SC1474

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SC APPEAL No. 61 OF 2012

BETWEEN:

ELIAS TOWAIPI
Appellant

AND:

WILSON KAMIT, the Registrar of Savings & Loans Societies
First Respondent

AND:

PNG COCOA GROWERS & PRODUCERS SAVINGS & LOANS SOCIETIES LIMITED
Second Respondent

Waigani: Gavara-Nanu, Toliken & Higgins JJ
2015: 1st September
2015: 24th November

APPEAL – Action for wrongful dismissal – Whether finding of dismissal for cause sustainable – Whether contract of employment supported non-employer in dismissing appellant – Whether performance being frustrated relieves employer of liability under the contract – Appeal allowed.

Cases cited
Papua New Guinea Cases

Christian Life Centre v. Associated Mission Churches of Papua New Guinea (2002) N2261
Kawaso Ltd v. Oil Search PNG Ltd (2012) SC1218
K. L Engineering and Construction (PNG) Ltd v. Damansara Forest Products (PNG) Ltd (2002) N2250
Keith Reid v. Murray Hallam and Allcad Pty Ltd (1995) N1337
Les Lewis and Anor v. Protect Security and Communications Limited (2013) SC1274
New Britain Oil Palm Ltd &ors v. Vitus Sukuramu (2008) SC946
 
Other cases cited
Air Marshall McCormack and Anor v. Lance [2008] ACTA 16
House v. King [1936] HCA 40; (1936) 55 C.L.R 499
Micallef v. ICI Australia Operations Pty Ltd & Anor [2001] NSWCA 274
Planet Kids Limited v. Auckland Council [2014] 1 NZLR 149
Ridge v. Baldwin [1964] AC40

Counsel
N. Donald, for the Appellant
M. Goodwin, for the Respondents

24th November, 2015 

1.	GAVARA-NANU J: I have had the benefit of reading the draft judgment of Higgins J and I respectfully agree with the conclusions reached by his Honour. I just want to add a few comments of my own. 

2.	The background facts are given in Higgins J's judgment and I need not repeat them here, save to stress that the appellant was employed under a contract by the second respondent as its manager. The termination of appellant's contract was due to financial losses suffered by the second respondent which resulted in the second respondent being placed on capital insolvency. This led to the appellant being removed from his position after orders were issued by the first respondent for the Cocoa Board and him to be removed. The appellant denied that he was responsible for the second respondent's financial losses.

3. It is an established principle of the law of contract that rights and obligations of the parties to a contract flow or arise from the terms of the contract: Keith Reid v Murray Hallam and Allcad Pty Ltd (1995) N1337 and KL Engineering and Constructions (PNG) Ltd v Damansara Forest Products (PNG) Ltd (2002) N2250 and Christian Life Centre v Associated Mission Churches of Papua New Guinea (2002) N2261.

4. This case in my respectful view turns on the proper construction of Clause 19 of the appellant's contract under which the contract was terminated. This clause provides for termination for cause. The grounds to constitute cause for termination are penal in nature; for example termination for neglect of duty or wilful disobedience of a lawful order or disgraceful conduct and so on. The grounds should relate to the conduct of the appellant in the discharge of his obligations under the contract. 

5. The genesis of this case goes back to October, 2002, when a routine audit of the second respondent was carried out by the Central Bank. A report of the audit was submitted to the first respondent who is the Registrar of the second respondent by reason of his position as the Governor of the Central Bank. The report revealed inter alia, that the second respondent had operating losses. However, there is evidence that the losses were caused by the Cocoa Board's promised grant of K150, 000.00 to the second respondent not forthcoming. Evidence shows that the situation would have been different had the second respondent received the grant. There is also evidence that certain actions taken by the appellant regarding the second respondent's finances, which were blamed for the second respondent's financial losses were authorised by the Board. Actions of the Board also impacted negatively on the second respondent's finances. So the factors that contributed to the second respondent's capital insolvency did not relate at all to any of the grounds in Clause 19 so as to constitute a cause and the basis for the termination of the appellant's contract.
 
6. With great respect, I therefore find that whilst the learned trial judge had succinctly discussed the applicable principles and laws in his judgment, his Honour's finding and conclusion that the appellant was terminated for cause under Clause 19 is against the evidence and the weight of evidence. More significantly, no finding was made by the learned trial judge of what specific ground or grounds in Clause 19 upon which the contract was terminated. His Honour appears to have overlooked material evidence, which had he considered would have exonerated the appellant from any blame for the second respondent's financial losses. These are fundamental errors of law which warrant this Court to interfere with the learned trial judge's decision: House v. King [1936] HCA 40; (1936) 55 C.L.R 499; Air Marshall McCormack and Anor v. Lance [2008] ACTA 16; Micallef v. ICI Australia Operations PTY Ltd &Anor [2001] NSWCA 274;Kawaso Ltd v. Oil Search PNG Ltd SC1218 and Les Lewis and Anor v. Protect Security and Communications Limited SC1274. 

7. I would for these reasons allow the appeal with costs. 

8. TOLIKEN J: I have had the benefit of reading the draft judgments of Gavara-Nanu J and Higgins J and I agree with their Honours' reasons and conclusions and I have nothing to add.

9. HIGGINS J: This is an appeal from a decision of Lenalia J. given in the National Court of Justice at Kokopo, East New Britain Province, on 11 May 2012.

10. His Honour dismissed a claim by the appellant seeking damages for wrongful termination of his employment with the second defendant by reason of the actions of the first and second defendants.

11. The background facts were not in dispute.

12. On 22 June 2000, the appellant entered into a contract of employment in writing with the second respondent. Under that agreement, the appellant was employed as manager of the second respondent for a period of 3 years from 1st May 2000 at a remuneration specified in that agreement. The second respondent was a corporation subject to the provisions of the Savings and Loan Societies Act 1961. It had a Board of Directors referred to as "the Board". The appellant was the chief executive officer of the second respondent. It was a term of the agreement that the appellant would perform his duties "as set out by the Board in accordance with the Savings and Loan Societies Act" (cl.2). Clauses 6 & 7 provided for payments to be made of salary and allowances and gratuity for the period of the contract including any period unexpired if, before completion of the contract period, the Board terminated the manager's services.

13.	Relevantly, for the purpose of the present proceedings, Clauses 18 & 19 provided:

"18. Termination of Employment

18.1	The grounds on which the Board may terminate the Contract are:-

(i)	an abolishment of the position of the Manager;

(ii)	in the event of redundancy; or

(iii)	for the cause as determined by the contract;

(iv)	on grounds of ill health, as advised by a Medical officer appointed by the Board;

(v)	as a result of early retirement or normal retirement.

18.2	The employment under this Contract may be terminated:-

(i)	under clause 18.1 and clause 19;

(ii)	by the Board giving not less than three calendar months (sic – 'notice') in writing, and paying the manager's salary and other allowances and benefits;

(iii)	if the Manager resigns and in this case, shall give not less than three months notice in writing to the Board."

(Note: It is apparent in clause 18.2(ii) that the word "notice" was accidentally omitted).

"19. Termination for Cause

The Board may terminate this contract immediately where the Manager:-

(i)	is in breach of the terms of this Contract;

(ii)	divulges without authority information relating to the Society, learnt in the course of his duties;

(iii)	wilfully disobeys or disregards a lawful order;

(iv)	is negligent in the discharge of his duties;

(v)	is inefficient or incompetent from causes within his own control;

(vi)	is guilty of any disgraceful or improper conduct in the discharge of official duties or otherwise;

(vii)	is convicted of a serious criminal offense (sic) and sentenced to imprisonment."

14.	Clause 21 of the Contract allowed for the extension of employment under the Contract by mutual agreement on 3 months notice.

15.	It will be noted that Clause 19 did not require the Board to terminate the Contract or the employment of the Manager under it even if cause existed, rather it empowered such termination in that event. It follows that even if cause for termination existed, the Board could, if it thought fit, decline to take action to terminate the Contract. 

16.	The second respondent, as the Contract acknowledged, was also subject to the provisions of the Savings and Loan Societies Act 1961 (PNG) (the Act).

17.	Relevantly, the Act defines "management" as "the chief executive officer of a society" (s.1). The same section defines "officer" to include "any other person empowered under the rules (ie the rules of the Society in question) to give directions in regard to the business of the "society".

18.	Plainly, that definition embraced the Board as well as the appellant as manager of the second respondent.

19.	Section 2 provides (relevantly):

"(1) The Governor of the Central Bank (see Central Banking Act 2000 (PNG)) shall be the Registrar of Savings and Loan Societies.

(2)	The Registrar is charged with the administration of the Act and has such powers, functions and duties as are conferred on him by this Act."

20.	Under s.3, it is provided:

"Subject to any directions by the Governor, the functions and powers of the Registrar are to –

.........

(b) inspect or investigate the operations of a society; and

........

(e) suspend the operations of a society; and

(f) suspend or remove a member or members of a Board of Directors, Supervisory Committee, Loans Committee or management of a society; and

……

(l) appoint an Administrator to manage a society; and

……

(n) direct a society to do such things as he specifies; and

(o) do all things necessary or convenient to be done for or in connection with the achievement of the objects and the performance of the functions of a society."

21.	In October 2002 (14th – 25th), an examination was conducted by way of audit, of the affairs of the second respondent. This was a routine audit carried out by the Bank reporting to the Governor/Registrar.

22.	There report included the following comments:

"The society is capital insolvent. This condition has resulted from breaches of Registrar's directives, operating losses and promised grants from Cocoa Board which have not been forthcoming. Unless immediate measures are taken to restore and maintain adequate level (sic) of capital, the society will continue to face erosion in members' funds."

23.	The report identified a number of such deficiencies. A resolution of the Board to approve the purchase of a motor vehicle for the use of the appellant, at a cost of K103,070.00, brought the ratio of investments in fixed assets above the 5% limit required to be observed by a Directive of the Registrar (4/2000). There was no approval sought or obtained from the Registrar. Whether approval or, at least, non-objection, was sought has been disputed by the appellant.

24.	There was also a reference to "losses incurred by former staff of the society". The auditor questioned whether the monies taken, K30,551.00, fraudulently should have been classified as "loans" and "receivable" rather than written off. There was no Supervisory Committee (internal audit function). However, this was due to the Cocoa Board withdrawing and retrenching its members who were also its employees.

25.	By reason of its reduced profits, the second respondent was also in breach of a Direction of 24 February 1999 not to spend more than it received. The same Directive required the loans to deposits ratio to be not less than 60%. It was 50%.

26.	It was also noted that the Cocoa Board had failed to honour its pledge to provide a capital grant of K150,000.00 to the second respondent.

27.	It was noted that s.46 of the Act provided for interest to be paid to members on their deposits. Section 21(2) provided that:

"A member shall receive interest or additional interest on his savings deposits."

28.	However, s.46(2) provides:

"Subject to the approval of the Registrar, the conditions under which deposits may be accepted and repaid and the rates of interest that may be paid on deposits shall be determined by the Board."

29.	The second respondent had not credited interest to members. Of course, it did not have any surplus funds to enable it to do so prudently. It was a Board decision not to credit interest.

30.	The second respondent had also approved membership from groups of persons not being groups approved by the Registrar, although there was some argument that they were at least in part, cocoa growers.

31.	Whether that affected adversely the profitability of the second respondent was not addressed.

32.	A further issue related to allowances paid as sitting fees to directors. That, it was suggested in the report, was contrary to s.27 of the Act.

33.	In fact s.27 of the Act provides:

"27. Remuneration

(1)	Members of the Board, the Supervisory Committee or the Loans Committee may be paid an amount as meeting allowances determined by the annual or special meeting.

(2)	Notice of intention to make a payment referred to in Subsection (1) shall be given to the Registrar who may, by written notice to the society, direct that the payment:

(a)	shall be made; or

(b)	shall not be made; or

(c)	shall be varied in the manner specified in the direction.

(3)	A society shall not make a payment in contravention of a direction under Subsection (2)."

34.	The Board approved sitting fees for directors of K755.00. The Registrar's approval had not been obtained. The Act did not expressly prohibit such payments but it is arguable that they could not be made without previous notice to the Registrar. On the other hand, even if notified, the Registrar could choose not to issue any direction concerning sitting fees. There certainly was no direction not to pay the sitting fees. It was the contention of the appellant that he had notified the first respondent of the proposal in writing. That was not denied. It would follow from that, that the payment of such fees would not contravene s. 27(3).

35.	Following this report, on 17 January 2002, the Registrar, the first respondent, issued an "order of removal and administration".

36.	The order recited the adverse findings of the Audit Report. It found the second respondent's position to be "serious" and directed the removal of the members of the Board and all other officers, including the appellant. An Administrator was appointed and the second respondent directed to take "corrective actions".

37.	Mr. George Pamel was appointed Administrator. He was then a member of the Cocoa Board.

38.	At a Board meeting on 6 November 2002, it had been resolved that the appellant's contract be renewed as from April 2003 when it was due to expire. The minutes recorded an optimistic outlook not supported by the later audit report. 

39.	At a meeting on 18 January 2003, the Order for Removal was presented and discussed by the Board. The appellant commented relevantly, that he had complied with s.27 of the Act by seeking prior approval for the sitting fees but had received no response.

40.	It was, to my mind, at least arguable that for the Board to proceed to pay sitting fees in those circumstances was not in contravention of s.27 of the Act.

41.	On 20 February 2003, Mr. David Ario, Provincial Labour Officer for Rabaul wrote to the second respondent, addressing Mr. Pamel, claiming, on behalf of the appellant, his entitlements pursuant to his contract, of 3 months' pay and allowances as stipulated in his contract of employment.

42.	Thereafter, on 21 November 2003, having been denied any payment, the appellant issued a writ of summons against the respondents claiming damages for wrongful dismissal, including a payout of his entitlements under the contract of employment and "Damages for mental distress".

43.	An Amended Defence dated 24 March 2004 was filed and served. The essence of the Defence was that the appellant was "justly dismissed for cause". That cause was further particularised as (par 9) "grossly inadequate, negligent and poor management". That was further particularised as:

"(a) The Plaintiff had overseen and managed the fund into a position of capital insolvency and a large deficit.

(b) The Plaintiff as Manager had overseen a situation in which operating expenses far exceeded income.

(c) This excess of expenses over income was in contravention of the lawful Directive of 24 February 1999.

(d) The Board, and the Plaintiff as Manager proceeded to approve and to pay sitting allowances of K755, despite continuing operating losses and a growing capital deficit. Payments were effected without the Registrar's approval in contravention of section 27(1) of the Savings & Loans Societies Act 1961 and paragraph 23 of the standard rules for Savings & Loans Societies.

(e) The Plaintiff as Manager recognized as income and represented as an asset receivables and carried forward as an asset promises for payments that were not assets, or ever likely to be assets.

(f) The Plaintiff represented as a loan or loans an amount f K30,551.00 taken fraudulently by former employees. The Plaintiff then recorded these fraudulently converted funds as an asset.

(g) The Plaintiff made these recordings either dishonestly, or negligently thus overstating the financial position of the Second Defendant.

(h) The Plaintiff enabled the stated employees who had converted these funds to take such funds undetected either through his own dishonesty or his gross negligence.

(i) The Plaintiff did not pay interest to members on members' savings or any of it in accordance with section 21(2) of the Savings & Loans Societies Act 1961.

(j) The Plaintiff operated the second defendant in breach of the Savings & Loans Societies Act 1961 by not limiting membership to those persons in a society to groups of persons having a common bond in breach of sections 19(1) and 20(2)(b).

(k) The Plaintiff invested the Second Defendant's funds in unproductive assets in contravention of Directive 04/2000 which limits property investments to less than five percent of total assets.

(l) The Plaintiff attempted to commit over K100,000.00 of the Second Defendant's funds to the purchase of a luxury motor car when the fund was in financial difficulty.

(m) Further particulars will be provided prior to trial."

44.	A new allegation was made by par 13:

"The Plaintiff misappropriated and converted to his own use by transferring into his own personal bank account funds set aside for employees' superannuation and it would be unjust and insulting to reward the Plaintiff with any damages in such circumstances."

45.	On 2November 2005, a further amended Defence was filed with a Cross-Claim. It pleaded that the first respondent acted in pursuance of his statutory powers. It did not plead the facts which activated those powers.

46.	It did repeat the allegation of dismissal for "just cause", repeating the previously pleaded particulars as well as the par 13 allegation of misappropriation of funds.

47.	The Cross-Claim pleaded a loss on the resale of a vehicle said to have been purchased contrary to a directive of the first respondent. That loss was quantified at K18,070.00.

48.	Paragraph 7 purported to give particulars of that loss. Instead, however, it alleged that the appellant "represented" that a cheque for K4,642.87 was "for NPF contributions" and paid that into his own bank account.

49.	In Reply, the appellant pleaded that the statutory powers of the first respondent had not been validly exercised in respect of his position as manager of the second respondent. In the context, this response was in denial of the proposition that his employment had been terminated for cause pursuant to Clause 19 of his contract of employment.

50.	The appellant further pleaded that the deficit in the operations of the second respondent was a consequence of the Cocoa Board failing to pay its promised contribution of K150,000. He also pleaded that the sitting allowance, mandated by the Board, had been the subject of prior notice of the first respondent as required by s.27 of the Act and not been the subject of any direction. He defended the characterisation of the K150,000 grant promised by the Cocoa Board in the accounts of the second respondent as well as the sums stolen by the officers, the subject of recovery proceedings, as appropriate. He further defended the decision not to make interest payments in the absence of profits and the purchase of the motor vehicle which he denied breached the 5% directive.

51.	The payment to his bank account, he asserted, was in respect of his own contributions withheld from payment due to him. Indeed, he asserted that a further K6,000.00 was withheld from his final payment.

52.	The matter came on for hearing before Lenalia J. at Kokopo East New Britain on 18 May 2011. Mr. Goodwin Poole (as he then was) appeared for the respondents. Mr.Wesley Donald appeared for the appellant.

53.	The documents referred to above were all admitted into evidence by consent.

54.	The appellant then gave evidence. He deposed that the Cocoa Board had not provided sufficient capital funding, though it was the sponsor of the second respondent. He had never been criticised by the Board which seemed satisfied with his services. He gave evidence that, despite the lack of funding from the Cocoa Board, profitability would have been achieved in 2003 (as indeed was the case).

55.	It was his view that, absent a direction to the contrary, the sitting fees, having been directed by the Board, were payable. The contrary view from the first respondent was only notified to the second respondent 3 months later.

56.	He claimed to have lost not only the 3 months entitlements but also the chance of the new contract the Board had resolved to offer him. He also suffered distress by reason of his dismissal.

57.	The Cocoa Board, he said, put in K30,000 to support the Administrator, Mr. Pamel and the second respondent made the profit the appellant had projected would be made.

58.	Mr. Poole cross-examined the appellant. It was not suggested that he had done anything dishonest. The worst that came out was that he had a view of s.27 of the Act not by the first respondent. However, on a proper construction of s.27, it does seem to me that the appellant's view was, at least, an arguable one.

59.	Mr. Donald next called the appellant's wife. She deposed to the distress the termination of his employment had upon the appellant. That was not challenged by Mr. Poole.

60.	The defence case, as outlined by Mr. Poole, involved two questions. First, whether the termination of the plaintiff's employment as manager of the second respondent by the order of the first respondent was lawful and, second, whether the contract of employment continued to bind the second respondent and, in particular, whether the termination payments remained due and payable to the appellant.

61.	The defence relied on two witnesses. The first was Mr. Charles Inapi, the author of the audit report which led to the first respondent issuing the Notice of Removal and appointment of the Administrator. Mr Ellison Pidik was the second witness, in effect, corroborating Mr. Inapi's evidence.

62.	The appellant had no issue with the facts deposed to by Mr. Inapi, verifying his finding at the audit. Indeed, the appellant had not challenged those facts.

63.	However, Mr. Inapi was queried as to the management of the second respondent. He agreed, as he had recommended, that the Cocoa Board needed to put in more capital as it had promised to do. There was considerable questioning about the 5% ratio of unproductive to productive assets. The capital insolvency of K153,000, he agreed, did not include the Cocoa Board promised contribution. In other words, had that been paid, it would have immediately reduced the capital insolvency to K3,000.00. The debt due from the two employees who misappropriated funds was also excluded, though it was clearly unlikely that those funds would have been recovered in full, it was entirely reasonable to expect some recovery.

64.	He was also questioned by Mr. Donald about the decision not to pay interest. He adhered to the view that interest had to be paid even if there were no profits from which to pay it. That does seem to be a view that was, at least, questionable.

65.	The issue here, of course, was not whether the management of the second respondent made the correct decisions but whether their mismanagement, particularly and, relevantly, the appellant's mismanagement or misconduct was such as to warrant his dismissal and, if so, by whom.

66.	There was, clearly, no evidence that the Board of the second respondent or the Administrator exercising its powers and functions had resolved to dismiss the appellant, whether for cause or otherwise. The evidence supported a conclusion that, on the basis of the audit report of Mr. Inapi and by reason of the capital insolvency of the second respondent, the first respondent considered that measures needed to be taken to remedy that situation. It could have been remedied by the Cocoa Board honouring its sponsorship commitment. As it happened, when their employee, Mr Maltep was appointed Administrator, they did partially honour it. That step seemed to resolve the issue as to the second respondent's viability.

67.	It was apparent that that injection of funds, the increasingly improving trading situation, whether with or without the "new broom" enabled the second respondent to improve its performance.

68.	Submissions were received from the parties. The appellant's submissions made the point that the appellant's employment as Manager had not been determined under or pursuant to his contract with the second respondent. His employment had been terminated by the Order of the first respondent in the exercise of his statutory powers under the Act. That does raise a question as to the application and effect of the doctrine of frustration. Did that intervention discharge the contract and, even if so, did that terminate the appellant's rights to pay in lieu of notice? That is addressed later.

69.	The appellant also raised a question as to whether before a removal order could be made, other remedial steps were required to be attempted. Mr. Donald, rightly in my view, noted that the achievement of 'normalcy' for the second respondent depended on the Cocoa Board injecting more capital.

70.	As it happened, the appointment of one of its employees as Administrator also assisted to achieve that purpose.

71.	That raised an issue, however, as to whether it was either open to the appellant or, indeed, relevant to his claim, for him to challenge the validity of the order of removal.

72.	Further, it raises an issue as to whether, even if the first respondent's decision was open to challenge, he thereby became liable to pay damages to the appellant.

73.	Mr. Donald further submitted that certain issues raised by the Audit Report, insofar as they related to the management of the second respondent were outside the control of the appellant. Particularly, the failure to obtain the K150,000promised by the Cocoa Board and non-payment of dividend to members when no profit was realised. 

74.	Mr. Poole, for the respondents, submitted that the first respondent had acted in accordance with his statutory powers under the Act and in accordance with and in response to the Audit report furnished to him.

75.	He further submitted that there had been grounds upon which it had been open to the first respondent to remove the appellant and the Board from their respective offices.

76.	The essence of the criticism of the appellant was, not that he was dishonest, merely out of his depth. As a result, there was inefficiency and incompetence, Mr. Poole contended.

77.	Mr. Poole conceded, however, that per clause 18.2 of the contract of employment, the appellant was entitled to 3 months remuneration. Nevertheless, he submitted that the plaintiff's claim be denied. That concession was not reflected in his Honour's decision.

78.	On 1 May 2012, his Honour delivered his decision.

79.	His Honour, correctly, noted that an employer was entitled to terminate the employment of an employee. Whether that termination, though effective to sever the master/servant relationship was wrongful is a different question. His Honour correctly referred to Ridge v. Baldwin [1964] AC4C, per Lord Reidto that effect.

80.	However, his Honour went on to state:

"[15] I note here that, the plaintiff was terminated for cause in terms of clause 19 of his contract of employment."

81.	That statement is not reflective of the undisputed facts.

82.	The second respondent, whether by the Board or the Administrator, at no time terminated or purported to terminate the employment of the appellant.

83.	His employment was terminated by the operation of the Act when the first respondent exercised his statutory power to remove, inter alia, the appellant from office.

84.	His Honour noted that the Cross-Claim alleged the conversion of a cheque for K4,642.87 and loss on resale of the motor vehicle he had purchased of K18,070.00. Further, though this did not relate to the cross-claim, that he had represented the fraudulent misappropriation by 2 employees in the records of the second respondent as loans and hence as assets. The appellant had not caused to be paid interest on deposits as required by s.21(2) of the Act. His Honour concluded that the payment of sitting fees was in breach of s.27(1) of the Act.

85.	Having regard to New Britain Oil Palm Ltd &ors v. Vitus Sukuramu (2008) SC 946, his Honour concluded that an employer was entitled to dismiss an employee without stating reasons, at least in the private sector. Absent a statutory regulation of the relevant employment, an employee's rights are governed by their contract of employment.

86.	His Honour went on to conclude:

"[42] Under common law, a master does not have to give reasons for his decision to remove a servant and to replace one with another. That is his unfettered discretion and the common law respects [that discretion]. Common law is part of the underlying law in Papua New Guinea which was adopted on Independence Day and over the years since the courts in this jurisdiction have been adopted and applied this common law principle. (see Sch 2.2 of the PNG Constitution.

[43] In the present case, as I have earlier alluded to, it was the intention of the parties in clauses 18 & 19 of the Contract of Employment that the employee should be summarily terminated if there was a breach of the contract. I am of the opinion that the First Defendant-Cross-Claimant acted the way he did to safeguard the interest of the Second Defendant- Cross-Claimant as the Plaintiff-Cross-Defendant had acted outside the terms of the Directives issued by the First Defendant-Cross-Claimant."

87.	Consequently, his Honour dismissed both the claim and the Cross-Claim with no order as to costs.

88.	Whilst the conclusion that the claim be dismissed was based on his Honour's finding that clause 19 of the Contract, dismissal for cause applied, the reasons for the dismissal of the Cross-Claim are not stated. It was a Cross-Claim not a set-off. An employer who dismisses an employee for a cause involving loss to the employer may sue to recover that loss.

89.	In any event, there is no Cross-Appeal. Notice of Appeal was filed on 7 June 2012. It challenged the finding of his Honour that the appellant had been dismissed for cause pursuant to clause 19 of the contract.

90.	Rather, it asserted, the appellant was removed by the order of the first respondent.

91.	Whilst the grounds of appeal are somewhat prolix, they further challenged the finding by his Honour that there was evidence of misappropriation of funds by the appellant or misapplication of funds and mismanagement which warranted his removal and formed the basis for that removal.

92.	To the extent that the grounds of appeal challenged the validity of the Order of Removal and Administration they were ill-conceived.

93.	The first respondent was not acting as the employer of the appellant pursuant to the Contract of Employment in removing the appellant. Rather he was exercising a statutory power under the Act for the reasons stated in the notice of that Order.

94.	The proper course to challenge the Order was judicial review. Not only was that not done but the Appellant's claim accepted the validity of his dismissal and sought relief accordingly.

95.	I note that the appellant abandoned any claim that the learned trial judge's decision was tainted by real or apprehended bias or lack of natural justice. In my view that ground was properly abandoned.

96.	Neither party seemed to grasp the distinction between termination of the appellant's employment by his employer for cause under clause 19 of the contract of employment and removal of him from his employment by the exercise of the statutory powers of the first respondent.

98. That raises the question of the application of the doctrine of frustration. Was the contract discharged so as to terminate all rights the appellant might otherwise have had?

 98A. It is apparent that, upon the making of the Order for Removal and Administration, the second respondent could not permit the appellant to continue to manage the affairs of the second respondent. The question is whether, even if clause 19 was not activated, and it is clear that it was not, the obligation of the second respondent to pay the appellant his contractual entitlements survived the first respondent's Order of Removal and Administration.

 98B. The doctrine of frustration in contract law was recently considered by the Supreme Court of New Zealand in Planet Kids Limited v. Auckland Council [2014] 1 NZLR 149.

 98C. I note at the outset that New Zealand has a Frustrated Contracts Act 1944. However, that Act, amended in 2002, does not alter the nature and effect of frustration at common law.

 98D. In that case, the appellant leased premises from the Council. The Council wished to acquire the lease pursuant to its statutory powers. A settlement agreement was entered into whereby the appellant was to surrender the premises to the Council. However, a fire occurred destroying the premises. This was an event that caused the lease to terminate according to its terms.

 98E. As a result of that terminating event, the Council in fact got that for which it had bargained under the settlement agreement even though the Council did not receive the furniture and fittings or the balance of lease yet to expire.

 98F. The Planet Kids' case affirms the proposition that to hold an agreement frustrated so that no further obligations under it are enforceable is a drastic step not lightly to be affirmed. Frustration requires the main purpose of the contract to be rendered impossible of performance.

 98G. That was not so in that case. It is not so in this case.

 98H. The fact is that the appellant had acted with honesty towards the second respondent and carried out its directives as best as he could in difficult circumstances, including lack of support from the sponsor of the second respondent, namely, the Cocoa Board.

 98I. It is more than likely that, had the second respondent in fact dismissed the appellant, he could successfully have disputed a contention that he had breached the terms of his employment. Whether the second respondent had obeyed the directives of the first respondent would be more contentious but, even so, it could contend that any breach thereof was necessitated by the position in which the Cocoa Board had placed it.

99.	It follows that the various criticisms of decisions made by the appellant as either a breach of his contract of employment or a basis for a claim for damages by the second respondent becomes in these circumstances entirely untenable.

100.	The real effect of the first respondent's decision, the validity of which is not challenged, is that it left the second respondent with its obligations towards the appellant in accordance with the contract of employment. The appellant was not dismissed by the second respondent for cause or otherwise. Indeed, it had resolved to give him a renewal of that contract. In those circumstances, it is consistent with the Planet Kids case that the obligation of the second respondent to pay the appellant his entitlements up to the expiry of his contract remains on foot.

101.	The second respondent failed to establish that the appellant had breached his contract of employment, let alone, been dismissed 'for cause' under clause 19. The appellant has also failed to establish that the first respondent had invalidly exercise his statutory powers. He had chosen entirely the wrong vehicle for any such cause of action. That decision was amenable to judicial review only. In any event, that claim was not seriously pressed. 

102.	Nevertheless, as the evidence did disclose that the appellant's employment had not been terminated, he was, therefore, entitled to the benefit of its termination by effusion of time as contemplated by Clause 18.

103.	The finding by the learned trial judge that the appellant was dismissed for cause is set aside as are the orders made in consequence of that finding.

104.	In lieu thereof there will be a finding that the appellant is entitled to damages for breach of his contract of employment being the payout of 3 months entitlements pursuant to it.

105.	The appeal is to that extent upheld. Judgment is entered in favour of the appellant against the second respondent for damages to be assessed. The matter is remitted to the National Court at Kokopo for that purpose.

106.	The second respondent is to pay the appellant's costs of and incidental to these proceedings, both in the National Court and on appeal.

______________________________________________________________
Donald & Company Lawyers: Lawyers for the Appellant 
O'Briens Lawyers: Lawyers for the Respondents