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Travellers Rent A Car Ltd v Gamato [2023] PGNC 347; N10436 (10 August 2023)

N10436


PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]


WS NO. 1767 OF 2019


BETWEEN:
TRAVELLERS RENT A CAR LIMITED
-Plaintiff-


AND
PATALIUS GAMATO, as the Commissioner for Papua New Guinea Electoral Commission
-First Defendant-


AND
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
-Second Defendant-


Lae: Dowa J
2023: 10th August

CONTRACT – Contract for hire of Motor vehicles. Breach of procurement requirements under Public Finances (Management) Act- Contact void and unenforceable. Effect of – Illegal, void ab initio contract – Unenforceable contract – Quantum meruit claim can be considered for actual performance. No hard and fast rule in determining quantum meruit based on innocence-each case to be determined on its own merits to do justice- considerations for appropriate and reasonable damages.
Cases Cited:


Fly River Provincial Government vs. Pioneer Health Services Limited (2003) SC705
The State vs. Barclay Bros (PNG) Ltd (2004) N2507
Delphi Corporate Investigations Ltd vs. Bernard Kipit (2003) N2480
Leontine Ofoi vs. Kris Bongare (2007) N3248
Teine vs. University of Goroka (2019) SC1881
Steven Turik vs. Mathew Gubag (2013) N5132
Tirima -v- Angau Memorial Hospital Board (2005) N2779


Counsel:


L. Vava, for the Plaintiff
B. Tomake, for the Second Defendant


DECISION

10th August 2023

  1. DOWA J: This is a judgment on both issues of liability and damages.
  2. By agreement of counsel involved, this matter was tried together with the following matters as the legal issues were the same:
    1. WS 1765 / 2019-Travellers Rent a Car v Madang Provincial Govt & others.
    2. WS 1766 / 2019-Travellers Rent a Car v Steven Biko & others.
    3. WS 1768 / 2019-Travellers Rent a Car v Dickson Kiragi & others.
    4. WS 1769 / 2019-Travellers Rent a Car v Madang Provincial Govt &others.

Facts

  1. The Plaintiff claims against the Defendants a sum of K529, 563.00 for outstanding invoices for vehicle hire. The Plaintiff runs a hire car business and is based in Madang Province. Between June 2013 and November 2017, the First Defendant hire several of the Plaintiff’s vehicles under a standard Rental Agreements totaling K712,340.00. The Defendant made a part payment of K182,777.00 and the balance of K529,563.00 remains outstanding. The Plaintiff instituted proceedings seeking recovery of the outstanding balance. The Second Defendant filed a Defence denying the claim.

Trial

4. The matter proceeded to trial on both issues of liability and quantum. Dickson Laviong the Managing Director gave evidence for the Plaintiff. The Defendant offered no evidence but made submissions on law only.

Issues

  1. The issues for considerations are:
    1. Whether the Defendants are liable
    2. Whether the State is vicariously liable for the First Defendants debt.
    3. If the defendants are liable, how much is the Plaintiff entitled to.

Evidence


  1. Dickson Laviong is the Director for the Plaintiff company. He gave evidence for the Plaintiff both orally and by affidavit. He was cross-examined by counsel for the 2nd Defendant. This is a summary of his evidence. Between September 2013 and November 2017, the PNG Electoral Commission hired about 15 vehicles, at various times, involving various officers of the Commission.
  2. Mr. Laviong deposes that between 15th June and 6th December 2013, the Commission hired 5 of their vehicles on different occasions after signing standard Rental Agreement totaling to K221, 400.00. Between 6th January 2017 and 18th August 2017, the Commission hired 9 of the Plaintiff’s vehicles on 13 occasions. The total invoices sent for the 13 hires is K182, 368.00. The final period is between 9th August and 7th November 2017 when the first Defendant hired the Plaintiff’s vehicles for 3 occasions totaling K135, 795.00. Mr. Laviong deposes, the total debt owed to the Plaintiff is in the sum of K529, 563.00. The Plaintiff requested the first Defendant to settle, but despite various requests, the debt remains outstanding.
  3. The Defendants did not give evidence.

Submissions of Parties


  1. Mr. Vava, counsel for the Plaintiff, submits this is a liquidated sum for outstanding invoices, based on a standard car rental agreement. The first Defendant has settled part of the debt and the current proceedings are for the balance of the debt. Counsel also submits that Defendants offered no evidence and therefore liability should not be an issue in the circumstances and that judgment be entered for Plaintiff for the entire claim.
  2. Mr. Tomake, counsel for the Second Defendant, submits that, the defendants are not liable for the reasons that; a) the hire agreements are in breach of section 42 of the Public Finance (Management) Amendment Act 2018 and section 2 of Claims By and Against the State Act, and b) even if liability is established, the State is not vicariously liable for the debt as the first Defendant is an independent constitutional body established by the Organic Law on National and Local Level Government Elections and has capacity to sue and be sued in its corporate name.

Consideration


Whether the Defendants are liable


  1. I have considered the evidence and submissions of counsel and here is my ruling on the issue.
  2. There is no dispute that various standard Car Rental contracts for hire of the Plaintiff’s vehicles were signed by the Plaintiff, and by various officers on behalf of the first Defendant. Various rates for hire were used for the period between June 2013 and November 2017. It involved 15 vehicles for that period. The Plaintiff is said to have issued monthly invoices totalling K712,340.00. The first Defendant settled K182,777.00 and the remaining or outstanding balance is K529,563.00.
  3. Although the outstanding debt is an aggregate sum of individual invoices involving 15 vehicles on different occasions, the amount is substantial. A contract for service of this magnitude would require compliance of procurement and financial guidelines under the Public Finance (Management) Act. The first Defendant is a Constitutional Office established by section 5 Organic law on National and Local Level Government Elections. Although it operates as an independent body under the Organic Law with a corporate structure, its officers are required to comply with the minimum procurement requirements of the Public Finance (Management)) Act by virtue section 17 of the Organic Law.
  4. Section 17 of the Organic Law reads:

“APPLICATION OF PUBLIC FINANCES (MANAGEMENT) ACT 1995.

17. Part VIII of the Public Finances (Management) Act 1995 applies to and in relation to the Electoral Commission.”

  1. Section 2A of the Claims by and Against the State Act provides prerequisites for a valid contract or claim against the State. It reads:

“ 2A. CLAIM AGAINST THE STATE NOT ENFORCEABLE IN CERTAIN CIRCUMSTANCES.

(1) In this section –

“Authority to Pre-commit Expenditure” an Authority to Pre-commit Expenditure issued under Section 47B of the Public Finances (Management) Act 1995;

“Integrated Local Purchase Order and Claim (ILPOC)” means Finance Form 4A – Integrated Local Purchase Order and Claim issued in accordance with the Finance Instructions under the Public Finances (Management) Act 1995.

(2) A claim for the price arising from the sale of property or stores or for the supply of goods or services to the State shall not be enforceable, through the courts or otherwise, unless the seller of the property or stores or the supplier of the goods or services produces –

(a) a properly authorized Integrated Local Purchase Order and Claim (ILPOC); or

(b) an Authority to Pre-commit Expenditure,

relating to the property or stores or goods or services, the subject of the claim, to the full amount of the claim.

(3) The provisions of this section apply to an alleged sale of property or stores or to an alleged supply of goods or services after 1 March 2003.”
16. Section 47B of the Public Finance (Management) Act 1995 is replaced by section 42 of the Public Finance (Management) (Amendment) Act 2018. Sections 44 and 45 of the Act are also relevant in determining the issues before the Court.


  1. Sections 42,44 and 45 of the Act are set out below:

“42. AUTHORITY TO PRE-COMMIT EXPENDITURE.
(1) The APC Committee may issue to a Departmental Head an Authority to Pre-commit Expenditure under this Act in relation to the procurement of goods, works or services where the APC Committee is satisfied that -


(2) An Authority to Pre-commit Expenditure under Subsection (1) shall specify -


(3) An Authority to Pre-commit Expenditure under Subsection (1) authorises the Department, to whose Departmental Head the Authority was issued, to enter into a contract for the procurement of goods, works or services specified in the Authority to the extent of an amount not exceeding the maximum amount specified in the Authority and in any event not exceeding the threshold limit established by the National Procurement Act 2018 for that Department.
(4) An Authority to Pre-commit Expenditure under Subsection (1) authorises National Procurement Commission and such other bodies as are authorised by the National Procurement Act 2018 to enter into a contract for the procurement of goods, works or services specified in the Authority to the extent of an amount not exceeding the maximum amount specified in the Authority.
(5) An Authority to Pre-commit Expenditure under Subsection (1) shall not exceed the appropriation contained in the National Budget for the procurement of goods, works or services for the financial year in which the Authority was issued.


44. CERTAIN CONTRACTS NULL AND VOID.
(1) In this section -


(2) A contract for the purchase of property or stores or for the supply of goods or services entered into, or purported to have been entered into, by or on behalf of the State, in respect of which purchase or supply -


is of no legal effect.


(3) The provisions of this section apply in respect of contracts entered into, or purported to have been entered into, by or on behalf of the State, on or after 1 January 2003.


45. CLAIM AGAINST THE STATE NOT ENFORCEABLE IN CERTAIN CIRCUMSTANCES.
(1) In this section -


(2) A claim for the price arising from the sale of property or stores or for the supply of goods or services to the State shall not be enforceable, through the courts or otherwise, unless the seller of the property or stores or the supplier of the goods or services produces -


relating to the property or stores or goods or services, the subject of the claim, to the full amount of the claim.
(3) The provisions of this section apply where the property or stores were purportedly sold to the State or the goods or services were purportedly supplied to the State on or after 1 January 2003.".
18. The second defendant raised the issues of illegality of the contract in the Defence. However, the defendants offered no evidence in support of the Defence. Despite that, section 45 of the Act shifts the onus of proof on the supplier of the goods or services to produce evidence of a properly authorized Integrated Local Purchase Order or Claim commonly known as ILPOC or an Authority to Pre-commit Expenditure. The Plaintiff did not produce any evidence of the government ILPOC nor any evidence of Authority to pre-commit Expenditure. During cross examination, Mr. Laviong, the Director for the Plaintiff, admitted that he was aware of the requirements of the Public Finance (Management) Act but was unable to produce any evidence of compliance. He said he had a continuous business relation with the first Defendant through his officers. Counsel for the Plaintiff submitted that ILPOCs are hardly used these days and that most service providers prefer upfront payments.


19. It is clear the Plaintiff had a contractual arrangement with the first Defendant for the provision of vehicle hire service without following the procurement requirements under the Public Finance (Management) Act. The law is settled. Where a contract is entered with the State or an Institution of the State for the supply of goods or services without complying with the mandatory requirements of the Public Finance (Management)) Act is illegal: Refer: Fly River Provincial Government vs. Pioneer Health Services Limited (2003), SC705, The State vs. Barclay Bros (PNG) Ltd (2004) N2507, Delphi Corporate Investigations Ltd vs. Bernard Kipit (2003) N2480 and Leontine Ofoi vs. Kris Bongare (2007) N3248, Ray v Numara (2018) N7380.


20. In the case, Fly River Provincial Government vs. Pioneer Health Services Limited (2003) SC705, the Supreme Court state the law in the headnotes of the judgment:


“2. The requirements under ss.59 and 61 of the PF(M)A are mandatory and where a contract is entered into in breach of those requirements, it is illegal and is therefore null, void and unenforceable.


  1. The requirements under the PF(M)A are to enable transparency in all public contracts and to safeguard against corruption and enable securing of fair contracts with public institutions and or bodies for the best services at a competitive or best price.
  2. A person dealing with the State or any of its arm or instrumentality or a public institution to which the Act applies, is bound to comply with the requirements of the Act and every person dealing with such institutions or bodies are deemed to be aware of these requirements.
  3. A failure to ensure compliance of the requirements of the Act operates to the detriment of the party contracting with the State or a public authority to which the Act applies.”

21. The Plaintiff had an ongoing business relation with the first Defendant for the supply of vehicle service without complying with the mandatory requirements of the Public Finance (Management) Act. It was not open and transparent. There is no evidence of whether the Officers who signed the standard Car Rental Agreements with the Plaintiff had authority to pre-commit financial obligations to be met by the first Defendant.


22. For the foregoing reasons, I find the various car Rental agreements allegedly signed by various officers of the first Defendant and the Plaintiff illegal and unenforceable pursuant to sections 42,44 and 45 of the Public Finances (Management) (Amendment) Act 2018.


Should the Plaintiff be left without remedy.


23. Whilst the contract for services did not meet with the contracting practices and statutory requirements of the Public Finances (Management) Act, there is evidence that the Plaintiff’s vehicles were hired by various officers employed by the First Defendant. The vehicles were hired and used by these officers for official, electoral duties on behalf of the first Defendant, for the period between June 2013 and November 2017. During this period the Plaintiff sent about 21 different invoices as per the Rental Agreements for settlement. According to the Plaintiff the first Defendant made a part payment, and the balance remains outstanding.


24. It is clear the first Defendant has benefited from the use of the Plaintiff’s vehicles. The first Defendant has acknowledged its indebtedness to the Plaintiff by making part payment. Besides, the first Defendant has not defended the proceedings. In the circumstances, should the Plaintiff’s claim be dismissed without a remedy.


25. Counsel involved in the proceedings were invited to address the Court on whether the Court should make an award on quantum meruit in the event it rules that the Plaintiff’s hire contract was invalid and unenforceable.


26. Mr Vava, counsel for the Plaintiff, submits that the Plaintiff is entitled to the full claim of K529,563.00 as the First defendant has not provided evidence to defend the proceedings; and that it was the first defendant’s responsibility to ensure compliance of the procurement requirements of the Public Finances (Management) Act. The officers of the first Defendant have always conducted business in this manner over the years not just with the Plaintiff but also with other Hire Car companies.


27. Mr. Tomake, counsel for the second Defendant, submits that the Plaintiff is not entitled to any payment on quantum meruit because the Plaintiff has not demonstrated that it is innocent. Counsel submits, that the director of the Plaintiff company has conceded during cross examination that they are aware of the requirements of the Public Finances (Management) Act and the consequences of noncompliance.


28. In my view, the Plaintiff should not be left without a remedy. Although not pleaded, the matter has been raised in open court and the defendants have been given an opportunity to address the court. I am prepared to consider the Plaintiff’s claim on a quantum merit basis.


29. Quantum meruit is a common law cause of action. It has been applied in cases such as Fly River Provincial Government vs. Pioneer Health Services Limited (2003), SC705, Teine vs. University of Goroka (2019) SC1881, The State vs. Barclay Bros (PNG) Ltd (2004) N2507, Delphi Corporate Investigations Ltd vs. Bernard Kipit (2003) N2480 and Leontine Ofoi vs. Kris Bongare (2007) N3248and Steven Turik vs. Mathew Gubag (2013) N5132:


30. In Turik vs. Gubag, Cannings J set out the following elements of quantum meruit:


  1. ‘A’ has done something of benefit for ‘B’.
  2. the thing done by ‘A’ relates to an arrangement of some sort with ‘B’ (the arrangement might be but is not necessarily a contract and might be an illegal contract).
  3. it would be unjust to allow ‘B’ to retain the benefit without some remuneration or reward for ‘A’.

31. In the case Fly River Provincial Government vs. Pioneer Health Services Limited (2003) SC705, the Supreme Court said, in appropriate cases, the Court can make alternative awards based on quantum meruit. A summary of the Supreme Court decision from the head notes states in the following:


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


  1. In the present case, the contract between the Appellant and the Respondent is null and void for non-compliance of the public tender and Minister for Finance’s approval under the PF(M) A.
  2. However, since the contract was part performed and the Appellant received goods and service from the Respondent, in equity the Respondent is entitled to pursue its claim for a recovery of the costs and expenses it has incurred by way of restitution. But this is conditional on showing its innocence in the creation of the illegal contract.”

32. In Teine vs. University of Goroka (2019) SC1881, the Supreme Court clarified that the Supreme Court in Fly River Provincial Government did not lay down a hard-and -fast rule that all persons dealing with public institutions will be deemed to have knowledge of illegalities for lack of statutory compliances. At paragraph 9 of the judgment the Court said:


” 9. We do not consider that the Supreme Court in Fly River v Pioneer laid down a hard-and-fast rule that all persons dealing with public institutions will be deemed to be aware of the public tender requirements of the Public Finances (Management) Act, so that in each and every instance of an illegal contract, the parties to the contract will be deemed to have knowledge of its illegality. The better view is that any dicta to that effect is confined to the facts of that particular case. It remains important that the evidence in each case be assessed on its merits. Though it might be appropriate to presume knowledge of illegalities, such a presumption can on a proper assessment of the evidence be rebutted. We consider that the trial judge erred by regarding dicta of the Supreme Court in the Fly River Provincial Government case about the parties being deemed to have knowledge of an illegality as a hard-and-fast rule and applying it against the appellants without adequate assessment of the evidence, leading to them being labelled without justification as ‘not innocent’.”


33. In the present case, there is evidence that Plaintiff’s motor vehicles were hired by the employed officers of the first Defendant for their electoral duties. The Plaintiff delivered about 15 vehicles to the first Defendant’s use as per the terms of the contract in good faith. The first Defendant used the Plaintiff’s vehicle for various periods and benefited from their use. Except that the Plaintiff’s vehicles were hired out in breach of the procurement requirements of the PFMA and for that reason renders the contract void, and except for the Plaintiff not being paid, the parties have otherwise acted on the terms of the contract. Whilst the counsel for the second Defendant says the Plaintiff cannot benefit from a contract that was in breach of section 42, the first Defendant did not challenge the Plaintiff’s claim. The Defendants have not brought evidence disputing the claim by the Plaintiff. There is no evidence to conclude that the Plaintiff had knowledge of lack of authority of the officers of the first Defendant to contract and bind the first Defendant. On the other hand, there is evidence that the car Rental agreement was signed by about eleven (11) different officers, all in the employment of or engaged by the First Defendant in various electoral duties. Although the debt claimed is substantial it is made up of individual transactions on different occasions for amounts below the threshold prescribed by section 44 of the Act except for Invoice No 2022 which was for K 108,900.00. I am of the view that the Plaintiff should be compensated, if not, grave injustice will be done to the Plaintiff while the first Defendant shall be unjustly enriched. I will therefore make an award of damages in favour of the Plaintiff on quantum meruit.


How much is the Plaintiff entitled to in Damages?


34. The Plaintiff claims the sum of K 529,563.00 which comprise of the about 21 invoices for the following periods:


a) Between 14th June and 6th December 2013 K 211,400.00

b) Between January and August 2017 K 182,368.00

c) Between August and November 2017 K 135,795.00

K 529,563.00


35. The next issue is how much should the Court award. What is the reasonable amount in the circumstances? What factors should the Court consider in awarding an appropriate sum. In my view, the following considerations should be applied in determining the appropriate amount:


  1. Daily Hire Rate
  2. Hire period.
  3. Legitimate expectation
  4. Fairness
  5. Mitigation of loss

(a) Rate


36. The evidence shows the hire rate used is between K 800.00 and K 950.00 except for Invoice 2132 which was for K 400.00 for a just one week. The vehicles hired were 13 Toyota 10 seaters, 2 Toyota 5 doors, 2 Land Cruisers and one 5th Element. From the type of vehicles used, the rates applied is not unreasonable, although, if the first Defendant applied due diligence by seeking competitive rates in the open market from competing service providers, it is possible, the figures would have been reduced.


(b) Hire Period


37. The 21 individual Car Rental Contracts did have specific hire periods. However, it was opened handed, and casual with little financial accountability. This is bad business practice on the part of both parties, especially for the first Defendant. From the evidence the total number of days invoiced is 783 days, that is a period of more than two (2) years.


(c) Legitimate Expectation


38. The first Defendant has created a legitimate expectation. It carried on a business practice with the Plaintiff without applying prudent financial guidelines. It failed to follow the standard procurement requirements. It hired the Plaintiffs vehicles as and when they desired and paid for the services whenever they could. This practice has been ongoing for some time in the past. It led the Plaintiff to believe that all was well, and they let the defendants to have their vehicles with an expectation that their invoices would be settled in due course. According to the evidence, the officers of the first Defendant assured the Plaintiff of the payments but did not fulfill their promises.


(d) Fairness


39. As stated in paragraph 38 above, the Plaintiff acted in good faith, trusting that the first Defendant would meet its obligations. It is not fair for the first Defendant to accept the services without paying for it.


MITIGATION OF LOSS


40. The evidence shows the first Defendant made a payment of K182,777.00 to the Plaintiff for invoices sent earlier in the year 2013. Thereafter, the first Defendant made no payments for invoices rendered after June 2013. The Plaintiff again rendered further services later in the year 2017 even though there was outstanding debt of K211,400.00 for the existing invoices for services rendered in 2013. It is not clear why the Plaintiff kept on rendering services when its existing bills were not settled. It did not enquire why its bills were not settled. It is clear to me that the Plaintiff has voluntarily engaged in a business transaction where there was no assurance that they would be paid. The Plaintiff therefore contributed to the loss. The Plaintiff has an obligation to mitigate his loss by refusing to give out its vehicles which it failed to do.


APPROPRIATE FIGURE


41. In my view, the most appropriate figure to fairly compensate the Plaintiff, and to do justice in the circumstances in terms of money and considering the factors discussed above is to make an award for a fraction of the claim. In balancing the considerations, I am inclined to make an award more in favour of the Plaintiff than the Defendants. I am prepared to make an award of damages representing 60 % of the total claim (K 529,563.00) which amounts to K 317, 737.80.


GST


42. The Court notes the debt includes figures for GST. Although the Plaintiff has registered with Internal Revenue Commission, as taxpayer, he has not produced any evidence that he has been paying any tax. This evidence would be in a form of Tax Statement issued by the Internal Revenue Commission. In the absence of the statement, the Plaintiff is not entitled to the GST component of the claim. The GST component of the claim allowed is K 28,885.25. After deducting the GST component, the balance of the amount to be awarded is K 288,852.55.


INTEREST


43. The Plaintiff claims interest at 8%. For the same reasons given in the judgment, entitled interest is allowed at 4% on the principal sum of K 288,852.55 from date of Writ of Summons (17th December 2019) to date of Judgment (10th August 2023), that is a period of 1,331 days. By way of calculation, 4% interest on K 288,852.55 is K 11,554.10 per annum which accrues at K 31.66 per day. For the total period it amounts to K 42,132.90.


44. The total award inclusive of interest shall be K 330,985.45.


COSTS


45. The Plaintiff has been successful in pursuing this claim. The Plaintiff is entitled to cost and shall be awarded accordingly.


Whether the second Defendant is vicariously liable for the judgment debt.


46. Counsel for the State submits that the first Defendant is a creature of the Organic Law, and the State is therefore not vicariously liable for the first Defendant’s debt. Counsel for the Plaintiff submits that the first Defendant an Institution of the State and is therefore vicariously liable.


47. Vicarious liability is a common law principle by which one legal person is held liable for the acts or omissions of another person or group of persons over whom the first person has control or responsibility. Refer Tirima -v- Angau Memorial Hospital Board (2005) N2779. The first Defendant is a Constitutional Office. It is established under section 5 of the Organic Law on National and Local Level Government Elections. Although it is part of the State it functions independently and is not subject to control from anyone. The Plaintiff has failed to plead how the State is vicariously liable for the actions of the first Defendant. For these reasons the State is not liable for the Plaintiff’s claim.


ORDERS


48. The Court orders that:


  1. Judgment be entered for the Plaintiff in the sum of K 330,985.45 inclusive of interest.
  2. Post Judgment interest shall accrue at the rate of 4% per annum after 30 days of this order until settlement.
  3. The first Defendant is liable to settle the judgment debt.
  4. The first Defendant shall pay the cost of the proceedings, to be taxed, if not agreed.
  5. The State, the second Defendant is not liable, and thus, the proceeding against the State is dismissed.
  6. Time of entry of these Orders is abridged to take place forthwith upon the Court signing of the Orders.

______________________________________________________________
Luke Vava Lawyers: Lawyer for the Plaintiff
Solicitor-General : Lawyer for the Second Defendant


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