Delphi Corporate Investigations Ltd v Kipit, City Administrator [2003] PGNC 29; N2480 (17 October 2003)

N2480

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

BETWEEN:

DELPHI CORPORATE INVESTIGATIONS LIMITED

-Plaintiff -

AND:

BERNARD KIPIT
CITY ADMINISTRATOR
-First Defendant -

NATIONAL CAPITAL DISTRICT COMMISSION
-Second Defendant -

WAIGANI: GAVARA – NANU, J
2003: 29th & 30th July,
17th October.

PRACTICE & PROCEDURE - Public Finances (Management) Act, 1995, ss. 55 and 61 - Public bodies - Mandatory statutory requirements to invite public tenders for works and to obtain Ministerial approvals for certain works must be strictly complied with -Contracts and agreements made in breach of such mandatory statutory requirements are illegal.

SPECIAL DAMAGES – Claims for specific amounts must be strictly proved as such claims cannot be inferred in law.

QUANTUM MERUIT – A claim for quantum meruit albeit based on an illegal contract or agreement upon which services have been rendered and received is a remedy capable of enforcement.

Cases cited:
Jack Livinai Patterson -v- National Capital District Commission - N2145
Banz Kofi Fektori Pty Ltd -v- Raymond Simon Apa – N2347.

Other cases cited:
Craven-Ellis -v- Cannons Ltd [1936] 2 K.B. 403; [1936] 2 All E.R. 1066.
Fillet -v- Denilliquin Publishing Co. Ltd. [1964-5] N.S.W.R. 383.
Phillips -v- Ellison Bros. Pty Ltd (1941) 65 CLR 235.
Newton -v- Brownett [1940] NSWStRp 54; (1940) 41 S.R. (N.S.W) 1.

Counsel:
M. Phillip for the plaintiff.
J. Aisa Jnr. for the defendants.

GAVARA-NANU J: The plaintiff is claiming K 249,000.00 in unpaid claims for services it says it rendered to the second defendant from 09th September, 1999, to 08th December, 1999, and from 09th December, 1999, to 08th May, 2000.

The back ground facts briefly are these - On 08th September, 1999, the government suspended the National Capital District Commission (hereinafter referred to as ‘the Commission’) and appointed Mr Jamie Maxton Graham as the Manager to manage the affairs of the Commission. The appointment was made by the Head of State acting on advice of the National Executive Council and pursuant to s. 38 of the National Capital District Commission Act, 2001. The appointment was gazetted in the National Gazette No. G119, on 7th September, 1999, and the gazettal notice stated that Mr Graham may exercise all the suspended powers and functions of the Commission.

After the suspension of the Commission, the Minister for Provincial and Local Level Governments set up an investigating team to investigate into the affairs of the Commission. That investigation was set up because of the alleged widespread mal-administration of the Commission by the management which led to the suspension of the Commission. The investigation team was headed by TSK International Ltd, (hereinafter referred to as ‘TSK International’) as the principal investigator and as part of the investigating team under TSK International were Tamutai Lawyers, the police fraud squad and the plaintiff.

To enable TSK International to do the investigations, the second defendant and TSK International entered into an agreement. Under the agreement, TSK International was to provide consultation services to the Commission for three months from 09th September, 1999, to 08th December, 1999. The cost of that investigation was agreed at K400,000.00. In clause 3 of that agreement, it was agreed that K100,000.00 was to be paid upon the execution of the agreement and K75,000.00 was to be paid on 10th October, 1999, and another K75,000.000 was to be paid on 10th November, 1999, and the final payment of K150,000.00 was to be paid upon completion of the final report on the investigations. The contract specifically provided that those payments were to be made to TSK International.

It was conceded by the plaintiff at the trial that, the understanding was that, its fees were to be paid out of the K400,000.00, which the second defendant paid to TSK International. It was also the understanding that Tamutai Lawyers were also to be paid out of that K400,000.00. It is however, not clear as to whether any of that money was to be paid to the police fraud squad.

It is to be noted though, that the agreement between the second defendant and TSK International was only between them and did not include the plaintiff and Tamutai Lawyers. There is no provision in that contract for the other investigators to be paid out of the K 400.000.00.

The plaintiff’s argument is that, because the second defendant failed to ensure sufficient funds to pay its fees, the second defendant is liable to settle its fees. The plaintiff also claims that because the second defendant paid Tamutai Lawyers’ fees when TSK International refused to pay their fees, it is only fair that the second defendant also pays its fees.

TSK International refused to pay the plaintiff’s fees saying that it had no obligation under the contract entered into between it and the second defendant. It appears that TSK International also refused to pay Tamutai Lawyers’ fees for that same reason. There is evidence that a cheque for the amount of K 66,225.50 was raised by the second defendant in payment of Tamutai Lawyers’ fees.

The defendants have denied all the claims by the plaintiff saying that because the arrangement was for TSK International to pay the other investigators out of the K400,000.00 paid to TSK International, the plaintiff should sue TSK International for its fees.

I should state here that, any arrangements made between the second defendant and TSK International for the latter to pay the plaintiff and other investigators out of the K 400,000.00, appears to have been made verbally, because the only indications of such arrangements if any, are from the correspondences between Mr Graham and Mr Pera to TSK International in which the latter was told to pay the plaintiff’s fees.

It is noted that the rate at which the plaintiff is claiming its costs for the period from 9th September, 1999 to 8th December, 1999, is K 55,000.00 per month.

The other claim that the plaintiff is making is for the period from 09th December, 1999, to 8th May, 2000. It says, its services were engaged by the second defendant for that period pursuant to the Certificate of Inexpediency approved and issued by Mr Graham. Under that engagement, the plaintiff was to investigate matters which were either not investigated at all or were not fully investigated by TSK International and its co-investigators including the plaintiff in the period between 9th September, 1999, to 08th December, 1999.

For the plaintiff’s second engagement under the Certificate of Inexpediency, the rate at which the plaintiff is claiming its costs is K27,000.00 per month. It is noted that the plaintiff was paid for three months of that engagement. However, the plaintiff says its services for the rest of the period have not been paid.

The defendants say, the plaintiff’s services, if any, which were rendered during the balance of the second period of its engagement were not authorized by the second defendant. They say, the Certificate of Inexpediency under which the plaintiff is making those extra claims also makes it clear that the continuation of plaintiff’s engagement by the second defendant was subject to review. So when the defendants reviewed the plaintiff’s engagement, they decided that what was paid to the plaintiff for three months was enough and they would not engage the plaintiff further.

The other main argument advanced by the defendants is that all arrangements or agreements entered into between the second defendant and TSK International and the plaintiff were in breach of the Public Finances (Management) Act, 1995. They argue that no public tenders were invited for the works and the costs of those works being more than K100,000.00, the approval of the Minister should have been obtained but was not obtained. The defendants say the limit of the value of works Mr Graham could approve was only up to K 100,000.00. For works worth beyond that amount, the approval of the Minister had to be obtained.

The defendant is a public body and as such is accountable to the public. Section 23 of the National Capitals District Commission Act, makes it clear that Part VIII of the Public Finances (Management) Act, applies to and in relation to the Commission, subject to such modifications as are contained in Part V of the National Capital District Commission Act. This means the tender requirements under s. 59 of the Public Finances (Management) Act, must apply to all works given out or awarded by the Commission, except for those works exempted under. S. 59 (2) of that Act.

No individual in the Commission, be it the Governor or the City Manger or any other official of the Commission has the power and authority to hand pick individuals or companies to be engaged by the Commission for works which require invitations for public tenders and approval by the Minister. These are requirements under ss. 59 and 61 of the Public Finances (Management) Act, which are in mandatory terms, and they must be strictly complied with by the second defendant when awarding contracts of this magnitude. In both cases, the plaintiff is claiming amounts of more than K100,000.00. And the works were awarded by Mr Graham.

Thus the tender requirements under s. 59 and the requirement for the Ministerial approval under s. 61 of the Public Finances (Management) Act, not being complied with, the agreements entered into between the second defendant and TSK International and the plaintiff were illegal.

Even if Mr Graham had the authority to approve works worth up to K500,000.00, by reason of him performing the suspended powers and functions of the Commission, I am of the firm view that, the agreements were illegal because public tenders were not invited as required by s. 59 of the Public Finance (Management) Act.

As to the Certificate of Inexpediency, it could only be issued under s. 59 (2) (b) of the Act, upon certification by the Commission that inviting of tenders, was not practicable or inexpedient. And the Certificate of Inexpediency appears to have been issued to the plaintiff in breach of that provision because there is no certification by the Commission that inviting of tenders was not practicable or inexpedient. Thus the Certificate of Inexpediency being improperly approved and issued, all agreements and works made and performed pursuant to the Certificate of Inexpediency were illegal.

The need to strictly comply with ss. 59 and 61 of the Public Finances (Management) Act, by the public bodies was emphasised by Kandakasi J. in the case of Jack Livinai Patterson -v- National Capital District Commission - N2145. I respectfully agree with the observations made by his Honour in that case.

Public bodies such as the Commission are financed by the public, thus they must strictly comply with the requirements of the Public Finances (Management) Act, which is there to ensure that the money belonging to the public are properly managed and accounted for. This cannot be emphasized enough. The purpose and the legislative intent of the Act, is to ensure transparency by the public bodies in all their financial dealings. That is a duty imposed on the public bodies because they belong to the public. They are not private companies which are privately owned.

There is another reason why the plaintiff’s claims cannot be sustained. The plaintiff has not produced any evidence of the services it says it rendered to the defendants. All that has been produced by the plaintiff are its letters to TSK International and to the management of the second defendant and from the second defendant to TSK International, all concerning the plaintiff’s unpaid fees. There is no evidence that the jobs were actually performed by the plaintiff. The plaintiff referred to the works it says it did in its correspondences but that is not enough to show to the Court that those works were actually done. The plaintiff has the onus to prove its claims against the defendants and in failing to produce such evidence, there remain serious gaps in its case.

As to the plaintiff’s second claim based on K 27,000.00 per month, it is claiming for further 3 months but the Certificate of Inexpediency covers only 3 months for which it has been paid. Therefore no further claims can arise under the Certificate of Inexpediency. On this point it is noted that the Certificate of Inexpediency was signed and approved by Mr Graham on 18th February, 2000. There is no provision in that Certificate which says that it also covered the period from 9th December, 1999, to 17th February, 2000. And yet the plaintiff raised an invoice for that period for the amount of K 60,500.00. The invoice is Annexure ‘R13’ to the plaintiff’s affidavit. Further more, that invoice does not state the particulars of the services the plaintiff rendered, nor does it state as to when those services were rendered and how they were rendered. It is important that these particulars had to be provided in the invoice because, that would assist the Court in determining whether the fees charged are genuine.

The plaintiff is making claims for specific amounts by way of special damages. The claims must therefore be strictly proved upon evidence properly adduced. They are not matters which can be inferred in law. See Banz Kofi Fektori Pty Ltd -v- Raymond Simon Apa – N2374.

From the correspondences by the plaintiff to both TSK International and the second defendant as well as the other documents produced to the Court, it can be clearly seen that in the second engagement of the plaintiff under the Certificate of Inexpediency, there would have been a lot of duplication of works already done by the previous investigators, which includes the plaintiff. For instance, in the areas of alleged fraud, it obviously would have been investigated earlier by the police fraud squad and TSK International. This means the amount of works actually done or would have been done by the plaintiff would be much less both in volume and value. These points are however, only academic because, I have already found that the Certificate of Inexpediency was improperly approved and issued, thus no fresh claims can arise from it.

The plaintiff has also failed to prove the reasonableness of his claims for both periods. There is no evidence before the Court that the rate at which the fees were charged by the plaintiff were discussed and mutually agreed to between the plaintiff and the second defendant. This is significant because the plaintiff is making its claims allegedly upon agreements made between it and Mr Graham. Even the reduce rate of K27,000.00 per month for the second period appears excessive.

The defendants told the Court that the plaintiff was paid for three months of its engagement under the Certificate of Inexpediency. Although such payment would have been illegal for the reasons already given, that in my view was sufficient payment for its services on quantum meruit. I find support on this in the case of Craven-Ellis -v- Cannons Ltd [1936] 2 K.B. 403; [1936] 2 All E.R 1066. In that case, the plaintiff was appointed managing director of a company by an agreement under the company’s seal, which provided for his remuneration. By the articles of association, each director was required to obtain certain qualification shares within two months of his appointment. Neither the plaintiff nor the directors ever obtained those shares. The plaintiff nevertheless, purporting to act under the agreement, rendered services for the company and sued for the sums specified in the agreement, or, alternatively, for a reasonable remuneration on quantum meruit.

The Court of Appeal held that the agreement was void because the persons purporting to act as directors had no authority to bind the company. The claim therefore had to fail. However, since the services were rendered to the company and the company had benefited from those services, the alternative claim on quantum meruit could succeed.

Lord Greer at page 412 said:

"The obligation to pay reasonable remuneration for the work done when there is no binding contract between the parties is imposed by rule of law, and not by inference of fact arising from the acceptance of services or goods. It is one of the cases referred to in books on contracts as obligations arising quasi ex contractu."

Applying the principle to this case, the agreement in this case was illegal by reason of the Certificate of Inexpediency being approved and issued improperly, however, the plaintiff having rendered services to the second defendant and the second defendant having benefited from those services, the amount paid to the plaintiff for three months of the plaintiff’s engagement under the Certificate of Inexpediency can still be retained by the plaintiff as on quantum meruit. See also [1963] 2 All E.R 1066 at page 1073.

The principle in Craven-Ellis -v- Cannons Ltd (supra) which, albeit appears to be an obiter dictum, was expressly approved and applied by the Full Court of the Supreme Court of New South Wales in Fillet -v- Deniliquin Publishing Co. Ltd [1964-5] N.S.W.R 383 at pages 385 and 388. See also Phillips -v- Ellison Bros.Pty Ltd. (1941) 65 C.L.R 235 and Newton -v- Brownett [1940] NSWStRp 54; (1940) 41 S.R (N.S.W.) 1, at page 6.

In this regard, I reject the submission made by the defendants that no claim arises for the plaintiff on quantum meruit. The authorities cited by the defendants in support of their argument basically deal only with the issue of illegal contracts, and not with the issue of quantum meruit, as it did not arise for consideration in those cases. Thus they have no relevance and application to the issues before me.

Here, the plaintiff had rendered services to the second defendant from which the second defendant had benefited, albeit under illegal agreements. The principle of quantum meruit must apply in such circumstances. It is in my view, giving efficacy to the equitable principle of fairness to the plaintiff.

However, any further payment beyond what has already been paid to the plaintiff would not only be illegal but an unfair and unjust enrichment to the plaintiff at the expense of the Commission. Such claims must be rejected.

For these reasons, the plaintiff’s claims for extra payments beyond what has already been paid to it are dismissed.

The plaintiff will pay the defendants’ costs.
________________________________________________________________________
Lawyers for the plaintiff : Kassman Lawyers
Lawyers for the defendants : NCDC Legal Division