N2139

PAPUA NEW GUINEA

[In the National Court of Justice]

WS No. 1158 of 1999

BETWEEN:

TAND WAIM
-	Plaintiff –

AND:

INVESTMENT CORPORATION OF PAPUA NEW GUINEA
-	Defendant –

WAIGANI: GAVARA – NANU, J
2001: 5th April, 05th October

CONTRACT – Illegal contract – Contract of employment between the Investment Corporation Fund of PNG (ICFPNG) and its employee – Employee drawing up his own contract based on similar contracts and administering it – Authority to administer the contract vested in a person other than the employee administering the contract - Employee not seeking approval of the Salaries & Conditions Monitoring Committee (SCMC) – Contract expressly stating that the contract is subject to the approval of the SCMC -Contract executed without the expressed approval of the ICFPNG Board ––- Contract executed prior to the expiration of the employee’s three months probationary period – Mandatory statutory requirements in respect of contracts of employment with public authorities not complied with – Contract rendered illegal and unenforceable - SCMC Act, 1988, ss.3,7,9(1),10(1)&(2),11,12(5),13 and16 – Investment Corporation Act, Ch.No.140, ss.6,7,10(1),16(4) and 21(1)&(5).

Cases Cited:
Andrew Wag –v- Mt.Hagen Town Authority – N1450
The State –v- Barclay Brothers (PNG) Ltd – N2090
Rainbow Holdings Pty Ltd –v- Central Province Forest Industries Pty Ltd [1983] PNGLR 34

Other Cases Cited:
Scott –v- Brown McNab and Co. [1892] 2 Q.B. 728
Vita Food Products Inc. –v- Unus Shipping Co. Ltd [1939] A.C 277

Counsel:
G. Shepherd for the Plaintiff
G. Poole for the Defendant

05th October, 2001

GAVARA – NANU, J,: The Plaintiff is claiming damages against the Defendant for wrongful termination. The claims arise out of the contract of employment dated 28th June, 1999, with the Defendant. Under the contract, the Plaintiff was to be employed as the Fund and Corporate Services Manager of the Defendant effective from the date of the contract for three years. The contract however was not executed until 24th August, 1999.

The Plaintiff claims that he was terminated from his employment without a reasonable notice and a just cause on 15th September, 1999, and that the termination was unlawful because it was arbitrary and in breach of his contract of employment. The Plaintiff’s total claim is for K385,534.30, which includes damages for mental distress. 

The Defendant contends that the Plaintiff’s contract was illegal and was therefore void and unenforceable because it was not approved by the Defendant’s Board and further more, when the contract was executed, the Plaintiff was only acting Fund and Corporate Services Manager because he was still in his three months probationary period. The Plaintiff was therefore not entitled to a reasonable notice or a notice at all before being terminated for a serious disciplinary offence.

The Defendant’s defence only raises the issue of the legality of the contract; it does not take issue with the damages claimed by the Plaintiff. Therefore if the Defendant’s defence fails then the Plaintiff is entitled to all his claims, but if the Defendant’s defence is successful then that would be the end of the matter for the Plaintiff.

The Plaintiff gave evidence and called Mr Wandi Yamuna, who was the former Managing Director of the Defendant and Mr Enoch Pokarop, an employee of the Defendant. He also relied on the affidavits sworn by himself, Mr Yamuna and Mr Pokarop, on 4th February, 2000, 26th February, 2000 and 28th February, 2000, respectively.

The Defendant did not call any witnesses but relied on the affidavits of the following people, which were tendered by consent:-

(i)	Mr Godwin Mcfie Poole, sworn on 26th January, 2000 and 1st March, 2000, respectively.
(II)	Lilian Siabake sworn on 18th November, 1999.
(III)	Dorothy Vanariu sworn on 18th November, 1999.
(IV)	Ezekiel Issac sworn on 18th November, 1999.
(V)	Lahui Ragani, sworn on 18th November, 1999.
(VI)	Chris Gideon sworn on 24th November, 1999.
(VII)	Timwapa Davidi, sworn on 15th February 200, and 
(VIII)	Mea R. Lou, sworn on 19th January, 2001.

The Plaintiff was appointed to the position of Fund and Corporate Services Manager by a letter dated 28th June, 1999, signed by Mr Yamuna. The appointment was made effective on the same date. On 24th August, 1999, the Plaintiff executed a contract of employment with the Defendant for three years. Mr Yamuna executed the contract on behalf of the Defendant with Mr Pokarop as a witness. Although the contract was executed on 24th August, 1999, Mr Yamuna dated it 28th June,1999, prior to the execution. The Plaintiff was later suspended on 26th August, 1999, by the new Managing Director who took office on 25th August, 1999, after Mr Yamuna was removed as the Managing Director on that same day. 

The Plaintiff claims that he was recruited in accordance with the staff structure, which had been approved by the Defendant’s Board, therefore by virtue of that approval when Mr Yamuna executed his contract of employment, he did so with the authority of the Defendant’s Board thus binding the Defendant. The Plaintiff further claims that the contract was valid because it was based on the similar standard contracts of employment used by the Defendant for its Managers which were already approved by the Salaries and Conditions Monitoring Committee (‘the SCMC’). 

The Defendant on other hand has contended that the Plaintiff was only appointed as the Acting Fund and Corporate Services Manager on 28th June, 1999, a condition of which was that he would serve a probationary period of three months from the date of appointment to 28th September 1999, after which the Defendant’s Board would consider whether the appointment should be confirmed. This was conceded by Mr Yamuna. The Defendant argued that any agreement between it and the Plaintiff could only be made after the expiration of the three months probationary period after the Plaintiff had been confirmed to the position and after the Defendant had approved and agreed to enter into a written contract of employment with the Plaintiff. 

The Defendant also argued that the Plaintiff’s contract was drawn up and executed without the knowledge and the authority of it’s Board, therefore Mr Yamuna had no authority to execute it on behalf of the Defendant and more over, the Plaintiff’s contract was not approved by the SCMC. 

The title page to the Plaintiff’s contract bears the name of the law firm, Fiocco Posman and Kua Lawyers with the identification number Wp.Doc.Id:Me 0153.d. According to the Defendant, that title page belonged to the contract of employment drawn up by Fiocco Posman and Kua Lawyers in 1997 upon the instructions given by the Defendant for one of its other employees, namely, Leontine Ofoi, following that person’s appointment as the EDP Manager. The Plaintiff used that contract for his contract of employment, hence the title page. The Defendant has denied instructing Fiocco Posman and Kua Lawyers to draw up a contract for the Plaintiff. 

The Defendant has denied having any knowledge of the Plaintiff’s contract until the Plaintiff delivered it to Ms Dorothy Vanariu, who is the secretary for Fund and Corporate Services Division on 1st September, 1999, which was a week after the purported execution. There was no record and file of and on the contract in the Personnel and Administration Division where all the contracts are recorded and kept. 

It was also submitted for the Defendant that the Plaintiff’s termination was for a very serious and wilful misconduct, which arose from the Plaintiff instructing the Senior Accounts Clerk and the Payroll Clerk on 25th August, 1999, to raise two cheques, one was for the amount of K278,126.07, for Mr Yamuna for his termination pay and the other was for the amount of K36,874.60 for the Plaintiff, for entitlements the Plaintiff claimed were owed to him by the Defendant. The Plaintiff and Mr Yamuna signed those two cheques as the only signatories to the Defendant’s Cheque Account, but at the time of signing the cheques, the Plaintiff knew or ought to have known that Mr Yamuna was already on suspension and should not have authorised the two cheques for payment.

The Defendant has cross-claimed for the sum of K20,074.60, from the Plaintiff, which it argued, was falsely claimed by the Plaintiff in housing allowances and school fee refunds. This amount is part of the K36,874.60, paid to the Plaintiff on 25th August, 1999.

The Defendant does not dispute the Plaintiff's appointment as the Acting Fund and Corporate Services Manager by Mr Yamuna on 28th June, 1999, nor the execution of the Plaintiff’s contract on 24th August, 1999. Mr Yamuna told the Court that, he appointed the Plaintiff to the position on 28th June, 1999, based on the recommendation made by the Vanguard International, an international recruitment consultancy firm, after the Plaintiff applied for the position. 

It is noted that the Post Courier advertisement placed by the Defendant on 16th April, 1999, for the various vacant positions in the Defendant advised that all the applications for the positions were to be addressed to the Manager, Fund and Corporate Services. The Plaintiff’s application dated 26th April 1999, was addressed instead to the Managing Director, whilst the recommendation by Vanguard International dated 24th June, 1999, for the Plaintiff’s appointment was addressed to the then Acting Manager, Fund and Corporate Services, Mr Alu Tongia. There is no evidence as to how and when the recommendation by the Vanguard International was received by Mr Yamuna. 

It is also noted that in paragraph 9 of his affidavit, Mr Yamuna says that, he gave approval for the execution of the Plaintiff’s contract on 20th August, 1999, upon Plaintiff’s satisfactory performance. He said when all was in order, he executed the Plaintiff’s contract on 24th August, 1999, at about 3:00 pm in his office. That was the day before his suspension on 25th August, 1999.

There is one significant matter in respect of the execution of the Plaintiff’s contract on 24th August, 1999, which I need to comment on:- The execution of the contract was preceded by a memo sent by the Plaintiff and Mr Pokarop to Mr Yamuna on 20th August, 1999. In the memo, the plaintiff and Mr Pokarop made reference to their discussion with Mr Yamuna that morning regarding their contracts of employment and advised Mr Yamuna that their contracts were in order because they were standard, consequently, they should be executed without having to go to the Board for approval. They advised Mr Yamuna that there was already an approval by the SCMC on 10th November, 1998, for contracts for the Divisional Managers, upon which their contracts were based, thus, it was not necessary for the SCMC to approve their contracts. They also advised Mr Yamuna that the remuneration benefits in their contracts were no different to those in the other Managers’ contracts except for the slight variation of K1,600.00 per annum in their base salaries which they added, to reflect the CPI adjustments. They advised Mr Yamuna that the salary and other benefits for the Divisional Managers had already been approved by the Board in its meeting on 18th March 1999, and the policy decisions relating to the approvals of their contracts from the relevant authorities were in place, therefore the execution of their contracts were only operational matters for the management to effect.

 Mr Yamuna approved the execution of the two contracts of employment for the Plaintiff and Mr Pokarop upon that advise on that same day, vis. 20th August, 1999. Mr Yamuna’s "approval" was in a hand written notation on the top right hand corner of that memo, which read ‘Approved as per our discussion’. 

The memo is significant, it is therefore reproduced in full below:-

INVESTMENT CORPORATION OF PAPUA NEW GUINEA

Mr Yamuna’s  initials - 20th August 1999 "Approved as per our (handwritten) (handwritten date) discussion" (handwritten  notes by Mr Yamuna)

MEMORANDUM TO:	Managing Director
Cc: Acting Investment Manager

FROM:	Fund & Corp. Affairs Manager & Acting Investment Manager

DATE:	20th August 1999

SUBJECT:	EMPLOYMENT CONTRACTS FOR FUND & CORPORATE AFFAIRS MANAGER AND ACTING INVESTMENT MANAGER
_______________________________________________________________________

We refer to our discussion this morning regarding the above subject matter.

The contracts of employment are standard and as such these are in order and should be executed without having to go to the Board for approval.

1.	There is already a SCMC approval in place for contracts of divisional managers.
A copy of SCMC approval dated 10th November 1998 is attached.

2.	The remuneration package/benefits in the contract are not different from those in the previous contracts. The slight variation of K1,600.00 per annum in base salary reflects CPI adjustment.

3.	The salary package and other benefits for the divisional manager’s have already been approved by the Board at its Meeting on 18th March 1999.

In view of the above grounds, the execution of the contract is an implementation/operational matter for management to effect. Policy decisions relating to approval from the relevant authorities are already in place.

signed. (handwritten signature)	 signed.(handwritten signature)

…………………………………	……………………………………
 TAND WAIM		ENOCH POKAROP

Mr Pokarop confirmed witnessing the execution of the Plaintiff’s contract at about 3.00 pm on Tuesday 24th August, 1999, in Mr Yamuna’s office in the 9th Floor of the ANG House, in town, he said, the Plaintiff also witnessed the execution of his contract as the Investment Manager and Mr Yamuna executed both contracts on behalf of the Defendant.

The evidence by Ms Mea Lou who is the executive secretary for the Defendant, shows that she typed a letter of appointment for Mr Pokarop as the Investment Manager on Wednesday 25th August, 1999, which is the day Mr Yamuna was suspended. She said while she was typing the letter, Mr Pokarop instructed her to put 23rd August, 1999, as the date of the letter. The letter bears Mr Yamuna’s signature but she says, Mr Yamuna did not sign the letter in her presence. That letter is annexed as ANNEXURE ‘A’ to Ms. Lou’s affidavit and is dated 23rd August, 1999. In that letter, Mr Yamuna advised Mr Pokarop that his appointment took effect on 23rd August, 1999. 

Mr Chris Gideon who is the Corporate Services Manager deposed that, he searched the records for any resolutions of the Defendant’s Board in relation to the Plaintiff’s appointment and any contract for the Plaintiff but found nothing. He only found the records of a special meeting of the Defendant’s Board number 01/98, in which the Board resolved to approve in principle the power of attorney to Mr Yamuna with a financial delegation of K100,000.00, but that was still subject to the review by the then Board Chairman and the deed was never executed either by Mr Yamuna or the Board Chairman. 

Mr Ezekiel Isaac, who is the Senior Accounts Clerk confirmed in his evidence that at about 10.00am on 25th August 1999, he raised a pay-out cheque for Mr Yamuna for K 278,126.07 upon Mr Yamuna’s directions to him and the Pay Roll Clerk, Mr Rigana. Both Mr Yamuna and the Plaintiff authorised the cheque. About that same time, the Plaintiff also gave Mr Isaac a memorandum containing his claims for housing allowances and the refund of school fees, totalling K36,874.60, and told Mr Isaac to process a cheque for that amount as soon as possible so that Mr Yamuna could counter sign the cheque. That cheque was raised and was signed by the Plaintiff and counter signed by Mr Yamuna. Both Mr Yamuna and the Plaintiff instructed Mr Isaac that the cheques be authorised "Please Pay Cash" which he did, Mr Yamuna and the Plaintiff then endorsed the cheques. At that time, Mr Isaac was not aware, that the Board had already suspended Mr Yamuna. Mr Rigana corroborates Mr Isaac's evidence on this. 

Ms Vanariu’s evidence is that, on Wednesday 1st September, 1999, between 10.00 am and 11.00 am, the Plaintiff phoned her from somewhere and asked her to meet him at the car park, when she met him at the car park, the Plaintiff asked her to deliver his response to his suspension notice to the Acting Managing Director, but she declined. She said at that time, the Plaintiff gave her two contracts of employment, one was for him and the other was for Mr Pokarop. She got the two contracts and passed them on to Ms Lilian Siabake, who is the Personnel and Administration Officer, on that same day. Ms Siabake, is the keeper of all the personnel records in the Defendant. She is also responsible for co-ordinating all the contracts of employment. Her evidence confirms that she received the contract of employment for the Plaintiff at 10:45 am on 1st September, 1999, from Ms Vanariu. She said, she had no record of the Plaintiff’s substantive appointment as the Fund and Corporate Services Manager. As far as she knew, the Plaintiff was only acting in the position. Ms Vanariu said the Plaintiff phoned her sometime later on 1st September, 1999, and asked her to return his contract to him but she refused, because the Plaintiff was under suspension. 

The Plaintiff confirmed that he slotted in the variables such as his name and the K1,600.00 for his base salary, in his contract on 28th June, 1999, which is the day he was appointed as the Acting Fund and Corporate Services Manager by Mr Yamuna. He said, that was his first time to prepare a contract, he had never prepared one before. He was the Senior Investment Analyst before his appointment.

Mr Yamuna conceded that it is the normal practice that whenever the Defendant’s seal is used or affixed onto a contract, it is recorded and filed in the Personnel and Administration Division. I have no doubt that, that is in accordance with the Defendant’s management policy. 

When the defence counsel asked Mr Yamuna as to whether Ms. Siabake was responsible for co-ordinating the employment contracts and making sure that such contracts were properly filed and recorded, Mr Yamuna said, it was not his responsibility to go and check whether things were done properly; he said that was the responsibility of the Fund and Corporate Services Division Manager which in this case was the Plaintiff, and that was the reason why he was dealing with the Plaintiff. 

The Plaintiff said that he prepared and co-ordinated his contract upon Mr Yamuna’s instructions. He agreed that he was only Acting Fund and Corporate Services Manager until 24th August, 1999, when he executed his contract. 

The Plaintiff confirmed taking his contract to Ms Vanariu on 1st September 1999, and asking her to take it to the new Managing Director. He said the reason why he did not deliver the contract earlier was because he was under extreme stress because the new Managing Director was trying to terminate him. He also agreed that Ms Siabake was the keeper of all the personnel records including all the contracts. He said he phoned Ms Siabake on 1st September, 1999, to give her a copy of his contract because he was barred from entering the Defendant’s premises and he feared that the original contract might be displaced or denied, because there were already rumours that suspensions and terminations of certain officers were imminent. 

The Plaintiff conceded that the Manager, Personnel and Administration was responsible for preparing all the contracts, but said that, he could also prepare the contracts as the Manager in charge of the funds. When Mr Yamuna was queried on this, he said the Plaintiff being the Fund and Corporate Services Manager was responsible for preparing the contracts. 

Mr Yamuna told the Court that except for the appointment of the Managing Director which has to go to the Board then to the Minister, it was not necessary for the Board to approve the appointments to the positions of the Managers and below. However, he agreed that when making such appointments, the Board had to be consulted, but in the Plaintiff’s case, it was not necessary, because the appointment was made under the staff structure which had already been approved by the Board. 
 
Mr Yamuna conceded that at about 8:30 am on 25th August 1999, he received his notice of suspension during the Board meeting at the Park Royal Boardroom. Although he later said that, the notice or the letter was to stop the Board meeting and not about his suspension, he subsequently said that he called all the staff together and advised them of the changes and of the appointment of the new Managing Director. It is therefore clear that he was suspended at the time put to him by the defence counsel which was 8:30 am on the morning of 25th August, 1999. 

Mr Pokarop also confirmed that he learnt of Mr Yamuna’s suspension during the morning session of the Defendant’s Board meeting on 25th August 1999. He said sometime later that day, he got Mr Yamuna’s secretary to type his letter of appointment as the Investment Manager, the letter was back dated to 23rd August, 1999, and was signed by Mr Yamuna that same day. Mr Pokarop was later disciplined for that.

Mr Yamuna confirmed instructing the Pay Roll office on 25th August 1999, to prepare two cheques, one for him and the other for the Plaintiff. He also confirmed that he and the Plaintiff being the two signatories to the Defendant’s Cheque Account, signed and endorsed the two cheques to be paid in cash. Evidence shows that he was already suspended when he signed those cheques. 

Under re-examination, the Plaintiff agreed that he could only claim entitlements under his contract. He also agreed that there was no provision for housing allowance under his contract.

Findings of Fact

From the foregoing, I make following findings of fact:-

i)	The contract used by the Plaintiff was for one Leontine Ofoi, drawn up by Fiocco Posman and Kua Lawyers, in 1997, upon the instructions given by the Defendant.

ii)	The Defendant had neither a file nor a record of the Plaintiff’s contract and it was not aware of the existence of the contract until 1st September, 1999, when the Plaintiff gave it to Ms Dorothy Vanariu.

iii)	The Manager, Division of Personnel and Administration through his Personnel and Administration Officer was the only person responsible for the co-ordination and administration of all contracts, including contracts of employment.

iv)	Mr Yamuna was suspended at about 8:30 am on 25th August, 1999, during the Defendant’s Board meeting at the Park Royal.

v)	The pay out cheque for Mr Yamuna for the amount of K278,126.07 and the Plaintiff's cheque for the housing allowances and the school fees refund for the amount of K36,874.60 were signed and authorised for payment by Mr Yamuna and the Plaintiff after Mr Yamuna was suspended.

The Law

Clause 1.1(e) of the Plaintiff’s contract, defines ‘the contract’ this way:- 

"the Contract referred to herein is this contract of employment and the menus (sic), the Contract and Terms and Conditions of Employment. The Contract is subject to the approval of the Salaries and Conditions Monitoring Committee ("the SCMS")" (my underlining). 

Clause 1.1(f) of the contract defines ‘the Corporation’ this way: 

"the Corporation means Investment Corporation of Papua New Guinea and includes the Board and any nominee of the Board for the purpose of the administration of the Contract and until further nomination means, the Divisional Manager, Personnel and Administration" (my underlining).

So by virtue of Clause 1.1(f), the administration of the contract was the responsibility of the Divisional Manager, Personnel and Administration being the person appointed to perform that aspect of the Defendant’s function. No other person or employee had the authority to perform that function, except the officer authorised by him, such as the Personnel and Administration Officer, who in this case was Ms Siabake. 

Clause 1.1(e), expressly states that the contract was subject to the approval of the SCMC, but Mr Yamuna said, it was not necessary to obtain the approval of the SCMC because the contract was based on the standard contracts already approved by the SCMC for the other managers. This raises the question of whether the approval of the SCMC was still necessary for this particular contract as required by this Clause. To answer this question, I need to turn to the relevant provisions in the SCMC Act, 1988, (the SCMC Act) and the Investment Corporation Act, Chapter No. 140, (the IC Act), which govern the determinations and the management of the Defendant, as the question points to the issue of the legality of the contract, which is the issue raised by the Defendant in its defence. 

It must be stressed at the outset that the contract being determined here was prepared by an employee of the Defendant and not by the Defendant.

The Defendant is a public body established under Section 3 of the IC Act, and is a duly declared public authority by the National Gazette No. G.26, dated 27th April 1989 for purposes of the SCMC Act. 

Section 2 of the SCMC Act defines ‘ a public authority ‘ as any –

a)	
b)	
c)	Authority by or under a Constitutional Law or an Act of the Parliament and declared by the Minister, by notice in the National Gazette, to be a public authority for the purposes of this Act. 

Section 3 (1) of the SCMC Act, provides that, the provisions of the Act apply notwithstanding anything in any other law relating to the determination of salaries and conditions or employment of employees of a public authority and s.3 (2) provides that where power is given to a public authority under any law to determine or vary the salaries and conditions of employment of employees of the public authority, that power shall be exercised subject to the SCMC Act. (my underlining).

Section 7 of the SCMC Act, provides that, the SCMC has power to do all things necessary or convenient to be done for or in connexion with the performance of its functions under the SCMC Act, and may where necessary require the public authority to provide to it particulars relating to salary costs, employees or person providing services to the public authority and so on and may even require the public authority to employ specified category of employees in compliance with the National Executive Council (‘the NEC’) directives, on such terms and conditions as may be determined by the public authority, but subject to the SCMC Act.(my underlining).

A public authority is obligated under s.9 (1) to appoint a person employed by it to ensure compliance with the SCMC Act by that public authority. Subsection 2 (c) provides that the person appointed under Subsection (1) is responsible for ensuring that each employee of the public authority is employed in accordance with the salaries and conditions –

(a)	
(b)	
(c)	approved by the Committee, in relation to that employee. (my underlining)

It is obligatory on the public authority, under s.9 (4) to notify the SCMC of the name and the designation of the person appointed under Subsection (1). 

Sections 10, 11, 12 and 13 provide strict procedural requirements which a public authority must follow in determining or varying salaries for its employees. Section 10 (1) for instance, provides that a public authority ‘shall’ not determine or vary the salaries and conditions of employment of any employee, except in accordance with the Act and s.10 (2) provides that a determination or variation of the salaries and conditions of employment of an employee made otherwise than in accordance with the Act, is void and any agreement to give effect to such determination or variation " shall be unenforceable in law ", and any payment or benefit, given to an employee under such determination, or variation is recoverable by the State as a debt. 

Under s.11, if a public authority wanted to determine or vary conditions of its employees, it must submit a proposal to the SCMC for its consideration and determination and that such proposal must be accompanied by a statement of salary and wages rates, terms and conditions of employment and other benefits of the employees. Such proposal would be considered by the SCMC, in the light of the wages policy of the NEC, including job evaluation and work value and if the public authority is self funded, the chief executive of the public authority has to set out the budgetary implications of the proposal on the public authority. 

The SCMC has the power under s. 12 to determine such proposal, and where necessary it can require employees of the public authority to appear before it or obtain such informations as it may consider necessary. The SCMC can approve, reject or amend the proposed determination or variation of the public authority. 

Section 12 (5), makes the SCMC’s decision binding on the public authority after the public authority is notified of the decision in writing. In the event that the public authority is not satisfied with the decision of the SCMC, it can take the matter to the NEC, through the Minister for NEC’s determination.

Section 16 is a penalty provision which provides that where a public authority has made a determination or variation of salaries or to the conditions of employment of its employees or employee, without authorisation under the Act, every person who was responsible for making such determination or variation, including those who were concerned with the management of the public authority and the person appointed by the public authority for the purposes of s.9 would be guilty of misconduct or misbehaviour and would be liable to be removed from office. 

The Defendant has powers to do all things necessary to perform its powers and functions as provided in ss. 6 and 7 of the IC Act. The Defendant for purposes of the IC Act is separate from its Managing Director and its other employees who are its servants and agents. The Defendant encompasses them. Being its servants and agents, they bind the Defendant in all that they do in the course of their duties or employments; provided that such actions are done either with the expressed or implied authority of the Defendant. 

The Managing Director is appointed pursuant to s. 16 (4) of IC Act, which provides:

"The Managing Director shall manage the Investment Corporation and in relation to the management of the Investment Corporation, shall act in accordance with its policy and with the directions of the Board of Directors. " (my underlining)

Section 10 (1) requires the Defendant to act in accordance with sound business principles when exercising its powers and functions, and s. 21(1) provides that the officers who constitute the service of the Defendant are so appointed for the purposes of the IC Act. Subsection (5) of this provision expressly says that such officers hold office with the Defendant on such terms and conditions as are determined, not by any of its employees, including its Managing Director but by the Defendant. 

The Plaintiff’s appointment and his contract of employment had to comply with these statutory requirements to make them valid and enforceable. The requirements are in mandatory terms. On the evidence before me, I find that the Plaintiff’s appointment and his contract were done in breach of these mandatory statutory requirements. 

The execution of the Plaintiff’s contract before the expiration of his three months probationary period without the approval of the Defendant and the SCMC certainly does not equate with sound business principles and prudent management practices as required by s.10(1) of the IC Act. 

The breaches committed by the Plaintiff were fundamental, for instance, he took it on himself to prepare and administer his own contract, but the Personnel and Administration Manager was the person appointed under s.9 (1) of the SCMC Act, to adminiter the contracts. Clause 1.1(f) of the contract gave effect to this provision. It was also a fatal error by the Plaintiff to assume that his contract had been approved by the SCMC simply because the SCMC had approved the similar contracts for the other Divisional Mangers. Clause 1.1(e) of the contract specifically provided that the contract was subject to the approval by the SCMC. This Clause was intended to give effect to s.9(2)(c) of the SCMC Act. The effect of Clause 1.1(e) and s.9(2)(c) was that the Plaintiff’s contract had to be specifically approved by the SCMC through the Manager, Personnel and Administration or his delegate, who was Ms Siabake. 

The requirement under s.9(2)(c) that the salary determinations by the public authorities must be approved by the SCMC is aimed at ensuring that such determinations accord with the Government’s wages policies. Therefore, a determination which is not approved by the SCMC, such as in this case, would be deemed illegal under s. 10( 2 )and would attract the penalties provided under s.16 of the SCMC Act. 

There is another defect in the Plaintiff’s substantive appointment, that is, there was no performance appraisal on the Plaintiff as the Manager, Fund and Corporate Services. Even if the appraisal had been done, the true measure of his ability and competence in the job could not be realistically assessed because he was only two months into his acting period when he was made substantive. Therefore, either way, the Plaintiff’s substantive appointment could not be on merit. 

The Defendant has denied authorising Mr Yamuna to execute the contract on its behalf. It is therefore clear that Mr Yamuna acted without the authority of the Defendant’s Board and in breach of s.16(4) of the IC Act. This nullifies the Plaintiff’s contention that he was appointed under an approved staff structure.
 
The Plaintiff added K 1,600.00 to the base salary in his contract to accommodate the CPI adjustments, that was an unauthorised variation of the salary, done in breach of s.10 of the SCMC Act. Pursuant to s.10(2), that variation rendered the contract invalid and unenforceable in law. Mr Yamuna was made aware of this unauthorised variation by the Plaintiff through the memo dated 20th August, 1999, so by virtue of s.16 of the SCMC Act, both the Plaintiff and Mr Yamuna were guilty of misconduct and were liable to be removed from their respective offices.

It is clear that the Plaintiff and Mr Yamuna were well known to each other. It is also clear that the Plaintiff’s appointment and the execution of his contract were done in haste because of the impending suspension of Mr Yamuna. That provides the explanation for the manner in which the contract was drawn up and executed. 
 
The Plaintiff has claimed that he was not given any reasonable notice before being terminated. Clause 21 of the contract sets out the disciplinary procedures. This clause would assist the Plaintiff had I found in his favour, but I have already found that the Plaintiff’s contract was done in breach of the SCMC Act and the IC Act, as such is illegal. Consequently, clause 21 is of no assistance to the Plaintiff. Even if there were disciplinary processes and procedures in the staff Terms and Conditions, they cannot assist the Plaintiff because, the Plaintiff is claiming under the contract which does not incorporate the Staff Terms and Conditions. The Plaintiff’s employment was in those circumstances governed by the principles of pure master and servant, therefore, the Defendant was entitled to terminate his employment in the way he did for a serious disciplinary offence.

The provisions of the SCMC Act, discussed here apply to the determinations made by the public authorities. In this case, the contract was prepared and determined by an employee, nevertheless, the contract has to be interpreted in the light of these provisions because the Plaintiff has argued that contract was approved by the Defendant and the SCMC. 

The Court does have a discretion in deciding whether to enforce an illegal contract . But one must start with the premise and the general principle that no Court ought to enforce an illegal contract where the illegalities are serious and flagrant and where the party seeking the aid of the Court is implicated in such illegalities. In Andrew Wag –v- Mt. Hagen Town Authority – N1450, his Honour Injia J. referred to and applied this principle. His Honour referred to an excerpt from the judgement by Lindley, L.J. in Scott –v- Brown McNab & Co. [1892] 2 Q.B.at p.78, where his Lordship said: 

"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".

In Andrew Wag (supra), the Plaintiff claimed damages against the Defendant for wrongful termination. The Plaintiff was employed on contract for three years as the Executive Officer of the Defendant at Clerk Class 8 level. The contract was sealed with the common seal of the Defendant and was executed by the Chairman of the Defendant. The contract appeared valid and enforceable. About a year after the execution of the contract, the Plaintiff was terminated by the Acting Chairman of the Defendant. The contract stipulated three months notice in writing of termination or a payment in lieu of notice. The Plaintiff claimed that he was not given the three months written notice before being terminated. The Defendant contended that the contract was illegal and unenforceable. There was no record of the Plaintiff’s employment and his contract. The position of Executive Officer never existed under the relevant Act, the Mt. Hagen Town Authority Act, 1989, and the position was never advertised before the Plaintiff was appointed to it. The Chairman created the position and appointed the Plaintiff to the job.

Section 49 of the Mt. Hagen Town Authority Act, provided inter alia, that all vacant positions be advertised within 14 days of the position becoming vacant and copies of the job descriptions and job specifications be published. That provision was in mandatory terms. His Honour in declaring the contract illegal said:

"Section 49(2) is in mandatory terms. The Authority is a public institution which is established under the Mt. Hagen Town Authority Act, 1989 made by the Western Highlands Provincial Government. Its affairs must be administered strictly in accordance with the Act….

I am of the view that the Chairman of the Authority had no power under the Mt. 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 requirements in s.49(2). The contract of employment was illegal for this reason…..

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".

The exercise of the discretion by the Courts on whether an illegal contract can be enforced is on grounds of public policy. In determining that issue, the test is whether the enforcement of the contract would further the objects of the legislation or by declaring it void: see Andrew Wag (supra) and Rainbow Holdings Pty Ltd –v- Central Province Forest Industries Pty Ltd [1983] PNGLR 34. In that case, Bredmeyer J. in quoting from an excerpt of Lord Wright’s judgement in Vita Food Products Inc. –v- Unus Shipping Co. Ltd [1939] AC 277, said at p.36:

"…the Courts should as a matter of public policy ‘refuse to nullify a bargain save on serious and sufficient grounds’. On the other hand, if there has been a serious illegality, the Courts have a vested interest in seeing that the law is enforced and that people do not profit from their illegal conduct."

Applying the test stated here, the Plaintiff’s contract clearly cannot be enforced. It is fraught with serious illegalities, resulting from the flagrant breaches of the SCMC Act and IC Act by the Plaintiff himself. 

The legislative intention behind the SCMC Act is quite clear, it is to ensure that the Government wages policies are properly and strictly implemented and adhered to by the public authorities and that their affairs are properly managed. This is clear from the preamble of the Act. Thus the SCMC Act as a matter construction also works to prohibit any determinations including contracts that are or may be entered into outside of the Government’s wages policies and in breach of the provisions of the SCMC Act.; any such determination would be automatically rendered illegal as was the case here. This approach was adopted by Kapi DCJ. in, The State –v- Barclay Brothers (PNG) Ltd. N2090. It is not difficult to discern this because the public authorities being State owned institutions are fully accountable to the Government in all their dealings. So the SCMC Act also works to ensure that there is transparency and accountability by the public authorities. The appointment of the persons from within the public authorities under s. 9 of the SCMC Act, to ensure compliance with the requirements of the SCMC Act by the public authorities is intended to serve this purpose. In my opinion, it is for reasons of transparency and accountability that the SCMC Act also gives the NEC the overriding power to overrule determinations by the public authorities where necessary, see ss.13 and 15 of the Act.

The Plaintiff in this case drew up his own contract and administered it and the contract was executed prior to the expiration of his three months probationary period and without the approval and the authority of the Defendant and SCMC. These were very serious and fundamental breaches of the SCMC Act and IC Act by the Plaintiff. The breaches could only have one effect, they rendered the Plaintiff’s contract illegal and void. The contract is therefore unenforceable.

For these reasons, the Plaintiff’s claims are dismissed with costs.

Defendant’s Cross Claim

The Defendant is claiming K20,074.60, from the Plaintiff as the amount falsely claimed by the Plaintiff for housing allowances. This is part of the amount paid to him on 25th August, 1999. The evidence before me shows that, Mr Yamuna was already suspended by the time he signed and authorised the Plaintiff’s cheque for payment. The Plaintiff conceded that entitlements under the contract did not include housing allowances. He has also conceded that he can only claim entitlements under the contract. The Plaintiff has the onus to prove that he is entitled to this amount. He has not discharged that onus. If he is claiming for unclaimed entitlements under his previous terms and conditions of employment, he has not produced any evidence in support such claim. He cannot claim under the contract because, firstly, there is no such entitlement in the contract and secondly, the contract has been found to be illegal, therefore, even if there were such entitlements under the contract, he still would not claim under it. 

In these circumstances, the Defendant has shown to my satisfaction that the Plaintiff was not entitled to the amount. I therefore order that the Plaintiff pay the sum of K20,074.60 to the Defendant. The Defendant has claimed interest on the amount. I order that the Plaintiff pay 4 % on the principal amount. The interest will be calculated from the date of the cross-claim, which is 24th January 2000, to the date of judgment, which is today, the 05th October 2001. For this period, the interest works out to be:-

-	24th January 2000 – 24th January 2001 = 365 days
-	25th January 2001 – 05th October 2001 = 198 days + 56 days – 254 days
-	Total number of days = 619 days
-	4% x K20,974.60 p.a = K838.98
-	K838.98 div.by 365 days = K2.30 per day
-	619 days x K2.30 = K1.423.70

The Plaintiff will therefore pay K20,074.60 plus 4% interest from 24th January 2000 to 05th October 2001, which is K1,423.70. The Plaintiff will thus pay the total amount of K21,498.30 to the Defendant. 

The Plaintiff will pay the Defendant’s costs.
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Lawyers for the Plaintiff:		Maladina Lawyers
Lawyers for the Defendant:		Pato Lawyers