Wasia v Koisen [2019] PGNC 70; N7730 (28 February 2019)

N7730

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

WS. NO.177 of 2016 (CC2)

BETWEEN
NAOMI WASIA
Plaintiff

AND

MICHAEL KOISEN in his Capacity as Chief Executive Officer of Teacher Savings and Loans Society Limited

First Defendant

AND

TEACHERS SAVINGS AND LOAN SOCIETY LIMITED

Second Defendant

Waigani: Kandakasi, J.

2016: 13^th October

2018: 13^th &19^th December

2019: 28^th February

EMPLOYMENT LAW – Contract of - Internal disciplinary process part of employment contract – Whether authorised officer took the disciplinary actions – Nature of employment setting – Object of establishing loan societies – For benefit of members - Employee accepting deposit of substantial funds from non-member - Failing to apply set process and procedure on handling such substantial sums of money – Failure to report receipt of deposit under relevant legislation - Conduct constitute serious breach of governing and or applicable legislation and employer’s policies -Termination was lawful - Part II, ss. 2 – 7, 19, 17, 28A, 28B, 60, 62 and 27 of Savings and Loan Societies Act (Chapter 141) as consolidated to No 24 of 1995 – Sections 23 and 139(1)(a) and 934) Proceeds of Crime Act 2005 as amended - Sections 39(1) Anti-Money Laundering and Counter Terrorist Financing Act 2015 – Section 27 of the Saving and Loans Society Regulations 1962Clauses 34 – 35 of Conditions of Service: Determination:2002

DISPUTE SETTLEMENT PROCESS – Legislation prescribing process for resolution of disputes – Failure to utilise prescribed process – Process before the Court barred – Sections 60 and 62 of the Savings and Loans Societies Act (Chp. 141).

Cases Cited:

Gwasamun v. Commissioner for Police (2010) N3902
Isaac Lupari v. Sir Michael Somare (2010) SC1071
Jimmy Malai v. PNG Teachers Association [1992] PNGLR 568
Joe Kala v. New Britain Palm Oil Limited (2007) N3125
Leo Nuia v. The State (2000) N1986
MVIL v. Kauna Kiangua (2015) SC1476
Mision Asiki v. Manasupe Zurenuoc (2005) SC797
Nere Talin v. PNG Waterboard [1992] PNGLR 211
New Britain Palm Oil Ltd v. Vitus Sukuramu (2008) SC946
Peter Aigilo v. Sir Mekere Morauta & Ors (2001) N2103
PNGBC v. Jeff Tole (2002) SC 694
Vagi v. NCDC [2002] PNGLR 100
Vitus Sukuramu v. New Britain Palm Oil Limited (2007) N3124

Counsel:

R.J. Lains, for the Plaintiff
M. Ai, for the Defendants

28^th February, 2019

1. KANDAKASI DCJ: This case arises out of a termination of an employment contract between the parties. The parties agreed to present only the question of whether the termination of the Plaintiff (Ms Wasia) was lawful as a determinative issue. If the Court determines that the termination was lawful that will be the end of the matter. If, however, the Court determines the termination was unlawful, liability will be resolved in favour of Ms. Wasia and the issue of damages will remain to be resolved.

Relevant facts

2. The parties also agreed on the relevant facts giving rise to this proceeding. They are set out in a document headed, “Statement of Agreed Facts and Legal Issue for Hearing”. According to that statement, Ms. Wasia commenced her employment with the Second Defendant on 4^th May 2009 and was terminated on 20^th October 2016. Upon her being employed, she was granted membership with the Second Defendant Society (Society) and was assigned a membership number. She remained a member of the Society until 24^th June 2016. At the time of her termination, she was employed as the Society’s Acting Manager, Finance and Accounting.

3. The circumstances leading to her termination was this. On 29^th June 2015, a Pepa Koka credited K500,000.00 into the Society’s BSP Bank account number. Pepa Koka was not an existing member of the Society. To partly, accommodate that transaction, Ms. Wasia opened a new savings account for Pepa Koka. The opening of the new account was also to benefit from a higher interest rate of 6% on deposits. The new account was in Ms. Wasia’s name.

4. The Second Defendant accepts member deposits exceeding K10,000.00 provided the source documents verifying the legitimacy of the funds are provided and it is satisfied that the funds’ source is legitimate. This I believe is necessitated by the Society’s obligations under the Proceeds of Crime Act (POCA) and Money Laundering legislation. Upon becoming aware of the transaction, the First Defendant (CEO) by an internal memo dated 11^th September 2015 suspended Ms. Wasia without pay. That memo stated: “[a] preliminary investigation has revealed your involvement in a suspicious transaction within the Society. There is sufficient evidence that warrants your suspension from duties to allow further investigation as required under the AML [anti money laundering] legislation. The funds involved will be frozen until investigations are complete and further advice is received from the FIU [Fraud Intelligence Unit]”. She was charged under the Society’s Conditions of Service: Determination 2002 which were cited as:

“(a) Section 33(1)(h) – negligent or careless in carrying out your duties;

(b) Section 33(1)(j) – disgraceful and improper conduct; and

(c) Section 33(1)(n) – commits a serious breach of these terms and conditions”.

5. The Society then requested from Ms. Wasia source documents to verify the legitimacy of the deposit of K500,000.00. From the affidavit of Russell Tato sworn and filed on 12^th October 2016 for Ms. Wasia shows that the request for the source documents went to Ms. Wasia on 24^th July 2015. It took her 78 days from the date of her suspension for her to furnish the required information.

6. Meanwhile, the Society referred the matter to the Financial Intelligent Unit (FIU)^[1] as part of its general reporting obligations under Section 23^[2] of the Proceeds of Crime Act 2005 as a cash dealer. This follows from the Second Defendant’s requirement under its’ Standard Operation Procedures Manual Clause.1.4.2 Cheque Deposit for cheque deposits over K10,000.00. On 20^th October 2015, the Society terminated Ms. Wasia’s employment without waiting for the FIU’s findings. Eventually, the FIU notified the Society of its findings by a letter dated 15^th February 2016. The FIU determined that: “[i]t is likely the funds are proceeds from the sale of the property and are deemed to be legitimate”.

7. Given the agreement on these facts, the parties further agreed to the trial being conducted only by way of submissions. I received the submissions and reserved a decision on the issue, which decision I have now arrived at as contained in this judgment.

The Issue – Whether the termination of Ms Wasia by the Society was lawful

8. Turning then to the issue before the Court, Ms Wasia through her learned counsel, Mr. Lains, submits her termination was unlawful for two reasons. First, the disciplinary process under Clauses 33 (1) and 34 of the Society’s own Condition of Service Determination 2002 was not followed. Secondly, there was nothing wrong in her conduct which eventually led to her termination. In response, the Society through its learned counsel Mrs. Ai, submits that Ms. Wasia’s conduct constituted serious breaches of certain provisions of the Societies Act and regulations thereunder, Teachers Savings and Loans Society Ltd Rules, Membership and Lending Policy of the Society, Teachers Savings and Loans Society Ltd – Standard Operating Procedures Manual and the Proceeds of Crime Act 2005. The Society ultimately submits that, Ms. Wasia’s conduct warranted and formed the basis for her termination and that due process was followed before her termination. Hence, the submission is, her termination was lawful.

9. All savings and loans societies (Societies) are governed by the Societies Act. It is therefore important that we start with a consideration of what the Act says. The Act clearly emphasises the point that, Societies are for and by members of whatever the Society is. Under Part II, ss. 2 to 7 of the Act, all Societies come under the oversight of the Governor of the Central Bank as the Registrar of such societies. The object of having societies according to s.9 of the Act is for the benefit of the members in terms of:

(a) promoting thrift amongst them;

(b) receiving education in financial responsibility;

(c) making financial contributions to the society which becomes the members’ savings that attract interests^[3]; and

(d) for members to take loans from the society for specified purposes.

10. Section 46 adds that a “society may accept money on deposit from its members.” The same provision says, subject to the Registrar of Societies oversight permits the boards of societies to set “the conditions under which deposits may be accepted and repaid and the rates of interest that may be paid on deposits.”

11. Section 19 of the Act then provides as to the qualifications for members of a society. Of all the qualifications stipulated in this section, subsections (1) and (6) most importantly provide that:

(a) membership of a society is “limited to a group of persons having a common bond of occupation, association or interest or to groups of persons residing within a well-defined community or area”; and

(b) membership rights are not exercisable unless and until he or she “has subscribed for at least one share and paid an amount, not being less than the initial amount prescribed by the Rules...”

12. The Rules of the Society in the present cases, namely, the “Teacher’s Savings and Loans Society Ltd Rules” (Rules), promulgated under s.17 of the Act elaborates on the requirements provided under the Act. The Society’s Rules in r.7 add a few more membership qualifications. This rule stipulates amongst others that, membership in the Society is limited to a person who:

(a) is a teacher or employee of the Department of Education;

(b) is an employee in any other national or provincial department approved by the Society’s board;

(c) has signed an application for membership form and has deposited at least K100.00 with the Society; and

(d) has paid an entrance fee of K20.00

13. By s. 15, societies are vested with the necessary powers to manage the members contributions by way of depositing in banks, raising loans, investing the funds in securities, investing in institutions subject to the approval of the Registrar, insuring their loans, funds or property against loss, holding, buying, leasing, selling, surrendering, exchanging, mortgaging or otherwise all dealings in property. Ultimately, societies are empowered to do all other acts and things that are incidental or conducive to, or consequential for the attainment of their respective objects. Before vesting societies with these broad powers, s.14 stipulates that the members of societies are liable for the liabilities of their societies. However, their liability is limited up to any amount owing on any loan to them from their society.

14. The Act also by s. 28A provides for a board that is responsible amongst others, for policies of societies. It also provides for management under s. 28B which is responsible for the day to day management of the affairs of a society. Included in the powers of the management is a power to “manage the organization and staff of the society including appointment, disciplining and termination of staff”.

15. Interestingly, ss. 60 and 62 of the Act and s.27 of the Saving and Loans Society Regulations 1962, provide for the resolution of disputes initially by the Registrar of Societies and from there by way of an appeal to the National Court. The range of disputes covered is broad. This includes disputes between a “society or its Board and an officer, director, management or staff of the society...” This is understandable, given that, the Registrar who is the Governor of the Central Bank has an oversight over the functioning of Societies. He as the ultimate regulating authority for banks and loans Societies in the country, would have the necessary industry knowledge and experience to deal with all disputes in respect of Societies. Except for Judges who have some banking and savings and loans societies knowledge and experience, they would have limited or no working knowledge and experience to promptly deal with disputes concerning and or involving Societies. Hence, the legislature has made a deliberate decision to vest the power to resolve disputes involving Societies in the Registrar and reserves the Court to deal only with appeals from the Registrar’s decision. It should follow therefore that, no case of termination or any of the kinds of disputes listed in s. 60 of the Act can, at the first instance, come to the National Court or indeed any other court for that matter.

16. In the present case, Ms. Wasia’s submission is that this provision does not apply in her case for two reasons. First, the issue has not been pleaded and does not form part of the Society’s defence. Secondly, the obligation to active the process under s. 60 of the Societies Act rests with the employers like the Society in the present case. In accordance with the well settled law on pleadings,^[4] I accept the first part of Ms. Wasia’s submissions. However, I reject the second part of her submissions for two reasons. Firstly, the provision does not say only the Societies as employers are to invoke the process. Secondly, as far as the Society was concerned, it says it lawfully terminated Ms. Wasia. Ms. Wasia however took issue with that. Hence, the obligation was on her to initiate the proscribed process for a resolution of her dispute with the Society, just as she has done, through this proceeding.

17. The provisions made in the Act are effectively repeated in a number of other documents or instruments that apply to Society, its membership, board, management and staff. These are the Society’s Membership and Lending Policy, Standard Operating Procedure Manual and Condition of Service Determination 2002, adopted by the board on 19^th December 2002. The main objective of the Act and these instruments is very clear. It is to provide for a safe system to enable the persons listed in paragraph 8 to form and become members of Societies, make their contribution, place deposits that attract interests and for them to take out loans. This is only for members and none other. In order to safe guard the members rights and privileges the other object of the Act and the relevant subordinate legislation and instruments briefly discussed is to provide good system of internal control to ensure there are no mistakes or errors, irregularities or fraud committed against the members’ collective funds, other properties and individually or each member’s funds, rights and privileges. Part of that system is to ensure persons with no question on their integrity and honesty are employed to manage the affairs of the Societies.

18. Added to the list of legislation and instruments already discussed is the Proceeds of Crime Act 2005 as amended and Anti-Money Laundering and Counter Terrorist Financing Act 2015. Initially, the first Act covered both international and domestic financial transactions. Later Parliament amended the Act and introduced the second Act. Section 39 (1) of the Anti-Money Laundering and Counter Terrorist Financing Act, previously s. 23 (1) of the POCA requires a financial institution to report to the Financial Analysis and Supervision Unit (FASU)^[5] established under s. 61 of the same Act for transactions up to and or exceeding K20,000.00, previously K10,000.00. Section 1 of the same Act defines a “financial institution” broadly to include entities incorporated or not which accepts deposits, transfer and advance by way of loan funds. The Society in the present case, no doubt falls under that definition and hence has that obligation to report. By virtue of s. 139(1) (a) (3) (transitional and saving provisions) of the Proceeds of Crime (Amendment) Act 2015 (the new POCA Act) the steps taken under the law as they were at the relevant time are saved.

19. From the preamble to both of these Acts, their purposes are clear. Firstly, they provide a regime for the declaration of, and investigations into, cross border transportations of currency, monetary instruments, precious metals and precious stones. Secondly, they provide for confiscation orders, restraining orders and freezing directions in relation to offences. Thirdly, it is to deprive persons of the proceeds of their offences, the instruments of offences, and the benefits derived from unlawful activities. Fourthly, the aim is to enable the Government of Papua New Guinea to detect and deter money laundering and terrorist financing.

20. Submissions for Ms. Wasia places no regard whatsoever to the object of the various legislation briefly discussed above. Her focus instead, is on the disciplinary process under the Condition of Service Determination 2002, not being followed. Reliance is place on decisions in Leo Nuia v. The State (2000) N1986 and my decisions in Vagi v. NCDC [2002] PNGLR 100 and Peter Aigilo v. Sir Mekere Morauta & Ors (2001) N2103 and the later decision of Makail J. in Gwasamun v. Commissioner for Police (2010) N3902. These cases stand for the proposition that, where set disciplinary processes are not followed, any actions or decisions reached outside such process could be null and void. However, as counsel for Ms. Wasia acknowledges, these cases concern employment in the public sector. He then submits without any reference to any authority that the same applies in the private sector.

21. Employment in the public sector is not the same as it is in the private sector. They are miles apart in many ways. Employment in the public sector is secure and hiring and firing does not occur readily and easily. Instead, there are set processes and procedures that must be followed both for hiring and for firing. This is why judicial review is a well-known remedy available to an employee in the public sector that is not disciplined and terminated in accordance with set processes and procedures. In most instances, reinstatement is an available remedy for an employee in the public sector who has been wrongly terminated. Reinstatement is usually an appropriate remedy if the position occupied by the unlawfully terminated employee is still available or vacant. The decision of the Supreme Court in Mision Asiki v. Manasupe Zurenuoc (2005) SC797 is on that point and is relevant. There, the Court held, reinstatement was an appropriate remedy even though there was a restructure and the position the unlawfully dismissed employee held was rendered non-existent. However, the five-member Supreme Court decision in Isaac Lupari v. Sir Michael Somare, (2010) SC1071, changed all of that to say reinstatement is not automatic upon establishment of unlawful termination. Instead damages may be an appropriate remedy. Indeed, the Supreme Court upheld the National Court’s judgment that damages was an appropriate remedy despite finding the appellant’s termination unlawful and that the appellant had secured an injunction preventing the position he then held from being filled by another person appointed to the position, and hence still vacant.

22. The opposite of the above position is the case for employment in the private sector. In Legu Vagi (supra) I noted this in part in the following terms:

“At common law, employers are at almost total freedom to hire and fire at will. Therefore, the suspension procedure is an exception to the general position at common law. Our Employment Act 1978, merely adopts the position at common law, by not making it necessary for an employer to give an opportunity to an employee to be heard or suspended before termination.”

23. Woods J, made a similar observation in Nere Talin v. PNG Waterboard [1992] PNGLR 211

“So, it is still left as a master and servant situation with the right to hire and fire at will and to terminate for good reason or for no reason at all, subject to the provisions in the Employment Act for the giving of due notice.”

24. The Supreme Court decision in Jimmy Malai v. PNG Teachers Association [1992] PNGLR 568 adopted the common law position. Hence, the right to hire and fire at will is an integral part of PNG’s employment law. Despite that, Cannings J in Vitus Sukuramu v. New Britain Palm Oil Limited (2007) N3124 and Joe Kala v. New Britain Palm Oil Limited (2007) N3125, departed from the accepted position at common. His Honour decided to formulate what he called “a new rule of law, appropriate to the circumstances of the country, under the Underlying Law Act 2000”. The ruled he formulated was this “the ‘fire at will’ principle of the common law that allows employers to terminate a contract of employment for any reason without giving a right to be heard and without providing reasons was no longer appropriate to the circumstances of Papua New Guinea.” He went on to rule that “the implied terms of a contract of employment include the principles of natural justice and the constitutional right or protection against harsh or oppressive or other proscribed acts.”

25. On appeal by New Britain Palm Oil Ltd, the Supreme Court in the matter of New Britain Palm Oil Ltd v. Vitus Sukuramu (2008) SC946, overturned Canning J’s decision. The Supreme Court reasoned that the National Court had no power to develop the underlying law in the way it had done when the Supreme Court had already declared the underlying law which reaffirms the fire-at-will principle, per the decision in Jimmy Malai v. PNG Teachers Association (supra).

26. In the present case, I find the disciplinary procedure of the Society is part of the terms and conditions of employment of Ms. Wasia. They therefore apply. The main area of contention as already noted is that, a person not authorised by the provisions on discipline, assumed the powers of the authorised officer. The authorized officer at the relevant time was the Head of Audit and Risk and not the General Manager. Ms Wasia relies on clauses 34 and 35 of the Conditions of Service: Determination: 2002. These provisions read:

“34. Laying of Disciplinary Charges

(1) For the purposes of laying of disciplinary charges against any employee, the General Manager, the Divisional Manager and Regional Manager are Authorised Disciplinary Officers.

(2) Only an Authorised Disciplinary Officer shall lay disciplinary charges against an employee alleged to have committed a disciplinary offence.

(3) In laying or dealing with any disciplinary offences under clause 33 and 34 hereof, the following demarcation of authority shall apply:

(a) The General Manager shall be the Authorised Disciplinary Officer in relation to all employees of the Society;

(b) The Divisional Manager shall be the Authorised Disciplinary (sic) in relation to any employee working in a Division directly under such Manager’s control;

(c) The Regional Manager shall be the Authorised Disciplinary Officer in relation to any employee working in a Regional Office of which such Manager is in control.

35. Disciplinary Procedure

(1) The procedure to be followed by an Authorized Disciplinary Officer when dealing with an employee charged with any disciplinary offence is:

(a) Where an employee is accused of having committed a disciplinary offence, the relevant Authorized Disciplinary Officer shall immediately, in writing, lay and serve on the employee concerned the appropriate charge or charges against him;

(b) The employee charged with the disciplinary offence shall be given a period of seven (7) day in which to reply to the charge or charges;

(c) Upon receipt of the reply to the charges the Authorised Disciplinary Officer shall immediately consider all evidence presented, and shall decide on the basis of such evidence, whether or not the employee so charged is guilty of the disciplinary offence.

(d) The Authorised Disciplinary Officer shall communicate in writing his decision to the employee charged with the disciplinary offence and where appropriate, advise the employee of any further course of action.”

27. The next provision empowers the relevant authorised disciplinary officer to have the employee suspended without pay if the nature of the offence is serious.

28. A combined reading of these provisions makes it clear as to the persons authorized to charge employees of the Society accused of disciplinary offences. At the highest is the General Manager, which I take it to be the chief executive officer (CEO). That officer has power to charge all employees given that officer’s position. Next down the rank are Divisional and Regional Managers who are restricted to charging only employees within their divisions or regions. In the present case, the First Defendant who is the CEO took charge of the laying of charges and making the decision given the seriousness of the offence allegedly committed by Ms Wasia. I find clause 34 (3) (a) of the Conditions of Service: Determination: 2002, authorised the CEO to be the authorised disciplinary officer to deal with Ms. Wasia. Accordingly, I dismiss Ms. Wasia’s argument that she was not dealt with by an authorised officer and therefore her termination was unlawful.

29. Additionally, I find that Ms. Wasia was requested as early as 24^th July to furnish documentary evidence disclosing the source of the K500,000.00 deposit. She did not fully disclose until 24^th August 2015. She was charged and was given an opportunity to respond. She did respond after which the Society through its CEO decided to have her terminated. She was paid out her termination entitlements including a reimbursement of the K500,000.00 deposit. The concern and the charge against her revolved around documentation as to the source of the funds and such source being legitimate. These are the very documents or evidence that should have been insisted up, sought and secured by her before accepting the deposit. If Ms. Wasia did that, she could have almost immediately furnished them when requested. What is clear however, is that she went looking for the evidence and were eventually produced after the lapse of more than a month.

30. Further, I observe and note that, the documents belatedly produced by Ms. Wasia disclosed that the K500,000.00 came from the proceeds of a sale of property by an uncle of Ms. Wasia. He then passed on the funds to Ms. Wasia for her to deposit with the Society purposely to attract a 6% interest return on the deposit. She produced no evidence showing amongst others, that her uncle gave her the money and the money became hers with a valid and convincing reason for her to receive such a large sum of money. Unless, there is a very good reason for it, nobody in PNG and indeed the rest of the world, gives another person such a large sum of money. Hence, the duty was on Ms. Wasia to produce appropriate, credible and convincing evidence as to how the money became hers and not that of the uncle. In the absence of any such evidence, the funds remained that of the uncle. They were given to Ms. Wasia for deposit for a return at 6% interest which translates to about, K30,000.00 per annum. Indeed, Ms. Wasia’s pleadings at paragraph 5 confirms this position.

31. On these facts, I find Ms. Wasia breached standing rules, guidelines and legislative regulations and requirements for financial institutions to be satisfied through appropriate documentary evidence that the monies brought in for deposit with societies are from legitimate sources. This is necessary to prevent money laundering by criminal elements. Also, I note, what she did was a serious breach of the Societies Act and the Second Defendant Society’s rules and regulations. This was deliberate, if not careless or reckless. As I already mentioned, the whole purpose or object of having societies is for the benefit of members of societies. One such benefit is the fact that, only members of a society are qualified and entitled to make interest bearing deposits from legitimate sources. Here in the absence of any evidence to the contrary, the deposits were for the benefit of a person who was not a member of the Society but a third party. The object of the deposit was to gain from a 6% interest. This in my view, amounted to a fraud on the Society and its rules and regulations and more importantly the Societies Act. Comparatively, it was also unfair as against the members of the Society who had to meet all the requirements for membership before qualifying to make interest bearing deposits.

32. In these circumstances, excluding the matters not pleaded and stated in the charge against Ms. Wasia by the Society, I find the termination of Ms. Wasia was legal. Based on that finding and the agreement of the parties, I order a dismissal of proceeding with costs against the Plaintiff to be taxed, if not agree

Hardy & Stocks Lawyers: Lawyers for the Plaintiff
Albatross Law: Lawyers for the Defendant

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^[1] Now renamed Financial Analysis and Supervision Unit under the Anti-Money Laundering and Counter Terrorist Financing Act 2015 (Money Laundering Act).
^[2] Now s. 39 of the Money Laundering Act.
^[3] See section 21 (2) of the Society Act.
^[4] See for example PNGBC v. Jeff Tole (2002) SC 694 and MVIL v. Kauna Kiangua (2015) SC1476
^[5] Previously the FIU