N11070

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS. NO. 387 OF 2018

JOHN NUMAPO
Plaintiff

-V-

DR. KEN NGANGAN, Secretary for Finance
First Defendant

THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Second Defendant

Waigani:  Kariko, J
2022: 8th September & 4th November
2024: 7th March

DEBT – assessment of – entry of default judgement – principles –pension entitlements as a former constitutional office-holder – no dispute regarding entitlement to pension – calculation of outstanding pension – applicable tax rate on the pension 

The plaintiff seeks the payment of unpaid pension entitlements due to him from the State under the Organic Law on the Guarantee of the Rights and Independence of Constitutional Office-holders, following the expiration of his term of appointment as the Chief Magistrate. 

Held:

1.	The pension entitlement under the Organic Law on the Guarantee of the Rights and Independence of Constitutional Office-holders is seventy percent (70%) of the base salary at the time the pension is due.

2.	The salary and other entitlements paid to a constitutional office-holder cease upon the expiration of his or her term of appointment. 

3.	Pension payable to a former constitutional office-holder is not a retirement benefit.

4.	The tax rate to apply to pension payable to a former constitutional office-holder shall be in accordance with the Income Tax Act.   
  
Cases Cited:
Madang Provincial Government v Loman (2003) N2737
William Mel v Coleman Pakalia and Others (2005) SC790

Counsel:
Mr F So, for the Plaintiff
Mr R Uware, for the Defendants

7th March 2024

1.	KARIKO, J: This case was tried on assessment of damages following the entry of default judgement in favour of the plaintiff on 7 April 2022. 

THE CLAIM

2.	As former Chief Magistrate, a constitutional office-holder, the plaintiff has claimed unpaid pension owing to him for the period 31 July 2009 when his term of appointment expired to 12 December 2017 when he was appointed an acting Judge of the National Court. 

3.	The relief sought as pleaded in the further amended statement of claim is for: 

(1)	The sum of K1, 074, 478.30 Unpaid/Outstanding Pension Payments.
(2)	The sum to be determined based on salary point ‘Al7’ of the SRC determinations for the accrued retirement benefits and entitlements immediately after the expiry of plaintiff’s term of office. 
(3)	Interest at 8% per annum pursuant to Judicial Proceedings Interest (On Debt & Damages) Act, and 
(4)	Costs.

4.	During the trial, the plaintiff effectively abandoned his claim for retirement benefits and entitlements and only pursued the claim for unpaid/outstanding pension, plus interest and costs.

EVIDENCE 

5.	Relevant evidence in the hearing on damages comprised affidavits by the plaintiff and Tom Dangiaba, the Director of Corporate Service, Magisterial Services. 

6.	With the consent of the parties, Mr Dangiaba was summoned by the Court to give evidence considered relevant to the issues being tried. The step to issue the summons was initiated by Court after the parties were unable to resolve the dispute out-of-court.

7.	The evidence is largely undisputed:

•	The plaintiff joined the magisterial services as a magistrate in 1986 and continued in that employment until he was appointed the Chief Magistrate on 31 July 2003 for a period of 6 years.
•	The appointment lapsed on 31 July 2009.
•	The plaintiff was not re-appointed nor was he deployed to a similar position in the public service.
•	The plaintiff continued to be paid the salary and other entitlements he had been receiving as the Chief Magistrate up to and including 26 January 2010.
•	He was entitled to be paid pension as a former constitutional officeholder after his term as the Chief Magistrate ended.
•	The annual pension payable was seventy percent (70%) of the annual base salary payable to the Chief Magistrate from time to time.
•	The pension should have been paid commencing the end of his term as Chief Magistrate on 31 July 2009 until his appointment as an Acting Judge on 12 December 2017 which disqualified him from being further entitled to the pension.
•	The pension was not paid despite numerous requests and follow-ups by the plaintiff with the Magisterial Services, the Judicial and Legal Services Commission (being the appointing authority of the Chief Magistrate) and the State (through the Department of Finance). 
•	When he did not receive any favourable response from those authorities, the plaintiff filed these proceedings on 18 April 2018 claiming the unpaid pension, accrued retirement benefits and entitlements, interest plus costs.

PENSION

8.	The Chief Magistrate is a constitutional office-holder; s 221(c) of the Constitution.
9.	Pursuant to s 223(2)(b) of the Constitution, an organic law may provide for payment of an adequate and suitable pension to a former constitutional office-holder. 

10.	The Organic Law on the Guarantee of the Rights and Independence of Constitutional Office-holders states in s 10(2) that where a former constitutional office-holder who was employed in the public service prior to his appointment as a constitutional office-holder, is not re-employed in the public service after the end of his term, he shall be paid an annual pension “70 percent of the salary payable from time to time to the occupant of the constitutional office that he occupied”.

11.	It is not controversial that: 

(1)	the plaintiff was entitled to the pension after 31 July 2009 up to 12 December 2017.
(2)	The pension is calculable at 70% of the annual base salary of the Chief Magistrate during that period.

ISSUES 

12.	To answer how much the State owes the plaintiff as unpaid pension, I consider these questions need to be answered: 

(1)	How is the salary and entitlements paid for the period 1 August 2009 to 26 January to be treated?
(2)	What was the applicable tax rate on the pension?

13.	During final submissions, I raised the question of whether the Frauds & Limitations Act 1988 applied to the claim for unpaid pension, but after hearing from parties, I was persuaded that it does not as for the important reason that the pension is an entitlement guaranteed by the Constitution.  

SUBMISSIONS

14.	Despite the plaintiff claiming K1,074,478.30 for unpaid pension in the pleadings, he accepted instead through counsel the figure of K652,287.67 which was calculated by Mr Dangiaba as shown in this table: 

	A	B	C	D	E	
Year 	Annual base salary 	70% of annual base salary 	70% of base salary payable per fortnight	No of fortnights	Outstanding 	
2009	K123,901.00	Was on payroll			Nil	
2010	K142,486.00	K99,740.20	K3,836.16	24	K92,067.84	
2011	K163,859.00	K114,701.10	K4,411.59	26	K114,701.10	
2012	K176,148.00	K123,303.60	K4,742.45	26	K123,303.60	
2013	K188,479.00	K131,935.10	K5,074.43	26	K131,935.30	
2014	K201,673.00	K141,171.30	K5,429.66	26	K141,171.10	
2015	K215,790.00	K151,053.00	K5,809.73	26	K151,052.98	
2016	K231,974.00	K162,381.80	K6,245.45	26	K162,381.80	
2017	K249,372.00	K174,560.40	K6,713.85	24.5	K164,489.33	
                                                                               Gross                K1,087,146.12
                                                                               Tax @ 40%       K434,858.44
                                                                                Net                    K652,287.67	

15.	While Mr Dangiaba applied tax at the rate of 40% on the gross amount of unpaid pension, counsel for the plaintiff argued that 2% is the appropriate rate pursuant to s 1 of the Income Tax (Salary or Wages Tax (Rates) (Amendment)Act 2017 because pension is a retirement benefit.

16.	The defendants did not contest the plaintiff’s submissions.

CONSIDERATION

17.	In deciding the amount owed as outstanding pension, which is regarded as a debt, I am guided by the principles endorsed by the Supreme Court in the case of William Mel v Coleman Pakalia and Others (2005) SC790 regarding assessment of damages, and particularly that:

•	The plaintiff has the onus of proving his loss on the balance of probabilities. 
•	Corroboration of a claim from an independent source is usually required.
•	The principles of proof and corroboration apply even when the defendant fails to present any evidence disputing the claim. 

18.	In relation to the table presented by Mr Dangiaba, I find the following errors in the calculations which affect the gross outstanding pension:

•	The outstanding pension for 2015 should read K151,053.00 (not K151,052.98). 
•	In 2017, the pension payable per fortnight was K6,713.86, not K6,713.85; the number of fortnights commencing 27 January was 24, not 24.5; and the outstanding should read K161,132.64 (not K164,489.33).

19.	Moreover, and importantly, I think it erroneous and misconceived not to consider that the payments made to the plaintiff while he remained on the payroll. They cannot substitute for the pension payments that should have been paid. The two types of payments, normal salary and pension, are quite distinct.  
 
20.	It is not disputed that after 31 July 2009, the plaintiff was entitled only to a pension, yet he continued to be paid the full salary and entitlements payable to the Chief Magistrate. Clearly, he should have been only entitled to 70% of the base salary, and not paid any of the entitlements (the allowances). As Mr Dangiaba confirmed, pension is calculated on the base salary only and therefore excludes other entitlements (allowances).

21.	According to a copy of the plaintiff’s pay slip for the fortnight pay period ending 27 January 2010, the base salary component was K3,018.02 while the allowances paid were:				- 

•	domestic servant allowance	- K147.60 
•	entertainment allowance	- K99.68 
•	vehicle allowance		- K365.77 
•	telephone allowance		- K258.79 
•	utilities allowance 		- K172.52 
•	and housing allowance. 	- K2392.33									Total	- K3,436.69 

22.	The plaintiff remained on the payroll for 13 fortnights. Because he was then only entitled to 70% of the base salary, he was overpaid by K905.40 (30% of K3,018.02) in salary each fortnight which totals K11,770.20 (13 x K905.40). 

23.	During the same period, the plaintiff was wrongly paid allowances of K3,436.69 a fortnight, a total of K44,676.97 for the 13 fortnights.

24.	In the result, the plaintiff must reimburse the amount of (K11,770.20 + K44,676.97) = K56,447.17. 

25.	Adopting and adapting Mr Dangiaba’s table, my calculations of the unpaid pension is: 

	A	B	C	D	E	
Year 	Annual base salary 	70% of annual base salary 	70% of base salary payable per fortnight	No of fortnights	Outstanding 	
2009	K123,901.00	K86,730.70	K3,335.79	11	K36,693.69	
2010	K142,486.00	K99,740.20	K3,836.16	24	K92,067.84	
2011	K163,859.00	K114,701.10	K4,411.59	26	K114,701.10	
2012	K176,148.00	K123,303.60	K4,742.45	26	K123,303.60	
2013	K188,479.00	K131,935.10	K5,074.43	26	K131,935.10	
2014	K201,673.00	K141,171.30	K5,429.66	26	K141,171.30	
2015	K215,790.00	K151,053.00	K5,809.73	26	K151,053.00	
2016	K231,974.00	K162,381.80	K6,245.45	26	K162,381.80	
2017	K249,372.00	K174,560.40	K6,713.86	24	K161,132.64	
                                                                               Gross                K1,114,440.07 	

26.	Regarding the tax rate to apply, Mr Dangiba advised that 40 % is the correct rate according to IRC guidelines on salary and wages dated 1 January 2019 (Annexure B to his affidavit). As noted earlier, Mr So’o argued otherwise urging the Court to instead use 2% pursuant to s 1of the Income Tax (Salary or Wages Tax (Rates) (Amendment)Act 2017.

27.	I reject counsel’s submission because clearly, the 2% rate applies to lump sum payments on retirement benefits, specifically superannuation contributions and long service leave. Pension is not included. 

28.	I also consider as irrelevant the submission that the 2 % rate should be applied because it is unfair that Members of Parliament are exempted for paying tax on their pensions under Section 29(1)(m) of the Income Tax Act 1959. The law is that pension for constitutional office-holders does not enjoy tax exemption and is taxable according to the Act.

29.	Furthermore, I view the case of Madang Provincial Government v Loman (2003) N2737 which was relied upon by the plaintiff as not helpful to his case.

30.	Pension is considered salary and the tax rate applicable to the salary level or band is to be utilized. The rate of 40 % is the correct rate to apply on the unpaid pension as it is salary that was between K2,700.00 and K9,623.00 per fortnight. 

31.	The IRC guidelines referred to earlier sets out the formula for calculating the tax, which is [(Income x 26 – 200) x 0.40 – 9500]/26. Applying the formula to the present case, the tax on the outstanding pension is: 

K[(1,114,440.07 x 26 – 200) x 0.40 – 9500]/26 = 
K[(28,975,441.82 -200) x 0.40 – 9500]/26 =
K[(28,975,241.82) x 0.40 – 9500]/26 =
K[11,590,096.72 – 9500]/26 =
K[11,580,596.72]/26 =K445,407.56  

32.	The net amount of pension payable is therefore the gross pension of K1,114,440.07 less tax of K445,407.56, which is K669,032.51.  

33.	From this amount the wrongful payments of K56,447.17 made between 1 August 2009 and 26 January 2010 must be deducted, which leaves a final balance of K612,585.34 as unpaid pension owed by the State to the plaintiff.

34.	Pursuant to s 4(2) of the Judicial Proceedings (Interest on Debts and Damages) Act 2015, I exercise my discretion to award 2% interest on the judgement sum to be applied from the date of filing this action (18 April 2018) to the date of settlement of the judgment sum.

35.	Costs of the proceedings shall follow the event. 

ORDER

(1)	The State shall pay the plaintiff K614,599.35 as unpaid pension.
(2)	The State shall pay the plaintiff interest of 2% on the judgement sum to be applied from 18 April 2003 to the date of its settlement.
(3)	The State shall pay the plaintiff’s costs of the entire proceedings on a party-party basis, to be taxed if not agreed.
(4)	Time for entry of this order is abridged to the date of settlement by the Registrar which shall take place forthwith.   

Ketan Lawyers: Lawyer for the Plaintiffs
Solicitor-General: Lawyer for the Defendants