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LB Construction and Joinery v Attorney General [2021] SBHC 107; HCSI-CC 208 of 2019 (6 August 2021)

HIGH COURT OF SOLOMON ISLANDS


Case name:
LB Construction and Joinery v Attorney General


Citation:


Date of decision:
6 August 2021


Parties:
LB Construction and Joinery v Attorney General


Date of hearing:
2 July 2021 (closing Submissions)


Court file number(s):
208 of 2019


Jurisdiction:
Civil


Place of delivery:



Judge(s):
Keniapisia; PJ


On appeal from:


Order:
The claim is therefore dismissed in its entirety with cost.


Representation:
Mr. N. Laurere for Claimant
Mr. S Banuve, Solicitor General for the Defendant


Catchwords:



Words and phrases:


Legislation cited:


Cases cited:
Lebaro v AG [2016] SBHC 185,

IN THE HIGH COURT OF SOLOMON ISLANDS
CIVIL JURISDICTION


Civil Case No. 208 of 2019


BETWEEN


LB CONSTRUCTION AND JOINERY
Claimant


AND:


ATTORNEY GENERAL
(Representing Ministry of Communication and Aviation)


Date of Hearing: 2 July 2021(Closing Submissions)
Date of Judgment: 6 August 2021


Mr. N. Laurere for Claimant
Mr. S Banuve, Solicitor General, for Defendant

JUDGMENT ON BREACH OF CONTRACT CLAIM

  1. LB Construction and Joinery, alleged it completed a road upgrade work for the government. But the government is refusing to pay for the work it did. LB Construction and Joinery (“the company”) put the contract payment dues (arrears) for the work it did at $3,023,200.00. The company commenced the job on or around 15th March 2013. And completed the job 3 months later around June 2013. Ever since, the company’s efforts to get its contract payment arrears of $3,023,200.00 were futile. The prime relief sought in the claim is to recover the said amount in damages for breach of contract.
  2. The company came to Court seeking to recover the $3,023,200.00, based on what it alleged was a verbal agreement. The verbal agreement all begun on or around 15/03/2013. On that day, the then Minister of Aviation, Mr Walter Folotalu made a patrol around the outer perimeter fence of Henderson International Airport. As a former aviation officer himself, Minister Folotalu was taking a keen interest on the Ministry’s responsibilities.
  3. Minister Folotalu noted the deteriorating state of the road conditions around the airport perimeter fence. The Minister had serious concerns about the safety and security of the airport perimeter fence road. The safety and security concerns for the road demands that there was urgency to engage a contractor to start the job quickly. The road and the drainage must be repaired to control debris during wet season. And to allow direct access to the nearby Henderson police post. Also to allow public access to the airport so as to prevent burglars into the airport facilities. Furthermore, repairing the road will also help to avoid the urgent threat from World War 2 unexploded bombs.
  4. Noting these serious concerns from his patrol, the Minister met up with an officer from the company. The company official was doing some work on earth moving and excavation around the airport vicinity. So the Minister made a decision there and then to engage the company for the job. And asked the company to start the job straight away.
  5. The Minister returned to the office. And wrote straight to his Permanent Secretary (“PS”), Mr Lomu the same day of 15/03/2013. The Minister instructed PS Lomu in the letter, that he had verbally engaged the company to do the road repair. The Minister was fully cognisance of the tendering and financial instruction requirements for the award of public contracts. So the Minister in the same letter urged his PS, Mr. Lomu, to immediately pursue tendering and financial instruction requirements to seal the engagement he made with the company for the job. The relevant paragraph of the Minister’s letter[1] is: -
  6. Whilst the tendering and financial instruction requirements are yet to be settled, the company had already commenced work, in reliance on the verbal arrangements settled with the Minister during the Minister’s patrol discussions. As it turned out, the tendering and financial instruction requirements of the government were never activated. But the company alleged it went ahead and completed the job. The company alleged it completed the job around June 2013. But never got paid for the job. All attempts to get payment hit deaf ears, the company says.

Issues

  1. The issues were agreed and are re-stated as follows:-

With consent of Counsel, I added two more issues. First is “Whether the verbal agreement the Minister made with the company and the Minister’s letters of 15/03/2013 and 24/04/2013 will legally bind the state/defendant, notwithstanding the non-compliance to public tendering and financial instruction requirements?”

Secondly, “Whether the said verbal agreement is legally binding on the state/defendant, in view of the urgency then existing, thereby justifying non-compliance to public tendering and financial instruction requirements (waiver)?”

Case for the Company

  1. The company relied on the verbal agreement Minister Folotalu made with its official on 15/03/2013. And also on the letter the Minister wrote on the same day of his patrol, as well as the letter of 24/04/2013[2]. The company owner, Mr Wanefalea, gave oral evidence that one week after 15/03/2013, the Ministry called him back to a meeting to see the Bill of Quantity (“BOQ”). Copy of the BOQ is at Pages 27 - 29 of Trial Book (TB). From the BOQ, the company (Mr Walefalea) knew about the contract price and tasks to undertake in the road repair work. The contract price in the BOQ is set at $3,023,200.00. The length of the road in the BOQ is 3.5 Km. Mr Wanefalea said in his oral evidence that 3.5 Km was a typing error. It should be 2.5km only, because that is the actual length of the road the company completed.
  2. Mr Wanefalea said in his evidence in chief that, at the meeting he asked the Minister about the contract formalities, saying the formalities were not new to him, having undertaken two previous contracts with the MA. Mr. Wanefalea however did not wait for the formalities but took the Minister’s assurance to heart and commenced work. The Minister’s assurance was - the formality will be pursued, but the company can go ahead with the work[3]. Mr. Wanefalea had no doubt. He had no reason to question anything when the Minister was involved. He commenced work, having faith in the Minister’s assurance. He went away, did the work, based on the Minister’s assurance and executed the activities contained in the BOQ. And after having completed the work, his request for payment hit deaf ears.
  3. Mr Wanefalea continued in his evidence in chief that he went to the PS, Mr. Lomu and asked why the MA did not pay him. The PS, Mr. Lomu told Wanefalea that: “The Ministry has no budget for the work”. Mr. Wanefalea relayed the same to the Minister. The Minister told Mr. Wanefalea: “You tell PS Lomu to do the formalities. I will look for the money”. Mr Wanefalea knew about the formalities and about the Central Tender Board (“CTB”), when his lawyer asked him in examination in chief: “You know about CTB?” Mr. Wanefalea’s answer was “Yeah me save (Yes I know).” Mr. Wanefalea knew because he had done two previous contracts for the MA. And in the two previous jobs, Mr. Wanefalea signed contracts with the CTB – he says in his evidence in chief. And also says he knew because he used to work for Chengs, whenever Government awarded Chengs road construction service contracts.
  4. Mr. Wanefalea’s lawyer continued to ask him, “So you know about any reason for not complying with the CTB?” Mr. Wanefalea’s answer was: “I expected the CTB requirements, but they say they will do a waiver, because of the urgency from the bomb threat, so that no intruders can come inside”. Mr. Wanefalea then said “I do not know anything about the system”. Mr Wanefalea just believed on the waiver promise consistent with the Minister’s assurance. Mr Wanefalea could not pin point in evidence, who promised the waiver and who gave him the BOQ document. He nevertheless had possession of the BOQ.
  5. Mr. Wanefalea pinned his hope on the Minister’s involvement and assurance. So he did not meet any of the procurement requirements, inclusive of the CTB requirement. Yet went ahead in the strong belief that Minister’s assurance and the promised waiver were more than enough. The Minister made the assurance. A Ministry official who met with Mr. Wanefalea at the meeting held one week after 15/03/2013 gave the waiver promise. Mr. Wanefalea could not recollect the identity of the officer, who made the waiver promise.
  6. The case for the company was simple. The Minister made a verbal agreement. The Minister gave the assurance. A Ministry official promised a waiver of tendering requirements. And the PS, Mr. Lomu was to pursue the formalities. So the company went ahead and completed the job. But never got paid for the job. So far as the company was concerned, the Minister’s verbal agreement followed by two letters was the valid contract. Even if government officials in the MA and or MID have failed to activate the public procurement requirements (tendering and financial instruction requirements), failure of the officials cannot affect a valid contract that existed between the MA and the company, upon the Minister’s verbal agreement. The company relied on the ratio decidendi in Lebaro[4] that – “...contract law cannot be affected by the failure of government agencies to adhere to its strict controls under the financial regulations when contracts or variations are awarded to strangers to the financial instructions, strangers who are not subject to such instructions. The contract is unaffected by unilateral breach of the government financial instructions, if that be the case, on the part of one contracting party here, the Ministry of Tourism. The Ministry cannot take advantage of its own failings, as it seeks to do here. Such breach of financial instructions does not impinge on the contractual relations which I have found between the parties”

Case for the Government/Defendant

  1. The MA did not initiate this particular project (job). The Ministry has no record of the job, being awarded to the company. There was no award of the job to the company by the CTB or the Ministry’s internal tender board. The Ministry’s internal tender board could not have possibly awarded this contract, because the contract sum exceeded $500,000.00. The tendering and financial instruction requirements were not followed in the awarding of this job. The non-compliance to the CTB tendering and financial instruction requirements (public procurement requirements) was very clear. The company alleged it went ahead and completed the job. But the MA could not ascertain, the completion of the job. There is no record of verification – no work completion certificate was executed. Lack of record means that the MA does not know who offered the contract to the claimant (the CTB or MA’s internal tender board). What kind of work was offered under the contract? What was the price agreed for the work under the contract?
  2. The Government’s position is that there was no valid contract. The Minister’s verbal agreement and the two letters did not constitute a valid contract. The Minister has no power to make a contract for the MA, where the work involves road, without consulting with the Minister of MID. The Government is not liable to pay damages to the company as sought in the reliefs for compensation for breach of contract in the sum of $3,023, 200.00. The Solicitor General submitted that the case of Lebaro could be distinguished on the contextual facts. And has no place in the contextual facts of this case, to support the company’s case.

Courts Analysis

  1. Without digging further into the evidences produced by both sides the following facts can be settled on the available evidence without much dispute: -

Lebaro precedent – context - valid written contract to start with

  1. Claimant relied heavily on the ratio decidendi in the case of Lebaro. And submit that, the officials may have not complied with financial instructions and tendering requirements. But government cannot rely on its officials’ failings to avoid a valid contract. This is a strong argument. So I need to look at the context, in which, the Judge made the ratio decidendi which claimant relied on as precedent.
  2. In Lebaro, there was a written contract to start with. The Government entered into a written contract with Lebaro. The responsible ministry was Ministry of Culture and Tourism. The accounting officer was the PS of that Ministry. The written contract gives certainty as to the major terms of the contract. The major terms like scope of work to do, consideration for the work, supervision of the work and variation of the work. The agreed price was $1,007,563.32, inclusive of the variation price. The work required was to supply materials and to do repair work on Boys Dorm Double floor and Single floor, at Panatina Campus. The materials were supplied and work completed, as certified by the supervising architect. The completed work includes work executed by virtue of contract variation. And payments were raised by the responsible Ministry of Tourism. Part payments were made by the Ministry of Finance. The remaining payment was $767,155.24. The Government refused to pay the outstanding, saying the variation amount of $473,323.15 was not properly made according to financial instructions. Lebaro took court action to recover outstanding contract payments. Counsel for the Attorney General argued that variation was not properly done, by responsible Ministry officials according to requirements in the financial regulations. And so the variation contract sum of $473,323.15 cannot legally bind the state.
  3. Court found that variation was regulated under the terms of the written contract (contract). The Appendix to the contract provides for how variation was to be done and who to do it. Court found variation followed what became a term of the written contract. The term is that; the supervising architect may endorse variation. And if he does, that is enough because he represents the responsible PS, as agent – has ostensible authority to vary the contract for and on behalf of the principal (Ministerial Tender Board). Everything that happened were executed according to the terms of the written contact – materials were supplied, work was completed as verified by the supervising architect and variation endorsed by the agent of the Ministerial Tender Board, as provided for in the variation terms in the Appendix to the written contract. And so payment was processed by the accounting officer – the PS of the Ministry of Tourism. The Ministry of Finance already made part payment to Lebaro. The Government refused to make the outstanding payment, saying variation of the written contract, did not comply with financial regulation requirements. In the context discussed herein, Court says government was not allowed to bring in arguments that financial regulation requirements were not followed by government officials. And to say that there was no valid contract, when in fact, variation took place, according to express terms in the Appendix to the already executed valid contract. Court relevantly said: -
  4. It was clear on the facts and evidence before the Judge that Counsel for the Attorney General was putting forward an untenable case. There was a written contract to start with. The written contract had an Appendix to it that provides for variation - variation was a term in the contract. Variation was made consistent with the variation term of the contract. When there is a written contract, it means the financial instructions and tendering requirements (public procurement procedures and requirements) were already adhered to. So a binding contractual relationship existed between the parties. And that is why part payment was already processed and paid. Counsel should not be making arguments on non-compliance to financial instruction requirements. Those requirements were already complied with culminating in the execution of the written contract. Thereafter implementation of the contract was now governed by the terms of the written contract. Court says it was not open for the government to interfere with a valid contract, by raising non-compliance issues, regarding the variation that occurred. Variation was a matter for contract. The pre-requisite for the ratio decidendi in Lebaro was, there must be a written contract to start with. Once there is a written contract, it means all public contracting requirements (tendering and financial instruction requirements) were fulfilled. And it means parties have a valid, binding and legally enforceable contractual relationship. And the contract is self-executory in terms of how to vary and who to vary. Court found that variation was properly made in line with the variation terms of the contract. And government cannot interfere with a valid contractual relation by re-inventing the wheel (insisting on requirements that were already adhered to prior to the contract).

Context of this case different

  1. The opposite is the context in the facts and evidence before me here. There was no written contract to start with. No written contract means the public procurement requirements (tendering and financial instructions) were not complied with. And it means there is no valid, binding, and legally enforceable contractual relationship between the MA and the company. Because of lack of written contract, there is no certainty as to the major terms of the purported verbal agreement the Minister entered into with the company. The crucial terms like scope of work to do, price for the work to do, supervisors of the work and certification for when work was completed. Collectively the evidence on the verbal agreement and the two letters lacked certainty as to these major terms of the verbal contract.
  2. So what claimant did was to pull in a BOQ to say that the price and work to do pursuant to the Minister’s verbal engagement are contained in the BOQ. In the BOQ the road was 3.5 Km long, the tasks were listed and the price was put at $3,023,200.00. The current PS explained that the BOQ is normally an estimate for a particular project. This accords well with the evidence of Mr. Wanefalea, where he says the road was only 2.5 Km not 3.5 Km as it appears on the BOQ. Mr. Wanefalea says it was a typing error because the actual length of the road he constructed was 2.5 Km not 3.5 Km. Mr. Wanefalea is not the author of the BOQ. So how could he credibly say it was a typing error? The only logical explanation would rest with the current PS’s explanation that it was only an estimate. I am not satisfied the BOQ contained the agreed price. Claimant was not able to say who authored the BOQ. Claimant was not able to say the Minister’s verbal agreement put the price at $3,023, 200.00.00. I do not know why I should connect the BOQ to the Minister’s verbal agreement and his two subsequent letters. Claimant should have summoned the author of the BOQ to explain what it was. I do not know what it is and cannot connect it to the Minister’s verbal agreement and the two subsequent letters, unless the Minister himself does that in evidence. If I do I will be making the verbal agreement, myself. The current PS, an expert himself, says in evidence, a BOQ is only an estimate for a project.
  3. Claimant was not able to satisfy the Court that the work was done and independently certified to be completed by the supervising engineers. The context here does not accommodate the ratio decidendi in Lebaro to the benefit of the claimant. There is no written contract to start with. If there is anything to go by in Lebaro, it is that, there must be a written contract for every contract that the state enters into with service providers. With a written contract it means all the financial instructions and tendering requirements were satisfied. Hence a valid, binding and a legally enforceable contractual relationship would exist between the service provider and the state. The current PS says in evidence that a contract is valid if five things are present – Tender dossier containing tender instructions to tenderers; Special conditions of contract; Drawings; Specifications and Written Contract. According to this uncontested evidence, the written contract comes at the end of the process. Not the other way round as what we have seen with the Minister’s verbal agreement.
  4. Without a written contract, it means all the financial instructions and tendering requirements were not satisfied. Hence no valid, binding and legally enforceable contract was entered into. The worst case is verbal contracts. One cannot certainly have a valid, binding and legally enforceable contract with the state verbally. And if I may add: Contract for service provision to the government, such as construction of bridges, roads, wharfs etc is governed by well-defined contractual process of competitive bidding that seeks to protect the public against the squandering of public funds and prevent abuse such as fraud, favouritism and extravagance[5]. This is why we have the governing instruments such as tendering and financial instruction requirements. The Minister was well aware of the well-defined contractual process of competitive bidding and financial instruction requirements, as seen in his letter of 15/03/2013, where he relevantly stated: -
  5. The Minister’s letter was not the offer. For he says the appropriate tender board will offer the award to the company. That contradicts the preceding paragraph where the Minister stated that he had verbally offered and awarded the work to the company. Again there is no certainty as to the major terms of the contract because it was only a verbal agreement. But with the letters, it now became partly written and partly oral agreement. Yet the major terms cannot be ascertained from the partly written contract or the oral contract. And so claimant has to connect the major term on price to the BOQ. But the BOQ did not bring certainty as to price. It was only an estimate for 3.5 Km of road not 2.5 Km. Mr. Wanefalea cannot amend the BOQ to say it was a typing error. He was not the author. He should have called the author to establish typing error. Claimant did not provide evidence that the company completed the work. There was no certificate to verify that the work was completed. What claimant relied on as Certificate of Completion at page 16 of TB, was not certified by the responsible PS – Mr. Lomu. Hence Court cannot be satisfied that the company completed the road.
  6. I will therefore answer the issues posed for trial in paragraph 7 as follows: -
  7. The claim is therefore dismissed in its entirety with cost.

THE COURT
JOHN A KENIAPISIA
PUISNE JUDGE

[1] See letter at page 24 – 25 of Trial Book (TB).
[2] Letter is at page 26 of TB.
[3] Whatever the Minister said, that Mr. Wanefalea referred to in evidence, is hearsay evidence, not admissible, unless corroborated.
[4] Lebaro v Attorney General [2016] SBHC 185; HCSI-CC 64 of 2016 (19th October 2016).
[5] https://legal-dictionary.the freedictionary.com/Public+Contract#:~:text=An agreement to perform a, to purchase goods and services.

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