Robmos Ltd v Punangi [2008] PGNC 70; N3372 (14 May 2008)

N3372

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS 1041 OF 2005

BETWEEN:

ROBMOS LIMITED
Plaintiff

AND:

FREDRICK M. PUNANGI
First Defendant

AND:

MICHAEL THOMAS SOMARE
AND THE PERSONS NAMED IN SCHEDULE 1
Second Defendant

AND:

THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Third Defendant

Waigani: Davani .J
2007: 4th December
2008: 14th May

JUDICIAL REVIEW – NEC’s decision to issue closed tender – breach of tender process – ultra vires its powers – s. 40 of Public Finance Management Act

JUDICIAL REVIEW – Contract – tender process – non compliance with – contract illegal

JUDICIAL REVIEW - Financial Instructions – definition – has similar force and effect as the Public Finance Management Act and Regulations – ss. 2 and 117 of Public Finance Management Act.

JUDICIAL REVIEW – closed tender – National Tenderer – who is -National Tenderer not considered – breach of tender rules – Tender Board bound by Financial Instructions and Public Finance Management Act – s. 39 (4) and 41 of Public Finance Management Act

JUDICIAL REVIEW – Certificate of Inexpediency – Central Supply and Tenders Board - process not followed – certificate improperly issued – s. 40 (3) (b) of Public Finance Management Act; Div. 4 of Financial Instructions.

Facts

The plaintiff was requested by the Director of Supplies for the PNG Defence Force (PNGDF) to provide a quotation to it for the supply of ceremonial uniforms and accessories to be used during the 30th Independence anniversary celebrations. The plaintiff submitted a quotation for K1,766,255.00. Three Australian companies also gave quotations, one of whom was awarded a closed tender for the amount of K2,217,833.19.

The closed tender was approved at an NEC meeting which considered the four quotations. The NEC also directed the Secretary for Department of Finance to provide authority to pre-commit funds for a closed tender to that company. Thereafter, upon the Secretary for Finance’s advice, the PNGDF requested the Central Supply and Tenders Board for a Certificate of Inexpediency, citing the urgent need for the uniforms and equipment. The Certificate of Inexpediency was issued, relying on these reasons.

Held

1. The NEC did not have the authority or the power to approve the quotations;

2. The tender process under the Public Finance Management Act was not complied with;

3. Preference must be given to National Tenderers when Tenders are being considered to be done in accordance with the Public Finance Management Act and the Financial Instructions;

4. The Public Finance Management Act includes the Financial Instructions.

5. The Public Finance Management Act, the Public Finance Management Regulations and Financial Instructions must all be read together and considered by Departmental Heads and the Tenders Board when considering quotations and tenders because the Public Finance Management Act includes the Rules, Regulations and Financial Instructions.

6. The Certificate of Inexpediency must clearly identify, amongst others, the reasons why a certificate should be issued.

Cases cited:

Papua New Guinea Cases

Kekedo v Burns Philip (PNG) Ltd [1988-89] PNGLR 122;
Application of Demas Gigimat [1992] PNGLR 322;
Application by Posai [1995] PNGLR 350;
Air Niugini Limited v Beverly Doiwa – as Chairperson of the Industrial Relations Tribunal (2000) N1972;
The Independent State of Papua New Guinea v Barclay Brothers (PNG) Ltd (2001) N2090.

Overseas Cases:

Associated Provincial Picture Houses v Wednesbury Corporation [1947] EWCA Civ 1; [1948] 1 KB 223;
Chief Constable of North Wales Police v Evans [1982] UKHL 10; [1982] 1 WLR 1155 at 1160;
Council of Civil Services Unions v Minister for the Civil Service [1983] UKHL 6; [1984] 3 All ER 935;
ABC v Redmore Pty Ltd [1988 – 89] [1989] HCA 15; 166 CLR 454;

Counsel:

G. Poole, for the plaintiff
B. Bakau, for first, second and third defendants

DECISION

14 May, 2008

1. DAVANI .J: The plaintiff, Robmos Limited (Robmos), applies for judicial review seeking orders in the nature of Declarations and Mandamus against the National Executive Council’s (‘NEC’) decision of 22nd July, 2005, No. 157/2005, meeting No. 35/2005, as being ultra vires the powers of the NEC in that it purported to authorize a breach of a public statute being the Public Finance (Management) Act 1995 (‘PFMA’). The plaintiff also seeks an order of prohibition forbidding the Central Supply and Tenders Board from awarding or approving any tender to a non-national tenderer otherwise then strictly in accordance with the provisions of the PFMA and the Financial Instructions issued under s. 117 of the PFMA. Section 117 of the PFMA reads;

"117. Financial instructions.

The Departmental Head of the Department responsible for financial management may issue Financial Instructions, not inconsistent with this Act, as to any matter prescribed by this Act to be so provided for, or that are necessary or desirable for carrying out or giving effect to this Act and in general for the better control and management of public moneys and public property."

"This Act" is defined by s. 2 of the PFMA as;

"includes the Regulations, Rules and Financial Instructions" (my emphasis). Therefore, the Financial Instructions must always be considered and read together with the PFMA. (my emphasis)

2. ҈&The defe defendantsdants oppose the application and rely on the affidavit of Lieutenant-Colonel Joe Ben sworn on 27th September, 2007 and filed on the same day.

Background

3. ;The plaintiff ns a nationational company which is 100 percent Papua New Guinean owned and has from time to time tendered for anrded acts pply and materials to the Papua New Guinea Defence Force (‘8216;PNGDFPNGDF̵’) a7;) and other government bodies.

4. &#1 support of its applicatlication, the plaintiff relies on the affidavit of P. J. Ward sworn on 9th November, 2005 and filed 27th November, 2005.

5. &##160; fovejudi judicial rial review was granted on 24th April, 2007. The decisions sought to be reviewed are the following;

- The decision of the Secretary of the Department of Defto pr auth to preo pre-comm-commit a it a closed tender to an Australian company known as the Australian Defence Apparels Limited (ADA), for uniforms for the PNGDF for PNG’s 30th Independence Anniversary celebrations.

- The decision of the Secretary for the Department of Treasury (Finance) to fund the procurement of ceremonial uniforms from Australian Defence Apparels Limited for the PNGDF for the 30th Independence Anniversary celebrations, for the sum of K2,217,833.19.

6. &##160;s wmo cons contactedacted by the Director of Supplies for the Defence Force on 8th April, 2005 and requested to supply and de a tion e PNGDF for the supply of ceremonial uniforms and accessories for the Dthe Defencefence Fore Force to be used during the 30th Independence anniversary celebrations. On 21st April, 2005, Robmos submitted a quotation for the amount of K1,766,250.00.

7. Totee coeraniep also submisubmitted quotations for the supply of ceremonial uniforms and accessories for the PNGDF. They were International Exports Limited of Cairns, Australia; Australian Defence Apparels Limited of Coburg, Australia and Combat Clothing Limited of South Port, Australia. Robmos was the only national tenderer.

8. On 22nd July, 005,NEhe t i at its special meeting No. 35/2005, awarded the contract for supply of uniforms and accessories to Austr Defepparemited NEC directed the Secretary for Department of Finance toce to prov provide aide authoruthority tity to pre-commit funds for a closed tender to that company. This was its Decision No. 157/2005.

9. ҈By his letter of 18tf 18th August, 2005, the Secretary for Finance gave approval and his authority to pre-commit K2,217,833.19 for the purchase of those uni and soriem Ausan Defence Apparels Pty LimitLimited.

10. Upon the Secrefary inr Fe&#nce’s advice, the PNGDF went the next step by writing to the Chairman of the Central Supply and Tenders Board requesting a Certificate oxpedito beed toSuch a request was done by thby the Sece Secretarretary fory for Defence by his letter of 22nd August, 2005, which was received by the Central Supply and Tenders Board Office on 23rd August, 2005.

11. ـBy r of 1 of 10th Auth August, 2005, signed by the Chairman of Central Supply and Tenders Board, the said board approved and issued to the PNGDF a Certificatenexpey approving the amount committed for the purchasechase of t of the uniforms and apparels and also approved the supplier Australian Defence Apparels Pty Limited. This letter was received by the Department of Defence on 31st August, 2005.

12. ҈ The plaintiff tiff seeks to review all the above actions.

Issues

13. & I noese ho be the issues foes for my consideration. These are;

i. Whethehether the National Executive Council acted ultres o 22nd, 200n reaching its decision no. 157/2005.

ii. Whethehether ther the Cent Central Sral Supply and Tenders Board is bound by the provisions of the Public Finance (Management) Act 1995 and the Financial Instructions in its procedures and decisions in the awarding of tenders.

iii. Whether the Secretary for the Department of Defence’s actions in providing the authority to pre-commit funds for a closed tender to a non-national tenderer has authorized a breach of the PFMA relating to the calling, consideration of and awarding of tenders.

iv. Whether Prohibition should go towards forbidding the Central Supply and Tenders Board from awarding or approving tenders to a non-national tenderer otherwise than strictly in accordance with the provisions of the Public Finance (Management) Act 1995 and the Financial Instructions.

Analysis of Evidence and the law

14. The established grounds on which administrative decisions can be reviewed are the following;

i. Want or excess of jurisdiction;

ii. Where there is an errolaw o facehe re

iii. Failure to complcomply wity with theh the rule rules of natural justice;

iv. The Wednesbury principle – where a power is exercised in so unreasonable a manner.

(see Council of Civil Services Unions v Minister for the Civil Service [1983] UKHL 6; [1984] 3 All ER 935; Application of Demas Gigimat [1992] PNGLR 322; Kekedo v Burns Philip (PNG) Ltd [1988 – 89] PNGLR 122).

15. & Judicial RevieReview is concerned with the decision making process. It is not an appeal from the decision making body. As Amet CJ said in Air Niugini Limited v Beverly Doiwa – as Chairperson of the Industrial Rens Trl (2000) N1972 da72 dated 8ted 8th June, 2000, which I wholly adopt;

"In essence the inquiry to be conducted in a judicial review is not as to the correctness or otherwise of findings of fact or the ultimate determination or decision but rather the process and procedures by which that decision was arrived at. Fundamentally it is to be recognised that the administrative, quasi-judicial or judicial decision making body is entrusted with the final discretionary power to make a decision or judgement or determination based on all the material facts that are brought to its attention. It is not the function of a judicial review to inquire into the adequacy of such materials or the correctness of the assessment and determination of those primary factual materials but it is a review into the process of applying those primary materials in arriving at the discretionary judgment.

16. ـAgarom ChChief Constable of North Wales Police v Evans [1982] UKHL 10; [1982] 1 WLR 1155 at 1160 adopted by Sheehan .J in Application by Posai [1995] PNGLR 350;
"That is just another way of saying that the Court must not act as a Court of Appeal. The Court cannot make the decision of the public authority for it. All that it is empowered to do is to ensure that the decision is made according to law and within the jurisdiction given to that body. "

17. The ret lanislagion that that the plaintiff alleges the defendants did not comply with is the PFMA. Together with the PFMA are the Financial Instructions which must all be considered and read together. The PFMA, Rules, Regulations and Financial Instructions must all be implemented by departmental heads and those who find themselves requiring the use of this legislation and instructions. In my view, according to s. 2 of the PFMA, the Financial Instructions has similar force and effect as the PFMA.

18. &# set n f il bell below, tow, the relevant provisions of the PFMA which the plaintiff alleges the defendants did not comply with.

19. Sectioset0 out he procedurcedure on the awarding of tenders. It reads;

"40. Tenders for property, stores, works and services.

(1) Subject to—

>

(b(b) Sec) Section 41,

tenders shall be publicly invited and contracts let for the purchase or disposal of property or stores or the supply of works and services the estimated cost of which exceeds the prescribed amount.

(2) In relation to the purchase or disposal of property and stores and the supply of works and services the estimated cost of which does not exceed the prescribed amount, the provisions of the Financial Instructions shall apply.

(3) The preceding provisions of this section do not apply to the purchase or disposal of property or stores or the supply of works and services—

(a) that are to be purchased from, disposed of to, or executed or performed by—

(i) a public body or an authority or instrumentality of the State approved for the purpose by the Minister; or

(ii) a Provincial Government; or

(iii) a Local-level Government; or

(iv) an approved overseas agency; or

(b) in respect of which a Board certifies that the inviting of tenders is impracticable or inexpedient; or

(c) where, in individual transactions involving amounts not exceeding K500,000.00, the Minister in his discretion considers that there is a natural disaster or it is not expedient or proper to call public tenders and, prior to the goods or services being provided, by certificate in writing narrates these circumstances and waives the provisions of this section; or

(d) where the terms of an agreement concluded, or proposed to be concluded, with any international organization under which the State is to receive moneys, make specific provision for the manner in which tenders will be invited for contracts to be performed in relation to the agreement.

(4) In Subsection (3)(a)(iv), "approved overseas agency" means the government, a government department, a government instrumentality or a statutory corporation of a country other than Papua New Guinea approved by the Minister by notice in the National Gazette.

(5) In relation to contracts for the supply of works and services, the provisions of this section and of Section 41 shall apply to—

(a) turnkey contracts; and

(b) build-operate transfer contracts; and

(c) contracts which in substance are similar to turnkey contracts or build-operate transfer contracts; and

(d) contracts involving the expenditure of public moneys."

20. Part VII of thA PFMtaconng ning sections 38A to 47, is the part on State tenders and Contracts. Section 39 of the PFMA establishes the Board that controls and regulates urchad dis of s and supply of works for and and on beon behalf half of thof the State other than those for which a specialized supply and tenders board has been established. There is, at present, no specialized Supply and Tenders Board for the Defence Force, Royal Papua New Guinea Constabulary (Police) or the Correctional Services Institute (CS). This is confirmed by Section 2 of the Financial Instructions which sets out the Statutory Boards and Committees that have been gazetted. The Defence Force, Police and CS are not included.

21. ـ Section 39 of 9 of the PFMA reads;

"39. ـ Supply and tenders ders boards.

(1) ;&#16e Minister ster may, bay, by notice in the National Gazette, establish such numbeSuppl Tenders Boards, rds, as he, on the advice of the Departmenrtmental Head of the Department responsible for financial management, thinks necessary to control and regulate—

(a) trchase and disposal of prof property and stores; and

(b) the supply of works and services,for and on behalf of the State.

(2) & A notice lish lishing a Supply and Tenderenders Board under Subsection (1) shall specify—

(a) the s of authorid jurtionrtion e Board; and

(b) the pole policy to be applied by the Board; and

(c) the criteria for taluatf n of tenders to be employed by the Board.

(3) The Mer sty maae Rules, nos, notnsistent with this Act or the Financial Instructions, prescribing—

(a) the procedure meetin the the s incg fixf quorum; and

(>(b) tb) the mahe manner nner of inviting tenders publicly; and

(c) the methodealinh tenders;ders; and

(d) the criteria toia to be applied in the evaluation of tenders; and

(e) appont by the Boards of adof advisers in technical matters; and

(f) t0; the keepinghe Boardsoards of records o performance of each successful tenderer; and

(g) theod of obtainbtaining aing and dealing with quotations for&#

(i) ; the purchaurcaase and disd disposal of property and stores; and

(ii) & the supply of y ods ood send services; and

(h) the manner of regulatin dthe disposal of property and stores no longer red byState

(4) &#160 Minister fay, from tiom time time to t to time, ime, issue to Boards policy directions as e giving of preference to n to national tenderers and local manufacturers, and such directions shall be binding on Boards

.

(5) inister may, by notice in e in the National Gazette, appoint an officer to be the alternate of a member of the Board.

(6) &##160; In the event oent of the aesence of a member of a Board from a meeting of the Board or his inability for any reason to act in relation to a matter, his alternate has and may exercise and perform all his powers and func for the purpose of that meat meeting or in relation to that matter.

(7) ټ The Minister ster may, at any time, by written notice to a member or the alternate of a me remove thve the member or alternate as the case &#160be, apoint another person in his place."

22. Section 39 (4) of the PFMA autA authorizes the giving of policy directiod specifically states that that preference shall be given to national tenderers and that these directions "shall" be binding on Boards. Therefore, a tender Board is bound by the Financial Instructions and must consider them.

23. &#1"NatiTeal rerderer" is d is defined in s. 2 of the PFMA as "an automatic citizen and includes a firm or company that is, in the on ofBoardly or mainly owned or controlled by automatic citizens".

24

24.&#16. &##160;on 4ion 41 of PFMA pFMA provides that, where a Minister is satisfied that a contract is not likely to exceed K1 million, he may, by written order, direct tenderrestricted to national tenderers. Section 41 read reads;

"41. Preference to national tenderers

Where a Board is satisfied that the value of a contract is not likely to exceed K1,000,000.00 or such lesser amount as the Minister directs, it may by written order direct that tenders be restricted to national tenderers (in which case the provisions of Section 40 apply to that contract)."

25. The value of the con ractsuhe subject of this hearing, exceeds K1 million.

26. Part 9 (now Part 24) of th<Financial Instruction withe Ten Division 2 specifically deal deals wits with preh preferenference to Local Industries and National Tenderers.

27. ;&#16agrapof division 2 (no2 (no2 (now secw section 6.2 of Division 2 of Part 24 of the Financial Instructions is in the following terms;

. Directions on Preference to National Tenderers

...

6.2 Where a national tenl tenderer is a business firm or company wholly owned or controlled by automatic citizens, a notional reduction of 15 percent is to be made to the prices quoted by it while making price comparison of bids...".

28. ҈ Division 2 of 2 of Part 21 (now Part 24) of the Financial Instructions deals with public bodies. S. 2 of the PFMA defines a "public body" as being "a body, auty orrumentality (corp(corporate or unincorporated) established shed by or under an Act or a Constitutional law." Section 188 (1) of the Constitution establishes State Services. The PNG Defence Force is one such State service. Section 188 (2) of the Constitution provides for acts of Parliament to be enacted to regulate State Services. The Defence Act was enacted to comply with s. 188 (2) of the Constitution.

29. ـParof thef the FiFinancial Instructions contains policy directions approved by the Minister under section 60 of the PFMA which applies to all publices ansidiary corporations. The directions state that phat preferreference must be given to national tenderers. Paragraph 3.3 (now paragraph 6.3) of Division 2 of part 24 is in the following terms:

"6.3 In the case of contracts

Public bodies and subsidiary corporations shall restrict the invitation of tenders up to the value of K5,000,000 only to businesses that are completely nationally owned or to certain categories of resident companies which have demonstrated a long-term commitment to supporting national subcontractors and the training of local staff subject to their satisfying that they have the requisite capacity to carry out the contract. Decisions as to eligibility will be made by a Technical Committee established in accordance with paragraph 13 of Part 9 - State Tenders."

30. Tlicy directions also stat state, at paragraph 7 (i) and (iv);

"7.Directions on Preference to Local Manufacturers.

The following directiill bding blic s and subsidiary corporationstions as p as part oart of thef the Governments industrial policy for according preference to goods locally manufactured;

(i) All tender notices must be published in Papua New Guinea in addition to the media in Australia and other countries as required.

...

(iii) Tenders must allow local bidders to bid in smaller parcels as far as possible. The local origin of materials and labour will be the criterion to decide what is "locally manufactured". In case of doubt, the Department of Commerce and Industry should be consulted."

"(iv) where there are bids from suppliers of imported goods and locally manufactured goods in response to an invitation to Tender, a notional addition equivalent to the import duty shall be made to overseas bids, if the imports are eligible for exemption from duty, for price comparison with the locally manufactured goods.

..."

31. &#16ction 8 ofsiivision 3 on 3 of Part 24 of the Financial Instructions states;

"Ministers approval for contracts

32. ҈Section 9 of Divisiovision 3 of Part 24 of the Financial Instructions also states that when contracts are referred to the Minister for prior approval, amongst the informationh public bodies are requirequired to provide is "a covering minute" stating amongst others;

- whether tenders were publicly invited as required under Section 59 (1) of the PFMA and if not, to provide brief reasons for waiving that requirement;

- Whether the contract cost is included in the approved budget of the public body;

- A comparative statement of the various bids;

- if the lowest bid is not accepted, to provide the reasons for doing so;

- Whether the policy directions issued under section 60 of the PFMA to give preference to national tenderers or local manufacturers have been complied with.

33. ـNo coveriovering ming minute is before this court, I assume because no such meeting was conducted.

34. &#16 defesdantmisubmit that that as time was of the essence, it was necessary that the PNGDF obtain a Certificate of Inexpediency and not comply with the normal tender processes as provided under section 40 of the PFMA. The State submits that the tender process was waived pursuant to s. 40 (3) (a) (i) (b) of the PFMA by the Chairman of the Central Supply and Tenders Board. The State submits thaause ause a Certificate of Inexpediency was issued, that there was no need for the PNGDF to invite the public to bid for the supply of the military apparel. The defendants also submit that apart from time being of the essence, that if the PNGDF had selected Robmos to supply the military uniforms and accessories, that the plaintiff company would then have to place orders with overseas suppliers for the ordered equipment, before selling them again to the PNGDF. The defendants submit that it was not practical to appoint the plaintiff company as the supplier for military uniform and accessories because of the very limited time factor. The defendants submit that the Australian Defence Apparels Pty Limited had a uniform factory and was well stocked to supply the materials needed within a limited time frame.

35. ҈ I shall now reow revert to the discussion of the issues posed by the plaintiff.

i. Issue no. 1: Whether the National Executive Council ultres on the 22nd July, 2005, when reaching its deci decision no. 157/2005 –

36. BefoC’s Special MeetiMeeting No. 35/2005, was the Department of Defence’s Policy Submission signed by the then Minister efenc date July5. This document was the Department of Defence’s requesequest fort for fund funding wing which set out the reasons why it needed the military uniforms and accessories and the amount required. In that document, the department emphasized the need for immediate delivery of the uniforms and accessories within 10 to 12 weeks. Also before the NEC meeting and included in those submissions were quotations from four companies which included the plaintiff. The Department of Defence’s submissions contained a part described as "remarks/justification" which column was more or less the departments recommendations to the NEC as to its preferred company. For Australian Defence Apparels Pty Limited, the statement in the "remarks/justification" column stated this;

"Current supplier of uniforms to PNGDF

- Meets PNGDF’s specification

- Meets timeline

- Products under warranty

- Own textile factory

- Products are on shelf

- Capable of supplying at short notice

- Can adjust cost to meet specific demand

- Main supplier of military stores and equipments to other armies."

37. ـ The "remarks/jrks/justification" column stated this for the plaintiff;

"- Meets PNGDF’s specification

- PNG company – meets time line

- Quote includes import duty

- No factory

- Agent only."

38. After corsiden tiothef eparDepartment of Defence’s submissions which included the "remarks/justification" for the four companies, the NEC decided this, amongst others;

1. " the cal nor uniforms orms as weas we make make preparations for the troops to participate in the 30th Anniversary celebration;

...

3. approved the Australian Defence Apparels (ADA) Limited to supply the ceremonial uniforms and accessories to the PNG Defence Force before the 16th of September, 2005; and..."

39. ټOb procedrocedural iral irregularities occurred during the whole process.

i. The NEC proceeded to decide on the Department of Defence’s subons whe Department had not complied with the tender prer processocesses under the PFMA.

ii. The NEC should not have made a decision when there was obvious non-compliance with tender process under the PFMA.

40. The NEC&;8217ti ac fansexce exceeded its powers laid down in the PFMA. It acted ultra vires when it made the decision of 22nd July, 2005 PFMA not de fosideration of tenders by the NEC. Tenders are to be considereidered by d by a Tena Tenders ders Board only. What went before the NEC were not tenders but quotations. This was because tenders were not called for, a clear breach of s. 40 (1) of the PFMA.

ii. Issue no. 2: Whether the Central Supply and Tenders Board is bound by the provisions of the Public Finance (Management) Act 1995 and the Financial Instructions in its procedures and decisions in the awarding of tenders –

41. Beforescudi this issue, I s, I set out below a brief chronology of the events that occurred before the NEC approved funding and the tenders board meeting that issued the Certificate of Inexpediency.

CHRONOLOGY

1	14th September, 2004	Date of Combat Clothing quote to supply goods.
2	23rd February, 2005	Date of Australian Defence Apparels quote to supply goods.
3	8th March, 2005	Date of Intex quote to supply goods.
4	8th April, 2005	Col. Ben contact Robmos for quote.
5	21st April, 2005	Robmos submits quote to supply goods.
6	5th July, 2005	Date of Australian Defence Apparel’s follow up on their quote.
7	6th July, 2005	Defence Council makes funding submissions and formally approves Australian Defence Apparel’s quote.
8	22nd July, 2005	NEC Decision directs Secretary of Defence to provide authority to pre commit funds for a closed tender.
9	18th August, 2005	Finance Secretary authorizes pre-commitment of funds and tells Secretary for Defence to get Certificate of Inexpediency.
10	22nd August, 2005	Date of Secretary for Defence’s letter to Tenders Board requesting Certificate of Inexpediency.
11	10th August, 2005	Date of Tender’s Board’s reply to request for Certificate of Inexpediency.
12	24th August, 2005	Date of Tender’s Board Meeting M-14/2005 approving Australian Defence Apparels quotation and issuing Certificate of Inexpediency.

42. The chrgyolomonderatet that that the PNGDF’s request was actioned with a period of between 7 to 8 months, bypassing and short circuiting established mandatory procedures.

43. &ـSec 48, 59 and 61 o 61 of61 of the the PFMA are very relevant to the awarding of tenders. They stipulate in relevant parts as follows;

59. Contracts for works and services.

(1) Subject to Subsectbsection (2), tenders shall be publicly invited and contracts taken by a public body to which this Act applies for all works, supplies and services the estimated cost of which exceeds such sum as is specified in its constituent law or declared by the Minister.

(2) Subsection (1) does not apply to any works, supplies and services—

(a) that are to be executed, furnished or performed by the State, or an arm, agent or instrumentality of the State approved by the Minister for the purposes of this subsection; or

(b) in respect of which the public body certifies that the inviting of tenders is impracticable or inexpedient."

"61. Approval required for certain contracts.

(1) The provisions of this section apply to and in respect of all public bodies notwithstanding any provision to the contrary in any other law and notwithstanding and without regard to any exceptions, limitations, conditions, additions or modifications contained in any other law.

(2) Subject to Subsection (3), a public body shall not, except with the approval of the Minister, enter into a contract involving the payment or receipt of an amount, or of property to a value, (or both) exceeding—

(a) 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.

..."

"48. Application of this Part.

(1) Subject to Subsection (4), nothing in this Part applies to or in relation to a public body unless it is so provided by a law, and then only to the extent, and subject to the exceptions, limitations, conditions, additions and modifications prescribed by that law.

...

(4) Where any provision in this Part is stated to apply to all public bodies notwithstanding any contrary provision in any other law, then such provision shall apply, notwithstanding any provision to the contrary and notwithstanding and without regard to any exceptions, limitations, conditions, additions or modifications in any other law."

44. &##160;ons 59 an59 and 61 o 61 of the PFMA fall into the part s. 48 (4) speaks of. That is Part VIII, which commences at s. 48 and ends with s. 64 under the subhe "c Bodies." Hence there can be no room for argr argumentument that the requirements of s.59 and s.61 of the PFMA apply to all contracts of the type spoken of in that part of the PFMA involving a public body.

45. There is no dispute that tGe PNGDF is a public body. There is also no dispute that the amount involved (over K2.2 million) requires the app of tnisteause ceeds the prescribed amount being K100,000.00 (s. 61 (2) (a) (a) of PFof PFMA).

46. The no doubt that the intenintent of the PFMA is to control and manage the State’s finances, its arms, instrumentalities and ther c bod doubo, the PFMA’s objective is to achieve transparency and and contrcontrol inol in the the manner in which departments conduct themselves, more specifically in relation to the purchase of goods and from whom. As the Chief Justice said in The Independent State of Papua New Guinea v Barclay Brothers (PNG) Ltd (2001) N2090, where he considered the State’s argument that because the defendant did not comply with s.40 and s.47 of the PFMA, that the Contract entered into by the parties is null and void. He said;

"There is nothing in the PFM Act which indicates the consequences of breach of the tender process under the act. In considering this issue, I bear in mind the purpose and policy behind such legislative provisions. It is not difficult to determine this in Papua New Guinea. The problem of corruption and misuse of public funds have become notorious and widespread. To quote the words of Connolly .J in Hunter Bros v Brisbane City Council (supra) at page 339, this (sic?) provisions are "designed to ensure regularity and openness in the purchase of goods and services. Its provisions are a matter of public law and there can be no injustice in holding not only the Council but prospective vendors to a strict observance of its requirements...". (pg. 14)

47. Co for the defendant companompany also submitted in that case that a breach of this provision can only result in a disciplinary charge under s. 47A and that a breach would not invalidate the con. Hisur thef Justice tice then rhen referreferred to the minority view of Brennan and Dawson JJ in ABC v Redmore Pty Ltd [1988 – 89] [1989] HCA 15; 166 CLR 454 at pg 465 to assist him. He noted that the learned judges held there that a disciplinary action may reduce the incidents of breach of the Act in the future but it does not fulfill the purpose of the prohibition and this would render such a prohibition meaningless and have no legal effect. His Honour applied that reasoning to s. 40 (1) of the PFMA. He said;

"On that basis if a breach of the provision has no impact on the validity of a contract, the State or its agents could with impunity enter into contracts without the requirement to invite tender in accordance with s. 40 (1) (of the PFMA). The provision is designed to ensure regularity and openness in the purchase of goods and services." (pg. 15)

48. ټ His Honour four found that the contract entered into without complying with the tender process is prohibited by s. 40 ( the PFMA and therefore void.

49. The Ncisien No. 1No. 157/2057/2005 "directed the Secretary for the Department of Defence to provide quotes to the Central Supply and Tenders Board and provide the authority to pre-commit funds fcloseder ttralian Defe Defence Ance Apparepparels Limited for uniforms for the Anniversary celebration."

50. &#160ion 40 is cxplicit andt and clear in its wording that "subject to this section (s. 40) and s. 41, tenders shall be publicly id andract or the purchase...of property...the estimated cost of which exceeds thes the pres prescribecribed amount."

51. & The Central Sual Supply and Tenders Board is bound by the provisions of the PFMA. It is also bound by the Financistructions. This is because apart from the reasons pointed out earlier, the Financiaancial Instructions is to "ensure complete guidance in managing public finance and resources" (pg. 1 – 1 of Financial Management Manual). The manual states further;

"This manual is therefore designed to ensure that service delivery by government is achieved through effective budgeting, accounting, resource management and public reporting. The manual thus provide a point of reference to expedite a process of effective resource management. In the process, emphasis is placed on timeliness, reliability, clarity and simplicity at all levels of financial management of government."

52. Theral Supply and Tenders Bers Board has clearly erred in its decision making process by accepting a closed tender, a decision made by the NEC, contrary to establimandaTendecess.

iii. Issue No. 3:o. 3: Whet Whether ther the Sehe Secretary for the Department of Defence’s actions in providing the authority to pre-commit funds for a closed tender to a non-national tenderer has authorized a breach of the PFMA relating to the calling, consideration of and awarding of tenders.

53. &#16 NEC ieciso.n No. 157/2157/2005 decided that because of the urgency, tenders should be closed and confined to one company only. Section 40 (3) (b) of the PFMA s thaters snot be publicly invited and contracts mcts met ifet if a bo a board certifies that the inviting of tenders is impracticable or inexpedient. However, if tenders are called, National tenderers are given priority and preference. The PFMA and Financial Instructions are clear on this.

54. In thse, ahe NEC approved aved a closed tender to Australia Defence Apparels Limited. This was followed by the Defence Secretary’s letter of 17th August, 2005 to the Department of Finance reqng fuf K2,33.19; The FThe Financinance Sece Secretary responded by letter of 18th August, 2005 to the Defence Secretary, approving pre-commitment of K2,217,833.19 and advising of the need for a Certificate of Inexpediency; The Defence Secretary then requested the Chairman Central Supply Tenders Board by letter of 22nd August, 2005 for a Certificate of Inexpediency; The Chairman Central Supply Tenders Board responded by letter of 10th August, 2005 to the Defence Secretary, approving and awarding a Certificate of Inexpediency. The evidence is that this letter was received by the Defence Secretary’s office on 31st August, 2005.

55. No doubt, the NEC approved the quotation without first obtaining the Certificate of Inexpediency, and more importantly, when it did not have the power to do so. The Department of Defence should firstly have applied for a Certificate of Inexpediency and if granted, to then proceed to call for quotations from a few companies. The evidence clearly portrays that the Department of Defence did not follow process in relation to its request for the Certificate of Inexpediency.

56. hermore, there gs a glaringaring, intended breach, done to avoid compliance with mandated, legislated process. This intended bres they fro Centupply and Tenders Board dated 10th August, 2005, to the DefenDefence Sece Secretacretaryry’s letter. The Defence Secretary’s letter to the Central Supply and Tenders Board requesting a Certificate of Inexpediency is dated 22nd August, 2005; The Defence Secretary’s letter was received by the Central Supply and Tenders Board on 23rd August, 2005. I find that the Central Supply and Tenders Board’s response to that letter, dated 10th August, 2005 could not have been a typing error. There is no evidence from the defendants to clarify this error which leads me with one conclusion, and that is that it was purposely pre-dated, to 10th August 2005, to mislead those who will be affected by that decision. If the correct process was followed, the Certificate of Inexpediency should have been issued well before the NEC meeting of 26th July, 2005. In fact, an NEC meeting should not have been called, at all, because according to s. 40 (3) (b) of the PFMA, the first plaintiff in his capacity as Secretary for Defence, should have firstly applied to the Central Supply and Tenders Board for that certificate.

57. ҈ The Certificatficate of Inexpediency is also not before the court. Division 4 of Part 13 of the Financial Instructionses what a Certificate of Inexpediency is and when it can be issued. I set out in full thesethese requirements.

"DIVISION 4 - CERTIFICATE OF INEXPEDIENCY

10. Section 40, (3), (b) of the Public Finances Management Act provides Supply and Tenders Boards with the powers to "certify that the inviting of tenders is impracticable or inexpedient".

11. A Supply and Tenders Board must ensure that there is a valid approved APC for the procurement before approving a Certificate of Inexpediency.

12. A "Certificate of Inexpediency" must clearly identify the:

a. Supplier, and

b. Department / agency requesting the certificate, and

Name and signature of the Departmental/agency head requesting the certificate, and

d. Goods, works or services being procured, and

e. Value of the procurement, and

f. Reason for the certificate to be issued, and

g. Date on which the Certificate is awarded, and

h. Name of those Board members issuing the Certificate, and

i. Name and signature of the Chairman of the Supply and Tenders Board issuing the certificate.

B. A "Certificate of Inexpediency" cannot be issued to retrospectively to cover a contract already executed.

14. Certificates of Inexpediency will only be issued in situations where a declared:

a. Natural Disaster, or

b. Defence Emergency, or

c. Health Emergency, or

d. Situation of Civil Unrest

exists, and procurement processes must be undertaken urgently, to remedy the situation.

Supply and Tenders Boards must be prepared to hold extraordinary meeting(s) where these declared situations have arisen, in order to expedite procurements.

In the past, "Certificate of Inexpediency" have enabled Departments and agencies to avoid the public tendering process. Certificates have generally been issued on the basis that:

a. There is only one suitable supplier, or

b. The Department has "run out of time" to conduct a proper tendering process

Closer examination of the former justification generally means that the specification for the goods or services is biased in some way. The second justification (lack of forward planning by departments) is no longer acceptable. Departments must now be planning their major procurements in a timely manner."

58. The Certificate of Inexpediency is not in evidence before me. A Certificate must be issued declaring that such a situation exists. That certificate "must clearly identify" the requirement set out in Div. 4 Clause 12 of the Financial Instructions i.e items (a) to (i). It cannot and should not be issued, to retrospectively cover a contract already executed. In this case, generally, the reasons presented by the Department of Defence for the issuance of the Certificate of Inexpediency are that there is only one suitable supplier, and that the Department is running out of time to conduct a proper tendering process. These reasons are now no longer acceptable, as stated in and confirmed by the Financial Instructions (see Div. 4 Clause 15) because "Departments must now be planning their major procurements in a timely manner." (see Div. 4 clause 15 of Financial Instructions).

59. No dothe entral Supply andy and Tenders Board has not complied with process.

Conclusion

60. The nce demonstrates clearllearly that the first, second and third defendants did not comply with process under the PFMA, and the Financial Instructions preferring instead to short circuit process for the benefit of the first defendant and the Department of Defence who no doubt, left the preparation and planning for the 30th Independence celebrations until the 11th hour.

61. ;Furtre, the PFMe PFMA and and Financial Instructions have clear guidelines and procedures on the giving of preference to National Tenderers. They all speak of preference for National Tenderers. In this case, the authority to pre-commit funds for a closed tender to a Non-National Tenderer was done without complying with process and before the Certificate of Inexpediency was issued. That is a clear breach of the tender process.

62. ټThintiff tiff shouldhould have been given fair treatment by the Defence Council, the NEC and the Central Supply and Tenders Board. The defendants’ deciwas vnreasonable under the circumstances, done with noth no prop proper appreciation of the PFMA and the Financial Instructions. Lord Greene MR articulated on the principles of "unreasonables" in Associated Provincial Picture Houses v Wednesbury Corporation [1947] EWCA Civ 1; [1948] 1 KB 223 when he said;

(a) as describing a range of overlapping heads of discretionary error - including bad faith, dishonestly, regard to irrelevant considerations, lack of regard to relevant considerations (including public policy), proper appreciation of the law; and

(b) something so absurd that no sensible person could ever dream that it lay within the powers of the authority - a decision that no reasonable body could have come to.

63. Thet defendant was not acti acting within the law when he, through the Defence Council, requested the NEC to issue a closed tender. The second defendant as the head of the NEC also acted improperly and unreasonably when awarding a closed tender and providing authority to pre-commit funds when the NEC did not have the authority to do so. The Central Supply and Tenders Board also acted improperly and unreasonably when it issued the Certificate of Inexpediency.

Orders

64. The orsous t byhthe plaintiaintiff are for several Declarations to declare amongst others, that the actions of the defendants are most improper.

65. Tders I make are;

1. A Declaration that the National Executive Council has no authority to direct the Central Supply and Tenders Board to award a closed tender to the PNGDF, orpartythat r, otherwiserwise than than in c in conformity with the Public Finance (Management) Act and rules and Financial Instructions for consideration of tenders.

2. A Declaration that contracts for purchase and disposal of property and stores and the supply of works and services, other than those in relation to which a specialized supply and Tenders Board exists, for the State, are subject to the control of the Central Supply and Tenders Board and governed by the provisions of the Public Finance (Management) Act and the Financial Instructions and Regulations issued thereunder.

3. A Declaration that the decision 175/2005 made by the National Executive Council on 22 July 2005, insofar as it directs the awarding of a tender to Australian Defence Apparels Limited and approves the awarding of a tender to a non-national tenderers, is ultra vires the powers of the National Executive Council and void ab initio.

4. A Declaration that the Secretary for the Department of Defence, by providing an authority to pre-commit funds for a closed tender to Australian Defence Apparels Limited, has authorized a breach of procedure under the Public Finance (Management) Act and the Financial Instructions relating to the calling, consideration and awarding of tenders.

5. The plaintiff has liberty to file a claim for damages against the first, second and third defendants in separate proceedings;

6. Time be abridged to time of settlement of the orders which shall take place forthwith;

7. The defendants shall pay the plaintiffs costs of the proceedings to be taxed if not agreed.

______________________

O’Brien Lawyers: Lawyer for the plaintiff
Solicitor-General’s Office: Lawyer for first, second and third defendants