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Tumu v Chief Executive, PNG Cocoa Coconut Institute Ltd [2011] PGNC 150; N4449 (18 November 2011)

N4449

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO 819 OF 2004

NAMBA TUMU
Plaintiff

V

CHIEF EXECUTIVE, PNG COCOA COCONUT INSTITUTE LIMITED
First Defendant

THE BOARD OF DIRECTORS,
PNG COCOA COCONUT INSTITUTE LIMITED
Second Defendant

PNG COCOA COCONUT INSTITUTE LIMITED
Third Defendant

Madang: Cannings J
2011: 3 June, 12 August, 18 November

LAW OF EMPLOYMENT – written contract of employment – termination in the event of redundancy – interpretation of redundancy clause – whether employee entitled, upon redundancy, to be paid salary and emoluments for balance of period of employment.

The plaintiff was employed under a written contract of employment for a period of three years. After one year and five months he was made redundant when his employer was merged with another entity. He was paid a redundancy package but complained that it was not calculated in accordance with the redundancy provisions of his contract of employment, which entitled him to be paid the salary and other emoluments he would have been paid if the contract had run its course. The merged entity failed to accede to his complaint so he commenced proceedings against it and its chief executive and its board of directors, claiming a liquidated sum, being the total amount that he claims he should have received less the amount he actually received.

Held:

(1) An employee who is employed under a written contract of employment has no inherent right, upon redundancy, to be paid out the balance of that contract. The question of entitlements of a redundant employee is always to be determined in accordance with the terms of the contract of employment.

(2) The contract expressly stated that termination of employment may take effect by way of a "redundancy situation", in which case "Board approved redundancy provisions apply in the absence of a specific award covering the industry or the agency".

(3) There was no specific award covering the industry or the agency so the board of the agency had a discretion as to what redundancy provisions to approve.

(4) The redundancy package that was paid to the plaintiff was a package that was, in fact, approved by the board and calculated according to a formula applied to other redundant employees. The employer paid the plaintiff what was due to him. There was no breach of contract, the defendants were not liable and the proceedings were entirely dismissed.

Cases cited

The following cases are cited in the judgment:

Bromley v Pacific Finance Ltd (2001) N2097
National Airline Commission, trading as Air Niugini v Lysenko [1986] PNGLR 323
Rooney v National Forest Authority [1990] PNGLR 914

STATEMENT OF CLAIM

This was a trial in which the plaintiff sought a liquidated sum for alleged underpayment of a redundancy package under a contract of employment.

Counsel

P K Kunai & G Anis, for the plaintiff
D M Steven & P K Kembu, for the defendants

18 November, 2011

1. CANNINGS J: At issue in this case is an alleged underpayment of a redundancy package paid to the plaintiff, Namba Tumu. He was employed by the PNG Cocoa & Coconut Extension Agency under a written contract of employment for a period of three years. After one year and five months he was made redundant when, through a National Government decision, the Agency was merged with another entity, the PNG Cocoa & Coconut Research Institute, to create the PNG Cocoa & Coconut Institute (the third defendant). He was paid a redundancy package, representing four months' salary and other emoluments, totalling K20,286.80, but he complained to the third defendant (which assumed the assets and liabilities of the merged entities) that the package was not enough. It was not calculated in accordance with the redundancy provisions of his contract of employment, he claimed, which entitled him to be paid the salary and other emoluments he would have been paid if the contract of employment had run its course, ie one year and seven months worth of salary and other emoluments, totalling K73,348.91. He complained that he was underpaid K53,062.11. The third defendant failed to accede to his complaint so the plaintiff commenced proceedings against it and its chief executive (the first defendant) and its board of directors (the second defendant), claiming the liquidated sum of K53,062.11. The plaintiff accepts that his former employer properly terminated his contract of employment as a redundancy situation had arisen. This is not a damages claim for wrongful dismissal. His grievance is restricted to the alleged underpayment of the redundancy package: K53,062.11.

NO INHERENT RIGHTS

2. An employee has no inherent right, upon redundancy, to be paid out the balance of their contract. The question of redundancy entitlements is always to be determined in accordance with the terms of the contract of employment. It is not necessary (unless the contract specifically requires it) for a redundancy situation to be expressly declared. It is sufficient, as happened here, for a redundancy situation to be inferred from the circumstances in which the employee's employment was terminated (National Airline Commission, trading as Air Niugini v Lysenko [1986] PNGLR 323).

THIS CONTRACT

3. Clause 50 (termination of employment) stated:

Termination of employment may take effect by way of summary dismissal, resignation, retrenchment or through a disciplinary process and must comply with the appropriate award and legislative requirements and be implemented in a fair and consistent manner throughout the agency ... Where retrenchment or redundancy situation arises, Board approved redundancy provisions will apply in the absence of a specific award covering the industry or the agency.

4. The parties agree, and I find as a fact, that there was at the time the plaintiff was made redundant no specific award covering the industry or agency that dealt with redundancy. This means that the Board of the PNG Cocoa & Coconut Extension Agency had a discretion to approve "redundancy provisions". What the parties do not agree on is an issue of fact: did the Board approve any redundancy provisions?

WAS THERE BOARD APPROVAL?

5. The plaintiff's counsel, Mr Kunai, submitted that there is no evidence of approval, so the court must find as a fact that there was no "Board approved redundancy provisions", and that therefore the plaintiff was entitled to be paid out the balance of the contract as his redundancy package. Some support for that proposition is provided by the decisions in Rooney v National Forest Authority [1990] PNGLR 914 and Bromley v Pacific Finance Ltd (2001) N2097, which suggest that if a fixed-term contract has no termination clause the appropriate award of damages for breach of contract is the salary and emoluments that would have been earned in the unexpired period of the contract. However, before that proposition requires further consideration it is necessary to determine whether, in fact, the Board of the PNG Cocoa & Coconut Extension Agency approved the plaintiff's redundancy package. On that issue, evidence presented by the defendants in the form of an affidavit by Barnabus Toreu, who, on the date of its swearing, 29 April 2009, was the Acting CEO of the third defendant, is critical. Mr Toreu deposed that he had examined the records and documents relating to the plaintiff's employment and concluded that the Board of the PNG Cocoa & Coconut Extension Agency had approved a redundancy package formula based on four months' salary and other accrued entitlements and repatriation fares; and that this is a standard formula that continues to be applied to the merged entity, the third defendant. Mr Toreu said that the plaintiff's redundancy package was calculated by applying the standard formula, in the following way:

6. It will be noted that this figure is more than the figure that the plaintiff states that he actually received, K20,286.80. For present purpose, the discrepancy is not significant. Mr Toreu deposed that 14 other employees who were made redundant at the same time as the plaintiff had their packages calculated according to the formula applied to him. No evidence has been presented by the plaintiff to rebut Mr Toreu's averments of fact. I am satisfied therefore that the Board of the PNG Cocoa & Coconut Extension Agency did approve the plaintiff's redundancy package, and that clause 50 of the plaintiff's contract of employment was complied with. The redundancy package that was paid to the plaintiff was a package that was approved by the board and calculated according to a formula applied to other redundant employees; and there is no reason to believe that it was not a reasonable and appropriate formula. The plaintiff received what was due to him. He was not underpaid. There was no breach of contract, the defendants are not liable and the proceedings must be dismissed. Costs will follow the event.

ORDER

(1) The plaintiff has failed to establish liability against the defendants and the proceedings are entirely dismissed.

(2) The plaintiff shall pay the defendants' costs of the proceedings, on a party-party basis, to be taxed if not agreed.

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

Judgment accordingly.
____________________________
Kunai & Co Lawyers: Lawyers for the Plaintiff
Stevens Lawyers: Lawyers for the Defendants