N4112

PAPUA NEW GUINEA
IN THE NATIONAL COURT OF JUSTICE

WS NO 2 OF 2010

MERCIDITA MALIHAN
Plaintiff

V

DIVINE WORD UNIVERSITY
Defendant

Madang: Cannings J
2010: 5, 9, 19, 26 March

LAW OF EMPLOYMENT – alleged repudiation of contract by employer – whether requiring a non-citizen to travel overseas to apply for work permit amounts to repudiation of contract – whether breach by employer of Employment of Non-Citizens Act constitutes termination of contract.

The defendant employed the plaintiff, a non-citizen, under a three-year written contract of employment but failed to obtain a work permit under the Employment of Non-Citizens Act allowing it to employ her. After she had been employed for 11 months the defendant, acting on advice received from the Department of Labour and Industrial Relations, told her she had to cease work immediately and leave the country, to allow a work permit application to be made from overseas. She ceased work but failed to leave the country, and commenced proceedings against the defendant, claiming damages for breach of contract on grounds that the defendant repudiated the contract without notice and that the contract was terminated by operation of law due to the defendant's failure to comply with the Employment of Non-Citizens Act.

Held:

(1)	The issue of whether an employer has repudiated a contract of employment is resolved objectively by reference to the effect that it would have on a reasonable person. The question is whether the conduct of the employer, viewed objectively, evinced an intention to be no longer bound by the contract.

(2)	Though the plaintiff genuinely believed that the defendant was repudiating the contract, viewed objectively, the defendant had evinced an intention to continue the employer-employee relationship; the instruction that the plaintiff should cease work and leave the country being a genuine, if belated, attempt by the defendant to comply with the country's labour laws. There was no repudiation.

(3)	The Employment of Non-Citizens Act does not provide that a contract of employment between an employer and a non-citizen employee is terminated in the event of a failure to comply with the Act.

(4)	There was no termination of the contract of employment by operation of law.

(5)	The defendant is not liable in breach of contract to the plaintiff and not liable on any other basis to pay out the balance of the plaintiff's contract or damages and all relief sought by the plaintiff was refused.

(6)	The defendant validly terminated the contract of employment by giving notice of termination in writing to the plaintiff and paying her three months pay in lieu of notice, in accordance with the contract.

Cases cited

Papua New Guinea Cases
Magiten v Beggie (2005) N2908
New Britain Palm Oil Ltd v Vitus Sukuramu (2008) SC946

Overseas cases
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61
Whittaker v Unisys Australia Pty Ltd [2010] VSC 9

TRIAL

This was a trial on liability.

Counsel

Y Wadau, for the plaintiff
G T Elai, for the defendant

26 March, 2010

1. CANNINGS J: The plaintiff, Mercidita Malihan, is seeking damages of K187,957.12 against the defendant, her former employer, Divine Word University, for breach of contract. It has been agreed that this is a trial on liability only. If the plaintiff succeeds there will be a separate trial on assessment of damages.

2. The plaintiff is a Philippines national – a non-citizen – who has a close connection with Papua New Guinea. She has lived here for 23 years. Her late husband, who died a few years ago, was a PNG citizen and her three children are also citizens.

3. On 9 January 2009, she commenced employment with DWU as finance manager of Diwai Mart, a mini-supermarket and bakery business run by DWU at its Madang campus. DWU did not, prior to engaging her, apply to the Secretary for Labour and Industrial Relations, for a work permit. On 17 March 2009, she and DWU signed a written contract of employment, the period of employment being shown as 22 December 2008 (the date on which the plaintiff actually arrived in Madang) to 7 December 2011: a little less than three years.

4. During the course of 2009, DWU made several attempts to secure a work permit for the plaintiff, to no avail. On 21 December 2009, DWU's Human Resources Director, Br Brendan Neily, was telephoned by Dr Rona Nadile, a senior officer of the Department of Labour and Industrial Relations, and advised that no work permit would be granted to the plaintiff and that she should leave the country immediately. Br Neily conveyed that advice to DWU's Development Director, Br Theo Becker, the director responsible for Diwai Mart, who later that day told the plaintiff that she should cease work and would have to leave the country. The plaintiff was very upset when she heard that news. It has become contentious what exactly Br Becker said to her but it is not disputed that the plaintiff ceased work immediately and has not recommenced work.

5. On 8 February 2010, the President of DWU, Fr Jan Czuba, gave notice in writing to the plaintiff that her contract of employment was terminated and gave her a cheque for K8,286.66, representing three months pay in lieu of notice.

6. The plaintiff's case that DWU is liable in breach of contract (and must pay out the balance of her contract plus general and exemplary damages) is based on two main propositions of law:

•	That DWU repudiated the contract on 21 December 2009 by telling her that she had to cease work and leave the country.

•	That the contract was terminated by operation of law due to the defendant's failure to comply with the Employment of Non-Citizens Act.

1 DID DWU REPUDIATE THE CONTRACT?

7. There are different accounts of what happened on 21 December 2009 and during the period from then until the notice of termination was given on 8 February 2010. On the one hand the court heard both affidavit and oral evidence from the plaintiff. On the other hand, Br Neily, Br Becker and Fr Czuba each swore affidavits and gave oral evidence, which provided a different version of events. I will summarise the evidence and make findings of fact, then set out the law on repudiation before determining the issue of whether what happened amounts to repudiation.

Plaintiff's evidence

8. The plaintiff says that on 21 December 2009 Br Becker called her to his office for a meeting at 4.00 pm. He told her that he had bad news: she had to cease work and vacate the campus by 5.00 pm that day as she was an illegal immigrant, the police might lock her up in the cell so she must leave the country soon. She was shocked and frightened. She protested and said 'why didn't you tell me earlier so I can fix my own visa and work permit?' There was no one else present when Br Becker told her these things. Diwai Mart general manager, Mr Joseph Natera, came and went just before the meeting started and returned at the end.

9. Later that day, 21 December 2009, she went to see Br Neily who confirmed what Br Becker had told her.

10. She then went, also on the same day, to see Fr Czuba. She was upset and crying, so Fr Czuba called for Br Neily who repeated what he had earlier told her: she has to leave the country and apply for a work permit from outside. Fr Czuba said that DWU would pay her three months pay and one month's leave. She still protested and told him that this was a breach of contract. Fr Czuba replied 'No, this is not a termination of your contract. It is because the Labour Department is sending you out of the country. The University is not sending you out of the country. If you do not leave the country quickly, we will pay the penalty and you too will pay the penalty. Both of us are in big trouble.' This was the last time that Fr Czuba spoke to her.

11. She denies that Fr Czuba told her that DWU would continue paying her and retain her position and accommodation. No one gave her this information, she says. She denies telling Fr Czuba that she had no bank account in the Philippines. She denies knowledge of any arrangement to pay her first fortnight's salary in cash before she left for the Philippines, to enable her to open an account there. She says that if she had been told these things she would not have gone to a lawyer or taken the matter to court. She would have gone to the Philippines so that a work permit application could be made from there. The problem with DWU, she said, is that there are too many bosses and they always tell the employees different things.

12. On 24 December 2009, she was called to see Br Neily. He told her that the Department of Labour would not grant her a work permit and the police would lock her in the cell. He gave her a cheque for K2,000.00 (for sundry expenses) and a return ticket to the Philippines and a 'to whom it may concern' letter that she could hand to the migration officer at the airport, confirming that DWU was at fault in delaying her application for a work permit. Br Neily did not, however, explain the details of the ticket. He did not give her any document from the Department of Labour and Employment setting out their position on her status. He said that her three months money in lieu of notice and one month leave would be processed and sent to her in the Philippines. She refused to accept the cheque. She demanded her contract entitlements but these were refused. She was so frightened by what Br Neily said that she became sick and vomited and had to call her sister (who also works at DWU) and other relatives for comfort. Br Neily gave her no assurance that her contract was not terminated and no assurance that she could return.

13. She was taken off the payroll and formed the view that DWU had terminated her contract by repudiating it; and that is why on 24 December 2009 she sought legal advice.
 
14. In the last week of December Br Neily made arrangements for her to leave Madang on 5 January 2010 en route to Manila. There was then a mix-up with her passport and the booking was changed to 13 January 2010.

15. She asked her lawyers to negotiate with DWU but the negotiation failed. She did not use the airline tickets or leave the country as she did not believe that DWU would pay her once she left PNG.

Defendant's evidence

16. Br Becker denied telling the plaintiff abruptly on 21 December 2009 that she was an illegal immigrant or that she would be locked in the police cell or that she had to cease work and vacate the campus immediately. Instead he says that he encouraged her to relax and go and see Br Neily as he would help her apply for a work permit. He says that Mr Natera was present during the meeting. Mr Natera gave evidence to the same effect.

17. Br Neily said that DWU did not want to terminate the plaintiff's employment as she was doing a good job. It was only the issue of her work permit and specifically the telephone call that he received on 21 December 2009 that led to the decision that she had to cease work and be flown to the Philippines so a work permit could be arranged. DWU did all it could to try to assist her, but she refused to co-operate.

18. Fr Czuba said that DWU did not at any time before 8 February 2010 tell the plaintiff that her employment was terminated. He says that in his meeting with the plaintiff on 21 December 2009 he told her that DWU would continue paying her salary and retain her position and accommodation. She said that she had no bank account in the Philippines, so he told her that he would instruct the Finance Division to pay her salary up to 31 December 2009 into her PNG bank account and to pay her first fortnight's salary for 2010 in cash before she left for the Philippines, to enable her to open an account there. She has refused to accept her salary for the January-February 2010 period but the money is retained by DWU and will be given to her when she decides to collect it. She has, however, accepted her final entitlements so there has been no unlawful termination.

Findings of fact

19. Mr Wadau, for the plaintiff, invited the court to find that the plaintiff's version of events was the correct one: that DWU, through Br Becker, Br Neily and Fr Czuba, told the plaintiff that she had to leave the campus and the country quickly or face the risk of being placed in police custody and that she would be paid three months pay in lieu of notice and it would be sent to her in the Philippines. They gave her no assurance that her position or her on-campus accommodation would be held for her. They did not tell her that DWU would continue paying her while she was away. She was not told anything about paying her first fortnight's salary for 2010 in cash. Mr Wadau submitted that if, in fact, the plaintiff had been told the things that the DWU witnesses are now saying she was told, she would not have brought the matter to court. He also suggested that the DWU witnesses were not telling the whole truth and that they were evasive.

20. I agree that it does seem strange that the plaintiff would go to the trouble and expense of consulting a lawyer and then initiating court proceedings against her employer if, in fact, she had been assured that her employer wished to continue employing her. By the same token, it seems strange that the plaintiff would have formed the view that DWU was terminating her contract when she knew that they were purchasing her a return PNG-Philippines airline ticket.

21. I cannot accept the submission that any of the DWU witnesses gave untruthful evidence. They were all subject to vigorous cross-examination and, after all, they are men of the cloth, of high standing in the community, and the chances of any of them giving deliberately false evidence must be regarded as extremely remote.

22. As for the plaintiff's evidence, Mrs Elai, for DWU, invited me to find that much of her evidence was not credible, due in large part to irregularities in the IPA registration of her company (where she is recorded, falsely, as being a PNG citizen). I thought the plaintiff gave an adequate explanation for this: it was a mistake in the company registration, which she has been trying for some time to have corrected. I also agree with Mr Wadau that much of the cross-examination of the plaintiff about the status of her company was irrelevant, and certainly not damaging to her credibility as a witness.

23. After considering the plaintiff's two affidavits and her oral testimony, I am left in no doubt as to the genuineness of her concerns when she was told on 21 December 2009 that she would have to cease work and leave the country. She was very upset. She was crying. She genuinely thought that she had been put into this invidious position due to DWU's failure to sort out her work permit over a long period. She felt that she was in trouble due to no fault of her own. She became physically ill. It was in evidence that she had been working in Goroka for some time, but her safety and security were threatened there, so she moved to Madang and secured a job at DWU, where her sister was also employed. None of the DWU witnesses suggested that in any way her performance was not satisfactory. Br Neily made a point of saying in his oral evidence that DWU was pleased with her performance. In these circumstances it is easy to understand how and why she was upset, indeed distraught, at how things had turned out. She was obviously under a great deal of stress, especially as the events were unfolding just a few days before Christmas, a time of the year which for someone in her position would have been expected to be a time of peace, joy and reflection, a time to be relaxing with her loved ones at a place she evidently wanted to be – Madang – not forced to leave, at short notice, and labelled an illegal immigrant in a country which has been her home for the last 23 years.

24. I find that the plaintiff was in a distressed emotional state and this led to her not fully appreciating, and misunderstanding, what was told to her, first, by Br Becker, then by Br Neily, and then again by Fr Czuba. I find that Mr Natera was with Br Becker when he spoke to the plaintiff on the afternoon of 21 December 2009. I do not accept that Br Becker (or Br Neily) told her that she would be locked in the police cell. I accept Fr Czuba's evidence that, in fact, the plaintiff was told that DWU would continue paying her salary and retain her position and accommodation. Fr Czuba told her that he would instruct the Finance Division to pay her salary up to 31 December 2009 into her PNG bank account and to pay her first fortnight's salary for 2010 in cash before she left for the Philippines, to enable her to open an account there.

25. In short, I accept the version of events given by the DWU witnesses subject to the finding as explained above that the plaintiff was, in fact, for understandable reasons, in a distressed emotional state to the point that she became incapable of appreciating what, in particular, Br Neily and Fr Czuba were attempting to explain to her.

The law on repudiation

26. There are no PNG cases directly on point but there is a recent decision of the High Court of Australia, Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61, that sheds light on the issue. The majority of the High Court (Gleeson CJ, Gummow J, Heydon J and Crennan J) held that a party repudiates a contract by evincing unwillingness or an inability to render substantial performance of it. 'Renunciation' of a contract is a more appropriate term to describe such a situation, the majority said. As to determining whether one of the parties is renouncing or repudiating the contract, their Honours held:

The test is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other, renunciation either of the contract as a whole or of a fundamental obligation under it.

27. The test for deciding whether the conduct of an employer is such as to amount to repudiation of a contract of employment was crystallised further by the decision of Ross J in the Supreme Court of Victoria in Whittaker v Unisys Australia Pty Ltd [2010] VSC 9. His Honour held:

It is clear … that an actual intention to repudiate is not necessary; the issue is resolved objectively by reference to the effect it would have on a reasonable person. Hence the question becomes whether the conduct of the employer, judged objectively, evinced an intention to no longer be bound by the contract. Repudiation may also be established by conduct that evinces an intention to perform the contract only in the manner in which it suits that party to perform.

Whether there has been repudiation in a particular case is a question of fact.

Not every breach of contract is repudiation and repudiatory conduct is not to be inferred lightly. Repudiation may be evidenced by a single act or by an accumulation of conduct in circumstances where no individual act on its own constitutes repudiation.

28. I am not, of course, bound by those principles of law as they emanate from another jurisdiction but I am entitled to have recourse to them for their persuasive value (Constitution, Schedule 2.12). They are, in any event, I consider, accurate reflections of the common law of England immediately prior to Independence Day 1975, which is still the source of much of PNG's law of contract, having been adopted as part of our underlying law. There are no written laws on the subject of repudiation of contracts of employment and there are no good reasons not to regard these principles as part of our underlying law. So I will apply them to this case (Constitution, Section 20; Underlying Law Act, Sections 4 to 7; New Britain Palm Oil Ltd v Vitus Sukuramu (2008) SC946; Magiten v Beggie (2005) N2908).

29. The question that must be asked is whether the conduct of DWU was such as to evince (or convey) to a reasonable person in the plaintiff's position that it was unwilling or unable to continue employing her. It is an objective, not a subjective, test. So the question is not: did the plaintiff consider that DWU was terminating her employment? If that were the test, this would clearly be a case of repudiation as the plaintiff did, in fact, consider that DWU was terminating her contract. The proper question to ask is: what would a 'reasonable person' in the position of the plaintiff have felt, given all the circumstances and the way in which she was being dealt with by Br Becker, Br Neily and Fr Czuba? A reasonable person is a rational and calm person and such a person, I consider, if put in the plaintiff's position, would have, with knowledge of the attempts that DWU had been making throughout 2009 to regularise her work permit status, realised that DWU was not, in fact, terminating her employment, and would not have misread the information being conveyed to her in the way that the plaintiff did. In drawing that conclusion, I have taken heed of what Ross J said in Whittaker's case: repudiation is not to be inferred lightly. The plaintiff has come fairly close to proving the test. DWU could have done a better job in communicating, clearly and calmly, to the plaintiff what precisely had been decided about her present and future situation. However, I find that DWU did enough to evince to a reasonable person in the plaintiff's position that it was not terminating or repudiating or renouncing her contract of employment. It evinced sufficiently its intention to retain her and to continue the employer-employee relationship; the instruction that the plaintiff should cease work and leave the country being a genuine, if belated, attempt by DWU to comply with the country's labour laws. There was no repudiation.

30. It is a fairly strict test and it is not satisfied here. DWU did not on 21 December 2009 or at any time up until 8 February 2010 repudiate the contract.

2 WAS THE CONTRACT TERMINATED BY OPERATION OF LAW?

31. The argument is that DWU breached the Employment of Non-Citizens Act Chapter No 374 by not securing a work permit allowing it to her employer, prior to engaging her as finance manager for Diwai Mart; and was in continuing breach of the Act throughout 2009. This led to termination of the contract by operation of law under Section 11 of the Act. Mr Wadau submitted that, as it was DWU's fault that the work permit was not obtained, DWU must bear the consequences and is liable to pay out the balance of the contract of employment plus damages.

32. I reject this argument for several reasons, the first being that the law relied on by the plaintiff did not apply during her period of employment. The former Employment of Non-Citizens Act Chapter No 374 was repealed and replaced by the Employment of Non-Citizens Act 2007, which commenced operation on 1 January 2009 (see the long title and Section 62 of the 2007 Act and National Gazette No G205 of 10 November 2008, page 2). However, even if the former Act continued to apply during 2009, Section 11 would not assist the plaintiff in the way contended for by Mr Wadau. That is so, even if DWU was guilty of breaching the law by not securing a work permit for the plaintiff. Section 11(1) (termination of employment) of the former Act – which appears to be the provision relied on by the plaintiff – states:

Notwithstanding the provisions of any other law or of any term or conditions of any contract or agreement, an employer shall terminate the employment of a non-citizen who is in his employment within 14 days of his being notified in writing by the Secretary that a work permit in respect of that non-citizen—

(a) has not been issued under Section 7; or

(b) has been cancelled under Section 9.

33. This provision does not by operation of law terminate a contract of employment, nor does it spell out the consequences of a failure to comply with the obligation it imposes. It obliges an employer to terminate a non-citizen's employment within 14 days of being notified by the Secretary for Labour and Industrial Relations that a work permit has not been issued or has been cancelled. That is all. It does not say what the consequences are in the event that the employer fails to terminate the non-citizen's employment. In this case, there was no notice in writing from or on behalf of the Secretary until 12 January 2010 when Dr Nadile wrote to Fr Czuba, confirming the telephone advice given to Br Neily on 21 December 2009, that no work permit was being issued and that the plaintiff was required to go offshore before applying for a new work permit. The effect of this notice under Section 11(1) of the former Act would have been to oblige DWU to terminate the plaintiff's employment within 14 days, ie by 26 January 2010. DWU did not terminate the contract of employment until 8 February 2010, so arguably there was a 13-day delay in complying with that requirement.

34. Section 11 has an equivalent in the 2007 Act. Section 32(1) (termination of employment) states:

Notwithstanding the provisions of any other law or of any term or condition of any contract or agreement, an employer shall terminate the employment of a non-citizen who is in the employer's employment within 14 days of the employer being notified in writing by the Secretary that – 

(a) the non-citizen ceases to be the holder of a valid entry permit under the Migration Act 1978; or 

(b) a work permit in respect of that non-citizen has been cancelled under Section 31.

35. This provision provides the plaintiff's argument with even less traction than Section 11 of the former Act. A precondition to its operation is that the Secretary gives notice in writing that the non-citizen has ceased to be the holder of a valid entry permit or that the non-citizen's work permit has been cancelled. There was no notice of that sort in this case (not even Dr Nadile's letter of 12 January 2010 fits into that category), so Section 32(1) did not apply.

36. As to whether DWU committed any breaches of the labour laws – the former Act or the 2007 Act – by engaging the plaintiff, it is arguable that it did. However, it is not necessary to reach any final determination of that issue. Even if the court concluded that DWU breached the law, that would not mean that it breached the plaintiff's contract of employment. It would not give rise to any automatic termination of the plaintiff's contract. And it would not give rise to any liability on the part of DWU to pay out the balance of her contract or to pay her damages.

37. To the extent that DWU was in breach of the former Act or the 2007 Act, I am satisfied that DWU was acting at all times in good faith, attempting to do the right thing by the plaintiff by keeping her in paid employment, while at the same time attempting to comply with the labour laws and the requirements of the Department of Labour and Industrial Relations. As to whose fault it was that the plaintiff was put in a very difficult personal situation on 21 December 2009 and has suffered stress and anxiety in the period since then, I think both parties – DWU and the plaintiff – should share the blame. It appears that there were some irregularities in the information provided by the plaintiff to the Department in March 2009, and this contributed to the delay. And it appears that DWU should have been more diligent in ensuring that the work permit application was processed more quickly, and actively following-up with the Department when the delays became apparent. It is unnecessary to say any more on that issue.

38. The plaintiff's contract was not at any time terminated by operation of law due to DWU's failure to comply with either the former Employment of Non-Citizens Act or the 2007 Act.

3 WHAT DECLARATIONS OR ORDERS SHOULD THE COURT MAKE?

39. I have rejected both of the plaintiff's principal arguments and it is appropriate to declare therefore that DWU is not liable in breach of contract.

40. When it filed its defence to the statement of claim, DWU cross-claimed for a declaration that the contract of employment has been terminated. I see no good reason not to make this declaration. The contract was not terminated by repudiation or by operation of law under the former Employment of Non-Citizens Act or the 2007 Act. It continued in operation until notice of termination was given to the plaintiff on 8 February 2010 and she was paid three months pay in lieu of notice, in accordance with the contract. I am satisfied that this was in accordance with the terms of the contract and the date on which the notice was given is the date of termination of the contract.

41. An interim order, restraining DWU from evicting the plaintiff from her employer-provided accommodation, was granted on 13 January 2010, and extended on 17 February 2010 pending the trial. In view of the result of the trial, that order will be discharged, however I will allow a grace period of three weeks to allow the plaintiff to sort out her affairs.

42. As to costs, Mrs Elai asked that costs be awarded on a solicitor-client basis but in all the circumstances that is not warranted. This has not been a frivolous or vexatious action and both parties ultimately should bear some responsibility for what happened. I will order that they bear their own costs.

ORDER

(1)	It is declared that the defendant is not liable in breach of contract to the plaintiff and is not liable on any other basis to pay out the balance of the plaintiff's contract or damages.

(2)	All relief sought in the statement of claim is refused.

(3)	It is declared that the contract of employment between the defendant and the plaintiff was lawfully terminated by the defendant on 8 February 2010.

(4)	The interim restraining order entered on 15 January 2010 is extended to 19 April 2010.

(5)	The parties shall bear their own costs. 

(6)	Time for entry of the order is abridged to the date of settlement by the Registrar which shall take place forthwith.

Judgment accordingly.

____________________________

Young Wadau Lawyers: Lawyers for the Plaintiff 
Pacific Legal Group Lawyers: Lawyers for the Defendant