Rolow v Pacific Oil Palm Plantation Ltd [2021] PGNC 203; N8920 (19 July 2021)

N8920

PAPUA NEW GUINEA
[IN THE NATION COURT OF JUSTICE]

WS 1387 OF 2018

BETWEEN
PAUL ROLOW
Plaintiff

AND

PACIFIC OIL PALM PLANTATION LIMITED
First Defendant

AND
WAWOI GUAVI TIMBER CO. LIMITED
Second Defendant

AND
NIUGINI INTERNATIONAL CORPORATION LIMITED
Third Defendant

AND
RIMBUNAN HIJAU (PNG) LIMITED
Fourth Defendant

Waigani: Thompson J
2021: 9^th July, 19^th July

EMPLOYMENT LAW – entitlements on termination – whether entitlement to long service leave – whether employee was in continuous service with same employer – whether contract of service was transferred from one employer to another – dispute over terms of oral contract – ss 15, 25, 26, 40, 42, 61 and 63 of Employment Act – whether companies were subsidiaries or agents of parent company – relevant factors - ss 5, 6 and 16 of Companies Act – claim for damages must be supported by pleadings and evidence.

Counsel:

Mr. I Dalu, for the Plaintiff
Mr. Mannrai, for the Defendants

19^th July, 2021

1. THOMPSON J: The plaintiff claims that he was employed continuously by the First – Third defendants from 1993 through to 2014, when he resigned. He claims that on resignation, he was not paid his entitlements comprising long service leave, annual leave fares for himself and his family, repatriation airfares for himself and his family, and a training allowance. He says that the first − third defendants are subsidiaries of the fourth defendant, and that therefore the fourth defendant is liable to make payment for his outstanding entitlements.

Subsidiary issue

2. Section 5 of the Companies Act provides as follows:

(1) For the purposes of this Act, a company is a subsidiary of another company where, but only where:

(a) that other company

(i) controls the composition of the board of the company, or

(ii) is in a position to exercise... control ... of more than one half of the maximum number of votes that can be exercised at a meeting of the company, or

(iii) holds more than one half of the issued shares of the company ... or

(iv) is entitled to receive more than one half of every dividend paid ... or

(b) the company is a subsidiary of a company that is that other company’s subsidiary.

3. It is to be noted that the definition of “subsidiary” does not include having the same registered office address, or having common directors or secretaries. It is of course very common for one office, such as a firm of lawyers or accountants, to be the registered office address of many companies.

4. The plaintiff did not produce any evidence relating to the composition or control of the boards of the first – third defendants, or dividends payable by them. The plaintiff relied on company searches to show the identity of the directors, secretaries and shareholders of each of the defendants.

5. Those records showed that the fourth defendant was a majority shareholder in the second defendant, but did not hold any shares in the first or third defendants. One of the fourth defendant’s secretaries, was also a secretary of each of the first – third defendants. The fourth defendant had six directors, all of whom were also directors of the second defendant. Three, or possibly four, of the fourth defendants’ directors were also directors of the third defendant.

6. In the absence of evidence from the plaintiff of the appointment of board members and the exercise of voting rights, it is to be assumed that board appointments are made by the shareholders, and that under s 37 of the Companies Act, a share confers the right to one vote on a resolution at any meeting, including the appointment of directors, approval of major transactions, and the equal share of dividends.

7. The fourth defendant did not hold any shares in the first defendant and did not control the composition of the board or dividends. The fourth defendant did hold more than one half of the shares of the second defendant, and did have common directors, and so was in a position to control the composition of the board and dividends. The fourth defendant held no shares in the third defendant, and could not control the composition of the board or dividends.

8. It therefore appears from the evidence that the second defendant is a subsidiary of the fourth defendant, but the first and third defendants are not subsidiaries.

9. As prescribed by s 16 of the Companies Act, a company, whether or not it is a subsidiary, is a legal entity in its own right, separate from its shareholders. This was affirmed by Kandakasi J in Odata Ltd v Ambusa Copra Oil Mil Ltd (2001) N2106, who added that any proposed departure from that prescribed status should be treated with caution.

10. The plaintiff relied on the decision of the Supreme Court in Pinpar Developer Pty Ltd v TL Timber Development Pty Ltd (2019) PGSC 111, to assert that the so-called “corporate veil” of the fourth defendant, should be lifted so that it does not avoid its legal obligation to pay for liabilities incurred by first − third defendants, and that the fourth defendant is bound by the actions of the first − third defendants and so is vicariously liable for them.

11. The Supreme Court in Pinpar’s case considered that a departure from the prescribed status may be warranted if a case involves agency, fraud, a sham or a facade, and the interests of justice. The Supreme Court affirmed that the “mere relationship of parent and subsidiary is not of itself sufficient to establish agency (and) ... such agency may be express or implied”

12. Whether a subsidiary is carrying on business as the parent’s business ie. as agent for the parent, or on its own, is a question of fact, to be determined by the following questions:

(a) were the profits treated as the profits of the parent;

(b) were the persons conducting the business appointed by the parent;

(c) was the parent the head and the brain of the business;

(d) did the parent govern the business, decide what should be done and what capital should be embarked on the business.

(e) did the parent make the profits by its skill and direction

(f) was the parent in effectual and constant control

13. Some of these matters overlap with the matters prescribed by the definitions of subsidiary companies and control in ss 5 and 6 of the Companies Act.

14. In Pinpar’s case, the court found that there was clear evidence showing that the parent company was running and managing all the affairs of the other companies, that the profits of the other companies were controlled and kept by the parent company, and that the persons who signed the logging and marketing agreement, were appointed by the parent company. There was evidence that the negotiations were led by the parent company, who were the head and brain behind the business. There was evidence that the parent company determined how the business was to be managed and how payments were to be made in relation to capital expenditure, profits and expenses, so that the parent company was in effectual and constant control. The subsidiary company had entered into the logging and marketing agreement as agent of the parent company. Furthermore, there was evidence showing that the subsidiary company was a sham or a mere facade, and was a device to evade a contractual or legal obligation. The Court confirmed that those findings were open on the evidence. The Court found that the purpose of incorporation of the subsidiary company was a fraud to avoid legal obligations.

15. For these reasons, the Supreme Court affirmed that it was an appropriate case in which to depart from the legal personality of the company, and “lift the corporate veil” to hold the parent company liable for the obligations incurred by the subsidiary company acting as its agent.

16. Those facts are completely different from the facts in the present case. There is no evidence here that any of the first − third defendants were set up for a fraudulent purpose. There was no evidence that they were a sham or facade or empty shells which did not carry on business, or were being used as a device to avoid legal obligations by the fourth defendant. On the contrary, the evidence showed that each of the first − third defendants carried on various businesses in different locations. There was no evidence of how their profits were treated. There was no evidence that the fourth defendant decided on their capital expenditure, or that it generated their profits by its skill and direction, or treated their profits as its own, or that it was the head and brain of their businesses. There was no evidence that the fourth defendant was in effectual and constant control, or indeed in any control, of their business operations.

17. As the first and third defendants were not subsidiaries of the fourth defendant, no question of agency arises, but even if it did arise, there was no evidence of them acting as agent for the fourth defendant.

18. The evidence is sufficient to show that the second defendant was a subsidiary of the fourth defendant. However, a subsidiary company remains a legal entity in its own right separate from its shareholders, and unless agency (or fraud etc) can be shown, there is no legal basis for the parent company to be held vicariously liable for the obligations of a subsidiary company.

19. I have considered whether the evidence was sufficient to show that the second defendant was acting as the agent of the fourth defendant, when the second defendant employed the plaintiff. There were no documents issued by the fourth defendant in relation to the plaintiff’s employment. There was no evidence that the plaintiff had been employed by the second defendant at the request or instruction of the fourth defendant. His employment was simply an ordinary case of being employed by the second defendant to perform the duties of a bulldozer operator on behalf of the second defendant. There was no suggestion of any sham or fraud. The plaintiff received salary and recreation leave entitlements from the second defendant throughout his period of employment. I find that there was no evidence of the second defendant acting as agent for the fourth defendant in relation to its employment of the plaintiff.

20. For these reasons, I find that the first and third defendants were neither subsidiaries nor agents of the fourth defendant. Although the second defendant was a subsidiary, I find it was not acting as agent for the fourth defendant and there was no sham or fraud involved in the plaintiff’s employment by them. I find that the fourth defendant cannot be held vicariously liable for the legal obligations incurred by the first − third defendants, who are legal entities in their own rights.

Entitlements

21. The next issue for determination, is therefore the extent of any legal obligations incurred by the first − third defendants to the plaintiff.

22. The plaintiff was employed by the first defendant from 1993 – 1997. He pleads that he signed a written contract of employment with them which included terms that he was employed as a bulldozer operator in Morobe Province, at an hourly rate, for eight hours per day. He says that in 1998, by agreement, he was transferred to work for the second defendant in Western Province, on essentially the same terms, without a new contract. He does not say what entitlements he received when he finished with the first defendant in 1997, or if any entitlements remained unpaid.

23. In fact, the evidence showed that there was a new contract. The defendants produced a copy of an Appointment Letter signed by the plaintiff and the second defendant on 30 April 1998. It shows that he was appointed to the position of bulldozer operator, and it sets out all the terms and conditions of his employment. They include an annual leave entitlement of two weeks, but not with airfares. There were also other documents including a medical certificate, which stated that the plaintiff was a “new hire”, and a probationary period was required.

24. The Plaintiff was employed by the second defendant from 1998 – 2008. He says that while in Western Province, in 2002 he met and married Linda Steven, and they had three children. He says that in 2008, by agreement, he was transferred to work for the third defendant in Gulf Province, without a new contract, on essentially the same terms, except that he would also be entitled to “annual leave repatriation entitlements”.

25. The plaintiff was employed by the third defendant from 2009 – 6 January 2014 when he resigned from his employment. In para 17 of his statement of claim, he says that in 2010 he was asked to conduct training at a rate of K30.00 per session. In para 23 of his statement of claim, he claims training compensation for sixteen days for K200.00 per day. He says that after he resigned in 2014, he was offered K642.40 as his final entitlements, which he refused.

26. In para 23 of his statement of claim, the plaintiff claims that he is entitled to long service leave based on 15 years of employment, amounting to K3985.80. He claims what are presumably recreation leave airfares for himself and his four family members, from Western to Port Moresby to Lae, for eleven years, totalling K198,000.00. He claims repatriation airfares for him and his family from Western to Port Moresby to Lae plus excess baggage allowance, of K10,000.00. He lastly claims K4,000.00 for the sixteen training days. The total of his claim is K212,398.80, plus general damages plus interest and costs.

27. I refer first to the claim for long service leave (LSL). There is no pleading of his legal entitlement to this type of leave. When asked by the court, the plaintiff’s lawyer said that he was relying on s 63 of the Employment Act. This provides as follows:

63. Subject to the provisions of any registered award, an employee who –

(a) had, prior to the commencement of this Act (1978) accrued long service leave credits under s127 A of the Native Employment Act 1958, and

(b) continues at the commencement of this Act in employment with the same employer,

shall be credited with recreation leave entitlements calculated at the rate of 3.5 days for each year of service over which the long service leave credits accrued, with pro-rata entitlements commencing on the completion of six months of such service.

28. It is plain that s63 of the Employment Act does not create any legal obligation to pay, or legal entitlement to receive, long service leave. It only preserves such rights as may have accrued prior to 1978.

29. The absence of an entitlement to LSL under the Employment Act, has been substantially remedied by entitlements created in industrial awards. For instance, there is a Port Moresby Common Rule and a Lae Common Rule which provide that certain types of workers within a prescribed geographical area, are entitled to receive LSL at a rate of six months after fifteen years continuous service with the same employer, with a pro-rata entitlement after three years. Some employers also provide for an entitlement to LSL, in contracts of employment.

30. The plaintiff has not either pleaded or shown any entitlement to long service leave under the Employment Act or any industrial award. I have therefore considered if it may have been a term of his employment with the first − third defendants.

31. Para 24 of the statement of claim pleads that the fourth defendant breached its statutory duty under s 20 (1) (b) of the Employment Act, to furnish a copy of the employment contract to the plaintiff. The obligation under s 20 (1) (b) applies only to an employer who is a party to the contract, who should have a contract drawn up, and hand it to the employee. The fourth defendant was not an employer who was a party to the contract, and so had no obligation under s 20 (1) (b) and did not breach any obligation.

32. The first defendant must have drawn up a contract and handed it to the plaintiff, because he pleads that he signed it in 1993, and the second defendant did have a contract drawn up and handed to the plaintiff, who signed it in 1998.

33. A copy of the first contract was not produced by either the plaintiff or first defendant. Such records would not have been required to be retained by the first defendant for more than seven or eight years. As the first contract was issued 25 years before these legal proceedings were commenced, no adverse finding can be made against either party for their failure to produce it.

34. There were written contracts with the first and second defendants, but not with the third defendant. The plaintiff’s lawyer submitted that, pursuant to s 15 of the Employment Act, if there is a dispute over the terms and conditions of an oral contract and the employer fails to produce a record of the terms and conditions of the contract, then a statement by the employee as to those terms and conditions shall be conclusive evidence, unless the employer satisfies the Secretary or an Arbitration Tribunal to the contrary. In this regard, as the plaintiff is not making his claim before the Secretary or Arbitration Tribunal, I take this to mean that the employer has to satisfy the court.

35. There is no dispute between the parties as to the essential terms and conditions of the plaintiff’s employment with the first − third defendants. The contracts between the plaintiff and the first and second defendants, were not oral. In relation to the third defendant, the plaintiff was informed, and the employer made a written record, of the employer’s name, the place of employment, the occupation and the nature of work, the hours to be worked and the wages to be paid. The plaintiff and the defendants provided various documents covering the period from 1998 to 2014, including Personnel cards, leave application forms and so on, showing these matters.

36. None of these documents refer to LSL. However, the written record of the terms need not necessarily be exclusive. There may be other terms which were not written down. In those circumstances, the employee’s statement may be conclusive, unless the employer shows otherwise. The first − third defendant employer’s records are not sufficient to satisfy me that the plaintiff was not entitled to LSL. I therefore accept as conclusive, the plaintiff’s statement that he was entitled to LSL as a term of his employment. I further find that this entitlement should be calculated on the basis shown in para 23 of the statement of claim, which is same as the entitlements provided in the Port Moresby and Lae Common Rules, namely, six months pay for fifteen years continuous service with the same employer, pro-rata after three years.

37. The next issue for determination is therefore whether or not the plaintiff accrued an entitlement to LSL, after three − fifteen years of continuous service with the same employer.

38. I have already found that each of the defendants were separate legal entities and were therefore separate employers. However, and although it was not referred to by the plaintiff’s lawyer, I have considered s 25 − 26 of the Employment Act. These sections provide that a written contract of service may be transferred from one employer to another employer, with the employee’s consent. On transfer, all the rights and liabilities including liability for wages due and unpaid, are vested in the transferee. The plaintiff pleaded that his written contract with the first defendant, was transferred to the second defendant, and then transferred to the third defendant, with his consent. This has only been shown in relation to the second – third defendants, where it is consistent with the third defendants’ records such as the Applications for Leave which show the plaintiff’s date of employment as from 25 April 1998, not 2009. I find on the evidence that the plaintiff’s contract of employment with the first defendant was not transferred to the second defendant, but that his contract with the second defendant was transferred to the third defendant. It follows that any liability for LSL which was due and unpaid to the plaintiff under the second contract, on transfer became vested in the third defendant.

39. The plaintiff completed four years continuous service with the first defendant, ten years continuous service with the second defendant, and less than five years continuous service with the third defendant.

40. The defendant pleaded that the plaintiff’s claims are time-barred by statute, namely, s 16 of the Frauds and Limitations Act. This provides that an action founded on contract or tort shall not be brought after the expiry of six years from the date on which the cause of action accrued. The plaintiff’s action was brought in November 2018.

41. The plaintiff’s first entitlement to LSL accrued on completion of his employment with the first defendant in 1997, was not transferred, and so is now time-barred.

42. The plaintiff’s second entitlement was incurred but did not accrue on completion of service in 2008, was transferred in 2009, and vested in the third defendant. That obligation was crystallized and finally accrued, at the end of the employment on 6 January 2014. The plaintiff’s claim for LSL was brought within six years of that date, and so is not time-barred. He is entitled to payment of LSL for the period from April 1998 − January 2014. At the rate of six month’ s pay for fifteen years service, the plaintiff is entitled to receive 1.6 weeks pay for one year, making a total of six months and 1.6 weeks pay for sixteen years LSL. The plaintiff pleaded that LSL for fifteen years was K3,985.80, and so for sixteen years, the figure is K4,476.36. 42.

43. I refer next to the claim for Airfares. It is for five airfares from Western to POM at K1,500.00 each, incorrectly shown as K15,000.00 instead of K7,500.00, for eleven years from 2001 – 2013, making a total of K165,000.00, plus a further five airfares from POM – Lae at K300.00 each, twice a year, at K3,000.00 for eleven years, totalling K33,000.00. No basis for these entitlements, is pleaded.

44. The Employment Act and the second defendants’ contract provide an entitlement to two weeks annual paid recreation leave for an employee. There is no entitlement to airfares for the employee or his family. The plaintiff’s family was not brought to Western by the employer, they were always living in Western, and no basis is pleaded for why the employer should pay annual airfares for them to fly to POM or Lae, or anywhere. There was no pleading that when the plaintiff commenced work in Western in 1998, it was a term of his employment that he or any family he might later have, would receive annual recreational leave airfares from Western once a year to POM, or twice a year from POM to Lae. It was not in his contract. Further, although the claim is for five sets of airfares from 2001, the plaintiff pleads that he did not marry until 2002, and the children were not born until 2003, 2005, and 2008. No basis for any entitlement to recreation leave airfares for the plaintiff’s family, has been shown.

45. In relation to the plaintiff, no statutory or contractual entitlement to annual airfares has been shown. The defendants nevertheless produced documents showing that the plaintiff had received numerous airfares between 1999 – 2013. I am not satisfied that the plaintiff has established on the balance of probabilities that he has any unpaid entitlement to annual recreational leave airfares. This claim is not made out.

46. I refer next to the claim for Repatriation Fares. The plaintiff did not produce evidence of the cost of the airfares for which he claimed, but the figures in para 23 of the statement of claim were not challenged, including the claim for excess baggage.

47. Section 40 of the Employment Act says that where an employee has been brought to the place of employment by the employer, then the employer shall pay the expense of repatriating the employee to the place from which he was brought. Under s 42, the same obligation applies to any of the employees’ dependants who were also brought to the place of employment by the employer.

48. I accept that the plaintiff was brought to Western and then Gulf by his employers. His dependants were not brought to either place, they have always lived in Western, and they continue to live there. The plaintiff and his family now wish to go to Morobe.

49. The second defendant brought the plaintiff from Morobe to Western, and the third defendant brought him from Western to Gulf. The second defendant had an obligation to repatriate the plaintiff to Morobe when his employment finished in 2008, and the third defendant had an obligation to repatriate him to Western when his employment finished in 2014. The second defendant’s obligation vested on transfer of the contract, in the third defendant.

50. The entitlement to repatriation is not dependent on continuous service. It arises on expiry of the period of service or on termination. Taking into account the repatriation airfares to Morobe and Western which were not paid to the plaintiff on the expiry of those contracts, I find in the circumstances that it is reasonable for the second and third defendant’s obligation to pay for repatriation, be satisfied by the provision of the pleaded cost of airfares and excess baggage by the third defendant for the plaintiff and his four dependants from Western (for the dependants) and from Gulf (for him) to Morobe via POM, in the amount claimed, of K10,000.00.

51. I refer next to the claim for Training Compensation. No legal basis for an entitlement to this claim, was pleaded. It was not pleaded as a term of his employment, and it was not shown in his contracts of employment. There was no evidence from the plaintiff’s or defendant’s records to support the claim for either K30.00 per session, which did not specify the dates or number of sessions, or the claim for K200.00 per day for sixteen days on unknown dates, which was considerably in excess of his weekly salary. This claim has not been made out.

52. Finally, in his relief, the plaintiff claims general damages for pain, suffering and mental distress. No factual basis for this claim was pleaded in the statement of claim, and nor did he give any evidence on this issue. Cases such as PNGBC v Jeff Tole ( 2002) PGSC 8 and Pama Anio v Aho Baliki (2004) N 2719, have established that in order for such a claim to be determined, it must be supported by a foundation in the pleadings, and by the appropriate evidence. Where mental distress is claimed, it cannot be the distress which would ordinarily be associated with a termination of employment. It must be shown to be something more than that, based on relevant medical or psychiatric evidence.

53. Here, the plaintiff’s employment was not terminated, he resigned. Further, he produced no evidence that he had suffered any mental distress over and above what may have been experienced in attempting to resolve his claim for unpaid entitlements. In the absence of a factual foundation in the pleadings supported by evidence, the plaintiff has not established an entitlement to damages. This claim has not been made out.

54. In conclusion, the plaintiff has proven his claims for K4476.36 for long service leave and K10,000.00 for repatriation costs, making a total of K14,476.36.

55. In relation to costs, the plaintiff did not claim directly against the first – third defendants, and any claim against the first defendant was time – barred. The plaintiff has had mixed success against the defendants.

56. I therefore make the following orders:

(1) The claim against the fourth defendant, is dismissed

(2) Judgment is entered for the plaintiff against the third defendant in the sum of K14,476.36.

(3) Interest is payable at the rate of 8% per annum from the date of service of the proceedings in December 2018, on such of the judgment monies as may remain unpaid from time to time, pursuant to the Judicial Proceedings (Interest on Debts and Damages) Act.

(4) The plaintiff is to pay the first and fourth defendants’ costs on a party/party basis, to be agreed or taxed.

(5) The second and third defendants are to pay the plaintiff’s costs, on a party/party basis, to be agreed or taxed.
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Office of Public Solicitor: Lawyers for the Plaintiff
Mannrai Lawyers: Lawyers for Defendant