National Bank of Vanuatu v Cullwick (Majority Judgment) [2002] VUCA 39; CA 11-02 (1 November 2002)

IN THE COURT OF APPEAL OF
THE REPUBLIC OF VANUATU

APPELLATE JURISDICTION
CIVIL APPEAL CASE No.11 of 2002
BETWEEN

NATIONAL BANK OF VANUATU

Appellant

AND

LEIASMANU CULLWICK

Respondent

Coram: Justice Bruce Robertson
Justice John von Doussa
Justice Daniel Fatiaki
Justice Oliver Saksak
Justice Roger Coventry

Counsel: Mr. Mark Hurley for the Appellant
Mr. Hillary Toa for the Respondent

Hearing date: 31st October 2002
Judgment date: 1st November 2002

JUDGMENT

This appeal raises important questions about the interpretation and scope of Section 20 of Employment Act [CAP.160]. That section reads:

“No proceedings may be instituted by an employee for the recovery of remuneration after the expiry of three years from the end of the period to which the remuneration relates.”

To understand how these questions arise it is necessary to record the history of the relationship between the parties, and details of the litigation between them.

The respondent for some years had been an employee of the appellant, the National Bank of Vanuatu (“the bank”). On 24 May 1996 the bank terminated her contract of employment, allegedly on the ground of gross misconduct. At the time the respondent had various loans from the bank and a facility under which the bank was making advances to enable the construction of a dwelling house on custom land which the respondent was in due course to receive from her father. At the time of the respondent’s dismissal the bank calculated the monies that it said were due to her on her termination, and credited the monies to the balances outstanding on her loans.

On 8 December 1997 in Civil Action 173 of 1997 the bank issued proceedings against the respondent and her father. The bank sought to recover the money due under the loans from the respondent, and a declaration against the appellant and her father that they held the land on which the house was being built subject to a constructive trust in favour of the bank to the extent of the monies which the bank had advanced.

On 8 June 1998, without a defence being filed, an order by consent was made that the bank recover from “the defendant” (presumably the present respondent) “monetary judgment to be assessed by this Honourable Court”. The consent order contained directions to enable the remaining issues in the proceedings to be prepared for trial. The trial has not yet occurred. Pursuant to directions made on 28 February 2002 the trial is set for hearing on 19 November 2002.

On 16 April 2002 the respondent made application to the Supreme Court for the following Order against the bank:

“...that the plaintiff be allowed to claim remuneration and employment entitlements which arise from her termination on 24 May 1996.”

In support of this application the respondent filed an affidavit deposing to the following facts:

“1. I am the applicant in these proceedings.

2. The respondent used to be my employer between Monday 13 September, 1991 and 24 May 1996 when I was forcibly retired.

3. I was suspended from my employment January 1996, by the respondent for no good reason at all. I was still on annual leave when I received a letter of suspension. The letter also directed me not to enter the premises of the respondent. Upon my return to Vila I asked to see the Manager of the respondent but my requests were denied. I asked that I be heard by the Board of Directors which request was also denied.

4. I engaged Mr. John Malcolm of Geoffrey Gee & Partners in or about 14^th or 15^th January, 1996 who has written to the respondent airing certain complaints I have especially with respect to my suspension with no pay and its basis.

5. Mr. John Malcolm has obviously corresponded with the respondent or its lawyer. Nevertheless the respondent went ahead to terminate my employment on 24 May, 1996.

6. Following my employment termination on 24 May, 1996 Mr. Malcolm corresponded on my behalf claiming salaries not received for the period of my suspension, severance allowance carried over from my employment with Westpac Banking Corporation, recalculation of severance, recalculation of leaves not taken/paid and opposition to payment of entitlements towards loans.

7. It must be noted here that the Board of Directors decided, in my absence, to terminate my employment on 24 May, 1996. Their decision was communicated to me in a letter dated 27 May, 1996. Annexed hereto marked “A” is a true copy of that letter. The respondent has decided to credit all my entitlements calculated then towards my loan account at 1.929.100 Vatu.

8. The respondent at that time was trying to register a security for my loan over my house and land.

9. In or about 1994 I applied for a housing loan 5.5 million Vatu. An agreement was reached to that effect with the builder for the house to be completed within the said budget, within a required time.

10. It transpired the builder speculated with the money using it to construct other building he was contracted to build. Bad mistakes were caused on the construction which needed to whole walls for example to be brought down and replaced eating away the money quicker than expected. Under the circumstances it was clear the constructor was at fault and should have been forced to complete the building at his own costs. The bank decided to increase my loan to correct the mistakes and mismanagement of the said money. I disagreed but accepted the arrangement only on the basis the bank would ensure the builder pay for extra charges.

11. I had started to pay back my loan as soon as the respondent approved it at 5.5 million Vatu. I paid 78,000 Vatu monthly.

12. Any way further appropriations to the builder which I had never undertook to repay increased my loan balance to whatever figure was claimed in Civil Case No.173 of 1997.

13. I have always maintained that whatever balance I had outstanding on my loan account as at 24 May, 1996 would have easily been covered by my entitlements.

14. Mr. Malcolm resigned as my solicitor after having been told I disagree with any attempts to settle Civil Case No.173 of 1997 on the basis of its current calculation of some 20,000,000 Vatu or so. I only ever applied for a loan of 5.5 million Vatu. That sum as per my termination letter dated 27 May, 1996 should have greatly been depreciated/reduced. I was surprised to see the figure in the region of 20 million Vatu.

15. Furthermore subsequent requests by Mr. Malcolm by letter dated 6 May, 1997 to properly calculate and pay other claims not included in my termination letter of 27 May, 1996 were ignored. Annexure “B” herewith is a copy of the respondent’s reply dated 26 May, 1997 which is clear but very very wrongly conceived. My termination was not on the basis of misconduct as there was no reasons given I was to be paid all entitlements including 3 months notice.

16. Mr. Malcolm resigned as my solicitor by notice dated 18 June, 2001. He has despite the fact my employment complaint clearly connects with Civil Case No.173 of 1997 refused and or ignored any instructions to treat it so.

17. In order to decide how much I owe the respondent under my Housing Loan Agreement the Court must also look at whether or not my loan was credited with the respondent’s undertaking by letter dated 27 May, 1996. On this basis my employment claim and Civil Case No.173 of 1997 are very much connected. I my view it would be wrong for the respondent to rely on Section 20 of the Employment Act [CAP.160].

18. Furthermore if I dispute the amounts I was supposed to be credited as per the respondent’s letter of 27 May, 1996 I believe in the interest of justice that I should be allowed to say where or how I disagreed. Mr. Malcolm’s resignation as my solicitor has left me helpless with no money and no work until the Supreme Court directed the Public Solicitor to assist me.

19. I was so overwhelmed with the amount claimed in Civil Case Nol173 of 1997 I though it best to concentrate on its progress and to deal with my employment claims later. I did not know about Section 20 of the Employment Act [CAP.160] but I believe that justice will be served once my claims are heard by the Court.

20. Civil Case Nol173 concerns a question as to whether or not I owe the respondents some 20,000,000 Vatu by way of unpaid loans. I also have an existing claim against the respondent upon which I have been asking whether or not my believe that the calculation of my claims by letter dated 27 May, 1996 is correct. I believe not? If the Court can allow the respondent to bring a claim against me for bad loans why can’t it also allow me to be heard on an application the respondent also owes me money.

21. I believe that if the Court accepts my application to be heard with respect to my employment entitlements claim at this time when legal questions related to my loan have not yet been determined is strategically the best time for justice to be served in an undiscriminating manner.

22. I attached herewith Annexure “C” a true copy of my claim to be filed should the Court be sympathetic and allow my application.”

The Annexure “C” gave details of the following claims which the appellant sought to make against the bank:

- Severance pay outstanding VT 679, 489

- Outstanding leave VT 183,355

- Salary not received (during a period of suspension) VT 912,000

- Damages for wrongful dismissal under s.56(4) of the employment Act VT 9,874,720

- Interest & Costs

In advance of the hearing of the application, the bank indicated it opposed leave and would deny liability for all these claims on the ground that they were barred by the statutory three year limitation contained in s.20 of the Employment Act. The bank also filed a cross motion seeking an order to that effect.

The application and cross motion came on for hearing before the learned Chief Justice. He ordered that the respondent be allowed to claim remuneration and employment entitlements which arose from her termination on 24 May 1996. The cross motion was dismissed.

Reasons for that decision were published on 30^th September 2002. In granting the application, the Chief Justice followed an earlier decision which he had given regarding the interpretation of s.20 in Civil Case No.77 of 2000, Bong v. Wan Smolbag Theatre. In that decision the Chief Justice said:

“Section 20 is not a mandatory provision. The Court can use its discretionary power when the circumstances of a particular case at hand so warrant in order to do justice which the situation in the present case.”

By the grounds of appeal the bank contends that s.20 of the Employment Act is mandatory, and that on its proper construction it is a complete bar to all the claims in which the respondent seeks to make.

At the outset we note that when s.20 first commenced on 30^th May 1983, the time limit stated was one year. It was increased to three years by the Employment (Amendment) Act No.8 of 1995. It should also be noted that the time limit in s.20 is not one that can be extended under the discretionary power to extend limitation periods contained in s.15 of the Limitation Act No.4 of 1994 (as amended). That power only applies to time limitations prescribed in s. 3(1) of the Limitations Act: see s.15(1).

The long title of the Act states that it is “to provide for the general principles relating to contracts of employment and matters incidental there too”. The provisions of the Employment Act are concerned with contracts of employment. But for s.20, the limitation period for bringing proceedings to enforce claims arising under a contract of employment would be six years from the time the cause of action arose: See s.3(1) of the Limitation Act. That time limit would be subject to the discretionary power in s. 15 to extend that period in appropriate cases.

The provisions of the Employment Act are divided into 13 Parts. The substantive provisions of the Act dealing with the relationship of employer and employee under a contract of service commence in Part III which is headed “General”, and conclude with the provisions of Part XIII headed “Miscellaneous”. If s.20 was intended to govern the institution of proceedings for every kind of monetary payment arising out of a contract of employment, it would fit more comfortably in the provisions of either Part III or Part XIII of the Act which are intended to apply generally across the field of the employer and employee relationships. For example, if the time ban was intended to operate in respect of every kind of monetary payment that an employer might become liable to pay to an employee, it is surprising that the section is not found in Part XIII which commences with s.64. That section concerns proceedings generally that may be commenced against an employee in respect of offences under the Employment Act.

The fact that section 20 is not so positioned within the Act but it is to be found within Part V headed “Remuneration” suggest that its operation is limited to that class of payment.

The terms of s.20 also indicate this section is limited in this way. The time limit is against the instituting proceedings “for recovery of remuneration”.

The word “remuneration” is not expressly defined in the Act. However there are many indications from the use of that expression in various sections of the Act which indicate that remuneration is a payment made periodically during the currency of the employer and employee relationship, and covers payments due from the employer as a reward for ongoing work provided by employee. Section 20 itself provides that the limitation period runs from “the end of the period to which the remuneration relates”, and the conclusion we have expressed gains support in particular from provisions ss.16(4),(5), (6) and (7), 17(3), 21(2)(a) and (3), 31, 36(2), 49(3)(b) and 53.

In Sections 16(8) and 64(1) the expression “remuneration” is used in ways that indicate that there are kinds of payment which an employer may become liable to pay that are not remuneration. Section 16(8) says that in the case of termination of contract, “remuneration and allowances” shall be paid as soon as the service has ceased. Section 64(1) refers to payment “by way of remuneration or otherwise, and, arising out of, his contract of employment”.

In our opinion s.20 is limited in its operation to periodic payments that become due to employees during the currency of a contract of employment. The expression covers ordinary wages paid periodically whilst an employee is at work, but extends to include annual leave and sick leave payments that become due whilst the contract of employment remains on foot: see s.31.

Where notice is given to terminate a contract of employment, and the contract of employment remains on foot during the period of notice, the employee continues to be entitled to remuneration during the notice period: see s.49(4).

On the other hand there are different kinds of payment that may become due to an employee by an employer under the Employment Act that are differently described, and are not remuneration. In particular under Part X the severance allowance payments are so described and are not within the expression “remuneration”. Severance payments are therefore not subject to the time limit in s.20 but to the general provisions of the Limitation Act. The right to payment of repatriation expenses under Part XII is another kind of payment that is not “remuneration”.

It will be remembered that initially s.20 imposed a one year time limitation. It was a relatively short time. We think that the explanation for the time bar imposed by the s.20 is to put an end to the length of time in ongoing relationships that employees should be allowed to continue pay disputes, for example over the rate of pay.

The construction which we place on the word “remuneration” is consistent with the observations of the Court of Appeal of the Republic of Vanuatu in Banque Indosuez Vanuatu Limited v. Ferrieux (1990) 2VLR 490 at 497:

“‘Remuneration’ is not defined in the Act. Section 16(2) says that part of remuneration may be paid in the form of allowances, but only with the written approval of a labour officer. Section 16(8) refers to payment of ‘...remuneration and allowances...’ which suggests that they are different things. Section 17 refers to receipts for remuneration, which are only appropriate to payments of money.

The term should be given the same meaning throughout the Act. In many places ‘remuneration’ clearly means ‘payment in money’. Accordingly we hold that ‘remuneration’ for the purpose of section 56(2) means salary only.”

We turn now to the question whether the time bar in s.20 is mandatory or discretionary. Where a statutory direction is that something “may” be done or not done, the word “may” in its usual meaning will indicate that the direction is permissive, not mandatory. The following statement of principle is set out in Halsbury’s Laws of England (4^th Ed.) Vol.44, par. 33

“No universal rule can be laid down for determining whether provisions are mandatory or directory; in each case the intention of the legislature must be ascertained by looking at the whole scope of the statute and, in particular, at the importance of the object to be secured. Thus it is not possible to generalise by reference to the nature of what is prescribed... Although the converse proposition, that negative provisions are prima facie mandatory, would seem on principle to be less open to criticism.

Although no universal rule can be laid down, provisions relating to the steps to be taken by the parties to legal proceedings in the wider sense have been construed with some regularity as mandatory, the requirement which appears to be in unqualified terms must be read subject to the other provisions in the Act.”

In the context of the Employment Act we are unable to think of any reason why the time limit in s.20 would be merely discretionary. Why should the time limit apply to some payments of remuneration, but not to others, or to some employees and not to others? Further, if the time limit was intended to operate in some but not all situations, it could be expected that Parliament would have given an indication of the factors which should influence the exercise of the discretion and of the purpose that the discretion was intended to achieve. The absence of the indication of this kind lends weight, in our view, to the conclusion that s.20 should be construed as imposing a mandatory time limit. However, as we have already explained, the mandatory time limit only applies in respect of “remuneration”.

The respondent was dismissed from her employment on 25 May 1996. The application for leave to commence proceeding was made on 16 April 2002 – that is within the six year time limit imposed by the Limitation Act on payments that are not “remuneration” but outside the time bar imposed by s.20. Section 20 barred the claims for outstanding leave and salary not received during a period of suspension, but not the severance allowance payments claimed under Part XI of the Employment Act.

However, In the particular circumstances of this case that is not the end of the claims which the respondent wishes to pursue for remuneration. Section 20 operates as a bar to instituting proceedings, as the section says. It does not operate so as to extinguish the underlying legal right to receive the remuneration. The section operates as a bar to the enforcement of the right, not as an extinguishment of the right itself. At common law, as the underlying right remained, it could be raised by way of set-off as a defence to claims brought against the holder of the underlying right: see London & Midland Bank v. Mitchell (1899) 2Ch 161 at 168 and Bullen and Leake’s Precedents and Practice, 11 ed. at 881-2.

That common law position has been modified by statute in Vanuatu Section 24 of the Limitation Act provides:

“Provisions as to set-off or counterclaim for the purposes of this Act, any claim by way of set-off or counterclaim shall be deemed to be a separate action and to have been commenced on the same date as the action in which the set-off or counterclaim is pleaded.”

The terms of s.24 are taken from s.28 of the Limitation Act 1939 (UK) and the discussion of the operation of that Section and its effect on the common law position in para 617, 646 and 651 of Halsbury’s Laws of England (4^th Ed.) Vol.28 is directly applicable.

It is to be noted, however, that in Vanuatu s.24 of the Limitation Act only applies “for the purpose of this Act”. It follows from these words, that the modification of the common law position made by s.24 of the Limitation Act does not apply to a claim for remuneration pleaded by an employee against an employer by way of set-off in proceedings brought by the employer. This is because the time limit for instituting proceedings for the recovery of remuneration arises under s.20 of the Employment Act, not under a provision of the Limitation Act.

In the present case the bank is suing the respondent for the balance of loans. The respondents outstanding claim for remuneration could be raised by way of set-off as a defence against the bank’s claim, and no time limitation would operate to prevent this.

Counsel for the appellant concedes, correctly in our view, that there is no reason why the respondent could not have raised her claims by way of counter claim and set-off. Indeed her affidavit in support of the application for leave to bring proceedings indicates that it was her wish to do so but for some reason that wish was not translated into action by her legal advisors.

Although it is very late in the piece to be raising a counter claim and set-off in Civil Action 173 of 1997, in appropriate cases the strict application of procedural rules must give way to justice of the case. In the present instance the justice of the case would clearly be in favour of allowing the respondent to belatedly file such a counterclaim and set-off: see Queensland v. JL Holdings Pty Ltd [1997] HCA 1; (1997) 71 ALJR 294, 141 ALR 353 where the High Court of Australia said that procedural time limits and case management practices should not be used to shut out a party from litigating an issue that is fairly arguable – in that case a ground of defence.

In our opinion the appeal should be allowed in part so as to vary the judgment under appeal to declare that s.20 would act as a bar to prevent the instituting of proceedings by the respondent against the bank in respect of remuneration claimed by her. However in so far as the applicant wishes to bring independent proceedings for severance allowances, s.20 does not prevent her doing so.

It follows from what we have said that the order under appeal may no longer be of any practical consequence if the respondent now pursues the remedies she seeks by way of counter claim and set-off in the proceedings which the bank has instituted against her.

This appeal has served to clarify the interpretation and operation of s.20 of the Employment Act. The point of principle is one of public importance. In all the circumstances even though the appellant has been partially successful, we think that there should be no order as to costs on the appeal.

We should make clear that the interpretation we have placed on Section 20 in our view necessarily follows from the words of the statute. If Parliament intended that the 3 year limit should apply to all cases under the Employment Act a simple statutory amendment could change the position. Alternatively there could be an amendment to the Limitation Act 1991 or the Employment Act to empower the Courts to grant extensions of the time limit.

DATED at PORT-VILA, this 1st DAY of NOVEMBER 2002

BY THE COURT
J. Bruce ROBERTSON J
John von DOUSSA J
Daniel FATIAKI J
Roger COVENTRY J