Andrew v Mineral Resources Development Company Ltd [2004] PGNC 170; N2601 (2 April 2004)

N2601

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

WS. NO. 1531 OF 2001

MADIU ANDREW

Plaintiff

AND:

MINERAL RESOURCES DEVELOPMENT COMPANY LTD
First Defendant

AND:

KOIARI TARATA,
Chairman – Board of Directors
Second Defendant

AND:

SIR MEKERE MORAUTA, Kt, MP,
Prime Minister
Third Defendant

WAIGANI: KANDAKASI, J.
2003: 15th December
2004: 2nd April

EMPLOYMENT CONTRACT – Written contract of employment – Termination of – No issue on validity of termination – Only issue whether contract varied to include final payout tax free to employee – No evidence of any variation of the contract in accordance with the contract – Law requires all income earners to pay tax – If an employer is to pay its employee’s tax there must be specific and clear agreement on it.

TAXATION – Personal income tax – Liability of employers and employees – Personal income tax a personal liability of employees – If employer is to pay such tax specific and clear agreement is required.

Cases Cited:
Teio Raka Ila v. Wilson Kamit & Bank of Papua New Guinea (unreported judgment delivered on 11/10/02) N2291.
PNGBC v. Jeff Tole (unreported Judgment delivered on 27/09/02) SC694.
Steven Charles Pickthall v. Lae Plumbing Pty Ltd [1994] PNGLR 363.
Andrew Moka v Motor Vehicles Insurance (PNG) Limited (unreported judgment delivered on 18/05/01) N2098.
Arlene Pitil v Rutis Clytus & Ors (unreported judgment delivered on 01/08/03) N2422.
Curtain Brothers (QLD) Pty Ltd & Kinhill Kramer Pty Ltd v. The Independent State of Papua New Guinea [1993] PNGLR 285.
Odata Ltd v. Ambusa Copra Oil Mill Ltd (Unreported judgment delivered 06/07/01) N2106.
Papua New Guinea Forest Authority v. Concord Pacific Limited & Ors (No 2) (Unreported judgment delivered 12/09/03) N2465.
Dan Salmon Kakaraya v. The Ombudsman Commission of Papua New Guinea & Anor (Unreported judgment 24/10/03) N2478.
Peter Agilo v. Sir Mekere Morauta & Or (28/02/02) N2102

Counsel:
R. Saulep for the Plaintiff.
G. Gileng for the Defendants

02nd April 2004

KANDAKASI, J.: The plaintiff is claiming damages in terms of the balance of his contract entitlement for unlawful dismissal by the defendants. Prior to his dismissal, he was the managing director of the first defendant under a written contract of employment.

The matter came before me for trial on 15th December 2003. At the commencement of the trial, the Court drew the plaintiff’s counsel’s attention to its judgment in Teio Raka Ila v. Wilson Kamit & Bank of Papua New Guinea[1] as the circumstances in that case and the present were similar. On the plaintiff’s request, the Court granted a short adjournment for the plaintiff to consider the judgment and then decide whether to pursue his claim or not. On the return of the matter, the plaintiff informed the Court that, except for a claim for a reimbursement of income tax deducted from his final payout, he was abandoning the rest of his claim. The trial therefore, proceeded only in respect of the issue of reimbursement of income tax deducted from his final payout.

After the hearing, counsels wanted to file written submissions and asked for a short adjournment. I was initially reluctant to adjourn, but as I was soon going away on leave, I granted the application and directed the parties to file their respective submissions by 18th and any replies thereto by 19th December 2003. The Court received only the defendants’ submission.

The Relevant Fact

The relevant facts are simple and straightforward. They have agreed to the relevant facts in most respects and they are these. The first defendant employed the plaintiff under a written contract of employment dated 16th November 1999. The contract was for a period of 4 years. However, nine months prior to the agreed date of termination, the defendants on 2nd August 2001, summarily and without cause, terminated the plaintiff’s employment and his contract with payment in lieu of notice. The plaintiff received a total of K447, 444.17 upon his termination after allowing for the appropriate level of tax. The total tax deducted and paid to the Internal Revenue Commission (IRC) was K244, 599.97.

The plaintiff went into oral evidence and apart from confirming the above facts; he added that, it was an implied term of the contract that, upon termination, he was entitled to receive his final payout tax free, with the first defendant paying the Internal Revenue Commission his tax component. The defendants objected to this additional evidence on the basis that, there was no foundation in the pleadings. The Court sustained the objection on the basis of the clear law on it as represented by a number of Supreme Court judgments’ with the latest being, PNGBC v. Jeff Tole.[2] Nevertheless the plaintiff was allowed to give his evidence to complete the trial and for parties to take up the point in their respective submissions.

Under cross-examination, the plaintiff admitted that, under clause (2) (c) of the contract, he is obliged to pay his own tax. That in practice took the form of the employer deducting and paying to the tax office the tax payable before he received his pays. This resulted in the plaintiff receiving only his net pay after allowing for the tax payable. Cross-examination of the plaintiff established that, pursuant to clause 9 of the contract, most of his allowances were subject to tax. Understandably, therefore, the contract does not provide for an exclusion of payment of any tax that is payable and due from the plaintiff to the tax office on his salary, allowances and any other benefits.

The defendants called, Mrs. Mabel Henao, who is the accounts manager for the first defendant. She confirmed the liability of all employees of the first defendant, including the plaintiff to pay their taxes to the IRC without any exception, except as the tax laws exempt. That is why; she said the contract does provide for the plaintiff to pay taxes that are due by law on his salary, allowances and other entitlements. She also confirmed that, on the plaintiff’s termination, he received a net of K418,155.17 after allowing for all deductions including tax.

Arguments of the Parties

The defendants argue that the plaintiff is not entitled to claim a reimbursement of the sums of money deducted and remitted to the IRC by the defendant for a number of reasons. Firstly, they point out to the pleadings and say there is no foundation in the pleadings for this claim. Secondly, as an alternative to the first is that, there is no foundation for this in the contract. Thirdly, which is again in the alternative to the first two reasons is that, there is no evidence supporting the claim.

The plaintiff’s response at least from the arguments in the course of the hearing and in the absence of his submissions is this. There is foundation in the pleadings for the claim, at paragraph 8 and 9 as well as annexure "A" to the statement of claim in answer to the first ground of objection. As for the second and third grounds, the plaintiff submits that it could rely on his own evidence to argue that there is foundation in the contract for his claim and that his evidence supports that argument.

Issues

From these arguments, the issues for this Court to consider and determine are these:

(a) Has the plaintiff sufficiently pleaded his claim for tax reimbursement in his statement of claim? and

(b) Is there evidence supporting the plaintiff’s claim that, it was a term of his contract that, he, plaintiff would receive tax-free his final entitlements on termination?

Pleadings

Pleadings in a civil claim play a very vital role. They lay the foundation for a claim and dictate the kind of evidence the parties can call and the grant of a relief subject to evidence proving it. Thus, in order to enable the Court to properly assess and arrive at a reasonable award of damages, the law requires a plaintiff to properly plead and then establish by appropriate evidence his loss or damages. Both this Court and the Supreme Court have denied plaintiff’s grant of relieves that have no foundation in the pleadings even if there is evidence of it. The Supreme Court affirmed this in Steven Charles Pickthall v. Lae Plumbing Pty Ltd[3] and many other subsequent judgments with the latest in Papua New Guinea Banking Corporation vs. Jeff Tole.[4] This steams from O 8 r 33 of the National Court Rules, which requires claims for damages arising out of a death or personal injuries to plead specifically the injury or loss with particulars of the lost.

In this case, the plaintiff relies on paragraphs 8 and 9 of his amended statement of claim. These paragraphs in relevant parts read:

"8. By reason of the breaches of the contract as enumerated herein, the Plaintiff has suffered loss and damage, particularized in Clause 9 herein.

9. PARTICULARS OF LOSS AND DAMAGE

As per Annexure "A" to the statement of claim, summarized as follows:

...

Plus: Tax Adjustments K141, 626.82"

The annexure referred to in these pleadings is a computation of the plaintiff’s loss that does not allow for any tax deductions. The only relevant statement in the computation is this, "Basis: As per contract and advise from client, no tax should be deducted from salary & Allowances."

Under the Income Tax Act, all persons earning an income are liable to pay tax on it unless there is exemption under the Act or any other legislation. Any arrangement to avoid that liability amounts to a tax evasion and is therefore null and void. Generally, all employers do not bear the tax liability of their employees. Instead, they deduct the tax due on the salary, allowance or any benefit accorded to their employees first and pass it onto the tax office, even before the employee receives his salary, allowance, or benefit.

What this means, in my view, therefore is that, if this general position of the income tax law was not to apply in favour of the plaintiff, specific and clear provision ought to have been made in the contract. Then in order for the claim to have a proper foundation in the pleadings, the plaintiff was under an obligation to have that clearly pleaded with particulars, in terms of its legal and the factual foundations. The plaintiff’s actual pleadings, as noted above, do not, in my view, amount to a proper pleading because it fails to plead both the legal and the factual basis for the claim for no tax deduction. Further, the annexure to the statement of claim in my view, amounts to evidence in the sense that the plaintiff’s lawyer has calculated what is due to the plaintiff as opposed to a pleading. Order 8 r of the National Court Rules make it clear that a party is obliged to plead only the facts and not the evidence: see Arlene Pitil v. Rutis Clytus & Ors.[5]

On these bases, I upheld the defendants’ objection to the plaintiff leading evidence. I nevertheless, allowed the plaintiff to continue to complete his evidence and for parties to take this point up in the submissions. The defendants maintain their position whilst there is no submission on this aspect from the plaintiff. I now have no difficulty in holding that there is a lack of proper pleading in the plaintiff’s statement of claim for his claim for a reimbursement of tax on his final pay out. Accordingly, I find that that the plaintiff is not entitled to the relief he claims.

Evidence

There is a further reason not to grant the plaintiff the relief that he seeks. This is because there is a complete lack of evidence supporting his contention that, it was a part of his contract of employment that on termination, he would receive his final payout tax free, with the first defendant bearing that responsibility.

It is settled law that, generally where parties have reduced their agreement in case of an agreement, into writing, the document should speak for itself. No extrinsic evidence is thus permissible to add to, subtract from or contradict what the document says. The same goes for any other written record. The Supreme Court judgment in Curtain Brothers (QLD) Pty Ltd & Kinhill Kramer Pty Ltd v. The Independent State of Papua New Guinea[6] is an authority on point. A large number of case have cited this case with approval, which includes my own judgments in Odata Ltd v. Ambusa Copra Oil Mill Ltd[7] and Papua New Guinea Forest Authority v. Concord Pacific Limited& Ors. (No. 2).[8]

However, this rule is general. In some cases, extrinsic evidence is permissible but only to help resolve any ambiguity in a written document or record. Lord Davey in the Privy Council stated this principle in these terms:

"Extrinsic evidence is always admissible, not to contradict or vary the contract: but to apply it to the facts, which the parties had in their minds and were negotiating about."[9]

In the present case, the written contract, a copy of which is in evidence in terms of Mr. Kaupa’s affidavit of 12th December 2003 is clear. Clause 2 (c) of the contract is relevant and it provides:

"The Employee acknowledges that his liability for the payment of Income Tax to the appropriate Revenue Authorities in Papua New Guinea is a personal responsibility however, statutory deductions of tax required by the laws of Papua New Guinea shall be made by the Company pursuant to such laws."

There is no argument here that, this provision is ambiguous to enable the calling of any extrinsic evidence to clarify it. The plaintiff’s argument however, is that the contract was varied to enable him to receive his final payout tax free in accordance with the policy of the first defendant. There are two problems with this argument.

Firstly, clause 6 of the contract provides for termination and the amount of pay the plaintiff should receive on termination. It makes no mention of any such pay to be tax-free. This is particularly important when there is provision already in clause 2(c) of the contract that tax is a personal responsibility of the plaintiff, which the first defendant is obliged to deduct and remit to the tax office. What this means is that, if this was not to apply to the plaintiff’s final payout, the parties had to specifically agree to that. This was required more than not because the tax laws require all income earners, unless exempted, to pay their income taxes. The contract does not contain any such agreement.

The plaintiff’s response to that is that, the first defendant has a policy that on termination, the income tax component is usually born by the first defendant. This means, the employees on termination take their final payout tax-free to them. As such, he submits that, this also applied to his case and as such, he is entitled to what he claims. Herein is the second problem to his argument that there was an implied variation of the contract to enable him to receive his final payout tax-free.

There is no evidence that such a policy exists. As I noted in Dan Salmon Kakaraya v. The Ombudsman Commission of Papua New Guinea & Anor,[10] the defendant is a public company. It is thus required to keep records of its affairs and of course any of its policies for accountability and transparency purposes. The plaintiff did not produce in his evidence any evidence of the policy. Even if there is nothing in writing, there was nothing preventing the plaintiff, as being the former managing director of the first defendant including in his evidence the names of former employees of the first defendant who received their final payouts tax-free and demonstrate that in terms of gross income they received and the tax component that were not deducted. The plaintiff has simply failed to produce any such evidence.

What is clearly in evidence is a written contract of employment. That contract does not refer to any policy. If indeed, the contract was subject to any such policy that would be by way of a variation of the terms of the contract. The contract is silent on the question of its variation. Where that is the case, the law clearly is that any variation has to follow the same process through which it came into existence. I restated the law in Peter Agilo v. Sir Mekere Morauta & Ors[11] in these terms:

"It is trite law that, the same appointment procedure must be followed to effect a revocation or termination, unless a provision of the Constitution or an Organic Law provides otherwise. A clear expression of that is in Schedule 1.10(4) of the Constitution. This has been applied in a number of cases. A recent application of that principle is represented by the case of Tau Liu v. Aderson Agiru & Ors N1639 (a judgment delivered by Sheehan J on 21st October 1997)."

Although this was in the context of employments in the public service and in particular a constitutional office, the principle applies with the necessary modification to other employment settings. This principle is more of a commonsense approach and that is only the one who has the power or authority to create a contract, can also have the power without specifically saying so, to destroy it and none other unless that which is under consideration provides for some other way to end it.

In the present case, the first defendant’s secretary under seal executed the contract, on behalf of the first defendant. There is no evidence of any variation to the terms of the contract agreed to by the secretary of the first defendant under seal for the first defendant. Further, this was a written contract of employment, which should speak for itself for the reasons already given, unless there is clear evidence of a variation in the terms argued for by the plaintiff. I reaffirm that, there is no provision in the contract concerning a policy of the type the plaintiff claims. Likewise, I also reaffirm that, there is no evidence of a variation to the contract following the same way in which it came into existence.

The consequence of all these is that, the plaintiff has failed to make out his remaining claim for a reimbursement of the tax deducted and paid to tax office out of his final payout. I therefore, order a dismissal of his claim and further that, he pay the defendants costs, to be agreed, if not taxed.
__________________________________________________________________
Lawyers for the Plaintiff: Saulep Lawyers
Lawyers for the Defendants: Blake Dawson Waldron.

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^[1] (unreported judgment delivered on 11/10/02 ) N2291.
^[2] (Unreported Judgment delivered on 27/09/02) SC694.
^[3] [1994] PNGLR 363, per Sevua J with whom Sakora J agreed.
^[4]Supra note 2. See also my judgment in Andrew Moka v Motor Vehicles Insurance (PNG) Limited (unreported judgment delivered on 18/05/01) N2098.
^[5] (unreported judgment delivered on 01/08/03) N2422.

^[6] [1993] PNGLR 285.
^[7] (Unreported judgment delivered 06/07/01) N2106.
^[8] (No 2) (Unreported judgment delivered 12/09/03) N2465.
^[9] Bank of New Zealand v. Simpson [1900] UKLawRpAC 6; [1900] AC 182 at 187. See also Horsfall v. Braye (1908) 7 CLR 629.
^[10] (unreported judgment 24/10/03) N2478.
^[11] (28/02/02) N2102.