Latu v Tonga Water Board [2013] TOSC 8; CV282 of 2009 (17 June 2013)

IN THE SUPREME COURT OF TONGA
CRIMINAL JURISDICTION
NUKU'ALOFA REGISTRY

BETWEEN:

MOSESE K. LATU
PLAINTIFF

AND:

TONGA WATER BOARD - DEFENDANT

BEFORE THE HON. JUSTICE CATO

Mr. Latu in person
Mrs. A. N. Taumoepeau counsel for the defendant

JUDGMENT

[1] Between February 1992 and the 1st January, 2008 the plaintiff was employed by the defendant the Tongan Water Board. For many years, he had been employed it seems under an informal contractual arrangement rising in seniority until he Board placed he and other senior management on a fixed term performance contracts in April – May, 2004. That was for a five years term backdated to commence on the 1st January, 2003.

[2] Under that contract, there was in clause 8 a performance incentive stated to be;

"The Board shall pay the appointee a performance incentive payment of 5% of Excess on approved budget Net Profit after Tax less Depreciation, at the end of every financial year."

[3] Further, in relation to termination relevant to this case clause 18.3 of his contract provided;

"in the event that the post of Appointee is abolished because of a decision made by the Board, the Board may pay the appointee a sum calculated according to the redundancy policy of the Board and the salary for the remaining of the agreement."

[4] It is important briefly to note that, prior to 1st November 2006, when it was accepted by the parties that the Board introduced a new redundancy policy following the formula provided in the Government's public service redundancy policy, the Tongan Water Board had its own redundancy policy known as "The Tongan Water Board Redundancy Policy." For these purposes, the relevant point to be noted is that in 2(iii) it is provided that the calculation would be;

"Service equal to ten years or more, but less than 15 years, an amount equivalent to three times his/her present wages per annum"

In or about November 1979, there was an amendment to this policy which did not however affect those whose service was 10 years or more.

[5] On or about the 1st November 2006, the new redundancy policy which it was accepted applied to Mr Latu's redundancy came into effect. This provided that;

(a) An employee who has worked for more than 24 months, payment of 3 months basic salary plus 5% of basic salary for each completed year of service paid at the employee's substantive appointed level up to a maximum of twelve (12) months.

(b) An employee who has worked for les then 12 months will be paid on a pro rata basis.

A Chief Justice Scott observed in Kepueli Tonga v The Tongan Water Board CV 291/2009 15th June 2012, the November 2006 approval of the Board was not an entirely new redundancy policy but was rather a further variation of clause 2 of the policy (the entitlements clause) which was brought into being in 1995, was revised in 1999, and which was now being revised again.

[6] On the 16th November 2007, after what appears to a dispute over staffing arrangements, notice was given to Mr. Latu that he was to be made redundant. At that time, he was the Chief Administration officer. He accepted the termination and entered into negotiations forthwith with the defendant to receive his entitlements under a redundancy package. In this regard, negotiations were protracted. They commenced when the plaintiff filed his assessment of calculations with the Board on the 22nd November, 2007, which was not accepted by the Board, and ended when the Board accepted a small revision upwards relating to casual leave in August, 2009. This amounted to a figure of $2443.87. The Board it should be noted had paid to Mr. Latu reasonably quickly what it considered it owed him.

[7] A cheque for $2443.87 was accompanied by a letter to the plaintiff's legal adviser on the 9th August, 2009 in which it was said;

"A cheque for $2443.87 made out to yourself on behalf of your client, is forwarded herewith a final settlement of all entitlements, payable by TWB to your client."

Please acknowledge receipt thereof by signing and returning the duplicate of this letter.

[8] The lawyer concerned duly signed and returned a duplicate of the letter and the cheque was sent to him and cashed. Mr Latu in evidence said he had not known of this payment until after proceedings had been commenced. He had not personally known of the additional payment until much later and had never received it.

[9] Mr Latu had indicated his intention to commence proceedings if the matter were not resolved satisfactorily as early as January 17, 2008. Correspondence which I do not intend to set out here suggests that Mr. Latu became increasingly frustrated with the Board's position. This ultimately ended in his commencing these proceedings on the 1st December 2009. At that time, he was legally represented.

[10] The Board paid Mr Latu a total of $61, 440, 68, with payments of $20,000 on the 17th January 2008, $35,478.79 on the 22nd January 2008 which the Board claimed consisted of his entitlement under the redundancy formula together with other entitlements such as unpaid wages for the balance of his contract, gratuities for the years 2006-2007, and pro rata for 6 months for the years 2007-2008, and leave entitlements. He was also paid a small amount of superannuation and some casual leave later on the 9th August, 2009, which is referred to in paragraph 2.

[11] Mr Latu claimed, however, in addition that he was entitled to a much greater redundancy payment than he had received, further significant sums for unpaid incentive payments under clause 8 of his agreement and damages for money spent in airfares in coming to Tonga to pursue his claim, embarrassment, stress and humiliation, and loss of employment opportunity. Mr Latu filed a memorandum in which his assessment of damages was increased to $215,000.00.

[12] He did not; however, seek leave to amend his statement of claim figure for damages of $54,000 to reflect this enhanced figure. In any event, this last head of claim for damages was not pursued with any vigour at the hearing. Mr Latu had problems in this regard. He is a person of intelligence, I noted, with qualifications in various areas and experience as a senior officer for several years with the Water Board. He had a duty to mitigate any damage and taking on part time employment was his choice and not the responsibility of the Board, which, by then, had chosen to make him redundant, a decision which Mr. Latu had accepted. His decision to send his family to New Zealand and commute to Tonga was also his decision and not the responsibility of the Board. In any event, the substance of his claim was that he had not been paid what he was due that is a liquidated sum on termination, which, if he were successful, in part would be the subject of an 2009 interest award and costs, and not damages. I accordingly rule that he is not entitled to any claim under this head.

[13] The significant additional sum he claimed under the head of incentive payments for the years 2003-4, 2004-5, 2005-6, and 2007-8, amounting to $108, 581.60 can be readily disposed of, also. Under clause 8 Mr Latu was entitled to a performance award of 5% of Excess on approved budget Net Profit after Tax less Depreciation, at the end of every financial year. The problem for Mr Latu and it was accepted was that this was so, was that the Board had not made any net profit, in any of the years. Mr Latu contended however that when depreciation was taken into account the Board was in effect able to be shown to be in profit. This approach also had been taken by a witness she called who had some accounting qualifications. The witness, Mr Inoke Pulu, however, was plainly less confident of his approach when the terms of clause 8 were put to him.

[14] Clause 8 in my view provides that the depreciation figure which in some yeas was every considerable was to be deducted from the net profit. As Mrs Taumoepeau for the defendant contended the wording of clause 8 requiring depreciation to be subtracted from the net profit would only make the defendant's position worse. I agree that the section precludes the plaintiff from getting the benefit of depreciation and that no incentive payments were due to him. I also note that this was consistent with the reasons he had been given each year by the Board.

[15] That leaves only the claim to outstanding redundancy. Before, however, I continue with this issue there is a further matter in relation to Mr Latu's claim generally that I am required to deal with . Mrs Taumoepeau said that by accepting the payment expressed to be a final settlement of all entitlements by Mr Latu, and acknowledgment or receipt being returned by his lawyer, as set out in paras 6-7 that was an end to the matter. Mr Latu was now estopped from proceeding with any further claim. I agree that, in certain circumstances, a compromise of a disputed claim can effectively prevent a person later proceeding to claim further sums that fall within the compromise. However, I do not consider that anything was done here which put the receipt of the final payment made by the Water Board in the category of an accord and satisfaction. Before that could arise, the recipient of the cheque would have to be made plainly aware that the payment was made only on the basis that if accepted that would be in release of any further claim. I do not consider that the terms of Mrs Taumoepeau's letter of the 9th August, 2009 make it sufficiently plain that this was the Board's intention, if it were, and a condition of acceptance of the cheque was that any further claim would not be pursued by Mr Latu. The Board had previously referred to an earlier payment made to Mr Latu of $35,478.79 on the 22nd January 08 as "for final payment for Mr Mosese Latu in full settlement of entitlements for termination of his contract with the Board as per claimant signature below." In accepting that cheque and cashing it as lawyer did I do not accept that there was an accord and satisfaction. All I interpret that and Mrs Taumoepeau's later letter to mean is that the Board considered it to be under no further obligation to Mr Latu not that his acceptance of the sum precluded him from pursuing his legal remedies.

[17] I find when his counsel accepted and cashed the cheque this did not create an accord and satisfaction. If that had been the intention of the Board, then I consider the conditional nature of the payment, if that were intended, should have been set out more clearly. The fact that litigation commenced on the first of December, 2009 when the plaintiff was represented by the same lawyer leads me further to the view that any receipt for the cheque given by that lawyer, who was an experienced counsel, could not have been regarded as a receipt and compromise of any further claim. Mr Latu, himself, said he had not known of the additional payment until much later and had not received it. I accept that because I find him a witness who was quite candid in his answers. The lawyer did not give evidence; however, for reasons which I have given I do not consider there was an accord and satisfaction or settlement of any future claim created by Mr Latu's lawyer acceptance of the final cheque and the giving of a receipt.

[18] The only outstanding issue is the amount of redundancy that should be paid under the formula set out in para 4. The Board contended that Mr Latu's period of service under the less formal employment arrangements he had before January 2003. The written agreement, although signed in April or May 2004, was said to commence on the 1st July 2003. If Mr Latu's period of service was limited to this contact, it seems his service period to the end of his employment on 1st January 2008 was less than five years although the Board credited him with five years although the Board credited him with five years of service. The amount the Board assessed as his redundancy award under the formula set out in para 4 was $11, 737.00 calculated as 5% of annual salary ($46,948.00) times 5 years of service.

[19] Mr Latu disputed this assessment. He claimed his years of service were not disrupted by the cessation of his earlier contractual arrangements with the Board by the fixed term contract he had signed in May 2004. He claimed he was entitled under the 2006 policy formula to 15 years of service that is from 1992 to January 2008. Thus, the figure he was owed was 5% of base salary times 15 years being a sum of $35,211.00. He claimed $23, 474.00 was still owing to him under this head.

[20] Mrs Taumoepeau contended firmly that Mr Latu was wrong. The period of redundancy under the fixed term incentive contract for service was limited to that contract only. The previous employment arrangement had been dislocated. Mr Latu was being paid much more under the incentive contract than under the earlier arrangement. She also contended that the concept of severance of service was supported by the fact that he had been paid out superannuation entitlements when the previous employment arrangements ended.

[21] For his part, Mr Latu contended quite simply that service meant his whole period of employment with the Water Board irrespective of the kind of contractual relationship. I thought, quite astutely, he asked Mr Helu the Chief Executive officer of the Board what his period of employment had been. Mr Helu responded that it was about 18 years. He added that had always been on a fixed contract but there had been a number of them.

[22] I consider Mr Latu is correct. Redundancy is compensation for years of continuous service. The longer the period of employment, the greater should be the entitlement because the adverse effect of the termination for redundancy is likely to be greater the longer a person has served his employer, particularly if he or she is in senior years. It is a recognition that a sum should be paid by the employer as compensation for terminating a contract of employment prematurely so that the employee is able t have some financial support and security in the period before he or she is able to secure new employment. I do not agree that the imposition of a fixed written incentive based contract dislocated the accrued years of service. All that was new was the nature of the contract but the umbrella of employment and continuous service in my view was not disrupted. The new form of incentive based contract arrangement was initiated by the Board as part of an overall performance based employment focus in Tonga as Mr Helu explained, consistent with a change in approach to a profit driven model. However, this did not alter the fact that Mr Latu was and continued to be employed continuously by the Board. In the Shorter Oxford English dictionary (1977), service is defined simply as the condition, status or occupation of a servant. That is, in my view precisely what Mr Latu's status was. He was from 1992 until his employment ended in January 2008 a servant of the Board throughout that period irrespective of the terms of service or contractual arrangements under which he was employed.

[23] I do not accept the fact that Mr Latu was paid more under the fixed term contract alters anything. That was the choice of his employer who desired to change to a performance based contract. Indeed, the 2006 formula itself provides for an upper limit of 12 months' salary which could not be exceeded. If the term of service was limited to the life of the fixed term contract, it is quite obvious that the upper limit referred to in the formula of 12 months salary could never be reached. The fact that the formula envisaged an upper limit to my mind supports the argument of Mr Latu that his service comprises his whole period of employment with the Board.

[24] Nor do I consider that the fact he was paid out his superannuation at the end of the informal contract arrangement alters anything. That was at the convenience of the Board which did not want the existing superannuation arrangements to remain. Further, I do not consider the fact he may have been paid more under the fixed term contract alters the status of his service either.

[25] Accordingly, I consider Mr Latu was underpaid in relation to this aspect of the redundancy severance formula. Service in my view means the period of continuous employment with the Board. I regard it was rather incongruous that, if this termination had been before the new 2006 redundancy formula was introduced, Mr Latu would have been able to qualify for redundancy based on service greater than 10 years, but not after the 2006 formula was adopted. If that were the true intention of the Board in my view it should have been made very clear at the time to Mr Latu that the period of service for the assessment of redundancy was now confined to service exclusively under his fixed term contract. A change of this nature for a long term employee of seniority such as Mr Latu would have amounted to a radical alteration and meant that he would forfeit a substantial number of years of accrued service for redundancy. It could also have been expressed more clearly by amendment to the formula to restrict service to the period of the written fixed term contract.

[26] I asked Mr Helu if this was the Board's intention at the time and whether any written statements recording this fact had been sent to staff. He thought there had been but no such document was forthcoming. Mr Latu put in issue this assertion in his cross-examination. For my part, it is an issue of law and interpretation advanced by Mr Latu who presented his argument on this aspect very well to that of the Board despite Mrs Taumoepeau's strenuously urging me to accept a more restrictive approach.

[27] I add that a further sums claimed by Mr Latu as owing for redundancy namely a cash incentive for 10 years of service ($10,000) and $1500 for early acceptance of redundancy though they may fall to be recovered under the Public Service redundancy provisions, do not fall within the limited application of the Public Service formula adopted by the Water Board as its redundancy police in November, 2006.

[28] Accordingly, I give judgement to the plaintiff in the sum of $23,474.00.

I order interest be paid on this sum at the rate of 10% per annum from the 1st January 2008 to the date of this judgment.

I order that the costs on the judgment for $23, 474.00 be costs of the plaintiff, to be fixed forthwith by the Registrar, on application by the plaintiff.

DATED: 17 JUNE 2013
JUDGE