N6599
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO 1569 OF 2010

KELEP WALA
Plaintiff

V

TOBIAS K THOMAS, ACTING CHIEF EXECUTIVE OFFICER, 
PNG MICROFINANCE LIMITED
First Defendant

PNG MICROFINANCE LIMITED
Second Defendant

Waigani : Cannings J
2015: 17, 25 November 
2017:  23 January 

LAW OF EMPLOYMENT – wrongful dismissal – whether employer breached written contract of employment by failing to follow disciplinary procedures.

The plaintiff’s employment with the second defendant was terminated one year after he and the second defendant entered into a three-year written contract of employment. The plaintiff sued the second defendant, claiming damages for breach of contract. The plaintiff argued that the second defendant breached the contract by failing to follow the disciplinary procedure set out in the standard terms and conditions that formed part of the contract. 

Held:

(1)	The second defendant breached the contract by terminating the contract for cause without following the disciplinary procedure set out in the contract, contrary to the terms of the contract which required that, before terminating the contract for cause, the disciplinary procedure set out in the contract had to be implemented. 

(2)	A further breach of contract was committed by the second defendant’s failure to pay all entitlements due to the plaintiff upon termination of the contract.

(3)	The plaintiff established a cause of action in breach of contract. The proceedings shall continue, subject to any agreement by the parties to the contrary, to a trial on assessment of damages and unpaid entitlements.

Cases cited

The following cases are cited in the judgment

Dominic Wairo v Quest Exploration Drilling (PNG) Ltd (2014) N5720
George Podas v Divine Word University (2011) N4395
Timothy Con v Jant Ltd (2014) N5503
Vitus Sukuramu v New Britain Palm Oil Limited and Others (2007) N3124

TRIAL

This was a trial on liability for breach of a contract of employment.

Counsel:	
F Kuvi,for the Plaintiff
M Mukwesipu, for the Defendants

23rd January 2017

1.	CANNINGS J:  The issue in this case is whether the second defendant, PNG Microfinance Ltd, is liable in breach of contract to its former employee, the plaintiff, Kelep Wala.

2.	The plaintiff commenced employment with the second defendant as manager of its Popondetta branch on 12 May 2008. He was employed under a three-year written contract of employment. The second defendant terminated the plaintiff’s employment on 22 May 2009. 

3.	On 17 December 2010 the plaintiff commenced proceedings against the second defendant and its then acting CEO, Tobias K Thomas, (the first defendant) claiming damages for breach of contract. He claims that he should be awarded the salary and other emoluments lost in the balance of the contract period. The plaintiff’s principal argument is that the second defendant breached the contract by failing to follow the disciplinary procedure set out in the standard terms and conditions that formed part of the contract.

4.	I make two points at the outset. First, it was unnecessary to join the acting CEO as a defendant. The second defendant was the plaintiff’s employer, the party with which the plaintiff entered into the contract. No case exists against the first defendant. I dismiss the proceedings against the first defendant. Secondly the issue of whether the plaintiff should be paid out the balance of the contract will not be addressed in this judgment. This was a trial on liability. There will only be an order as to whether liability has been established against the second defendant.  

DID THE SECOND DEFENDANT BREACH THE CONTRACT BY NOT FOLLOWING THE DISCIPLINARY PROCEDURE?

5.	I first need to make findings of fact. For this purpose I have assessed two affidavits of the plaintiff, and an affidavit by Sankaraiah Chitteti, acting Chief Executive Officer of the second defendant. 

Facts 

6.	On 11 December 2008 the plaintiff was involved in an alleged “drinking incident” regarding use of the branch vehicle, which was reported to head office. The plaintiff was given a “please explain”, which he did, saying that it would never happen again, and the matter was taken no further. 

7.	A similar thing happened on Wednesday 29 April 2009. It was reported to head office that the plaintiff had been drinking alcohol in official hours while he had control of the branch vehicle.

8.	On Thursday 30 April 2009 the human resources manager, Betty Elliott, wrote to the plaintiff, setting out various allegations regarding the incident of the previous day, drawing his attention to the company’s code of conduct and requiring him to respond in writing to the allegations.

9.	The plaintiff responded by email on 13 May 2009. He conceded that he had consumed three beers during the incident of 29 April. He said that this was due to pressure imposed by other members of the group that he was driving to Kokoda for an awareness program, who without his knowledge or planning purchased a carton of beer on the way. He emphasised, however, that the awareness program had been successful and there had been good feedback.  

10.	From 11 to 16 May 2009 the second defendant’s legal recovery officer was on a field trip in Popondetta. On her return to head office she presented a report to the managing director, dated 19 May 2009, commenting adversely on the lending and collection culture and general performance of the Popondetta branch.

11.	On 20 May 2009 the managing director emailed the human resources manager, referring to the report of the legal recovery officer, stating:

We should act now on dismissing Kelep [the plaintiff] by refusing to extend his probationary period. This would be based on his two drinking episodes and his general unsuitability for the position given the constantly high PAR outcomes at the branch.  We employed him as a manager and expected him to have the basic planning, monitoring and leadership skills to fill the position. He has not demonstrated these qualities. 

12.	Between 3.00 and 4.00 pm on Friday 22 May 2009 the human resources manager rang the plaintiff, at the Popondetta branch. She told him his employment was terminated with immediate effect. I accept the plaintiff’s evidence that, at that stage, no reasons were given and that nothing was put in writing. There are clear depositions to that effect in his affidavits, which were not contradicted in the evidence introduced by the second defendant.

13.	I also accept the plaintiff’s evidence that on the weekend of 23-24 May 2009 he retained the branch vehicle and on the morning of Monday 25 May 2009 he went the branch, handed over the vehicle keys and the office keys to the assistant manager, held a brief meeting with staff, then left, never to return.

14.	There is in evidence a letter dated 22 May 2009, from the managing director to the plaintiff, headed “DISCONTINUANCE OF SERVICE”, which is, in effect, a notice of termination of employment. I find that this letter was prepared on or about the date shown, but it was not served on the plaintiff at that time or at any other time. It is not clear why this was so. There is no evidence that it was personally served on him, faxed, emailed or in any other way conveyed to him.

15.	The letter of 22 May 2009 is nevertheless relevant as it does enable a finding of fact to be made as to the actual reasons for termination of the plaintiff’s employment. It stated:

Dear Kelep

Your employment records with PML show that you are still on probation. During this probationary period, HO has received two accounts of drinking incidents which happened during office hours and while you were carrying out official duties.

Additionally the increasing PAR levels at the branch indicate your lack of planning, monitoring, control and leadership skills. Your overall performance has not improved despite numerous training and assistance from HO.

Your general unsuitability for this position means that PML cannot confirm your employment to permanency status for the full term of the employment contract. In view of this, your employment with PML is discontinued immediately. 

Sincerely

Paul Thornton 
Managing Director 

16.	I find that the plaintiff’s employment was terminated “for cause”. This is borne out by the fact that the only payment he received from the second defendant after 22 May 2009 was the sum of K1,573.00 deposited into his bank account on 26 June 2009. That represented 15 days of accrued recreation leave. The plaintiff did not receive any salary in lieu of notice.

17.	During 2009 and 2010 the plaintiff wrote on three occasions to the second defendant asking to be paid out the balance of his contract and notifying of his intention to sue, if the matter remained unresolved. He received no response. 

The contract

18.	The document “PNG Microfinance Ltd Standard Terms & Conditions for Officers of PNG Microfinance Ltd” forms part of the plaintiff’s contract of employment, by virtue of clause 1 of the contract. There are three significant sections, 13, 14 and 19:

13	TERMINATION OF EMPLOYMENT 

13.1 The grounds on which the Managing Director may terminate the contract are:

(a)	a change or proposed change to the Constitution of Papua New Guinea;
(b)	any changes to PML’s Branch Expansion Plan;
(c)	in the event of redundancy;
(d)	for cause as determined by these terms and conditions and the laws of Papua New Guinea;
(e)	on grounds of ill-health, as advised by a medical officer appointed by PNG Microfinance;
(f)	as a result of early retirement or normal retirement; or 
(g)	for any breach of the contract, as notified by the Managing Director.

13.2 The employment under this contract may be terminated and the grounds shall be stated in writing to the officer at the time of termination:

(a)	by either the Managing Director or the officer each giving the other at least three calendar months’ notice in writing;
(b)	by the Managing Director by giving to the officer less than three calendar months’ notice in writing and paying the officer’s salary and other emoluments calculated up to the expiration of three calendar months after the giving of such notice in which event the contract will terminate on the date stipulated in such notice; or
(c)	the Managing Director without allowing any period of notice or making any payment in lieu of notice should the contract be terminated for cause as defined herein. 

13.3 Upon termination of employment all accrued benefits calculated in accordance with the terms and conditions and subject to any penalties herein, shall become due and payable to the officer. 

13.4 If on resignation the officer has failed to give due notice in accordance with this section, PNG Microfinance shall deduct from any accrued benefits payable to the officer, a sum of money equivalent to the base salary which would have been paid to the officer in respect of the notice period. 

13.5 Subject to the officer securing future employment in PNG Microfinance under section 20 herein, termination of the contract will otherwise result in termination of employment from PNG Microfinance.

14	TERMINATION FOR CAUSE 

In the event that the officer:

(a)	commits a breach of the provisions of any Act, Regulation, Policy or this contract;
(b)	divulges without authority from the Managing Director any information concerning public or client business, whether in relation to PNG Microfinance or otherwise;
(c)	wilfully disobeys or disregards a lawful order;
(d)	is negligent in the discharge of the duties specified by the Managing Director from time to time;
(e)	is inefficient or incompetent from causes within the officer’s own control;
(f)	attends work with impaired capabilities and judgment following the consumption of  alcohol or un-prescribed drugs;
(g)	solicits or accepts a fee or gift in connection with the discharge of official duties;
(h)	is guilty of any disgraceful or improper conduct in the discharge of official duties or otherwise;
(i)	is continually absent from work without proper authority or good reason;
(j)	is convicted of a criminal offence;

then the officer is guilty of a serious disciplinary offence and the Managing Director may immediately terminate the employment without notice provided that the Disciplinary Procedure under section 19 has been implemented.  

19	DISCIPLINARY PROCEDURE

19.1 Serious disciplinary matters pursuant to section 13 hereunder, allegedly involving the officer shall be resolved through the following procedure:

(a)	where the officer is alleged to have committed a serious offence under section 13, the Managing Director or his designate may suspend the officer with or without pay, the officer will then be charged in writing highlighting the offence allegedly committed and enable the officer to reply to such charges;

(b)	the officer shall formally respond to the charge in writing to the Managing Director within seven days of the charge being laid;

(c)	the Managing Director prior to terminating the officer’s contract shall obtain the officer’s formal response, any other relevant evidence, and having obtained a legal opinion, shall determine whether or not the contract should be terminated;

(d)	the decision of the Managing Director shall be final and the terminated officer may seek redress through the Papua New Guinea courts of law in the event that he/she considers the termination to have been made unfairly.

19.2 Notwithstanding the above procedure, the Managing Director may formally caution or warn the officer in writing for unsatisfactory performance of duties, where the disciplinary offence is considered by the Managing Director not to warrant termination for cause, under section 13 herein. 

Interpretation

19.	I now elaborate on the finding that this was a case of termination for cause. It is necessary to do this because the second defendant did not express the reasons for the plaintiff’s termination in terms of section 14 of the standard terms and conditions. 

20.	It must be inferred from the Managing Director’s letter of 22 May 2009 that the plaintiff was terminated for cause under sections 14(e), (f) and (h), in that he:

•	(e): was inefficient from causes within his own control (“increasing PAR records at the branch indicate your lack of planning, monitoring, control and leadership skills … overall performance has not improved despite numerous training and assistance from HO”); and 

•	(f) and (h): attended work with impaired capabilities and judgment following the consumption of alcohol and was guilty of improper conduct in the discharge of official duties (“two accounts of drinking incidents which happened during office hours and while you were carrying out official duties”).

21.	The combined effect of sections 13, 14 and 19 is that the following procedure should have been followed by the second defendant in the event of terminating the plaintiff’s employment for those causes:

•	The disciplinary procedure under section 19 should have been implemented. This was necessary due to section 14 which provides that in the event that an officer is guilty of a “serious disciplinary offence” as defined by sections 14(a) to (j), the Managing Director “may immediately terminate the employment without notice provided that the disciplinary procedure under section 19 has been implemented”.

•	Under the disciplinary procedure:

•	the officer must be charged in writing;
•	the officer is given seven days to respond in writing;
•	prior to deciding whether to terminate the contract, the Managing Director must obtain the officer’s response and a legal opinion.

•	If the Managing Director decides to terminate the officer’s employment he must state the grounds of termination in writing to the officer at the time of termination. This requirement arises under section 13.2. 

Was the procedure followed?

22.	No. I uphold the submission of Mr Kuvi for the plaintiff that the procedure was not followed, in that:

1.	The plaintiff was not given a charge in writing, as required by section 19.1(a). I reject the submission of Mr Mukwesipu for the defendants that the 30 April 2009 letter from the human resources manager to the plaintiff contained a charge. The word “charge” was not used and no reference was made to implementation of the disciplinary procedure. The letter was a ‘please explain’ notice and an expression of concern. To be compliant with section 19.1(a) there needed to be a reference to the disciplinary procedure in the standard terms and conditions. 

2.	The Managing Director did not have regard to the plaintiff’s response to the 30 April 2009 letter and did not obtain a legal opinion (there being no evidence that the Managing Director had regard to such matters) before deciding to terminate the plaintiff’s employment. This was contrary to section 19.1(c).

3.	The grounds of termination were not stated in writing at the time of termination.

What are the consequences of failure to comply with the disciplinary procedure?

23.	As I have said in other wrongful dismissal cases, termination of a person’s contract of employment is a serious matter. If a contract has termination provisions, they must be strictly interpreted and enforced (George Podas v Divine Word University (2011) N4395, Timothy Con v Jant Ltd (2014) N5503 and Dominic Wairo v Quest Exploration Drilling (PNG) Ltd (2014) N5720).

24.	Here, the termination provisions, in particular the disciplinary procedure, were breached. The consequence is that the plaintiff has established a cause of action in breach of contract and the second defendant is liable in damages.

DID THE SECOND DEFENDANT FAIL TO PAY THE PLAINTIFF HIS CORRECT ENTITLEMENTS?

25.	The plaintiff’s final entitlements appear to have been calculated on the presumption that his contract of employment was terminated for cause in accordance with the contract. I have just determined that as a matter of law, that was not the case. The inevitable conclusion is that the plaintiff has not been paid his correct entitlements.

WHAT ORDERS OR DECLARATIONS SHOULD THE COURT MAKE?

26.	I will declare that the plaintiff has established a cause of action in breach of contract. The proceedings will continue, subject to any agreement by the parties to the contrary, to a trial on assessment of damages and unpaid entitlements. I have considered referring all remaining areas of dispute, including orders that would determine the proceedings and the costs of the proceedings, to mediation under Rule 5(2) of the ADR Rules. However, I consider that with appropriate directions being given to the parties, this case will reach a speedier resolution by having a trial on assessment of damages and unpaid entitlements.

ORDER	

(1)	It is declared that the plaintiff has established a cause of action in breach of contract against the second defendant.

(2)	The proceedings in respect of the first defendant are dismissed.

(3)	The proceedings shall continue, subject to any agreement by the parties, to a trial on assessment of damages and unpaid entitlements, the assessment of such sums to be determined in accordance with the above declaration of liability.

(4)	The question of costs is deferred to conclusion of the proceedings.

(5)	The proceedings shall return for mention on 24 February 2017 at 9.30 am.  

Judgment accordingly,
______________________________________________________________

Elemi Lawyers	: Lawyers for the Plaintiff		
Gadens Lawyers	: Lawyers for the Defendants