N9302
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS NO. 561 OF 2018

BETWEEN
HENRY MOKONO
Plaintiff

AND
NCD WATER AND SEWERAGE LIMITED trading as EDA RANU
Defendant

Waigani: Makail, J
2021: 03rd June, 22nd September & 18th November

LIABILITY – Breach of contract of employment – Termination – Redundancy – Position of Managing Director abolished – Merger of two companies 
ASSESSMENT OF DAMAGES – Damages flow from breach – Fixed period contract – Four years – Early termination of employment – Balance of contract – Clause 14(6) of contract of employment
PRACTICE & PROCEDURE – Mode of proceedings – Appropriateness of mode of proceedings – Proceedings commenced by originating summons – Action for breach of contract – Facts not in substantial dispute – Dispute involves construction and application of clauses of contract – National Court Rules – Order 4, rules 2& 3

Cases Cited:
Porgera Joint Venture v. Robin Kami (2010) SC1060
The Central Bank of PNG v. Gabriel Tugiau (2009) SC1013

Counsel:
Mr. L. Tangua, for Plaintiff
Mr. G. D. Wayne, for Defendant

JUDGMENT
18th November, 2021
1.	MAKAIL, J: The plaintiff commenced proceedings by Originating Summons on 17th August 2018 and sues the defendant for breach of contract of employment.  He seeks amongst other orders, a declaration that he did not resign from the position of Managing Director of the defendant and a further declaration that the actions of the servants and agents of the defendant to advise Westpac Bank to stop payment of a sum of K2,708,600.88 as his final entitlements was illegal, null and void.
Objection of Proceedings

2.	The defendant raised detailed and lengthy preliminary arguments in its written submissions in relation to the competency of the proceedings pointing out that as the plaintiff sues for breach of contract, the appropriate mode of proceedings for him to commence is by writ of summons and endorsed to it, a statement of claim which will set out the allegations of facts and allow it to file a defence in response.

3.	However, a writ of summons with a statement of claim is appropriate in a case where facts are in substantial dispute and it will be necessary to identify them.  From the facts, the cause of action and issues for trial will be also identified.  Parties may be referred to Order 4, rule 2 (Where writ of summons required) and Order 4, rule 3 (Where plaintiff may choose) of the National Court Rules (“NCR”).

4.	In the instant case, the preliminary objection will be dismissed because it is not necessary for the plaintiff to use a writ of summons with a statement of claim, the reasons being:

(a)	as it will be shown shortly, the facts are not in substantial dispute, and
(b)	the dispute involves a construction and application of relevant clauses in the contract of employment to determine the final monetary benefits of the plaintiff: See Order 4, rule 3(2) of the NCR.

Undisputed Facts

5.	Noting the objections by the defendant in relation to the affidavits tendered for and on behalf of the plaintiff and what has been deposed in each affidavit, much of the facts are not disputed.  From the affidavits of the plaintiff and his witnesses identified in the notice to rely on affidavits filed 18th May 2021, affidavit of defence counsel filed 21st September 2018, affidavit of William Sweet filed 21st September 2018 and affidavit of Raka Taviri Jnr filed 21st September 2018, the undisputed facts are; the plaintiff signed a contract of employment with the defendant on 6th March 2017 for the position of Managing Director of the defendant. The period of contract is four years.  The contract has expired on 6th March 2021 while the proceedings were pending trial.

6.	The defendant is a company incorporated under the Companies Act. On14th June 2018, the National Executive Council (“NEC”) decided to merge the defendant with another company called Water PNG Limited and the latter to take charge of the merger until its completion.  That company also has its own Managing Director and the person occupying that position will be Acting Managing Director of the defendant until the completion of the merger.  To implement the NEC decision, it was necessary for one of the Managing Directors of these two companies to go.

7.	On 7th June 2018 the plaintiff tendered his resignation by email.  On the next day, 8th June 2018 he sent another email retracting his email of 7th June 2018.  On 13th June 2018 the Board of the defendant chaired by Mrs Mary Karo met at Gateway Hotel and resolved to terminate his employment and pay out the balance of the contract.

8.	The plaintiff’s final entitlements calculated by the finance section of the defendant based on the balance of the contract came up to K2,708,600.88.  A cheque in this sum was drawn and made payable to the plaintiff.  The details are, Westpac Bank PNG Cheque No# 000637 dated 14th June 2018 in the sum of K2,708,600.88.

9.	On 14th June 2018, the Board under the chairmanship of Mrs Karo was replaced by a new Board and Chairman.  The new Chairman was Mr William Sweet.  On 2ndAugust 2018 the new Board resolved and rescinded the Board decision of 13th June 2018 and directed that the plaintiff be paid money in lieu of three months’ notice.

10.	Meanwhile, a direction was issued to have the cheque made out to the plaintiff cancelled.  When the plaintiff presented the cheque for payment, the Westpac Bank refused to pay him.

11.	Pursuant to the Board’s decision of 2nd August 2018 the Acting Managing Director of the defendant directed the plaintiff’s final payout to be reassessed. The reassessed sum was K381,239.94 after tax as money in lieu of three months’ notice.  A cheque was raised but not collected by the plaintiff.

12.	The plaintiff made many requests for payment of K2,708,600.88 and even offered options on a reduced sum including his lawyers writing to the Prime Minister in May 2020 to intervene, but the defendant maintained its position that the plaintiff was entitled to money in lieu of three months’ notice. 

Measure of Damages

13.	The plaintiff alleges that he was terminated while the defendant alleged that he had resigned.  Whether the plaintiff was terminated or resigned does not really matter because the position of Managing Director of the defendant which the plaintiff held was eventually abolished and the plaintiff was made redundant by the merger of the defendant with Water PNG Limited.  

14.	As the plaintiff was made redundant by virtue of the merger, his termination could not be regarded as unlawful and money in lieu of notice would be the measure of damages as in the case of Porgera Joint Venture v. Robin Kami (2010) SC1060 by a majority decision.  Nor can it be regarded as resignation under clause 14.1 of the contract of employment.  The applicable clause is 14.6 which states:

“If the Company terminate this Agreement for any reason other than those specified in Clause 14.2 or 14.4 prior to expiration of the Term, then the Company shall pay the Employee the balance of this Agreement to terminate within twenty-one (21) days from the date of termination”.

15.	Notwithstanding this, the defendant contends that clause 14.6 amounts to a penalty and constitutes unjust enrichment.  The Court should not uphold it.  It should strike it down.

16.	However, clause 14.6 is what parties have agreed between themselves in the event of early termination other than resignation (clause 14.1) or for cause (clauses14.2 to 14.4).  

17.	The other factor which goes against the defendant is that, there is no evidence that the contract was fraudulently procured by the plaintiff to unjustly enrich himself.  In the absence of such evidence, it is open to infer that parties had freely and willingly entered into the contract of employment and it is valid and enforceable.  

18.	Rather than striking it down, the Court will uphold the agreement of the parties in accordance with clause 14.6.  In The Central Bank of PNG v. Gabriel Tugiau (2009) SC1013, the Supreme Court reinforced this view in the following passage:
	
	“44.	In our view it is not right that, provisions of a payout of the balance of contracts for early termination of written contracts of employment be struck down on grounds of such clause amounting to a penalty and at the same time, allow for more notice periods well outside the provisions of s. 34 (4) of the Employment Act were the parties’ contracts are silent on the issue of notice.  This scenario allows for a perception that, people who enter into written contracts stand the risk of being given lesser notice periods and lesser damages compare to those in unwritten contracts of employment who can be allowed longer notice periods and more damages.  This is highly discriminatory and unfair without good reason. As such, it cannot be allowed to continue. In a free economy such as ours, the Courts should continue with the attitude of allowing the parties’ free agreement in due recognition and compliance of law to prevail and the Courts should exercise more care and ensure to avoid rewriting contracts for the parties”.

19.	According to clause 14.6 the plaintiff is entitled to receive money for the balance of the contract of employment in the event of early termination.  The decision of the Board of 13th June 2018 is consistent with clause 14.6.  It will be upheld and enforced by the Court.  

Remedies 

20.	One of the remedies that may be sought by an injured party in a breach of contract action is specific performance. Notably, one of the orders the plaintiff seeks at paragraph 5 of the amended Originating Summons filed 24th September 2019 is for specific performance.  

Interest

21.	Further, he seeks an order for 8% interest to be awarded pursuant to the provisions of the Judicial Proceedings (Interest on Debts and Damages) Act, 2015.  In their respective written submissions, both parties did not address the claim for interest, whether it should be awarded and if so, at what rate, when it should run and whether on part or whole of the judgment sum.  

22.	The object of awarding interest is to compensate the injured party for being kept out of money. In this case the plaintiff was kept out of money when the defendant withdrew the payment.  Following that parties were reluctant to settle the dispute.  

23.	The onus was on the plaintiff to then expedite the matter to trial and having made every effort in getting the defendant to pay up his due including his lawyers writing to the Prime Minister to intervene on 29th May 2020, he did not get the matter listed for directions hearing and progress it to trial at least 14 days after receiving no payment.  He was waiting and hoping that he would be paid.  

24.	For these reasons, there will be an award of interest at the rate of 2% on part of the judgment sum from the date of issue of writ to the date of final settlement. Part of the judgment sum is K1,354,300.44.  

Costs

25.	The plaintiff seeks costs and makes strong submissions for costs to be met by the defendant on a solicitor-client basis for procrastination and refusal to pay the sum due as approved by the previous Board of the defendant.  He also refers to the Westpac Bank foreclosing on his residential property as a result of his default in repaying a mortgage which he attributes to the actions of the defendant.  

26.	An award of costs is discretion.  The general rule is that, it is awarded to the successful party, in this case, the plaintiff.  The issue is whether costs be awarded on solicitor-client basis, such costs would attract a higher rate than on a party-party basis.  The Court will look at the entire circumstances of the case and determine if the call by the plaintiff for solicitor-client costs is justified.

27.	The issue for consideration was contentious.  Both sides had strong arguments supporting their respective positions backed up by case law and relevant legal principles on law of contract.  On one hand, the plaintiff was entitled to assert that he was entitled to be paid money for the balance of the contract and on the other the defendant was entitled to its view that it was obliged to pay the plaintiff, money in lieu of three months’ notice.  

28.	Parties did not reach an agreement and the issue had to be resolved by a judicial determination.  In the circumstances, it would not be appropriate to order the defendant to pay costs on solicitor-client basis.  Costs on party-party basis would be appropriate.  Costs will be awarded on party-party basis.

Order

29.	Having considered what orders sought in the amended Originating Summons would be appropriate to grant, these are the orders of the Court:

1.	An order in the nature of declaration that the plaintiff’s employment with the defendant as its Managing Director pursuant to a contract of employment dated 6th March 2017 was terminated as a result of redundancy by the defendant at its Special Board Meeting on 13th June 2018. 

2.	An order in the nature of declaration that the Special Board Meeting of the defendant held on 13th June 2018 the Board resolved that the plaintiff be paid the sum of K2,708,600.88 as the final payout for his termination as the Managing Director of the defendant.

3.	An order in the nature of declaration that the actions of the defendant, its servants and agents to stop and caused to be cancelled the plaintiff’s final payout in the sum of K2,708,600.88 under Westpac Bank PNG Cheque No# 000637 dated 14thJune 2018, was in breach of clause 14.6 of the contract of employment, hence illegal, null and void. 

4.	An order for specific performance against the defendant, its servants and agents including the Board and Managing Director to reissue a cheque in the sum of K2,708,600.88 to the plaintiff as his final payout forthwith. 

5.	Interest is awarded at rate of 2% on part of the judgment sum which is K1,354,300.44 from the date of issue of writ to the date of final settlement pursuant to the provisions of the Judicial Proceedings (Interest on Debts and Damages) Act 2015.  

6.	The defendant shall pay the plaintiff’s costs of the proceedings, on a party-party basis, to be taxed, if not agreed. 

7.	Time for entry of these orders shall be abridged to the date of settlement by the Registrar, which shall take place forthwith.

________________________________________________________________
Tangua Lawyers:	Lawyers for Plaintiff
Kessadale Lawyers: Lawyers for Defendant