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National Capital District Commission v Yama Security Services Pty Ltd [2003] PNGLR 16 (6 June 2003)

SUPREME COURT OF JUSTICE

NATIONAL CAPITAL DISTRICT COMMISSION

V

YAMA SECURITY SERVICES PTY LIMITED

WAIGANI: INJIA, DAVANI & MOGISH JJ

28 April; 30 May; 6 June 2003

PRACTICE & PROCEDURE – National Court – Civil - Judgment on liability for damages to be assessed – Compromise reached by parties on damages pending trial on assessment of damages by court – Deed of Release – Application for summary judgment seeking enforcement of Deed of Release - Compromise disputed by one party on grounds of fraud, illegality and excess of authority – Inappropriateness of summary procedure under O 12 R 38 – Necessity to institute fresh proceedings or amend pleadings to plead Deed of Release – Duty of the Court to facilitate process for pleadings and full trial to determine merits of issues – National Court Rules, O 12 R. 38.

CONTRACT – Contract involving public authority – Compromise of pending action – Deed of Release - Subsequently disputed by public authority on grounds of fraud, illegality and excess of authority by former officers of the public Authority – Duty of Court to facilitate proper determination of issues – Inappropriateness of summary procedure to determine validity of Deed of Release – Public Finance (Management) Act 1995 ss 61 – National Capital District Commission Act 1990 – Claims By and Against the State Act; s 5

Facts

The appellant (NCDC) and respondent entered into a contact for the latter to provide security services for the former. The contract was to run for a four year period. Shortly after, the parties entered into a supplementary agreement for additional security services for the same period. Some thirteen months into the performance of the contract the appellant suspended the contract and the respondent commenced proceedings seeking damages for the unperformed period. The respondent obtained judgment on liability, for damages to be assessed later.

Pending the assessment of damages by the court, the parties negotiated a settlement which was incorporated into a deed of release under which the appellant agreed to pay the respondent an agreed sum upon the execution of the deed. Upon the change of leadership in the appellant organization the new administration refused to honour the deed and when payment was not forthcoming the respondent applied to the Court for orders for payment of the agreed sum. The respondent initiated proceedings by notice of motion and sought summary judgment. The appellant contested the action, unsuccessfully, on both procedural and substantive grounds and appealed against the judgment given in favour of the respondent.

Held

1. Generally speaking, in cases where parties have reached a genuine settlement in a pending proceeding, courts should give due recognition and respect to such settlement. The court should not interfere with the compromise except in unusual or exceptional circumstances. Such exceptional circumstances are many and vary from case to case and it is not practical for me to provide an exhaustive list.

2. An example is where a party disputes the validity or enforceability of the compromise on substantive grounds such as fraud, misrepresentation, illegality, or mistake as to the nature and extent of authority of representatives of a public authority. The court would usually rely on the parties to plead the compromise and the defences. In some cases, the court on its own initiative may detect fundamental flaws in the compromise to in respect of any of these aspects.

3. In these kind of cases, it is only proper for the court to require the parties to adopt the appropriate procedure to enable the plaintiff to plead the relevant circumstances and relief sought under the compromise, and for the defendant to plead the appropriate defence. The case then advances to a full trial on the merits in which the parties call all available evidence. The court should then be able to determine the merits of the issues raised in the trial.

4. A writ of summons is the appropriate procedure for suing on a compromise because it provides for pleadings. In a case where a compromise is reached to settle pending action, there are two procedures under a writ which may be employed to determine the validity or enforceability of the compromise. First, the court may require parties to amend the Writ by amending the pleadings to plead the deed and seek enforcement of the deed. The defendant would have liberty to file an amended defence and the matter would then proceed to a full trial to determine the validity or enforceability of the deed. The other procedure is to require the plaintiff to institute fresh proceedings by way of writ of summons to enforce the compromise. There it is open for the plaintiff to plead the existing judgment on liability in the pending action and the only issue would then be one of the validity or enforceability of the deed.

5. The proper procedure was by way of either requiring the plaintiff to seek leave of the court to amend the statement of claim and for the appellant to file a defence to the amended statement of claim or require the respondent to institute fresh proceedings by way of writ of summons.

Papua New Guinea cases cited

Acting Managing Director & Anor v Yama Security Services Limited SCA No. 87 of 2001 Unnumbered judgment of Injia, Davani and Mogish .JJ, dated 6.5.03.
Barclay Brothers (PNG) Ltd v The State [2002] PNGLR 756.
Caltex (Overseas) Limited v Dent [1978] PNGLR 411.
Hornibrook NGI Pty Ltd v Lihir Management Company Pty Ltd v Lihir Management Company Pty Ltd and Wests Process Pty Ltd (Administrator Appointed) N1735 dated 18.6.98).
John Momis, Michael Ogio, Sam Akoitai and Michael Laimo v The Attorney General, National Executive Council and The State N1951 dated 10.3.00.
Kumul Builders Pty Ltd v Post and Telecommunication Corporation [1991] &#160R 299. 299.
Lindsay Lailai, Acting Managing Director and A Ace Guard Dog Security Servicei Limi Limited SCA No. 85 of 2001.
Patterson v National Capital District Commission .
Ume More and Others v University of Papua New Guinea [1985] PNGLR 401;
Yama Security Services Ltd v Motor Vehicles Insurance (PNG) Trust Unreported and Unnumbered National Court judgment of Sevua J. dated 25/8/00.

Other cases cited

Eden v Nail [1878] UKLawRpCh 52; (1878) 7 Ch D 781.
Green v Rozen [1955] 2 All ER 797.
Pryer v Gribble [1875] UKLawRpCh 70; (1875) LR 10 Ch. App 534.
Re Gardet Freres Steamships Co. [1879] UKLawRpCh 286; (1879) 12 Ch D 882.
Smythe v Smythe [1887] UKLawRpKQB 12; (1887) 18 QBD 544.

Counsel

I Molloy & P Kuman, for the appellant.
J Poro and A Amet (Jnr), for the respondent.

6 June 2003

Injia j. The appellant challenges the decision of the National Court at Waigani made on 27th March 2002, in which the learned judge entered judgment in favour of the respondent in the sum of K8.5 million. The grounds of appeal are set out in the judgment of Justice Davani, which I adopt.

The background circumstances of the respondent/plaintiff's claim and the procedure employed by the respondent in seeking and obtaining this judgment in brief are these. The appellant is a statutory body established under the National Capital District Commission Act 1990 and is charged with the duty to manage the affairs of the National Capital District. On 5 February 1998, the respondent entered into a contract with the appellant to provide security services. The contract was to run for a period of four years, and was to expire on 5 February 2002. On 27 March 1998, the parties entered into a "Supplementary" contract for additional security services in the same period. On 9 February 1999, some 13 months into the performance of the contract, the appellant "suspended" the contract. On 29 October 1999, the respondent commenced proceedings in the National Court in WS No. 1221 of 1999, seeking damages for the unperformed period of the contract. The respondent claimed total damages of K7,513,835.84, particulars of which were endorsed on the Writ. In these proceedings, the respondent also joined the National Executive Council and the State as nominal defendants, under provision of s 2 of the Claims By and Against the State Act 1997 and s 68(3) of the Organic Law on Provincial and Local Level Governments. This is because the respondent was under suspension at the time the proceedings were instituted and the management of the affairs of the Commission was vested in the National Government. On 1 December 2000 the respondent obtained judgment on liability, for damages to be assessed later. This judgment on liability was not in issue in the National Court and also not in issue in this appeal.

Pending assessment of damages by the court, the parties entered into negotiations on quantum of damages. The respondent claims that these negotiations resulted in a resolution passed by the respondent's board on 25 November 2001, which authorized its Chairman and Governor of the National Capital District, one Philip Taku (who was the elected member for Moresby North East in the National Parliament) and the Chairman of the Commission's Finance Executive and Tender Committee, to negotiate a settlement of the claim. The respondent claims an agreement was reached to settle the damages for K8.5 million and a deed of release ("the deed") was drawn up and signed, sealed and delivered on 28 November 2001. Under the deed, upon the receipt of K8.5 million from the appellant, the respondent undertook to file a Notice of Discontinuance of Proceedings in the National Court. The deed was signed by Mr. Philip Taku on behalf of the respondent. Subsequently, changes in the administration of the respondent occurred as a result of changes to legislation affecting the respondent, which resulted in the administration headed by Governor Philip Taku replaced by the administration headed by a non-elected person, one Bernard Kipit. This new administration refused to honour the contract, for various reasons, which prompted the respondent to commence proceedings in WS 1221 of 1999.

In these proceedings, by notice of motion, filed on 7 March 2002, the respondent sought to enforce the deed and applied for orders that the "Defendant be ordered to pay the Plaintiff the sum contained in the duly executed deed of settlement dated 28 November 2001" or alternatively, "Judgment be entered to the agreed amount as reflected in the deed of release."

When the Motion was heard on 18 March 2002, the appellant vigorously contested the application. It is not clear under which provision of the National Court Rules the motion was initially moved but it is clear from the transcript of proceedings that the respondent's counsel moved an application for summary judgment under Order 12 Rule 38 and the trial judge proceeded on this basis.

Both parties relied on affidavits filed which asserted their respective positions. None of the deponents of the affidavits were called by either party and their evidence was not tested in cross-examination. Both counsel made submissions on the affidavit evidence.

The respondent argued that the deed was properly entered into, that administrative procedures were properly followed in securing a full board resolution authorising the settlement, that the terms of the deed were consistent with the terms of the resolution, that the deed was conclusive evidence of the terms of the settlement and binding on the parties and that the deed should be enforced.

The appellant countered by arguing that summary judgment should not be granted because the respondent failed to meet the requirements of Order 12 Rule 38 (to provide evidence of facts proving the claim and there was evidence from a responsible person for the respondent that the appellant had no defence to the claim). It was contended that because the plaintiff had not pleaded the Deed in the statement of claim, judgment on the deed was not available.

The appellant also contended that the deed was not validly entered into because there was evidence to show that no such resolution was passed by the Board and that the resolution was a fraud. In the alternative, even if the resolution was passed and the deed entered into pursuant to the resolution, the deed exceeded the terms of its authority under the resolution in that the resolution only authorised payment in monthly instalments or to cut the payout figure and re-engage the respondent in order to save costs and money; the resolution did not authorise outright settlement of K8.5 million. Further, the deed was void and unenforceable because it was entered into contrary to s 61 of the Public Finance (Management) Act, 1995 which applied to both parties.

The learned judge found on the untested affidavit evidence for both parties that there was a proper board meeting which passed the resolution, that since liability had already been determined, only the amount was in dispute but the appellant had not come forth to state clearly the extent of the dispute with the contract or any legal barrier which might exist. His Honour then determined the argument on validity and defences raised by the respondent in the following terms:

"It is a fact that the defendant and its agents or delegates had been in industrial, legal and political turmoil for some time. The positions with staff seniors or juniors have been unsettled. But should the defendant be entitled to use Public Finance Act as a shield or cloak to hide from enforcing its contractual obligation with anybody – individual or corporate? A public body has no special immunity, it must comply with its side of a bargain. The legal position of a board or commission does not vary who constitute it.

The agreement was for the plaintiff to provide security services for which the defendant promised to pay. The amount under contract was for a little less than K8,000,000, i.e. K7,513,835.84 so I do not see the plaintiff's case any clearer than that.

The plaintiff is entitled to be paid under the agreement and it is unjust to now raise section 61 defence to deny the plaintiff. How was the contract signed to start with? In all the submissions before me, no other defence has been raised. For example whether the plaintiff would not be entitled to claim on unperformed part of the contract. Neither did the defendant allege any fraud. If it did, it had to strictly plead so. I am satisfied therefore that the defendant has no defence in either case. Consequently I enter the judgement for the amount reflected in the deed of release."

In this appeal, the appellant's counsel Mr. Molloy re-inforces the arguments made before His Honour and relies on a number of English cases to support his submissions. He then advances further arguments on the necessity to institute fresh proceedings to enforce a disputed compromise in a pending action or alternatively, to amend the pleadings in the existing writ. This was to enable the plaintiff to plead the circumstances in which the deed was entered into and the relief sought and for the defendant to plead the defences, and for the matter to proceed to a full trial to determine the validity and enforceability of the deed. He submits the defences raised by the appellant before the National Court were substantive and arguable and they could only be determined in a full and proper trial. His Honour erred in summarily determining the merits of these substantive defences.

Mr Poro for the respondent also re-inforces the submissions made before His Honour. He further submits that His Honour was correct in entering summary judgment based on the Deed which was "conclusive evidence and therefore could not afford any defence to the appellants." The deed was properly entered into in accordance with the terms of the board's resolution and that it was signed, sealed and delivered and therefore binding and enforceable in a court, in the context of the pending proceedings. It was not necessary for the respondent to institute fresh proceedings to enforce the settlement because it would be duplicate proceedings already pending before the court; the original judgment on liability would be rendered ineffective, and that it would cause substantial injustice to the respondent in that its enjoyment of the fruits of the judgment on liability would be unduly delayed. The deed is binding on both parties and one party cannot seek to avoid its contracted obligation under the deed by hiding behind the cloak or "wall of procedural and institutional irregularities:" Yama Security Services Ltd v Motor Vehicles Insurance (PNG) Trust Unreported and Unnumbered National Court judgment of Sevua .J dated 25/8/00; Halsbury's Laws of England, vol 2 4th Edn. Para 1353.

Mr Poro also submits the appellant has no real defence to the Deed and that this appeal is merely an act in a series of actions taken by the appellant since the judgment to delay payment. In support, he cites s 11 of the Frauds and Limitations Act 1988 and a part-payment of K2 million made by the appellant to the respondent under the deed, whilst this appeal was pending determination.

Mr Poro then goes on to make extensive submissions on the merits of the defences to the deed raised by Mr. Molloy and submits that there is no merit in all these proposed defences.

Mr. Molloy submits in response that s 11 of the Frauds and Limitations Act 1988 has no application to the present case because it applies to the time limits for bringing an action to enforce part-paid debts. He submits there is no "fresh evidence" of the part-payment of K2 million to settle the deed. If paid, there was nothing to bar the payment given the absence of any order staying the execution of the judgment appealed from. He submits the arguments on delay tactics is not relevant to this appeal because they relate to the application to dismiss the appeal for want of prosecution filed by the respondent but not pursued before us.

The arguments made before us raise a threshold fundamental procedural issue on the jurisdiction of the court to summarily enforce a deed of release on a pending action in circumstances where the validity of the deed is contested on substantive grounds. 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 and enforceability is dependant on the existence of 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 elements are regulated by statute, compliance with any statutory requirements imposed on contracting parties.

This last requirement is particularly significant in relation to "public contracts" transacted on behalf of public institutions or authorities or even public corporations established by statutes. Unlike contracts involving private contracting parties, these kind of contracts are not entirely dependant on the free-wheeling actions of entrepreneurs motivated by desire to maximize profits at minimum expense. The terms of the contract are subject to rules and guidelines prescribed by statute. When a party to a public contract or a third party having public interest in the contract contests the validity or enforceability of "public contracts" on substantive grounds such as fraud or illegality, then courts must take great care to ensure that parties are facilitated with a fair and full opportunity to contest the contract, and after having heard the matter, the court then determines the merits of the case. The higher the public office involved, the greater the amount of public money involved, the greater the public interest, and therefore the greater the onus on the courts to facilitate a full, fair and proper hearing and decision made on the merits. As part of the court's constitutional duty and mandate as the guardian of the laws of the State, the court has a public duty to protect the public interest sought to be protected by relevant statutes; by ensuring that contracts entered into involving a public body complies with the relevant statutory requirements. It is not proper for the merits of a disputed "public contract" to be summarily and pre-maturely determined, based purely on the untested affidavit evidence of witnesses and submissions of counsel.

The ordinary procedure upon entry of judgment on liability for damages to be assessed is that the question of damages should go to a full trial. It is of course open for parties to negotiate an out-of-court settlement at any stage of the proceedings before judgment on quantum of damages. The court is an independent and impartial adjudicator of the dispute between the parties in any civil action. By instituting the action in court, the parties invoke the court's jurisdiction and the court must leave the conduct of the respective cases to the parties, and first listen to and respect the position of the parties. Indeed, there is a fast developing trend in modern courts including our own, to move away from court litigation and encourage alternative ways of settling civil disputes. Courts nowadays increasingly and actively foster, encourage and even facilitate parties to negotiate, mediate, and settle claims before the courts using alternative dispute resolution (ADR) techniques and mechanisms. The benefits of ADR are many and these include a win-win situation for both parties, reduces unnecessary litigation time, expense and costs, and maintains amicable long term business and social relationships between parties. Indeed notions of negotiation, mediation and compromise of disputes is a long-standing traditional custom in all traditional societies in this country and our courts should be able to tap into this valuable custom and develop ADR procedures which are appropriate to our own circumstances.

Generally speaking, in cases where parties have reached a genuine settlement in a pending proceeding, courts should give due recognition and respect to such settlement. The court should not interfere with the compromise except in unusual or exceptional circumstances. Such exceptional circumstances are many and vary from case to case and it is not practical for me to provide an exhaustive list. I can give a few examples. These include the very situation such as in the present case, where a party disputes the validity or enforceability of the compromise on substantive grounds such as fraud, misrepresentation, illegality, or mistake as to the nature and extent of authority of representatives of a public authority. The court would usually rely on the parties to plead the compromise and the defences. In some cases, the court on its own initiative may detect fundamental flaws in the compromise in respect of any of these aspects. In these kind of cases, it is only proper for the court to require the parties to adopt the appropriate procedure to enable the plaintiff to plead the relevant circumstances and relief sought under the compromise and for the defendant to plead the appropriate defence. The case then advances to a full trial on the merits in which the parties call all available evidence. The court should then be able to determine the merits of the issues raised in the trial.

A writ of summons is the appropriate procedure for suing on a compromise because it provides for pleadings. In a case where a compromise is reached to settle pending action, there are two procedures under a Writ which may be employed to determine the validity or enforceability of the compromise. First, the court may require parties to amend the Writ by amending the pleadings to plead the deed and seek enforcement of the Deed. The defendant would have liberty to file an amended defence and the matter would then proceed to a full trial to determine the validity or enforceability of the deed. The other procedure is to require the plaintiff to institute fresh proceedings by way of writ of summons to enforce the compromise. Here it is open for the plaintiff to plead the existing judgment on liability in the pending action and the only issue would then be one of the validity or enforceability of the deed. Under our National Court Rules, whilst the rules provide for instituting proceedings by writ of summons to enforce contracts generally, it does not specifically provide for pleadings of compromises in a pending action.

The practice in England is as set out in English cases cited to us by Mr. Molloy. The practice is similar to the procedure I have suggested above. For cases on fresh proceedings, see Green v Rozen [1955] 2 All ER. 797, Smythe v Smythe [1887] UKLawRpKQB 12; (1887) 18 QBD 544. Pryer v Gribble [1875] UKLawRpCh 70; (1875) LR 10 Ch. App 534. In Caltex (Overseas) Limited v Dent [1978] PNGLR 411, Saldana .J adopted and applied Green v Rozen, supra. For cases on amendment of pleadings, see Eden v Nail [1878] UKLawRpCh 52; (1878) 7 Ch D 781; Re Gardet Freres Steamships Co. [1879] UKLawRpCh 286; (1879) 12 Ch D 882. Unless these proper procedures are followed, substantive defences to a compromise may be prematurely determined summarily.

When the court requires a party who wishes to seek enforcement of a compromise which is disputed by a party, to follow these proper procedures, the pleadings take their normal course. Parties are then able to plead all relevant circumstances in which the deed was entered into and they are able to call all relevant evidence and the court will then be able to determine the merits of the issues. The summary procedure under order 12 rule 38 of the National Court Rules is not intended to facilitate such a full hearing on the merits of any defence on a compromise. It is an inappropriate procedure to determine the validity and enforceability of a contested deed of release or compromise.

In the present case, I am satisfied that the validity of the deed of release was challenged by the respondent in the National Court, on fairly substantive grounds, both on the factual circumstances in which the deed was entered into and the deed's failure to comply with legal requirements including s 61 of the Public Finance (Management) Act 1995. Serious issues of fact and law were raised before the Court and it was only proper that these issues were properly determined in a full trial. The summary procedure under Order 12 Rule 38, which was used by the Court was not the proper procedure to facilitate such a full trial of these issues. As a result, these substantive issues were handled in a rushed manner and pre-maturely determined. This is apparent from the judgment of the presiding judge. For instance there are a number of fundamental misconceptions and errors of procedure and law on the face of the judgment. These include:

1. His Honour said "The amount under the contract was for little less than K8,000,000.00; ie K7,513,835.84 so I do not see the plaintiffs any clearer than that." In my view there is a big difference of almost K1 million between the deed of Release figure of K8.5 million and the original contract figure of K7,513,835.84 claimed in the Writ. As to what consideration, if any, was provided by the respondent in return for the appellant's undertaking to settle the full amount claimed in the Writ as well as an additional K1 million are relevant and important issues which go to the validity of the compromise and they should be tried on the merits.

2. Whilst it is accepted that a public authority's capacity to enter into contracts is not in issue, the necessity for its proper officers, both administrative and executive, to transact public contracts within the terms of their prescribed authority, is paramount.

In the present case, the Board's resolution states:

"The full board resolved that the National Capital District Commission agrees to pay the claim as ordered on the 18th of December, 2000.

"It is further resolved that NCDC appoints the Chairman of Finance Executive and Tender Committee appointed by the Board to negotiate the payment of K8,500,000.00 to Yama Security in the intention to pay in monthly instalments or cut the original payment and re-engage Yama Security.

"It is resolved that the Governor execute the deed of release of the National Capital District Commission."

Assuming the resolution to be proper, it appears the Board agreed to settle the respondent's claim for K8.5 million, which I have already said exceeds the amount claimed in the Writ by almost K1 million. For the respondent forgoing its right to receive that amount in full, the designated officer was to negotiate with the respondent for the appellant to either pay this amount in monthly instalments or reduce the original payment figure, (which I suppose could mean the K8.5 million or the amount claimed in the Writ) and re-engage the respondent. Instead, the deed shows that the K8.5 million was going to be an outright payment. There is no mention in the Deed of any monthly instalment, no mention of re-engaging the respondent or a reduced payout.

There was no affidavit filed by the Chairman of Finance Executive and Tender Committee or the former Governor, explaining the circumstances in which the Deed was entered into. The only evidence for the respondent apart from Mr Peter Yama who was the proprietor of the respondent, was Mr Win Otto who was then the Director of Assembly Services, who witnessed the Deed.

On the other hand there was affidavit filed by responsible officers of the Commission including the Principal Legal Officer Mr Dixon Kombagle, and the Financial Controller Tom Gillis, denying any involvement in the negotiations and the Deed.

In this circumstances, there is clearly an arguable issue as to whether the Board passed such a resolution. It is also substantive issue as to whether the designated officer including the then Governor, Phillip Taku exceeded their authority under the resolution.

3. Section 61 of the Public Finance (Management) Act 1995 governs appropriation of public funds. There is no dispute that the NCDC is a public body which is bound by that Act: see Patterson v NCDC [2001] PNGLR 216; and Barclay Brothers (PNG) Ltd v The State [2002] PNGLR 756. Section 61 requires approval of the Minister for Finance or the National Executive Council, as the case may be, for contracts in excess of K100,000.00 or K500,000.00 respectively.

The issue of whether such approval was obtained and prescribed tender procedures under the Act followed was a substantive issue to be tried.

4. His Honour in his ruling asked the question "How was the contract signed to start with?" His Honour said that there was no other defence such as fraud raised by way of pleading. In my view, His Honour misconceived the nature of the pleadings before him. It was on the existing pleadings upon which the judgment on liability was entered. Those pleadings could not possibly cover post-judgment developments in which the Deed was entered into. The pre-judgment on liability pleadings were entirely irrelevant to post-judgment on liability developments pending trial on assessment of damages. Therefore, it was erroneous to speak of defences such as fraud and s 61 of the Public Finance (Management) Act in the context of pre-judgment pleadings. I am satisfied that these defences were sufficiently raised before His Honour and the proper procedure to determine the merits of these defences was by way of either requiring the plaintiff to seek leave of the court to amend the statement of claim to plead the deed and for the appellant to file a defence to the amended statement of claim or require the respondent to institute fresh proceedings by way of writ of summons. If the respondent opted for the latter option, it was open to the respondent to plead the judgment on liability standing to its credit. The appellant would have right to file defence under either procedure and the matter would then proceed to a full trial to determine the validity of the deed.

In relation to the respondent's submissions on s 11 of the Frauds and Limitations Act 1988, the part-payment of the debt pending the determination of this appeal, and the appellant's conduct in delaying the respondent's enjoyment of the benefits of the judgment, I am of the view that these arguments are relevant only to the application to dismiss the appeal for want of prosecution, which was not pursued before us. I would dismiss these arguments on that basis.

As for other arguments raised by the parties and procedural issues before us, I adopt Justice Davani's conclusions.

For these reasons, I would allow the appeal with costs to the appellant. I would certify southern counsel. I would order that the matter not proceed to trial on assessment of damages until the validity of the deed is determined by the National Court. I would order that the parties take the appropriate actions to either amend the pleadings in WS 1221 of 1999 or institute fresh proceedings by writ of summons to allow the parties to plead the deed using the procedure I have suggested above.

davani j. This is an appeal from a National Court decision given on 27 March 2002. Upon the respondent's application, the court entered judgment in favour of the respondent against the appellant for the sum of K8.5 million with costs.

The judgment was entered on a notice of motion which sought principal orders as follows;

"1. The defendant be ordered to pay the plaintiff the sum contained in the duly executed deed of settlement dated 28 November, 2001;

2. Alternatively, judgment be entered for the agreed amount as reflected in the deed of release."

Background

The respondent sued the appellant in proceedings WS No. 1221 of 1999 for the appellant's alleged failure to pay the respondent monies due to it under two contracts to provide security services to the appellant. The claim was for K7,513,835.84 being payment under each of the security contracts for the balance of their terms. The appellant resisted this assessment on the basis that it amounted to an unenforceable penalty.

On 1 December 2000, judgment was entered against the appellant on liability with damages to be assessed.

Whilst the trial on assessment of damages was pending, the respondent purportedly negotiated a deed of release with the appellant to settle the claim. By deed of release executed on 28.11.01, the appellant agreed to settle the proceedings by payment to the respondent of K8.5 million on a "without admission of liability" basis. Under clause 4 of the deed, the appellant agreed to pay the said sum directly to the respondent "upon the execution of this deed". When payment was not forthcoming, the respondent applied to the Court for orders for payment of the amount agreed to in the deed of release, being the orders sought in the respondent's notice of motion referred to earlier.

Grounds of Appeal

It is necessary to set out all grounds of appeal raised by the appellant because they provide a general understanding of the background from which the appeal emanates. These are;

1. His Honour should have refused the respondent's application on the basis that he had no jurisdiction to give summary judgment for payment of money under a deed of settlement of the proceedings.

2. His Honour should have refused the application on the basis that respondent's application was for a judgment or order based upon an alleged agreement and/or cause of action which was not pleaded (either originally, or by amendment).

3. His Honour erred in apparently confusing the respondent's rights under the security services agreement pleaded in the statement of claim, and the respondent's alleged rights under the deed of settlement.

4. His Honour should have dismissed the application on the basis that the respondent should have commenced fresh proceedings if he wished to assert a claim based upon a settlement of proceedings WS 1221 of 1999.

5. Insofar as the application was for summary judgment under Order 12 Rule 38 of the National Court Rules, his Honour should have dismissed the application because –

(a) the application was not in respect of any claim for relief in the proceedings;

(b) there was no evidence given by the respondent or some responsible person that, in the belief of that person, the apellant had no defence to the action.

6. His Honour should have refused the application on the basis that the appellant had raised an arguable defence to the claim, namely-

(a) that the alleged agreement was illegal and unenforceable;

(b) the person or persons who purported to enter into the agreement on behalf of the appellant had acted without authority;

(c) the alleged agreement was ultra vires the powers of the appellant.

7. His Honour should have dismissed the application on the basis that the respondent had not complied with the provisions of the Claims By and Against the State Act 1996 in respect of the giving of notice to the appellant prior to bringing the application (or at all).

8. His Honour should have refused the application on the basis that the circumstances in which the alleged contract was made, and the amount of the settlement, raised a prima facie defence that the alleged agreement had been secured through improper or fraudulent means.

9. His Honour should have refused the application on the basis that the agreement purported to compel the appellant to pay far in excess of what could be found legally due to the respondent on an assessment of damages and in the circumstances gave rise to an arguable defence that the agreement was tainted by fraud.

10. His Honour should have dismissed the application on the basis of a defence of non-compliance with the provisions of the Public Finances (Management) Act.

11. His Honour erred insofar as he held that the notice of motion did not contain anything new.

12. His Honour erred insofar as he found there was no disputed issue or law.

Preliminary procedural point

I raise a preliminary procedural point in relation to the manner and the basis on which the notice of motion filed by the respondent and that I referred to earlier, was moved. I say this because when the presiding judge asked as to the basis on which the application was made, counsel for the respondent said the application was made pursuant to O4 R37 of the National Court Rules. This Rule provides;

"37. Interlocutory or other application in proceedings (19/1) An interlocutory or other application, in or for the purpose of or in relation to proceedings commenced or to be commenced by writ of summons or by originating summons, shall be made by motion."

Appellant's counsel submits that this rule does not identify the basis upon which the court was being asked to enter judgment or make an order for payment under the deed. The respondent did not have a response to this argument.

As it is, the respondent's motion in itself seeks substantive relief when it ought to have proceeded to assessment of damages. O 4 R. 37 of the National Court Rules is not the correct jurisdictional basis for such an application to be moved. It is settled law that interlocutory proceedings cannot be used to obtain substantive relief. Interlocutory applications simply facilitate or enable the substantive issues to be dealt with in due course. But they themselves cannot be relied on to secure substantive relief: (see John Momis, Michael Ogio, Sam Akoitai and Michael Laimo v the Attorney General, National Executive Council and the State N1951 dated 10.3.00). In that case, Counsel for the applicant sought to rely on the notice of motion to obtain final relief to the whole proceedings. His Honour Sir Mari Kapi, refused this application which terms were a duplication of the Originating Summons. In refusing the application, the learned judge said;

"Once that party chooses the procedure by way of originating summons, the matter should proceed to hearing in accordance with the rules. I suspect that these orders are sought in the notice of motion to determine the issues raised in the originating summons in a speedy manner. In my opinion, this is an abuse of process of the court and I would dismiss the balance of the motion on this basis".

In this case, the respondent, by its motion, sought substantive relief which was the balance of the amount to be paid under the deed of release.

This application, apart from being incorrect, is inappropriate, incongruous and inconsistent with the established rules of practice in that it was seeking final relief by way of notice of motion. The court then should have dismissed the application for being incompetent in that it had no basis in law.

This reinforces the long held practice that one cannot obtain substantive orders by way of motions and that a substantive matter can only be properly dealt with by a trial, after hearing evidence and the matter to then be decided on the merits.

Settlement and possible Defences

The appellant submits that a settlement or compromise gives rise to a new agreement between the parties and constitutes a fresh cause of action superceding the cause of action sued on. The appellant cited several case authorities, being Green v Rozen [1955] 2 All ER 797; Smythe v Smythe [1887] UKLawRpKQB 12; (1887) 18 QBD 544; Caltex (Overseas) Limited v Dent [1978] PNGLR 411. Counsel went further to cite other cases which state the position at law that a settlement precludes parties from proceeding further on the original action. These cases are Pryer v Gribble (1875) LR10 Ch App 534; Green v Rozen (supra); and Caltex (Overseas) Limited v Dent (supra).

Counsel for respondent submits that it is the appellant who should institute the new cause of action to invalidate the deed but because it did not do so, that the respondent is at liberty to obtain judgment on the amount settled in the deed of release. The appellant did not pay the amount owing under the deed for various reasons, the principle reason being that the deed of release was fraudulent and further that the respondent would have to file a fresh action if it wished to pursue payment of the balance agreed to be paid under the deed of release. At the hearing of the motion on 19.3.02, the appellant's lawyer raised several defences in support of its arguments on the validity of the deed and the proceedings. These were that;

1. the agreement was illegal and unenforceable;

2. Persons who entered into the agreement on the appellant's behalf acted without authority;

3. The agreement was ultra vires the appellant's powers;

4. that a Board meeting was not properly convened in accordance with procedure under the National Capital District Commission Act 1990 before a decision or resolution was reached by the appellants to settle by way of deed of release, hence the possibility of fraud being perpetrated;

5. that approval under s 61 of the Public Finance (Management) Act 1995 was not obtained prior to execution of the deed of release;

6. that appropriate notice was not given by the respondent to the State under s 5 of the Claims By and Against the State Act.

The respondent submits that the arguments now raised by the appellant, firstly at the hearing of the motion and at this hearing should have no effect because the judgment before the court then was for liability to be entered and for assessment of damages. They argued that all they were seeking from the court was for payment of the balance on the deed of release, the appellant already having paid some K2,000,000.00.

The issue then is whether that is proper under the law.

I have earlier discussed the law in relation to the execution of a deed of release and its effects on the filed court proceedings. In this case, the court has ordered the payment of the balance of monies required to be paid under the deed. The law is clear that in such a situation, the respondents should file fresh action in which the deed will be pleaded. This is because a deed of release is a contract, and upon execution of a contract, a new cause of action arises. I say this because whilst it is probably impossible to give one absolute and universally correct definition of a contract, the most commonly accepted definition of a contract is that, it is "a set of promises which the law will enforce" and these promises will include the document constituting or evidencing the series of promises or acts or their performance" (see Halsburys Laws of England, volume 9, 4th edition, para no. 201). Upon pleading the cause of action, outstanding payment under the deed can then be enforced under the fresh set of proceedings.

The respondent cannot claim on the original action, a cause of action he has not pleaded either originally or by way of proper amendment. This is because established practices and procedures must be followed and observed to avoid confusion and uncertainty, the consequences of which may be vague, unpredictable or dubious, ultimately, the end result being orders that were not sought at all. (see Ume More and Others v University of Papua New Guinea [1985] PNGLR 401).

I refer to the cases cited to the court by appellant's Counsel referred to earlier and set these out to illustrate the legal position, that the matter is completely settled when a deed of release is executed;

i. Green v Rozen and others (supra)

The plaintiff brought an action to recover £500.00, money lent to him to the defendants jointly, and a further sum of £50.00 alleged to be due from the first defendant as consideration for making the loan to the three defendants jointly. When the action came before the court, Counsel informed the court that the action had been settled and what the terms of settlement were. The agreed terms on the back of Counsel's briefs, were that defendants were to pay the plaintiffs a sum of £450.00 by instalments on the dates stated and other terms.

The defendants failed to pay the last instalment. The plaintiffs then made an application on the original action asking for judgment for the amount of the final instalment and an order for costs.

Slade J refused the application "...because the court having made no order in the action, the agreement compromising the action between the parties completely superseded the original cause of action and the court had no further jurisdiction in respect of that cause of action."

Per CURIAM: The plaintiff's only remedy was to bring an action on the agreement of compromise.

The court held further there that "...In my judgment, therefore, the plaintiff's remedy in this case to enforce the sum of £83 6s 8d., plus taxed costs which the defendants agreed to be paid, must be by action on the new agreement. I am sorry to have to come to that conclusion, because it may mean starting a new action, under R.S.C., Ord. 14, but, in my judgment, I have no jurisdiction – this is not a matter of discretion – to give the plaintiff the relief which she seeks..."

ii. Caltex (Overseas) Limited v Douglas Charles Dent (supra)

In that case, the plaintiff brought an action to recover K1434.00 from the defendant. After entry for trial, the matter was settled out of court on the basis that the plaintiff accept the sum of K838.84 in satisfaction of its claim, plus costs. The sum of K838.84 having been paid, and no agreement having been reached as to costs, the plaintiff made application to the court for an order "that judgment be entered for the plaintiff in the sum of K838.84 and costs."

Saldanha J held that "the agreement compromising the action had superseded the original cause of action, and there being no provision in the Rules of Court for judgment to be entered in the particular circumstances, the court had no jurisdiction to make an order and the application should be dismissed".

That being the case, if a new or fresh cause of action were to be instituted, the appellant can then properly raise the defences it raised at the appeal hearing being the defences of excess of authority, fraud, illegality the requirement to comply with s. 61 of the Public Finance (Management) Act and s 5 of the Claims By and Against the State Act and others it may wish to raise.

I find the respondent's arguments to be misconceived.

Discussion on other grounds of appeal

i. Summary judgment

It seems to me that the orders of the court made on 27.3.02 are similar to orders made in an application for summary judgment under O. 12 R. 38 of the National Court Rules. As His Honour said at p5 of his judgment, "The challenge is based on the requirement for summary judgment under O 12 R 38 of the National court Rules ...". And at pg 6 he said; "the plaintiff is entitled to be paid under the agreement and it is unjust to now raise s 61 defence to deny the plaintiff. How was the contract signed to start with? In all the submissions before me, no other defence has been raised. For example, whether the plaintiff would not be entitled to claim an unperformed part of the contract. Neither did the defendant allege any fraud. If it did, it had to strictly plead so. I am satisfied therefore that the defendant has no defence in either case."

In my view, the trial judge erred here in that the matter before him was for assessment of damages, judgment on liability having already been entered. His reference to there being "...no Defence in either case" is untenable.

Applications for summary judgment or any applications for any relief relying on the National Court Rules, are peculiar in themselves. (see Lindsay Lailai, Acting Managing Director and Anor v Ace Guard Dog Security Services Limited SCA No. 85 of 2001 and Lindsay Lailai, Acting Managing Director & Anor v Yama Security Services Limited SCA No. 87 of 2001 unnumbered judgment of Injia, Davani and Mogish .JJ, dated 6.5.03).

The underlying principles of summary judgment are;

- evidence of the facts proving the essential elements of the claim; and

- that the plaintiff or some responsible person gives evidence either verbally or by affidavit that in his belief there is no defence.

(On principles of summary judgment, see Kumul Builders Pty Ltd v Post and Telecommunication Corporation [1991] PNGLR 299; Bruce Tsang v Credit Corporation (PNG) Ltd [1993] PNGLR 112; Hornibrook NGI Pty Ltd v Lihir Management Company Pty Ltd and Wests Process Pty Ltd (Administrator Appointed) N1735 dated 18.6.98).

Assuming the trial judge entered summary judgment, I find that the above legal principles and requirements were not met and satisfied. Therefore, summary judgment would not have been appropriate.

ii. Deed of Release

The several grounds of appeal before the court raise issues on the validity of the deed of release and possible defences of fraud and illegality. The court refused these arguments.

Without delving into a full discussion on the possible defences that may be raised in the court below if this appeal is successful, I find that the defences raised by appellant's counsel were arguable and did have merit.

At the appeal hearing, and in response to the appellant's submissions on the possible defences as they related to the deed, the respondent's lawyer raised s 11 of the Frauds and Limitations Act of 1998. This section reads;

"11. EFFECT OF PART-PAYMENT

(1) Subject to subsection (2), a part-payment made in respect of a debt or other liquidated pecuniary claim binds all persons liable in respect of that debt or liquidated pecuniary claim.

(2) Notwithstanding subsection (1), a part-payment made after the expiration of a period of limitation specified for the bringing of an action to recover a debt or other liquidated pecuniary claim –

(a) shall not bind any person other than the person making the part-payment and his successors; and

(b) shall not bind any successor on whom the liability devolves on the determination of –

(i) a preceding estate; or

(ii) an interest in property under a settlement, taking effect before the date of the part-payment."

The respondent vehemently submits that the appellant in having already paid K2 million is now using these proceedings as a delay tactic, and which it has, throughout the duration of the existence of the deed of release, always resorted to.

In response, Mr Molloy submits that the respondent's submissions on s11 of the Frauds and Limitations Act 1988 are a distortion of the actual correct purpose of s11, which is that it applies to the time limit for bringing an action for part-payment of debts and is relevant in an application for want of prosecution which incidentally was filed by the respondents but was not pursued. Mr Molloy further submits that the respondents arguments on payment of the K2 million and its applicability to s11 of the Frauds and Limitations Act 1988 is misconceived and further, that the court should not accept it because there is no 'fresh evidence' before this court on this payment.

Apart from accepting that some payment may have been made by the appellants, I find on hearing both counsel, that it was during the administration of the former Governor Phillip Taku, that the deed of release and alleged payment was made and that it is the present administration of Bernard Kipit that now questions the legality of the deed. A party is entitled to have its say in court and the courts are here to ensure that there is adherence to and compliance with the law and that the law is not manipulated to an extent where one party suffers the consequences and is not given the opportunity to properly present its case in court. This is one such case. I earlier found that there are arguable defences. This matter must now proceed to a full hearing, the matter then to be decided on the merits. The respondent's submissions on s11 of the Frauds and Limitations Act 1988 are inappropriate, inapplicable and misconceived.

Secondly, the appellant submits that the amount of K8.5 million stated in the deed is K1million more than the amount pleaded in the statement of claim, of K7,513,835.84. The court below did not consider this argument, at all.

Thirdly, it is the appellant's submissions that because the deed of release states settlement is "without admission of liability" and "in full and final settlement of the claim," that because the respondents had already obtained judgment on liability, that this was not a proper basis for the compromised settlement. I find this argument has merit and as such, I uphold this ground of appeal.

Fourthly, the learned trial judge states further that the appellant should not use The Public Finance (Management) Act 1995 as a shield or cloak to "hide from enforcing its contractual obligation with anybody, individual or corporate." His Honour said in his judgment that a public body has no special immunity and that it must comply with its side of the bargain. In my view, the learned judge erred in not considering the appellant's submissions that a public authority in this case the appellant, contracting with another corporate entity, must obtain the s 61 approval which is a mandatory requirement. (see Public Finance (Management) Act) 1995; also see Jack Patterson v NCDC N2145 per Kandakasi J dated 5.10.01 and State v Barclay Brothers SCA62 and 63 of 2001 dated 31.12.02).

I find the learned judge erred when he refused to accept the appellant's submissions. I uphold this ground of appeal.

Lastly, the court did not accept that the claims in the statement of claim became a non-issue when the deed of release was executed. It then embarked on a reasoning which did not or failed to address the legal connotations associated with the existence of the deed. The learned judge's written reasons are a clear reflection of this, when he said, "... in this case of course, no deed was in existence when the writ was first issued. But the pleading does not contain anything new. It contains and encompasses what the defendant has known all along and has been unwilling to settle anything." This reasoning is an acceptance by the learned judge that the deed of release was, as far as he was concerned, non-existent. The orders he made were based only on the contents of the statement of claim. With respect, I find this to be a fundamental error.

Conclusion

I find the learned judge has erred on all the grounds herein. I allow the appeal with costs to the appellant, to be taxed if not agreed. I endorse the other consequential orders and suggestions by Justice Injia. I also certify the appearance of Southern counsel.

mogish j. I have read the judgment of Justice Injia and Justice Davani and I agree with their conclusions and orders.

Orders of the Court

1. The appeal is allowed;

2. The decision of the National Court 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 1221 of 1991 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, if not agreed, to be taxed;

6. Certify the appearance of Southern counsel.

Lawyer for the appellant: Posman Kua Aisi.
Lawyer for the respondent: Poro Lawyers.