Keboki Business Group (Inc) v The State and Morobe Provincial Government [1984] PNGLR 281 (31 October 1984)

Papua New Guinea Law Reports - 1984

[1984] PNGLR 281 - Keboki Business Group (Inc) v The State and Morobe Provincial Government 

[1984] PNGLR 281

N488

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

KEBOKI BUSINESS GROUP (INC.)

V

THE INDEPENDENT STATE OF PAPUA NEW GUINEA AND MOROBE PROVINSEL GAVMAN

Waigani

Kidu CJ

31 October 1984

STATE - Liabilities of - In contract - Execution of contract not authorised - Contract not binding - Recovery on quantum meruit basis.

CONTRACT - Illegal and void contracts - Effect of - Tender unlawfully accepted - Services rendered - Quantum meruit - Recovery of until refutation.

The Constitution, s. 247(1), provides that “Papua New Guinea has power ... to make contracts in accordance with an Act of the Parliament.”

The Government Contracts Act (Ch. No. 64), s. 1, provides that the Head of State, acting on advice, or where the consideration does not exceed K3,000,000 a Minister may enter into a contract which is in his opinion necessary or desirable in the interest of Papua New Guinea.

The Ministers’ (Delegation) Act (Ch. No. 35), permits the Minister appointed under the Act to delegate his contracting powers by regulation.

The Public Service Act (Ch. No. 67), s. 22, provides that “unless duly authorised an officer shall not — (a) incur any liability or enter into any contract on behalf of the State.”

Tenders for the provision of services for garbage and sanitary removal were invited by the (Morobe) Provincial Supply and Tenders Board (a National Body). As the amount of the proposed contract exceeded the powers of the Provincial Supply and Tenders Board the tenders were forwarded to the Central Supply and Tenders Board. The relevant powers of the Minister had been delegated to the Secretary of the Central Board. The Central Board having decided to award the tender to the plaintiff, so informed the Provincial Board, which purported to “contract” with the plaintiff under the hand of the Chairman of the Provincial Board. Services were performed and continued to be performed pursuant to the “contract” although it was refuted when claims were made for payment thereunder after approximately three months.

Held

(1)      The contract relied upon, not having been executed by any of the persons authorised to do so, was not binding on the State.

(2)      Where a contract is void as being made without authority a plaintiff who has rendered services under it may be entitled to recover on a quantum meruit basis at least for services rendered until such time as the “contract” is refuted.

Craven-Ellis v. Canons Ltd [1936] 2 K.B. 403, followed.

(3)      In the circumstances the plaintiff was entitled to be paid on a quantum meruit basis up until the time when the contract was clearly repudiated.

Cases Cited

Craven-Ellis v. Canons Ltd [1936] 2 K.B. 403.

Ruabon Steamship Company v. London Assurance [1899] UKLawRpAC 53; [1900] A.C. 6.

Statement of Claim

These were proceedings in which the plaintiff sought to recover moneys for services rendered pursuant to a tender for the supply of garbage and sanitary services which was repudiated by the defendants.

Editorial Note

An appeal to the Supreme Court has been lodged.

Counsel

L. Henao, for the plaintiff.

J. Reeve, for the first defendant.

T. Doherty, for the second defendant.

Cur. adv. vult.

31 October 1984

KIDU CJ: The plaintiff, a business group consisting of Papua New Guineans, issued its writ on 24 November 1983, and by its statement of claim it relied on an agreement made in writing on or about 31 May 1983, relating to the provision of services rendered in Wau at the request of the first defendant. The second defendant was joined on 18 April 1984.

It is pointed out from the outset that the second defendant was never a party to the alleged contract — I say alleged contract because the first defendant says there was no valid contract between it and the plaintiff.

BACKGROUND

The plaintiff tendered for a contract No. MPT2/83 for removal of sanitary waste and garbage in Wau town, Morobe, and on 31 May 1983 won the tender. It received a letter from the Morobe Province Supply and Tender Committee (a national body) signed by the Chairman (a Mr E. Decklam). The letter said, inter alia:

“Your company’s tender is hereby accepted in full, subject to succeeding paragraphs of this letter.

(K90,000) per annum.

The Contract shall consist of:

(1)      The documents upon which your company’s tender was based comprising:

(a)      the general conditions of tender and of contract;

(b)      the specifications.

(2)      Your company’s tender dated 16 February 1983.

(3)      Your company’s letter dated 16 February 1983 addressed to The Morobe Provincial Supply and Tenders Committee, P.O. Box 422, Lae, Morobe Province.

(4)      This letter of acceptance and the specifications setting out the salient points of the contract.

In the event of inconsistency between the provisions of the letter of acceptance (including the specifications) and the provisions of any of the other documents referred to above, the provisions of this letter shall prevail.

This contract is for a period of twelve months from the date of acceptance until 16 June 1984.

Your company is required to lodge within fourteen days of the date of this letter a security deposit in the sum of K2,250 (two and a half per cent).

The sum may be paid in cash or by cheque in favour of the ‘Independent State of Papua New Guinea’ to ‘The Chairman, Supply and Tenders Committee, P.O. Box 422, Lae Morobe Province’.

Alternatively the Committee may accept a guarantee of such sum by a suitable surety.

Please acknowledge receipt of this letter of acceptance by having the receipt endorsed on the attached copy of this letter signed by a duly authorised officer of your company. The copy should then be returned together with the security deposit referred to above.

Your attention is drawn to the fact that this letter of acceptance is subject to stamp duty in Papua New Guinea.

Yours faithfully,

F. Decklam

Chairman

Supply and Tenders Committee.

1 June 1983

Keboki Sorogo Business Group acknowledges receipt of letter of acceptance for contract MPT2/83 and agrees to be bound by the terms and conditions contained therein.

P. Biram

for Keboki Sorogo Business Group

1 June 1983.”

The document contained a record that stamp duty was paid. A copy was sent to the Secretary, Central Government Supply and Tenders Board, P.O. Box 201, Badili, N.C.D. The Secretary of the Central Supply and Tenders Board did not write to say anything to the contrary perhaps because he or she did not receive it. In evidence is a letter dated 20 May 1983, reference 54/STB/Morobe/2165. The action officer in the letter is one J. Levi and his designation “A/Secretary”. However, I cannot be sure that J. Levi is the same James Levi appointed as Secretary of the Central Supply and Tenders Board on 28 May 1983. Anyway he did not sign the letter, it was signed by Andrew Temu. This letter says as follows (it is addressed to The Chairman, Supply and Tenders Board, Morobe):

“Subject: Tender — MPT2/83 — for sanitary and garbage — Wau.

Your communication referred 19-1-8/04 dated 30 March 1983 is acknowledge.

The Board is satisfied with your above-mentioned memo and have given its approval that a contract be entered into with Keboki Business Group at the approximate total value of K90,000 per annum.

Would you please arrange to have letter of acceptance issued accordingly to the company.

Attached here is a copy of the submission referred for your information and records.

Andrew Temu

for Chairman

Central Government

Supply and Tenders Board.”

The first defendant advanced two arguments in aid of its contention that there was no contract between it and the plaintiff.

(1)      Neither the Secretary, nor the Chairman, of the Central Supply and Tenders Board personally signed the contract.

(2)      The subject matter of the contract was within the competency of the Provincial Government by law (Organic Law on Provincial Government), therefore, the National Government could not contract re the subject matter.

ARGUMENT NO. 1

There is no doubt that the only people in Papua New Guinea who can bind the State in contract are:

(1)      the Head of State on advice in a case involving consideration valued at more than K300,000;

(2)      a Minister where the consideration does not exceed K300,000;

(3)      any delegate of a Minister appointed under the Ministers’ (Delegation) Act (Ch. No. 35).

The first two categories are covered by s. 1 of the Government Contracts Act (Ch. No. 64) which reads as follows:

“Subject to this Act:

(a)      the Head of State, acting on advice; or

(b)      where the consideration does not exceed K300,000 a Minister,

may enter into and execute any contract or agreement which in his opinion is necessary or desirable in the interest of Papua New Guinea.”

As to the third category the Minister for Finance in 1977 exercised his delegation power under the Ministers’ (Delegation) Act and delegated his contracting powers to the Chairman and Secretary of the Central Supply and Tenders Board and the Chairmen and Secretaries of Provincial Supply and Tenders Boards as follows:

“Ministers’ (Delegation) Regulation 1976

Delegation

I, Julius Chan, Minister for Finance, by virtue of the powers conferred by s. 2 of the Ministers’ (Delegation) Regulation 1976 and all other powers me enabling, hereby delegate all my powers and functions under s. 4 of the Government Contracts Act 1972 to each Secretary of each Supply and Tenders Board specified in Column 1 of the Schedule to execute any contract or agreement as a result of the tender approved by that Board and where the total consideration in relation to that tender does not exceed the amount specified in Column 2 and set out opposite the name of that Board, only in so far as it relates to the execution of Letters of Acceptance.

Schedule
Column 1	Column 2
Board	Amount
The Central Government Supply and Tenders Board	100,000
The Posts and Telecommunications Supply and Tenders Board	100,000
The Plant and Transport Supply and Tenders Board	100,000
The National Works Authority Supply and Tenders Board	100,000
The Defence Supply and Tenders Board	100,000
East New Britain Supply and Tenders Board	50,000
West New Britain Supply and Tenders Board	50,000
Milne Bay Supply and Tenders Board	50,000
Chimbu Supply and Tenders Board	50,000
Northern Province Supply and Tenders Board	50,000
Western Province Supply and Tenders Board	50,000
Morobe Province Supply and Tenders Board	50,000
Madang Province Supply and Tenders Board	50,000
New Ireland Province Supply and Tenders Board	50,000
Eastern Highlands Province Supply and Tenders Board	50,000
Southern Highlands Province Supply and Tenders Board	50,000
East Sepik Province Supply and Tenders Board	50,000
West Sepik Province Supply and Tenders Board	50,000
Western Highlands Province Supply and Tenders Board	50,000
Dated this 24th day of May, 1977.	<<

J. Chan

Minister for Finance.”

“Public Finances Regulation 1974

Establishment of the Morobe

Province Supply and Tenders Board.

I, Julius Chan, Minister for Finance, by virtue of the powers conferred by Section 17 of the Public Finances Regulation 1974 and all other powers me enabling and acting on the advice of the Secretary for Finance, hereby:

(a)      establish the Morobe Province Supply and Tenders Board and appoint each of the following persons to be members of the Board:

(i)       the Provincial Finance Officer-Chairman; and

(ii)      the Provincial Works Manager, Transport, Works and Supply; and

(iii)     the Provincial Business Development Officer, Department of Labour, Commerce and Industry; and

(b)      determine that the limits of authority and jurisdiction of the Board shall be to invite tenders for:

(i)       the purchase and disposal of stores; and

(ii)      the supply of works and services,

for and on behalf of the State to the value estimated by the Board not to exceed K50,000; and

(c)      fix a quorum for a meeting to be three persons.

Dated this 23rd day of May, 1977.

J. Chan,

Minister for Finance.”

(Government Gazette No. G43 of 9 June, at 11-12.)

As the alleged contract in this case was valued at K90,000 it was referred to the Central Supply and Tenders Board. However, as is clear from the correspondence reproduced earlier neither the Chairman of the Central Board nor its Secretary signed any contract with the plaintiff. The letter of 16 May 1983 from the Central Board to the Morobe Provincial Board was signed by a Mr Andrew Temu for the Chairman. Now there is no evidence of any delegation by the Minister of Finance to Mr Temu and there is no evidence that at the time he signed the letter Mr Temu was either Chairman or Secretary of the Central Board. In fact at the relevant time Mr Ralph Guise and Mr James Levi were respectively Chairman and Secretary of the Central Board. According to Mr Vulupindi’s affidavit (Mr Vulupindi is the Secretary for Finance) Mr Ralph Guise was Chairman from 9 June 1977 to 4 December 1983 and Mr James Levi was Secretary from 28 May to the date he swore his affidavit (that is 17 May, 1984).

Neither the Central Board nor a Provincial Board (in this case the Provincial Board in Morobe) has the power to enter into a contract or execute any contract for or on behalf of the State. The power of authority of these boards are set out in the Tenders (Procedure) Rules (Ch. No. 36) made by the Minister for Finance and under these Rules, when re-establishing these Boards in an instrument dated 23 May 1977 (Published in Gazette No. G43 dated 9 June 1977, at 11) the Minister determined, inter alia, as follows:

“(f)     ... that the limits and jurisdiction of the Board shall be to invite tenders for:

(i)       the purchase and disposal of stores; and

(ii)      the supply of works and services,

for and on behalf of the State to an unlimited amount.”

There is, therefore, no doubt that the Board cannot enter into or execute any contracts on behalf of the State. The letter of 16 May 1983 did not constitute a contract even though it was endorsed on 1 June 1983 by the secretary for the plaintiff Business Group.

The Government Contracts Act protects unauthorised public servants from entering into unauthorised contracts on behalf of the State. In fact s. 22 of the Public Service Regulation (Ch. No. 67) says:

“Unless duly authorised an officer shall not:

(a)      incur any liability or enter into any contract on behalf of the State; or

(b)      alter the terms or conditions of any approved contract,

or purport or attempt to do so.”

Therefore, a public servant not authorised by a Minister, in this particular case the Minister for Finance, cannot bind the State in any contract.

The Government Contracts Act is an Act sanctioned by s. 247(1) of the Constitution. This provision reads, inter alia, as follows:

“(1)    Papua New Guinea has the power ... to make contracts, in accordance with an Act of the Parliament.”

It is implicit in the above provision that a contract by the State must be in accordance with an Act and the relevant Acts in this case (Government Contracts Act and Ministers’ (Delegation) Act, say only the Head of State on advice, a Minister or a Minister’s delegate may bind the State in contract.

In this case, therefore, the “contract” relied upon by the plaintiff, not having been executed by any of the persons mentioned above, is not binding on the State. Although it was not adverted to during the trial I might mention here that s. 247 of the Constitution, the Government Contracts Act and s. 22 of the Public Service Regulation have the primary purpose of protecting public funds from being spent or committed illegally by public officers not authorised by law to do so. Having ruled that there is no valid contract under the first defendant’s first submission there is no call for me to consider its second submission here. It is still relevant to the second part of this case which I now deal with.

QUANTUM MERUIT

The plaintiff argued that if there was no (valid) contract then it should be paid either by the first or second defendant on a quantum meruit basis.

As it had no knowledge of the contract/tender until after the plaintiff started claiming moneys from the first defendant, the second defendant argued that it had no liability to pay the plaintiff quantum meruit. The first defendant’s denial to pay quantum meruit was based on the second submission it advanced in relation to the first part of this case — that is that there was no valid contract. This argument is in two parts:

(1)      The subject matter of the “contract” comes within the legislative powers of the Provincial Government. These powers are given by s. 25 which provides as follows: “A provincial legislature may make a law with respect to a subject or subjects to which this division applies.” The subjects to which s. 25 refers are enumerated by s. 24 and they include “... subject to s. 187I (local and village government) of the National Constitution, local community and village government and other local level governments within the meaning of that section ...”

Section 187I of the National Constitution says:

“187I   Local and Village Governments.

(1)      Until a provincial law of a province makes provision for government at the local level, the Local Government Act 1963, as in force from time to time, continues to apply in respect of such government in the province.

(2)      An Organic Law may make provision for the respective powers of the National Government and of provincial governments concerning local level government.

(3)      Upon the establishment of provincial government for a province, any Local Government Area Authority having jurisdiction over all or part of the area of the province is abolished in relation to the area of the province.

(4)      Notwithstanding anything in any other law, a Local Government Council or a Local Government Special Purposes Authority in a province that has provincial government may be suspended or abolished only with the consent of the National Executive or the Parliament, and of the provincial executive or the provincial legislature.

(5)      For the purposes of this section, the Gazelle Peninsular Trust established by the Gazelle Peninsula Affairs (Temporary Provisions) Act 1973, as in force from time to time, shall be deemed to be a Local Government Council.

187J    Reports on Provincial and Local Level Governments.

The Minister responsible for provincial affairs shall, at least once in each period of 12 months, at such times as are fixed:

(a)      by or under an Act of the Parliament; or

(b)      subject to any such Act, by the Head of State acting with, and in accordance with, the advice of the National Executive Council.

present to the Head of State, for presentation to the Parliament, a report on the working of the systems of provincial government and government at the local level.”

Note that it does not specifically refer to sanitation and garbage collection functions and it does not because the intention was merely to provide for the transfer of legislative power in the area of local government to the Provincial Governments.

Collection of garbage and nightsoil had been the province of local government councils and had been covered by the Local Government Act (Ch. No. 57). Section 56 provides for the general functions of councils and subs. (2) provides:

“Subject to section 13(2), in addition to any other powers, functions and duties conferred or imposed on it by this Act or any other law a Council may perform the functions specified in Schedule 1.”

The functions set out in Schedule 1 include (par. 3):

“3.      Health, sanitation, cleansing and scavenging, the prevention and suppression of infectious and other diseases, the abatement of nuisances and other noxious and offensive trades and the disposal of the dead, including:

(a)      aid posts, clinics, maternity and child welfare clinics, and

(b)      sewerage schemes; and

(c)      the control of chemical refuse steam etc.; and

(d)      the control of impregnated land; and

(e)      the control of cemeteries, and

(f)      the licensing and supervision of the conduct of bakehouses, eating houses, food preparation and hawkers of food stuffs; and

(g)      public latrines and wash places; and

(h)      the control of dairies and piggeries, slaughterhouses and meat inspection; and

(i)       Ambulance services; and

(j)      the prevention of pollution of water courses; and

(k)      the control of noxious animals, vermin and rodents.”

It is to be noted that a local government’s responsibility for sanitation etc. is assumed at the discretion of the council but the Minister may direct a council to perform such function.

After the Morobe Provincial Government was established it enacted a Local Government Act (No. 9 of 1980) which merely adopted the National Local Government Act (Ch. No. 57) and in 1982 it enacted its own Local Government Act 1980 (Act No. 5 of 1981). Section 52 of this Act is similar to s. 56 of the National legislation (Ch. No. 57). The functions set out in Sch. 1 of the National legislation are now in Sch. 2 of the Provincial legislation.

Wau has never had a local government either under the National legislation or the Provincial legislation. It seems garbage and sanitary services have been looked after by the National Government until now, by contracting the performance of the functions out to private companies. There had been no questions about this until 1983 and hence these proceedings.

There is no question that garbage and sanitary services in Morobe as from 1980 became the responsibility of the Morobe Provincial Government by virtue of the Province’s own Local Government Act. But nowhere in that Act does it say that the National Government cannot enter into a contract with any person (including an incorporated one) for the performance of any such work as providing garbage and sanitary services. There is no specific prohibition.

(2)      As it was the Provincial Government function to provide garbage and sanitary services in the Province it has benefitted, therefore it should recompense the plaintiff on a quantum meruit basis.

The second defendant cannot be held responsible to recompense the plaintiff on a quantum meruit basis simply because the provision of garbage and sanitary services is within its law-making powers. As Lord Macnaghten said in Ruabon Steamship Company v. London Assurance [1899] UKLawRpAC 53; [1900] A.C. 6 at 15:

“I agree with my noble and learned friend on the Woolsack that there is no principle of law which requires that a person should contribute to an outlay merely because he has derived a material benefit from it.” (Emphasis added.)

A writer on contracts simply put the same this way: “A man who cleans my shoes without my knowledge is presumptively without remedy.” The second defendant had no knowledge about the plaintiff’s arrangement with agents of the first defendant to provide services in Wau. It was well after the plaintiff had commenced its work that the second defendant became aware and when it did it refuted the arrangement. A letter of 14 September 1983, from Department of Morobe states:

“The Secretary for Finance

P.O. Wards Strip

Waigani

Port Moresby

Attention: Mr R. Sorame

The National Government Supply and Tenders Board awarded the above contract — MPT2/83 — to Keboki Business Group of P.O. Box 1557, Lae, in June this year.

This decision was made with no consultation with the Morobe Provinsel Gavman; we were not party to that award neither are we represented on the Board.

You have advised us by telephone that we are to fund that contract. This is totally incorrect due to the above stated reasons. If the National Government approves tenders then the National Government honours the agreement to which it is responsible by footing the bill.

Meanwhile the Keboki Business Group has operated under that agreement now for two months. Numerous telexes have been forwarded to the Supply and Tenders Board attentioned to the Chairman, Mr Paul King, but no response has been received.

I trust that our position on the issue is clear and request you take appropriate action in making the necessary funds available.

T.S. Mionzing

A Provincial Secretary”

Letter 26 October 1983, from Department of Morobe:

“Kirkes

Lawyers

P.O. Box 1919,

Lae

Attention: Mr H. R. Howard

Dear Sir,

Re: Keboki Business Group — Contract No. MPT/2/83

I refer to your letter to the Secretary of Supply and Tenders Board, Division of Supply date 14 October 1983, copy of which was forwarded to this office.

The content of your letter was carefully perused paragraph by paragraph. In pars 6 and 7 of the second page of your letter you have implicated the Provincial Government to be a party to the agreement in question.

Please be advised that the Provincial Government was never a party to this contract and therefore it has no liability whatsoever and that any suggestion that it being in authority displayed attitude towards National Group such as your client would be dismissed.

Perhaps you may care to advise your client further that the matter is solely between your client [and] the National Government.

Yours faithfully,

F.G. Schweinfurth

A Provincial Secretary.”

The second defendant neither requested the services nor accepted them, as is clearly evidenced by the above letters. It cannot, therefore, be held responsible to pay the plaintiff on the basis of a quantum meruit.

The request for the provision of garbage and sanitary services was made by the National Government through its Supply and Tenders Board. Tenders were invited by the Provincial Supply and Tenders Board (a National body) and three tenders were received, including one from the plaintiff. But as the value of the proposed contract was K90,000 (Provincial Supply and Tenders Boards can only consider tenders where the value of proposed contract is up to K50,000) the tenders were forwarded to the Central Supply and Tenders Board which decided on 13 May 1983, to award the tender to the plaintiff. The consequence of this decision seems to have been the letter dated 20 May 1983, signed by Andrew Temu on behalf of the Chairman of the Central Supply and Tenders Board, addressed to the Chairman of the Morobe Supply and Tenders Board. This resulted in the latter Chairman writing to the plaintiff (letter dated 31 May 1983) accepting the plaintiff’s tender. This letter is reproduced at 282 of this judgment.

So there is no question that the first defendant’s agents requested the provision of garbage and sanitary services at Wau. Also there is no doubt that the plaintiff on 1 June 1983, undertook the work and commenced by 16 June 1983, for a period of twelve months.

Exhibit A consists of twelve general expense forms claiming money for work done from 16 June 1983 to 16 June 1984. None of these claims have ever been met by the first defendant. The first two claims for the months ending 16 July and 16 August 1983, were sent in but not paid. So a telegram (exhibit B) was sent to the Chairman, Supply and Tenders Board and it said:

“Our group has now completed two months of Wau sanitary garbage contract MPT 2/83 awarded to us.

As the Tenders Board for this contract we must now complain to you because to date we have not received any claim money from BMS. Our services to Wau town are satisfactory and claims authorised and lodged in the proper manner.

The Keboki Business Group is now appealing to the Board to advise us why payment is refused us.

Our Group is now very short of working capital.

Paul Biram

Keboki Business Group,

P.O. Box 1557, Lae.”

The above telex prompted no reply from the Central Supply and Tenders Board. (This telex does not bear a date. It seems to be the first telex sent to the Central Board by the plaintiff.) All subsequent telexes were never answered.

During September 1983 inquiries were also made at the Provincial Government offices at Lae and telephone calls made to the Department of Finance at Waigani. There are no exact dates of these inquiries. The Secretary of the plaintiff had a telephone conversation with Mr Paul Aisa, the assistant secretary (Budget and Provincial Liaison) of the Department of Finance. (A telex was sent to Department of Finance on 22 September 1983, so I will assume this conversation took place after that date. The telex was never replied to.) Mr Aisa said he told Mr Silingi (secretary of the plaintiff) that the National Government had allocated only K12,000 for garbage and sanitary services and the amount of the contract was a lot higher and he should approach the Provincial Government. “I stated”, he further said, “that the question of garbage and sanitation was a local level function and was the responsibility of Provincial Government.” He did not tell Silingi that the National Government was not bound by the contract but he said the National Government was not responsible and would not pay.

During this same month Mr Ray Sorame, a senior budgets officer in Department of Finance talked to Mr Silingi too. He told Mr Silingi that the Department of Finance had no money to pay the plaintiff.

So, sometime towards the end of September 1983, the Department of Finance had made it clear to the plaintiff that no money would be forthcoming from the National Government. I think any reasonable person would have concluded that the first defendant was not going to accept any more responsibility for the work being done at Wau by the plaintiff and the service that had been requested by the first defendant was now being refused. The plaintiff should have realised that its services were not wanted and would not be paid for if it continued. The law on this part of the case is as stated by Halsbury’s Laws of England (4th ed., 1974), vol. 9, par. 695:

“Where a contract is void as being made without authority, a plaintiff who has rendered services under it may be entitled to recover on a quantum meruit. For example, where a contract purporting to appoint a person as managing director of a company was found to be a nullity, that person was allowed to recover on a quantum meruit for services rendered and accepted after the date of his purported appointment.”

(Craven-Ellis v. Canons Ltd [1936] 2 K.B. 403.)

Craven-Ellis v. Canons Ltd [1936] 2 K.B. 403, has been the subject of critical comments by some legal writers: see for instance, A. T. Denning “Quantum Meruit: The Case of Craven-Ellis v. Canons Ltd” (1939) 2 M.L.R. 54 and D. M. Evans “Quantum Meruit and the Managing Director” (1966) 29 M.L.R. 608, but these criticisms have not been raised here so I will not advert to them.

This case is similar to Craven-Ellis v. Canons Ltd in that the contract between the plaintiff and the first defendant is void as being made without authority. I have not considered whether there are any customary rules or law applicable, as my invitation to counsel to consider this did not result in evidence being called or any submissions being advanced. I shall, therefore, in this case apply the common law to this particular case and leave it open for customary law to be considered in another case. It has not been argued that the common law does not apply to this case and I have absolutely no material to determine otherwise. I proceed on the basis that the principle in Craven-Ellis v. Canons Ltd, is applicable to the facts of this case.

In Craven-Ellis v. Canons Ltd, Greer L.J., in enunciating the principle, said the following at 409-412:

“The contract, having been made by directors who had no authority to make it with one of themselves who had notice of their want of authority, was not binding on either party. It was, in fact, a nullity, and presents no obstacle to the implied promise to pay on a quantum meruit basis which arises from the performance of the services and the implied acceptance of the same by the company.

It was contended by Mr Croom-Johnson on behalf of the respondents that, inasmuch as the services relied on were purported to be done by the plaintiff under what he and the directors thought was a binding contract, there could be no legal obligation on the defendants on a quantum meruit claim. The only one of the numerous authorities cited by Mr Croom-Johnson that appears to support his contention is the judgment of a Divisional Court in In re Allison, Johnson and Foster, Ld.; Ex parte Birkenshaw [1904] UKLawRpKQB 109; [1904] 2 K.B. 327. The Court consisted of Lord Alverstone, Wills and Kennedy JJ., and the judgment was delivered by Kennedy J. In giving judgment that learned judge, expressing not merely his own opinion, but that of the other two judges, said, ibid 330:

‘There can be no implied contract for payment arising out of acceptance of work done where the work was done upon an express request which turns out to be no request at all, but which down to the time when the whole of the work had been done was supposed by both parties to be valid and operative.’

This passage appears to involve the proposition that in all cases where parties suppose there is an agreement in existence and one of them has performed services, or delivered goods in pursuance of the suppositious agreement there cannot be any inference of any promise by the person accepting the services or the goods to pay on the basis of a quantum meruit. This would certainly be strictly logical if the inference of a promise to pay on a quantum meruit basis were an inference of fact based on the acceptance of the services or of the goods delivered under what was supposed to be an existing contract; but in my judgment the inference is not one of fact, but is an inference which a rule of law imposes on the parties where work has been done or goods have been delivered under what purports to be a binding contract, but is not so in fact.

In Prickett v. Badger [1856] EngR 933; (1856) 1 C.B. (N.S.) 296 the question whether an obligation to pay on a quantum meruit basis depended upon an inference of fact from the conduct of the parties was negatived, and such inference was stated to be one that the law imposed on the person accepting the services. In that case the services of the agent had been performed in accordance with an express contract which entitled him to 1« per cent., and it was impossible to infer from the evidence that by accepting those services the defendant had by conduct promised to pay for them on the basis of a quantum meruit; but it was held that the contract to pay what was reasonable was a contract implied by the law, and not a question of fact to be determined by a jury. In the course of the argument Crowder J. said 1 C.B. (N.S.) 301: ‘All the work done here was done under the special contract’; but the Court held that, notwithstanding that the work was so done and accepted, there was as a matter of law an implied contract to pay a reasonable price therefor. In giving judgment, both Williams J. and Crowder J. speak of the obligation to pay as founded on a promise implied by law. The decisions in Clarke v. Cuckfield Union (1852) 21 L.J. (Q.B.) 349 and Lawford v. Billericay Rural District Council [1903] UKLawRpKQB 58; [1903] 1 K.B. 772 are also authorities to the effect that the implied obligation to pay is an obligation imposed by law, and not an inference of fact, arising from the performance and acceptance of services. In the last mentioned case the work in respect of which the plaintiff sued was done in pursuance of express instructions given by the defendant council, but the contract purported to be so made was not binding on the defendants because no agreement had been executed under their seal. It was impossible to say as a matter of logical inference from the facts that by accepting the advantage of the plaintiff’s work they had promised to pay him a reasonable sum therefor. Both parties assumed that there was a contract between them, and the acceptance of the work by the defendants could not in fact give rise to the inference of a promise to pay the reasonable value. For these reasons this case seems to me to show that the obligation is one which is imposed by law in all cases where the acts are purported to be done on the faith of an agreement which is supposed to be but is not a binding contract between the parties. Vaughan Williams L.J. in the course of his judgment referred to Nicholson v. Bradfield Union (1866) L.R. 1 (Q.B.) 620, and said that the ground of the decision in that case, as he understood it, was that the law raised an implied contract by the corporate body to pay for the goods in question in that case. In my judgment, the obligation to pay reasonable remuneration for the work done when there is no binding contract between the partes is imposed by a rule of law, and not by an inference of fact arising from the acceptance of services or goods. It is one of the cases referred to in books on contracts as obligations arising quasi ex contractu, of which a well known instance is a claim based on money had and received. Although I do not hold that the decision of the Court in Ex parte Birkenshaw [1904] UKLawRpKQB 109; [1904] 2 K.B. 327 was wrong I think that the passage I read from the judgment is not a correct statement of the law.

I accordingly think that the defendants must pay on the basis of a quantum meruit not only for the services rendered after 31 December 1930, and before the date of the invalid agreement, but also for the services after that date. I think the appeal should be allowed, and judgment given for such a sum as shall be found to be due on the basis of a quantum meruit in respect of all services rendered by the plaintiff to the company until he was dismissed. The defendants seem to me to be in a dilemma. If the contract was an effective contract by the company, they would be bound to pay the remuneration provided for in the contract. If, on the other hand, the contract was a nullity and not binding either on the plaintiff or the defendants, there would be nothing to prevent the inference which the law draws from the performance by the plaintiff of services to the company, and the company’s acceptance of such services, which, if they had not been performed by the plaintiff, they would have had to get some other agent to carry out.”

I have quoted Lord Greer’s judgment at length because the principle would be little difficult to digest without his Lordship’s reasoning being included to explain it.

The difference between this case and Craven-Ellis is that in that one the service of the director was accepted without repudiations. Here the services the plaintiff had been asked to provide were repudiated after three months by the first defendant.

Applying the decision in Craven-Ellis to the facts of this case the plaintiff would be entitled to be paid on quantum meruit basis for the first three months commencing 16 June 1983. After that period, once again applying Craven-Ellis, the first defendant could not be held responsible for the services provided by the plaintiff.

As to the compensation that should be paid by the first defendant to the plaintiff for services provided during the three months commencing 16 June 1983, the parties agree to negotiate the amount. If negotiations do not bear fruit the parties are at liberty to restore this aspect of the case for argument. As to the question of costs I note that the parties will also negotiate them and each party is given leave to apply for costs if negotiations do not succeed.

Although the plaintiff has not succeeded in being awarded the amount it has claimed from the defendants I consider that because of the history of how the plaintiff was awarded the contract either the first defendant or the second defendant might consider paying the balance of the money ex gratia.

Orders accordingly.

Lawyer for the plaintiff: Kirkes.

Lawyer for the first defendant: State Solicitor.

Lawyer for the second defendant: Ms Doherty.

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