Fly River Provincial Government case so there is no need for us to repeat them here. We have already said that we endorse those views.

44. We also consider the Respondent's submissions to be misconceived and clearly contrary to the unambiguous terms of s.61(2) of the Act which requires ministerial approval to enter into a contract "involving the payment or receipt of an amount, or property to a value, (or both ) exceeding -".Under the terms of the deed of release, the Appellant, a public body, was required to pay K8.5 million to the Respondent so ministerial approval was necessary for the Appellant to enter into a legally valid, binding and enforceable contract.

45. The necessity to obtain ministerial approval is also clear from the all encompassing and over riding words of s.61 (1) of the Act which are that "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". 

46. It appears to us that so much public money has been spent through the out of court settlements process by government lawyers and public officials out of ignorance of the requirements of s.61 of the Act. As was correctly stated by this Court in the Fly River Provincial Government case which we have alluded to above, provisions such as s.61 were enacted to regulate and control the expenditure of public moneys. We do not consider the need to obtain ministerial approval to settle a matter already before the courts as an interference with the powers of the courts. Parties to an action pending in court can settle and then inform the court. If the settlement involves a public body and the amount of money or value of the property involved is in excess of K100, 000, the law such as the Public Finances Act needs to be complied with. This should not be confused with a situation where the court orders certain amounts to be paid. In such a case the party required by such an order to pay has no option whether to pay or not. He has to comply.

47. For the foregoing reasons we are of the opinion that the learned trial judge erred in his application of s. 61 of the Public Finances Act. We find the deed of release to be invalid and unenforceable.

We accordingly allow the appeal and quash the orders of the National Court.

48. Having allowed the appeal in respect of Ground 1, it is not necessary for us to consider the other grounds.

49. We further order that the Appellant's costs be paid by the Respondent.
_________________________________________________________________
Possman Kua Aisi Lawyers: Lawyer for the Appellant
Lomai & Lomai Attorneys: Lawyer for the Respondent