Hornibrook NGI Ltd v Awai [2023] PGNC 503; N10809 (22 November 2023)

N10809

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO. 202 OF 2023

BETWEEN:
HORNIBROOK NGI LIMITED
Plaintiff

AND:
MARC AWAI in his capacity as the Provincial Administrator
for the Gulf Provincial Government
First Defendant

AND:
GULF PROVINCIAL GOVERNMENT
Second Defendant

AND:
GULF PROVINCIAL HEALTH AUTHORITY
Third Defendant

AND:
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Fourth Defendant

Lae: David, J
2023: 8^th, 14^th, 15^th, 16^th & 22^nd November

CONTRACT – written contract for supply of works to public body - claim for breach of contract – Public Finances (Management) Act 1995 and National Procurement Act.

CONTRACT – written variation of contract for supply of works to public body – claim for breach – statutory procurement processes not followed - quantum meruit - Public Finances (Management) Act 1995 and National Procurement Act.

Cases Cited:
Shaw v Commonwealth of Australia [1963] PNGLR 119
Supreme Court Reference No 4 of 1980 [1982] PNGLR 65
Parao Tunboro v Motor Vehicles Insurance (PNG) Trust [1984] PNGLR 272
Straits Contracting (PNG) Pty Ltd v Branfill Investments Limited [1988] PNGLR 239
Patterson v National Capital District Commission (2001) N2145
Fly River Provincial Government v Pioneer Health Services Ltd (2003) SC705
Island Helicopter Services Ltd trading as Islands Nationair v Wilson Sagati & Ors (2008) N3340
Rex Paki v Motor Vehicles Insurance Limited (2010) SC1015
Reference by the East Sepik Provincial Executive (2011) SC1154
Galem Falide v Registrar of Titles and The State (2012) N4775
Turik v Gubag (2013) N5132
Hargy Oil Palm Ltd v Ewasse Landowners Association Incorporated (2013) N5441
Board of Management, Holy Spirit Primary School v Moses Sariki (2013) N5446
National Broadcasting Corporation v Taison (2019) N8083
Travellers Rent A Car Ltd v Biko (2023) N10435
Arpa v Kerowagi District Development Authority (2023) N10438

Treatise Cited:
JD Heydon, Cross on Evidence, Butterworths, Fifth Edition, 1996

Counsel:
Cathleen Sopa, for the Plaintiff
Salome Maliaki, for the Fourth Defendant

JUDGMENT

22^nd November 2023

1. DAVID, J: INTRODUCTION: This is the decision of the Court after a trial was conducted on 8 November 2023 on both liability and quantum.
   
2. On 11 May 2023, the Plaintiff commenced these proceedings by writ of summons endorsed with a statement of claim claiming payment of the sum of K353,011.93 for outstanding invoices issued in relation to completed works carried out pursuant to a contract number PSTB/GULF/KMA?MOR/-005/2019 executed by the First Defendant on behalf of the defendants on 12 July 2019 for the sum of K280,000.00 (the contract) and approved variations to the contract for the sum of K225,739.20 and K5,372.26 as costs for service of a letter of demand, plus interest at 8% yearly under the Judicial Proceedings (Debts and Damages) Act from the date of filing of the writ to full settlement and costs on a full indemnity basis. The contract was for the refurbishment of the existing hospital morgue at Kerema in the Gulf Province and installation of a containerised morgue there.
   
3. The First, Second and Third Defendants are sued in their capacities as; Provincial Administrator in the case of the First Defendant, Provincial Government established under the Organic Law on Provincial Governments and Local-level Governments in the case of the Second Defendant and a provincial health authority established under the Provincial Health Authorities Act 2007 in the case of the Third Defendant.
   
4. The Plaintiff claims that the Fourth Defendant, The Independent State of Papua New Guinea vicariously liable for the actions or omissions of the First, Second and Third Defendants.
   
5. The Court’s records show that on 27 June 2023, the Fourth Defendant filed its notice of intention to defend. On 17 August 2023, the Fourth Defendant filed its defence. The Fourth Defendant denies liability. It avers that the Second and Third Defendants are separate legal entities established under their respective enabling legislations and are directly responsible for the actions and or omissions of their employees and have their own budget and processes to meet any of their expenditures. It therefore averred that it was vicariously liable only for wrongs committed by its servants and agents within the course of their employment and no other including the First, Second and Third Defendants in the present case. The Fourth Defendant also averred that:
   
   1. The Plaintiff did not meet the requirements of a valid contract or to enforce the contract against The State under ss.47C (Certain contracts null and void) and 47D (Claim against State not enforceable in certain circumstances) of the Public Finances (Management) Act 1995 and s.2A (Claim against the State not enforceable in certain circumstances) of the Claims By and Against the State Act; and
   2. The Plaintiff failed to plead that it was properly issued with an authority to Pre-commit Expenditure by the Department responsible for financial management pursuant to s.47B (Authority to Pre-commit Expenditure) of the Public Finances (Management) Act 1995 before the execution of the contract.
      

6. The First, Second and Third Defendants have shown no interest in defending the Plaintiff’s claim after service of the writ of summons on each of them and they have not filed any notice of intention to defend. This resulted in the Plaintiff making an application for default judgment. On 7 September 2023, the Court refused the application and said that the issue of liability and quantum should be determined at trial. The Court opined that while the First, Second and Third Defendant had clearly defaulted in filing their notices of intention to defend and defence within the prescribed statutory period after service on each of them of the writ of summons, the entry of default judgment against each of them would prejudice the rights of the Fourth Defendant who had filed a defence and the terms of the variation to the principal contract were not clearly set out in the pleadings and the evidence before the Court.

7. Following the completion of the evidentiary part of the trial, the matter was adjourned for the hearing of submissions on 14 November 2023. When the matter returned for submissions on 14 November 2023, Ms. Sopa for the Plaintiff sought an adjournment to 15 November 2023 which was granted as she had instructions to apply for the reopening of the Plaintiff’s case so as to call evidence on whether or not the requirements under the Public Finances (Management) Act 1995 for the entry of a valid contract and to enforce the contract had been met. On 15 November 2023, the Plaintiff moved its formal application for leave supported by affidavit evidence to re-open its case and call further evidence which it said was vital to its case relying on principles enunciated in the National Court decision of Parao Tunboro v Motor Vehicles Insurance (PNG) Trust [1984] PNGLR 272 and approved and followed by the Supreme Court in Straits Contracting (PNG) Pty Ltd v Branfill Investments Limited [1988] PNGLR 239.
   
8. In Parao Tunboro v Motor Vehicles Insurance (PNG) Trust [1984] PNGLR 272 McDermott J said an application by a plaintiff to re-open his case to admit “fresh evidence” is a matter within the Court’s discretion and His Honour suggested a number of factors that could be taken into consideration in exercising the discretion and these are:
   1. The effect of the fresh evidence on the state of the case when made;
   2. the fresh evidence would, if believed, probably affect the result;
   3. the fresh evidence could not with reasonable diligence have been adduced before;
   4. the fresh evidence is not merely confirmation of the plaintiff’s case;
   5. the fresh evidence was not omitted by inadvertence;
   6. the fresh evidence was not omitted by deliberate election; and
   7. it is in the interests of justice that the fresh evidence be admitted.

9. Ms. Sopa submitted that the evidence sought to be adduced, ie, that relating to certain requirements to meet in State contracts was not omitted by deliberate election otherwise it was in the interests of justice that such evidence be adduced.

10. The Plaintiff’s application was not seriously opposed by Ms. Maliaki for the Fourth Defendant.

11. I granted the application because I was of the view that the evidence sought to be adduced was vital to the plaintiff’s case, it was not omitted from the trial by deliberate election, the interests of justice warranted the fresh evidence to be adduced and also noting that the Fourth Defendant would not be seriously prejudiced as it had elected not to offer evidence.
    
12. At the hearing of submissions, the Plaintiff through Ms. Sopa informed the Court that it was abandoning its claim against the Fourth Defendant. The claim against the Fourth Defendant is therefore dismissed.
    

EVIDENCE

13. The Plaintiff relies on and reads the following affidavits:
    
    1. Affidavit of Ethel Jerry sworn on 27 July 2023 and filed on 1 August 2023 (Exhibit “A”);
    2. Affidavit of Malcolm Lewis sworn on 3 October 2023 and filed on 6 November 2023 (Exhibit “B”);
    3. Affidavit of Matthew Lewis sworn on 14 November 2023 and filed on 15 November 2023 (Exhibit ”C”); and
    4. Affidavit of Matthew Lewis sworn on 15 November 2023 and filed on 16 November 2023 (Exhibit “D”).
       
14. As I have alluded to earlier, the Fourth Defendant did not offer any evidence.
    

SUMMARY OF PLAINTIFF’S EVIDENCE
ETHEL JERRY

15. The witness is employed by the Plaintiff as Accounts Receivable Supervisor. She has personal knowledge of this matter.
    
16. One of her duties is to issue invoices for jobs/contracts done by the Plaintiff’s respective divisions upon instructions received from the managers.
    
17. For this job, the Building Division Manager instructed her to issue the relevant invoices for the refurbishment of the Third Defendant’s hospital morgue.
    
18. The first invoice she issued to the Third Defendant was Invoice No.51325 dated 7 August 2019 for the sum of K168,000.00 being 60% of the total sum of the contract for mobilization as per the terms of the contract. A copy of the invoice is annexure “A” to Exhibit “A”. This invoice was short paid by K15,272.73 when the Third Defendant only paid K152,727.27 and the sum of K15,272.73 remains outstanding.
    
19. The second invoice she issued to the Third Defendant was Invoice No.51781 dated 30 September 2019 for the sum of K112,000.00 being the balance and 40% of the contract sum. A copy of the invoice is annexure “B” to Exhibit “A”. This invoice has not been paid and remains outstanding.
    
20. The third invoice she issued to the Third Defendant was Invoice No.52326 dated 17 December 2019 for the sum of K67,721.76. This amount represented 30% of the variation work. A copy of the invoice is annexure “C” to Exhibit “A”. This invoice has not been paid and remains outstanding.
    
21. The fourth invoice she issued to the Third Defendant was Invoice No.53123 dated 30 March 2020 for the sum of K158,017.44. This amount represented 70% of the variation work. A copy of the invoice is annexure “D” to Exhibit “A”. This invoice has not been paid and remains outstanding.
    
22. The total debt owing to the Plaintiff is K353,011.93.
    

MALCOLM LEWIS

23. He is the Chairman of the Plaintiff company.
    
24. The Plaintiff was the successful bidder of contract number PSTB/GULF/KMA/-005/2019 for the refurbishment of the Kerema Hospital Morgue and installation of a containerised morgue and was awarded the contract by the Second Defendant. The contract was executed on behalf of the defendants by the First Defendant on 12 July 2019. A copy of the contract is annexure “A” to Exhibit “B”.
    
25. The contract is for a period of sixty days commencing on the date of the contract.
    
26. The contract value is K280,000.00. As per the terms of the contract, sixty percent of the contract value was to be paid for mobilisation and Invoice No.51325 for the sum of K168,000.00 inclusive of GST was issued. That invoice was short paid by K15,272.73 and that amount remains outstanding.
    
27. The next invoice issued was Invoice No.51781 for the remaining forty percent of the contract sum of K112,000.00 inclusive of GST. That invoice has not been paid and remains outstanding.
    
28. The total amount owed to the Plaintiff pursuant to the contract is K127,272.73.
    
29. In or around October 2019, a Brief Project Report was prepared by the Projects/Building Division of the Third Defendant and submitted to its Chief Executive Officer for the Plaintiff to carry out variations. The Report requested for a further funding of K225,739.21 for the variations. A copy of the report is annexure “B” to Exhibit “B”.
    
30. The Plaintiff carried out the works for the variations and issued two invoices.
    
31. The first one was Invoice No.52326 issued to the Third Defendant on 17 December 2019 for the sum of K67,721.76. This amount represented 30% of the costs of the variations. That invoice has not been paid and remains outstanding.
    
32. The second invoice was Invoice No.53123 issued to the Third Defendant in or around March 2020 for the sum of K158,017.44. This amount represented 70% of the variations. That invoice has not been paid and remains outstanding.
    
33. The total amount owing to the Plaintiff for the variations is K225,739.20.
    
34. The total amount owed by the First, Second and Third Defendants to the Plaintiff pursuant to the contract (K127,272.73) and the variations (K225,739.20) is K353,011.93.
    

MATTHEW LEWIS

35. He is the Managing Director of the Plaintiff company.
    
36. He attaches to Exhibit “C”a copy of a Bank Guarantee No.8565 that the Plaintiff took out with the Bank of South Pacific Limited dated 30 October 2019 and expiring on 1 November 2020 ss security for 5% of the contract sum (annexure “A” to Exhibit “C”).
    
37. The contract was for a term of sixty days and work commenced immediately.
    
38. The contract was signed with the knowledge that the First Defendant was an authorised person acting on behalf of the defendants. Both the contract sum and the value of the variations were within threshold limits of the defendants on contracts.
    
39. The mobilisation work involved the transportation of materials in a container by road from Port Moresby to Kerema (photographs, annexure “B” to Exhibit “D”).
    
40. He attaches to Exhibit “D” photographs of the Kerema hospital morgue before the installation of the containerised morgue (annexure “A” to Exhibit “D”).
    
41. He also attaches to Exhibit “C” photographs of the works done under the contract including the completed containerised morgue for the Kerema hospital (annexures “B1”- “B10” to Exhibit “C”).
    
42. On nearing completion of the works, the Third Defendant through its Chief Executive Officer requested the Plaintiff to carry out variations and it did. The variations were for the value of K225,739.21. The variation works related to the building that housed the morgue. The works included retaining wall construction, gravelling and drainage works at the car park, construction of spike fence, minor electrical works and installation of two 9,000 litre tanks (photographs, annexure “C” to Exhibit “D”).
    
43. At the time of completion of the works under the contract and variations, the Second Defendant did not have a Provincial Tender Board so they could not get a certificate of completion.
    
44. The completed containerised morgue is now being used.
    
45. Numerous follow ups of the outstanding debt including by email have been without success (annexure “D” to Exhibit “D”).
    
46. A Letter of Demand was issued on 2 February 2022 to the Second and Third Defendants demanding full settlement of the outstanding debt of K353,011.93 (annexures “C1” and “C2” to Exhibit “C”) within 14 days, but no settlement has resulted from that. Additional costs were incurred when their lawyer was flown down to Port Moresby and took a hire car to Kerema to serve the Letter of Demand.
    
47. Their further follow ups of the outstanding debt resulted in the receipt of an unsigned Decision No.26/22 of the Gulf Provincial Executive Council Meeting No.03/22 held on Tuesday, 23 May 2022 resolving, amongst others, to endorse and approve the settlement of outstanding construction costs owing to the Plaintiff (annexure “D” to Exhibit “C”).
    

ISSUES

48. The main issues that arise for me to decide in determining the Plaintiff’s claim against the First, Second and Third Defendants are:
    
    1. Was there a valid and enforceable contract?
    2. Was the contract breached?
    3. If so, what are the Plaintiff’s damages for breach of contract?
    4. Was there a valid and enforceable variation to the contract?
    5. Was the variation to the contract breached?
    6. If so, what are the Plaintiff’s damages for breach of the variation to the contract?
       
49. I will deal with the first, second and third issues together. Likewise, I will deal with the fourth, fifth and sixth issues together.
    

CONTRACT
Submissions

50. Ms. Sopa for the Plaintiff submits that the contract was valid and enforceable for all intents and purposes. The Plaintiff carried out the works, completed them and the morgue is now operational and in use by the Kerema hospital. The contract has been breached when only part of the contract sum was paid and a total amount owed to the Plaintiff pursuant to the contract is K127,272.73.

51. Ms. Maliaki for the Fourth Defendant does not seriously dispute the fact that the contract was executed between the Plaintiff and the Second and Third Defendants and signed by the First Defendant on behalf of the Second and Third Defendants. No serious issue was raised about whether or not statutory procurement processes were met. She states that there was a clear breach of the contract by the First, Second and Third Defendants when only part-payment of the contract sum was made and they should be held liable. However, she submits that there is no evidence that the works were completed supported by a Certificate of Completion.

Reasons for decision

52. In civil proceedings, the general rule is that he who asserts must prove it (Shaw v Commonwealth of Australia [1963] PNGLR 119, Supreme Court Reference No 4 of 1980 [1982] PNGLR 65, Reference by the East Sepik Provincial Executive (2011) SC1154, Galem Falide v Registrar of Titles and The State (2012) N4775, Board of Management, Holy Spirit Primary School v Moses Sariki (2013) N5446) and the standard of proof is on the balance of probabilities. Hence, the burden may shift to the party who asserts and who must then prove it: JD Heydon, Cross on Evidence, Butterworths, Fifth Edition, 1996, paragraphs 7200-7230.

53. The essential elements of a valid and legally binding contract were stated in Patterson v National Capital District Commission (2001) N2145 and Hargy Oil Palm Ltd v Ewasse Landowners Association Incorporated (2013) N5441 and these are:

1. A clear offer and acceptance;
2. An intention to create a legally binding contract;
3. Passage of valuable consideration each way; and

4. Each of the parties has the legal capacity to negotiate and enter into a contract.
   

54. The Plaintiff’s evidence is uncontested. There is cogent and convincing evidence demonstrating that the works undertaken by the Plaintiff under the contract pursuant to the Scope of Works were completed.

55. Clause 1.2 which deals with the term of the contract states:

“The Contract will be for the period of 60 days commencing on the Date of Agreement. During this period, the Hornibrook NGI Ltd shall complete the all works specified in the Scope of Works and for the renovation of Kerema Hospital Morgue in Kerema Town of Gulf Province.” (sic)

56. Clause 1.5 of the contract deals with particulars of works and it states:

“The GP&LLG and Hornibrook NGI Ltd agree that the works are set out in the Scope of Works attached hereto.”

57. The Scope of Works attached to the contract required the Plaintiff to:

1. Instal a reefer (refrigerated container).
2. Conduct remedial maintenance to current morgue;
3. Fix gutters & downpipe;
4. Install new rainwater tank;
5. Install new CFC sheeting;
6. Refurbish toilet with new hand basin;
7. Install new window;
8. Install new water pump; and
9. Repaint interior of the morgue.
   

58. The Bills of Quantities forming part of the contract contains the list of materials to be procured and costs of labour with the total amount given being the contract sum of K280,000.00.

59. Each of the essential elements of a valid and legally binding contract are present here. The contract is in evidence. The contract sum agreed to was K280,000.00 and the contract was signed by Malcolm Lewis on behalf of the Plaintiff and by the First Defendant on behalf of the Second and Third Defendants.

60. As to whether a certificate of completion ought to have been produced as evidence of the completion of the works under the contract, Clause 1.3 of the contract states:

“The Hornibrook NGI Ltd shall attend to the works commencing from the date of mobilization until the works have been completed to the satisfaction of the GP&LLG’s nominated Superintendent.”

61. The Contract Data forming part of the contract states that the period of completion for the whole works was sixty days and the defects liability period was twelve months from the date of issue of the Certificate of Completion.

62. Clause 1.4 deals with payments. It states:

“The GP&LLG will pay to the Hornibrook NGI Ltd the sum of Two Hundred Eighty Thousand Kina (K280,000.00) in respect of the works completed by the Contractor to the satisfaction of the Project Superintendent. Payments schedule shall be as follows; 60% payment to be made for mobilization and upfront payment, followed thereafter by 30% payment upon progressive report, hence remaining 10% to be made after completion of the project.” (sic)

63. The Superintendent for the works specified under the contract as per the Contract Data was the Advisor, Works & Technical Services, Gulf Provincial Administration whose postal address is PO Box 87, Kerema, Gulf Province. There is no evidence from the nominated Superintendent or the First, Second and Third Defendants that the works were not completed. There is also no evidence of any complaint made by the First, Second and Third Defendants about the execution of the contract. Matthew Lewis’ evidence is that at the time of completion of the works under the contract and variation to the contract, the Second Defendant did not have a Provincial Tender Board so they could not get a Certificate of Completion.

64. The Public Finances (Management) Act 1995 and the National Procurement Act 2018 are two separate legislations that make provision for the management of public finances and procurement activities of public and statutory bodies including those relating to Provincial Governments and Local-level Governments. They appear to compliment each other, but have also created confusion in their application.

65. Provincial Governments are established by Part VIA (Sections 187A -187J) of the Constitution and s.10 of the Organic Law on Provincial Governments and Local-level Governments.

66. They have the legal capacity to acquire, hold and dispose of property of any kind and they may sue or be sued pursuant to s.6 of the Organic Law on Provincial Governments and Local-level Governments.

67. They are public bodies that fall within the meaning of the term “public body” under s.2 of the Public Finances (Management) Act as they are established by a Constitutional Law.

68. The National Procurement Act 2018 also applies to them by virtue of s.5(1) of that Act which states:

“Subject to this section, this Act applies to all procurement activities by public and statutory bodies within the meaning of the PFMA, irrespective of the source of the funding for the procurement activities.”

69. The acronym PFMA means the Public Finances (Management) Act 1995: see s.2 of the National Procurement Act 2018.

70. Under s.36 of the Provincial Health Authorities Act 2007, provincial health authorities are public bodies under the Public Finances (Management) Act and the sections of the Public Finances (Management) Act which relate to public bodies apply to them.

71. The National Procurement Act 2018 also applies to the Third Defendant by virtue of s.5(1) of the Act.

72. The procurement thresholds for all public and statutory bodies are set out in s.26 of the National Procurement Act 2018 which states:

“(1) The procurement thresholds for all public and statutory bodies are -

(a) the threshold level for minor procurements below which public and statutory bodies may procure themselves using a simplified procurement system approved by the Commission, is not more than K5,000.00; and
(b) the threshold level below which public and statutory bodies may procure themselves using a standardised procurement system approved by the Commission is from K5,001.00 to K500,000.00; and
(c) the threshold level above which public and statutory bodies shall not procure themselves but shall have procurements undertaken on their behalf by the Commission is above K500,000.00; and
(d) in the case of a Provincial Committee of the Commission, not exceeding K5,000,000.00 the threshold level below which a Provincial Committee of the Commission, may procure itself using a standardised procurement system approved by the Commission is K5,000,000.00; and
(e) in the case of a District Committee of the Commission, procuring themselves, using a standardised procurement system approved by the Commission, the threshold level is K2,500,000.00.

(2) Public and statutory bodies shall comply with the thresholds established under this Act and with the requirements of the procurement systems established by the Commission for the respective thresholds.

(3) Any contract entered or purported to be entered into by a public or statutory body contrary to this section is void from the moment of execution of the contract.

(4) No damages, compensation or any other entitlement or relief, whether legal or equitable, shall be awarded by any court of competent jurisdiction under or in respect of any contract that is void pursuant to this section.

(5) Where -

(a) a procurement threshold under this part requires that a procurement of a Provincial or Local-level Government or of a District Development Authority be undertaken on their behalf by the Commission; and

(b) the procurement will result in a contract to be executed over multiple years,

the head of the administration of the Provincial or Local-level Government or District Development Authority, as the case may be, shall take such steps as are necessary to reasonably ensure that in respect of every year in which the contract is to be executed that it has appropriated or otherwise budgeted as a first priority for sufficient funds to meet the financial costs to be incurred in each of those financial years.”
73. Section 26 of the National Procurement Act 2018 was amended by s.9 of the National Procurement (Amendment) Act 2021 when sub-section (1) was repealed and replaced by a new sub-section (1), a new-sub-section 1A was inserted after the new sub-section (1), sub-sections (4) and (5) were repealed and replaced by a new sub-section 4. The new sub-sections are:

"(1) Subject to this Act, the procurement thresholds for all public and statutory bodies are -

(a) the threshold level for minor procurements below which public and statutory bodies may procure themselves using a simplified procurement system approved by the Commission, is not more than K50,000.00; and
(b) the threshold level below which public and statutory bodies may procure themselves using a standardised procurement system approved by the Commission is from K50,001.00 to K1,000,000.00; and

(c) the threshold level above which public and statutory bodies shall not procure themselves but shall have procurements undertaken on their behalf by the Commission is above K1,000,000.00; and

(d) in the case of a Provincial Committee of the Board, not exceeding K10,000,000.00 the threshold level below which a Provincial Committee of the Board, may procure itself using a standardised procurement system approved by the Commission is K10,000,000.00; and

(e) in the case of a District Committee of the Board, procuring themselves, using a standardised procurement system approved by the Commission, the threshold level is K5,000,000.00; and

(f) in the case of a Special Committee of the Board, procuring themselves, using a standardised procurement system approved by the Commission, the threshold level is up to K5,000,000.00.

(1A) Procurement thresholds and the management and control of disposal shall be prescribed under the Procurement Instructions issued under this Act.
(4) Where -

(a) a procurement threshold under this Part requires a procurement of a Provincial or Local-level Government or of a District Development Authority or public or statutory body be undertaken on their behalf by the Commission; and

(b) the procurement will result in a contract to be executed over multiple years,

the head of the administration of the Provincial or Local-level Government or District Development Authority or head of the public or statutory body, as the case may be, shall take such steps as are necessary to reasonably ensure that in respect of every year in which the contract is to be executed that it has appropriated or otherwise budgeted as a first priority for sufficient funds to meet the financial costs to be incurred in each of those financial years.".
74. The law is well settled that a contract that is entered into with the State or any of its arms or instrumentalities or a public institution to which the Public Finances (Management) Act applies in relation to all procurement activities (supply of works, goods and services) without complying with the mandatory procurement requirements of the Act is illegal, null and void and unenforceable. In Fly River Provincial Government v Pioneer Health Services Ltd (2003) SC705, the Supreme Court held, amongst others, that:

1. The requirements under ss.59 and 61 of the Public Finances (Management) Act are mandatory and where a contract is entered into in breach of those requirements, it is illegal and is therefore null, void and unenforceable.
2. The requirements under the Public Finances (Management) Act 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.
3. A person dealing with the State or any of its arm or instrumentality or a public institution to which the Public Finances (Management) 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.
4. A failure to ensure compliance of the requirements of the Public Finances (Management) Act operates to the detriment of the party contracting with the State or a public authority to which the Act applies.
5. 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.
   

75. Officers of the Second and Third Defendants were required to comply with the minimum procurement requirements and financial instructions issued by the Departmental Head of the Department responsible for financial management under s.117 of the Public Finances (Management) Act: Travellers Rent A Car Ltd v Biko (2023) N10435, Arpa v Kerowagi District Development Authority (2023) N10438.

76. The same can be said about the National Procurement Act 2018. Section 45(1) states that all procurements shall be carried out in accordance with the Act, the regulations, guidelines and instructions issued under the Act. That provision is stated in mandatory terms and all officers of the Second and Third Defendants were required to comply with all relevant procurement requirements. Under s.45(2) and (3) of that Act, the National Procurement Commission may issue Procurement Instructions or Guidelines and procurement manuals not inconsistent with the Act. I am not aware of and certainly the parties have not brought to my attention that such regulations, guidelines, Procurement Instructions, Guidelines or procurement manuals have been made or issued by the National Procurement Commission or the Head of State in the case of regulations: s.80, National Procurement Act 2018.

77. As to the averment in the Fourth Defendant’s defence that the requirements under ss.47C and 47D of the Public Finances (Management) Act and s.2A of the Claims By and Against the State Act may not have been met to pursue a claim against the Fourth Defendant, this defence and line of argument was not seriously pursued by Ms. Maliaki after the Plaintiff disclosed that it would abandon its claim against the Fourth Defendant.

78. It is true that the Plaintiff’s statement of claim does not plead that it was issued an Authority to Pre-commit Expenditure by the Department responsible for financial management pursuant to s.47B of the Public Finances (Management) Act before the execution of the contract. However, what is the consequence of not pleading that? Applying the principles on pleadings, on the one hand, the Plaintiff will not be allowed to call evidence on that. On the other hand, since it was raised by the Fourth Defendant, it was incumbent on it to adduce the relevant evidence and it has not done that.

79. The contract sum was within the procurement threshold of K500,000.00 that applied at the material time. The First, Second and Third Defendants were entitled to procure themselves the works facilitated by the contract. They have their own budgets and processes to facilitate the execution of the works under the contract.

80. Provincial Supply and Tenders Boards may be established in the provinces pursuant to s.39B of the Public Finances (Management) Act. The uncontested evidence before the Court is that at the material time, there was no Provincial Supply and Tenders Board for the Gulf Province.

81. There is no evidence from the defendants to demonstrate that procurement requirements were not complied with. Given that, I am of the respectful view that the contract was valid and enforceable.

82. There was a clear breach of the contract when only a part-payment of K152,727.27 was made. The total amount owed to the Plaintiff pursuant to the contract is K127,272.73.

VARIATION OF CONTRACT
Submissions

83. Ms. Sopa for the Plaintiff essentially contends that the contract was varied by agreement of the parties for the sum agreed and the variation to the contract is valid and enforceable. She asserts that the Plaintiff has performed its part of the bargain, but the First, Second and Third Defendants have breached the variation agreement by not paying any of the invoices.

84. Ms. Maliaki for the Fourth Defendant submits that the variation agreement is illegal and void for two main reasons. First, the aggregate sum of the contract sum and the amount for the variations was in excess of the procurement threshold of K500,000.00. Second, the variation ought to have been brought to and processed by the Gulf Provincial Supply and Tenders Board.

85. Ms. Maliaki also submits that if the Court finds that the variation agreement was illegal or void, the Plaintiff should be entitled to damages on a quantum meruit basis and that the total amount invoiced should be awarded.

Reasons for decision

86. A variation of a contract is a contract on its own: National Broadcasting Corporation v Taison (2019) N8083. Essential elements of a legally binding contract must exist: National Broadcasting Corporation v Taison (2019) N8083. At [14] and [17] Kandakasi DCJ said:

“14. A variation of an existing contract is a contract in itself. This means the legal requirements for a legally binding and enforceable contract must exist in order for there to be a valid variation. It is settled law that, contracting parties may by their clear and unequivocal agreement, vary their contracts. Usually, the original of a contract would make provision for its variation. Where there are such provisions, its terms dictate how variations could be validly arrived at. In such a case, a valid contract variation can be brought about in accordance with the way or manner prescribed in the contract. Any departure from that which is prescribed could not amount to a valid variation of the contract,[1] unless the parties otherwise mutually agree in very clear terms. But in cases where such provisions are lacking, the parties must enter into a clearly binding agreement for the variation. In some instances, the variation of the contract may come by the conduct of the parties.[2]

17. Included in the provisions that needed to be complied with are the provisions of s. 47B which requires pre-commitments in order for a contract to be enforceable, given the provisions of s. 47C. Also, the contract variations had to come through persons who are authorized for that purpose under s. 32 of the same Act. This provision relevantly provides for variation of contracts and all variations to go through an approved officer appointed under the Act in writing..... “.

87. The contract does not make provision for its variation. However, I am satisfied on the balance of probabilities that the parties entered into an agreement for the variation of the contract. The variation is also demonstrated by the conduct of the parties.
88. Applying the principle enunciated in National Broadcasting Corporation v Taison (2019) N8083 that a variation is a contract on its own, I am satisfied that the essential elements of a contract exist in the present case.

89. The amount for the variations was within the procurement threshold of K500,000.00 that applied at the material time. I reject Ms. Maliaki’s submission in that regard. She also did not bring to my attention the statutory or legal basis for her argument on the aggregation of the contract sum and the amount for the variations for purposes of whether or not the procurement threshold was exceeded. The First, Second and Third Defendants were entitled to procure themselves the works facilitated by the variations. However, there is a catch.

90. Section 70 of the National Procurement Act provides that subject to this part, all contracts for procurements shall be drawn and approved and cleared by the State Solicitor. That is mandatory. There is no distinction made between procurements that can be done by public and statutory bodies themselves and those that are not. It is on that basis that I find that whilst there appears to be an agreement to vary the contract, it is illegal and void.

91. The Supreme Court has spoken that in such a circumstance, the Plaintiff would not be left without a remedy as was held in Fly River Provincial Government v Pioneer Health Services Ltd (2003) SC705. In that case when addressing the question of an illegal or void contract, the Supreme Court held that a bona fide contractor who has provided services of value is not left without a remedy; he was entitled to damages on a quantum meruit basis. It is instructive that I set out below the relevant parts of the judgment on this point:

“It is trite law that an innocent party to an illegal or void contract would not be left without any remedy.....

A bona fide contractor who has provided services of value is not left without a remedy. There is no unfairness in upholding the legislation in such circumstances and allow an innocent party to recovery damages on a quantum meruit basis to avoid unjust enrichment by the other if the contract has been part performed.

Some authorities describe this principle as the right of restitution. The decision in the Barclay Brothers case discusses this at page 17 of the judgement as a right in equity to claim restitution for it lies outside the parameters of a contract. Such a right is not to enforce a contract but because justice and equity demands it. A party seeking restitution must be able to establish at the least that it is not responsible for or not an equal participant in the illegality. The converse of that is that restitution is not available to a party, which knowingly or cynically entered into an illegal contract. Thus where a Court finds willing participation in an illegal contract there will be no recovery.”

92. There is no evidence to demonstrate that the Plaintiff knew the variation to the contract was illegal. Even if there were no agreement in existence, the Plaintiff would still be entitled to an award on a quantum meruit basis. This protects the Plaintiff as an innocent party against unjust benefits being retained by the First, Second and Third Defendants: Turik v Gubag (2013) N5132.

93. What is the reasonable sum of money that should be awarded to the Plaintiff? The variation works were completed. The circumstances warrant and I would accept Ms. Maliaki’s suggestion to award the invoiced amount that remains outstanding. I award the plaintiff K225,739.20.

COSTS OF SERVICE OF LETTER OF DEMAND

94. Ms. Maliaki for the Fourth Defendant does not seriously contest this claim. There is sufficient and uncontested evidence substantiating the amount claimed of K5,372.26. I award the plaintiff K5,372.26.

TOTAL AWARD

95. The total award is K358,384.19.

INTEREST

96. In the exercise of the Court’s discretion, I will award interest at the rate of 2% yearly pursuant to s.4 of the Judicial Proceedings (Interest on Debts and Damages) Act 2015 to apply from the date of filing of the writ of summons to the date of the judgment which is K3,770.40 and pursuant to s.6 of the of the Judicial Proceedings (Interest on Debts and Damages) Act 2015 such rate of interest shall apply post-judgment.

COSTS

97. In the prayer for relief, the plaintiff seeks costs on a full indemnity basis.

98. Costs on a party-party basis is the norm in any court proceedings: Island Helicopter Services Ltd trading as Islands Nationair v Wilson Sagati & Ors (2008) N3340. Costs on a lawyer-client or indemnity basis is a departure from the norm and it requires proper exercise of judicial discretion: Island Helicopter Services Ltd trading as Islands Nationair v Wilson Sagati & Ors (2008) N3340.

99. In Rex Paki v Motor Vehicles Insurance Limited (2010) SC1015, the Supreme Court said:

“An order for costs on an indemnity basis may be made where the conduct of a lawyer or a party to the proceedings is so improper, unreasonable or blameworthy that he should be so punished by such an order. The question is whether the conduct of the appellant in this matter is such that it caused the respondent to incur unnecessary costs.”

100. The discretionary power should be exercised only in a clear case: Island Helicopter Services Ltd trading as Islands Nationair v Wilson Sagati & Ors (2008) N3340; Rex Paki v Motor Vehicles Insurance Limited (2010) SC1015.

101. The considerations (although not exhaustive) upon which the discretion may be exercised were expounded by Injia, DCJ (as he then was) in Island Helicopter Services Ltd trading as Islands Nationair v Wilson Sagati & Ors (2008) N3340. I have considered them.

102. In the exercise of the Court’s discretion, I find that the facts of this case do not warrant costs to be awarded on a full indemnity basis. Costs will follow the event, ie, on a party-party basis. As the successful party, the Plaintiff will be awarded the costs of the proceedings which shall be paid by the Second and Third Defendants. If there is no agreement as to the amount to be paid, then costs shall be taxed.

ORDERS

103. Judgment is entered for the Plaintiff in the following terms:

1. The First, Second and Third Defendants are liable to pay the Plaintiff K358,384.19 plus interest of K3,770.40 and the total sum is K362,154.59, but the actual payment shall be made by the Second and Third Defendants.
2. Pursuant to s.6 of the of the Judicial Proceedings (Interest on Debts and Damages) Act 2015 interest shall be at the rate of 2% yearly post-judgment on such of the money as is from time to time unpaid.
3. Costs will follow the event, ie, as the successful party, the Plaintiff will be awarded costs which shall be paid by the Second and Third Defendants and which will be taxed if not agreed.
4. Time for the entry of this order is abridged.

Judgment and orders accordingly.

______________________________________________________________
Hornibrook NGI Ltd In-house Lawyer: Lawyer for the Plaintiff
Solicitor-General: Lawyers for the Fourth Defendant