Wag v Mount Hagen Town Authority [1996] PGNC 66; N1460 (17 May 1996)

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Contracts - Illegal contract - Contract of Employment between Town Authority and Senior Employee - Entered into pursuant to provisions of provincial statute - statutory requirements as to creation of position and entering into contract not followed - Contract illegal - Contract declared void - Mount Hagen Town Authority Act 1989, S. 24, 49.

Cases Cited in the judgment:
Scott -v- Brown McNab & Co. [1892] 2 QB.728
Vita Food Products Inc. -v- Unus Shipping Co. Ltd [1939] AC 277
Snell -v- Unity Finance Ltd [1963] ALLER 50
Rainbow Holdings Pty Ltd -v- Central province Forest Industries Pty Ltd [1983] PNGLR 34

INJIA, J: The Plaintiff claims damages for wrongful dismissal. Pursuant to Contract of employment entered into between the Plaintiff and the Defendant in which was executed by the Plaintiff on 7th June 1993 and executed by the Defendant on 3rd August 1993, the Plaintiff was employed as an Executive Officer of the Defendant for a term of 3 years commencing 7th June 1993 at an annual salary of K11,425.00, which is on a Clerk Class 8 position. The contract was sealed with the common seal of the

Defendant and counter-signed by the then Chairman of the Defendant Mr Jack Rombok. On the face of this Contract, it appears to be a valid and enforceable contract of employment.

The Contract provided for 3 months notice in writing of termination or payment in lieu of such notice. On 19th July 1994, the Plaintiff's employment was terminated by the Acting Chairman without any reason being given. He claims in his evidence that he was not given notice of termination. The Defendant contends through its witness, Mr Raphael Moge, who is the present Town Manager, that there is no record in his office of the Plaintiff's employment and as such he would be treated as a casual labourer. He cannot also tell if the Plaintiff was given 3 months notice or payment in lieu thereof. The Plaintiff says he did not receive his 3 months payment in lieu of notice, however, he has not produced his final termination payslips to prove that all he got on termination was his ordinary fortnightly pay which he says was his "termination pay".

The Defendant contends that the Contract was illegal and therefore unenforceable. The Defendant says the position of Executive Officer never existed under the relevant Act, the Mount Hagen Town Authority Act 198, and a job classification restructure exercise approved by the then Board of which Mr Rombok was Chairman, under which the position of Executive Officer was created, was never approved by the Provincial Executive Council as required under the Act.

The Defendant contends, that in the alternative, even if the re-structure was proper, the position so created was not advertised and the suitable applicant identified and appointed on merits; instead the Plaintiff was hand-picked for the job.

The Plaintiff contends that he was duly appointed by the Board under Section 49(1), his position having been so created under the proviso "such other officers as are necessary for the efficient operation functions, duties and powers of the authority".

The affairs of the Authority was managed by a 13 member board whose Chairman was appointed by the then Premier of the Province: See SS. 3, 4, 11, Part IX of the Act which deal with the staff of the Authority which includes S. 49.

As the application of S. 49 (1), (2), (3) and (6) is relied on by both parties, I set it out in full:

Also relevant is S. 24 which provides that the Authority "may" appoint the Policy and Resources Committee (S. 24(1)). The functions of the Committee are, inter alia "to" consider and formulate new revised policies and present it to the Authority "(S. 24 (23))". The Authority "shall not fund or authorise expenditure or entertain matters on policy in areas where it has not been approved or recommended by the Committee", (S. 24 (4)). The Committee "shall deliberate and advise the authority from time to time on matters of finance, staff and function of the Authority". (S. 24 (5))

According to Mr Rombok, the decision by the Chairman to recruit the Plaintiff was made pursuant to a decision of the Board of the Authority made at its meeting held on 26th April 1993 which approved a job restructure proposed by himself. The Minutes of that meeting, a copy of which is in evidence, shows that the decision to restructure the position of, inter alia the Town Manager into two, namely Operations Manager and Administration Manager, was the decision of Mr Rombok alone. I reproduce in full, the pertinent extracts of the Minutes which indicates this:

*CHAIRMAN:*	Before I was appointed as Chairman I suspect that all operations were controlled by the Town Manager. In such occasions I see there is a danger involved in fraud and mismanagement therefore I have restructured the Town.
	*Managers job into two sections; Operations Manager and Administration Manager. This is done to avoid confusion and mismanagement and to create an athemosphere for consultation purposes.*
	*The position of Town Clerk will remain and it will come under the office of the Chairman and the Board*
	*The positions of the Lawyer and Engineer will remain because for both positions we will engage the Lawyer & Engineer from the Provincial Government.*
	Contract Staff will be only considered for 5 officers only because this is a very expensive exercise. There is provision in the act that all staff should be on contract however looking at entitlements and other benefits this is an expensive exercise but this will be considered latter when we get a briefing from the legal officer.
*TOWN CLERK:*	Since the Administration Manager is not available and Kumbamong Wak is new to the Authority I as a staff member in the absence of a Acting Town Manager wish to make a comment on the organisation restructure.
	*Firstly, the whole structure is not accommodated in the Authority Act. In order for the structure to be accommodated we need to make amendments to the act.*
	*Secondly the positions of Engineer, Lawyer and Town Clerk are specifically identified in the act and it is therefore difficult to abolish them unless we make a change in the act provision.*
	Finally, the act specifically accommodates for all staff to be on contract and it is quite improper to not allow them on contract. We have to accommodate all changes in the act prior to implementing the changes. I know fully well that most staff won't agree with the contract proposal
*CHAIRMAN:*	*Well, as I have said the positions of the Engineer and Lawyer will not be abolished but to engage current people employed by the Provincial Government.*
	*For the staff contract I have talked to the legal officer and he has advised me that the law is there but it is up to you to decide whether to enforce it or ignore it.*
*DR. KULUNGA:*	*Mr Chairman, the question is only on the staff contract matter. The restructure is accepted but we only need a legal clarification on which level of staff to be employed on contract.*
*RESOLUTION 1/93:*	*Dr. Kulunga moved that the restructure be passed but the contract matter needs legal clarification.*
	*Dopai Pok seconded and all agreed".* (my underlining)

It is worth nothing that there is no reference to the Policy and Research Committee by the Chairman or any of the speakers who spoke on the proposed restructure.

It is clear that the restructure proposal was not formulated, recommended or approved by the Policy and Research Committee. In his oral evidence, Mr Rombok confirmed that the decision to restructure the position was done by him. He said he took the restructure proposed to the board and the board approved it.

Mr Rombok said under the re-structured system, he also created the position of the Secretary and Executive Officer and whilst maintaining the position of Town Clerk. But because the position of the Town Clerk was later rendered vacant after the holder of the position was dismissed, he appointed the Executive Officer to perform all three jobs pending the advertisement of the Town Clerk's position and other positions at a later time.

It is clear from reading S. 24 that the Authority had the ultimate power to approve or recommend a job re-structure. There is no provision for the re-structure to be approved by the Provincial Executive Committee. But the Authority can only act on the recommendation or approval of a proposed restructure by the Policy and Research Committee. It is also clear from S. 49(6) that the Authority must consult the advice of the said Committee before any appointments to staff are made.

Section 24(1) gives a discretion to the Authority to appoint such Committee by the use of the word "may". It implies that if no such Committee is appointed, then the Board assumes ultimate control on such policy matters as staff restructure and appointments to the positions. In this case, there is no evidence to show that such a Committee existed. The minutes do not make reference to any such Committee. From this, I infer that no such Committee existed to which the Board was subject to. The reason may be that, as Mr Rombok says, the affairs of the authority under the previous management were in a bad shape which could imply that such a Committee may not have been in existence at the time he took over as Chairman or that it existed but it was not functioning.

Assuming that a Policy and Research Committee did not exist or was not functioning, it follows that under such circumstances, the Authority had the ultimate power to formulate and approve the job re-structure system. Having done so, it follows that the Authority had the power under S. 49(1) to appoint "such other officers" under the re-structured system. Accepting that the re-structured system made provision for the position of Executive Officer, was there a Job Description and Job Specification prepared as required by S. 49(2)? Mr Rombok says these were set out in the terms and conditions in the contract of employment of individual employees.

The execution of a contract of employment's constituted an appointment to an existing vacant position. But that vacancy had to be advertised within 14 days of the position becoming vacant. Assuming the position of Executive Officer became available as vacant position effective from the date of approval of the restructure (on 26/4/93), the next step was to advertise those jobs with the job description and job specification under the restructured system which were to be included in the advertisement.

Mr Rombok's evidence is that he appointed the Plaintiff to fill the position of Executive Officer pending the advertisement of the Plaintiff's position at a later time. Assuming that Mr Rombok had the management power to make the appointment, there is no evidence to show that the Plaintiff's position was in fact advertised later. The Contract was executed by the Plaintiff on 7th June 1993. That Contract makes no reference to any advertisement of the Plaintiff's position. The appointment was made well after the 14 days required for advertisement had expired, taking the date of approval of the job restructure exercise as the effective date the position became vacant. By 7th June 1993, there was ample time to advertise the job. The contract of employment which marked the permanent appointment of the Plaintiff, effective on 3rd August 1993 when the Defendant executed it, could not be entered into until the job had been advertised and suitable person appointed by the Authority.

The Contract is dated 8th August 1993. This means that the Plaintiff was employed on probation for 3 months commencing 7th June 1993 which is the date he executed the contract. The Authority executed it on 3rd August 1993 thereby making the position substantive. But then, as I have said, a Contract should not have been entered into without the advertising requirement in S. 49(2).

Section 49(2) is in mandatory terms. The Authority is a public institution which is established under the Mount Hagen Town Authority Act 1989 made by the Western Highlands Provincial Government. Its affair must be administered strictly in accordance with the Act. The fact that the affairs of the Authority are in a mess or disarray when a new board of the Authority assumes control of the Authority is no licence for the board to take remedial steps in breach of the Act. The starting point for any clean-up exercise is to put the house in order in accordance with the provisions of the Act.

I am of the view that the Chairman of the Authority had no power under the Mount Hagen Town Authority Act to appoint someone to a permanent position in the Authority under a Contract, either under the old structure or the re-structured system, without first complying with the advertising requirement in S. 49(2). The contract of employment was illegal for this reason.

In the alternative, if there was a Policy and Research Committee in existence, then the Authority's failure to obtain the advice, approval or recommendation of that Committee was in breach of the mandatory requirements of S. 49(6) and S. 24(3), (4) and (5). I am of the view that the Contract of employment is also illegal for this reason as well.

The Court has a discretion to decide whether or not to enforce an illegal contract. There is ample authority for the principle that the Court will not enforce an illegal contract. In Snell -v- Unity Finance Ltd [1963] ALLE.R. 50, the English Court of Appeal quoted with approval the following statement of principle from Lindley, L.J. in Scott -v- Brown McNab and Co. [1892] 2 Q.B. at p. 728:

"No Court ought to enforce an illegal contract or allow itself to be made the instrument of enforcing obligations alleged to arise out of a contract or transaction which is illegal, if the illegality is duly brought to the notice of the Court, and if the person involving the aid of the Court is himself implicated in the illegality".

The discretion is founded on public policy. Generally speaking a Court may refuse to nullify a contract for disobedience to a statute on public policy grounds "save on serious and sufficient grounds": Vita Food Products Inc. -v- Unus Shipping Co. Ltd [1939] A.C. 277 quoted with approval in Rainbow Holdings Pty Ltd -v- Central Province Forest Industries Council Pty Ltd, [1983] PNGLR 34 at 36, 41. The test is one of whether the object of the legislation is furthered by the enforcement of the contract or by declaring the contract void: Rainbow Holdings Pty Ltd -v- Central Province Forest Industries Pty Ltd (supra).

In this case, the purpose of the Mount Hagen Town Authority Act 1989 made by the Western Highlands Provincial Government was to set up the Authority following the view taken by the Provincial Government "that the National Law relating to the Local Government Council (was) not effectively being monitored": See Preamble to the Act. The Act establishes the Authority and defines the functions, powers and duties of the Authority in all matters affecting the Authority's operation in clear and unambiguous, and in respect of some of the duties and powers, in mandatory terms. it is intended that the compliance with the Act would maintain accountability at all level of the management to the Provincial Government and ensure that its operations are geared towards achieving efficiency in the delivery of service to the residents of Mount Hagen town. In Part IX (Staff of the Authority) of the Act, mandatory requirements exist to ensure that the need for staffing of the Authority is properly researched into and structured and funded and the best candidate chosen for the job after strict mandatory requirements are observed. The best man chosen for the job is then guaranteed security of employment by a contract of employment. Under the Contract, he is required to perform to the best of his ability for which he is duly rewarded with an attractive salary and other allowances. The Authority is funded by the public purse and those who are appointed to the job must be duly qualified, competent and men of integrity. To appoint someone on a new position under a new structure which is not promulgated and recommended or approved by the appropriate Policy and Research Committee, under a Contract of employment which does not precede an advertisement in the government gazette, amounts to a serious breach of Part IX of the Mount Hagen Town Authority Act and indeed it defeats the purposes of the Act.

The Plaintiff in this case is no doubt a friend of the then Chairman Mr Rombok. He was hand-picked by Mr Rombok for the job. The Plaintiff no doubt played a part in this illegal contract.

For these reasons, this Court cannot enforce this contract of employment. It is declared void.

The end result is that the job he performed may be deemed to be on a casual basis for which he was paid fortnightly wages on a quantum merit basis.

His only complaint is that he was not given notice or payment in lieu of such notice. Under S. 34(4) of the Employment Act Ch. NO. 373, he is entitled to 2 weeks notice or payment in lieu of 2 weeks notice. The Plaintiff's evidence on the point of whether he was paid money in lieu of notice is confusing. In cross-examination, he said "I was paid what the paymaster called termination pay but not given 3 months notice". Later he changed his story and said "I didn't get my finish pay. I made a mistake on that". I am not satisfied that he missed out on his "termination pay" which I take it to include payment in lieu of notice.

For these reasons, I dismiss the Plaintiff's claim. I order that each party bear their own costs because the Authority is responsible for the entering into of this illegal contract in the first place.

Lawyer for the Plaintiff: WARNER SHAND Lawyers
Lawyer for the Defendant: KUNAI & CO. Lawyers

National Court of Papua New Guinea

Wag v Mount Hagen Town Authority [1996] PGNC 66; N1460 (17 May 1996)