Kewoing v Kambang Holdings Ltd [2012] PGNC 41; N4582 (16 February 2012)

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EMPLOYMENT LAW – claim for wrongful termination – plaintiff made arrangements for his own family company to provide service to defendant – defendant paid plaintiff's company for services rendered – plaintiff's salary paid for by his own company – defendant counter claims for overpayment - plaintiff unilaterally terminated contract and ceased to be on defendant's payroll as an employee - plaintiff engaged as a consultant through his company - termination of the contract therefore lawful -plaintiff's claim is dismissed – defendant's counter claim also dismissed

The plaintiff claims damages for wrongful termination. He claims that on 31st May 2003 he entered into an employment contract with the defendant for three (3) years. The contract was renewed for another three (3) years from June 2006 to June 2009 on the same terms and conditions. On 22nd September 2008, the defendant unlawfully terminated his employment. The defendant, on the other hand, claims that the plaintiff was on a three year contract which expired on 3rd June 2006. The contract was not renewed. It is alleged that on or about 23rd May 2005 the plaintiff made his own arrangements, without the approval of the Board of the defendant, to be employed by his family company, Sezeri Limited, and the defendant paid the company for the plaintiff's services. The defendant also counterclaims overpayment to the plaintiff.

The plaintiff unilaterally terminated the contract of 31st May 2003 on or about 24th September 2005 and ceased to be on the payroll of the defendant as an employee. Commencing September 2005, the plaintiff was engaged as a consultant through his company. The termination of the contract was therefore lawful. The plaintiff's claim is dismissed, the defendant's counterclaim is also dismissed; and the plaintiff shall pay the costs of the proceeding.

1. GABI, J: Introduction: The plaintiff claims damages for wrongful termination. His case is that on 31st May 2003 he entered into an employment contract with the defendant for three (3) years. The contract was renewed for another three (3) years from June 2006 to June 2009 on the same terms and conditions. On 22nd September 2008, the defendant unlawfully terminated his employment.

2. The defendant, on the other hand, claims that the plaintiff was on a three year contract which expired on 3rd June 2006. The contract was not renewed. It is alleged that on or about 23rd May 2005 the plaintiff made his own arrangements, without the approval of the Board of the defendant, to be employed by his family company, Sezeri Limited, and the defendant paid the company for the plaintiff's services. On 24th September 2005, the plaintiff ceased to be on the defendant's payroll and all payments for the plaintiff's services were paid to Sezeri Ltd. Under the contract of employment the plaintiff was on a salary of K60, 000.00 per annum but under the new arrangement the defendant paid K13, 000.00 a month to Sezeri Ltd for the services of the plaintiff. The defendant counter claims overpayment.

3. The issues are: (i) whether the contract was renewed in June 2006; (ii) if not, what was the nature of the plaintiff's engagement with the defendant; and (iii) whether the plaintiff's termination was unlawful.

4. The trial proceeded by way of affidavit evidence and oral testimonies. The following affidavits were filed: (i) affidavit of Zabba Janamusa Kewoing dated 1st July 2010 (Exhibit P1); and (ii) affidavit of Jonathan Soten dated 20th September 2010 (Exhibit D1).

5. In May 2003, the plaintiff, an accountant, was engaged as a Business Services Manager by the defendant under a contract of employment for three (3) years. It is alleged that upon expiry of the contract, the defendant renewed it for another term of three years on the same terms and conditions. In September 2008, the defendant terminated the contract.

6. On 31st May 2003, the plaintiff and the defendant entered into a written contract of employment for three (3) years. The contract commenced on
3rd June 2003. The main contents were:

1	*Total Package*	*K110, 000*	*Payee*
2	Less Rental	(K43, 202)	Sezeri Ltd
3	SWRF 7%	(K4, 200)	SWRF
4	Long Service Leave	(K1, 998)	KHL
5	Medicare	(K600)	Insurance Co.

6	*Base Salary*	*K60, 000*
7	Less School Fees	(K22, 500)	Coronation Coll.
8	Leave Fares	(K1, 500)	Heli. Co.

9	*Taxable Salary*	*K36, 000*
10	Plus Housing	K3, 406
11	Vehicle	K3, 250
12	Medical	K600

3	*Taxable Income*	*K42, 656*

14	Less Group Tax	(K10, 619.79)	IRC
	Less Superfund Employee (5%)	(K3, 000)	SWRF

15	*Net Pay After Tax*	*K22, 380.21*	ZK
16	Per Fortnight	K860.78	ZK

8. It is clear to me that the only payment to Sezeri Limited was K42, 202.00 per year for rental. This is reflected in the agreement as well. Clause 13.1 of the contract of employment provides:

"13.1 In addition to what is stated in your Contract of Employment, the company shall pay rental on your accommodation to the value of K3, 600.17 per month at the beginning of each month in arrears to SEZERI LIMITED.

This arrangement is in recognition of your mortgage with the BANK OF SOUTH PACIFIC LTD on the property located at Section 7 Allotment 30, Lae, Morobe Province. Once the mortgage has been discharged, this rental shall cease and the employee shall be eligible for housing allowance, which will be re-negotiated"

9. The plaintiff alleges that the contract was renewed in June 2006 for another three (3) years on the same terms and conditions. He claims that the written correspondences/memorandums by Sir Nagora Bogan dated 14th June 2008 (KHL 03/2008) and 14th July 2008 (Memo No. 1/2008) respectively and the Circular KHL 01/2008 dated 9th July 2008 by Jonathan Soten constituted renewal of the contract for a second term.

10. The Circular KHL 03/2008 dated 14th June 2008 was an advice on the restructure of the company to the management and staff/employees. The position of Business Service Manager held by the plaintiff was amalgamated and consolidated as part of the executive management and renamed Business and Financial Services Manager. The plaintiff was to retain his "present terms and conditions of employment."

11. The Circular KHL 01/2008 dated 9th July 2008 advised the management and staff/employees of the new Board Members and support staff of the company. A number of "interim management changes" were made. The plaintiff was held against the Business Support Services Manager's position.

12. The memorandum no. 1/2008 dated 14th July 2008 was to the plaintiff advising him that he was one of the "authorised signatories" for the company. He was requested to provide: (i) full details of the company's bank accounts including loan or overdraft facilities and furnish copies of the bank statements for all respective accounts from 1st April 2008; (ii) audited financials for 2004, 2005 and 2006; (iii) the actual profits and loss statements and balance sheet for the half year to June 2008; (iv) a copy of the cash flow for the six months period from 1st July 2008 to 31st December 2008; (v) review the fuel contract with Mobil Oil and suggest whether it should be renegotiated or terminate the deal and enter into a new arrangement with Inter Oil; and (vi) basic information on IT proposal for Pronto. It is not known whether the information were provided to the Chairman by the plaintiff.

13. It is not disputed that the plaintiff continued to be engaged by the defendant as evidenced by the memorandums. The plaintiff produced no evidence to show that his contract was renewed, extended or varied. However, he continued to be engaged by the defendant. What was the exact nature of that engagement?

"5. When the Employment Contracts expired on 3rd June 2006, Mr Dion Roo was no longer the Chairman, Mr Namon Mausen was the then Chairman.

6. At that time, Kambang Holdings Limited Management had a separate Office consisting of the late Joe Inara and the Plaintiff at IPI Building whilst its other staff were at Voco Point, Lae, Morobe Province.

7. The Plaintiff and the Chief Executive Officer incorporated companies and entered into service Contracts with Kambang Holdings Limited.

9. Zabba Kewoing was employed by Sezeri Limited and payments were made as Consultancy Fees to Sezeri Limited. Sezeri Limited was then paying Zabba Kewoing.

10. Our records show that after the fortnight pay ending 23rd May 2006, the Plaintiff without any notice of approval from the Human Resource Management Division or the Defendant made his own arrangement with the then Executive Manager to be employed by his own company Sezeri Limited and the payments were made to Sezeri Limited. No personal income tax was deducted from the payments to Sezeri Limited.

11. The company records show that the Plaintiff's employment in person ceased to be on the Defendant's payroll as from 24th September 2005.

12. The Defendant on the 22nd September 2008, terminated the arrangement between Sezeri Limited and Kambang Holdings Limited, the Defendant. A copy of the termination letter is annexed hereto and marked as annexure "A".

13. The Defendant paid out all the Plaintiff's entitlements on Pay Number 13 of 2005.

14. The Defendants say that even if the Plaintiff was an employee of the Defendant, the Defendant was entitled to terminate the Contract as the Plaintiff was guilty of gross misconduct by:

(i) Ceasing to be an employee of the Defendant and choosing to be a Consultant through Sezeri Limited.

(ii) By not complying with the Directions of the Board and not providing information as required.

15. Even if the Plaintiff was employed by the Defendant, his Contract of employment was not renewed and he terminated his own contract by choosing to be employed by his own Company, Sezeri Limited and Sezeri Limited provided services to Kambang Holdings Limited from 24th September 2005 and all payments were made to Sezeri Limited.

16. Since the Plaintiff was employed by Sezeri Limited, any entitlements due to the Plaintiff is payable by Sezeri Limited and not the Defendant.

17. In breach of the Contract for Employment, the Plaintiff ceased to be an employee of the Defendant on the 22nd September 2005. The Plaintiff without the approval of the Board and the Human Resources Manager incorporated a company known as Sezeri Limited and became his company Consultant to the Defendant and his company was invoicing the Defendant for K13, 000.00 a month when he was entitled to K860.00 a fortnight." (Emphasis added)

15. This evidence is not contested. Counsel for the plaintiff urged the Court to reject Mr. Soten's evidence on the basis that records or documents pertaining to payment of entitlements, decisions of Board meetings and the purported consultancy agreement were not placed before the court to support his assertions. While the point is appreciated I am unable to agree as the plaintiff has not denied receiving K13, 000.00 per month through his company instead of K868.79 per fortnight and all his entitlements or ceasing to be on the defendant's payroll since September 2005.

16. I do not accept the plaintiff's assertion that the initial contract was renewed for another three years on the same terms and conditions. I find that the contract was not renewed and that the plaintiff repudiated the contract on or about 24th September 2005. The memorandums dated 14th June 2008, 9th July 2008 and 14th July 2008 did not in any way renew the plaintiff's contract for a second term. These documents simply indicate that the plaintiff was engaged by the defendant. In cross-examination, Jonathan Soten was asked about his memorandum of 9th July 2008. He said that when the circular was issued the new Board had no knowledge that the defendant was making payments to Sezeri Ltd for the plaintiff's services and that it took almost three (3) years to detect the arrangement.

17. On the question of the nature of engagement, it is clear to me that the plaintiff was employed by Sezeri Ltd to provide accounting and financial services to the defendant. Sezeri Ltd was paid K13, 000.00 per month by the defendant for services provided by the plaintiff. The plaintiff has no cause of action against the defendant; his cause of action is against Sezeri Ltd. Likewise, the defendant has no cause of action against the plaintiff. As such, it cannot make a counter claim against the plaintiff.

RE: TERMINATION OF PURPORTED EMPLOYMENT WITH KHL – AND EMPLOYMENT WITH SELERI LIMITED

It is being uncovered based on sufficient evidence by the Board that you are actually being employed by the SEZERI LIMITED, and not KHL as its Business and Finance Manager.

Accordingly, the KHL Board at its meeting on 20th September 2008 has made a Decision not to recognize you as an employee of the KHL in its Lutheran Shipping Services Division.

Upon receiving this letter you are advised not to deal in or act on any matters for or on behalf of KHL in finance or otherwise, or any of its operating divisions including the Lutheran Shipping Services.

I also take this opportunity to let you know that by way of a separate letter, the management of the SELERI LIMITED will be advised of the Board's Decision to revoke and cancel any existing management arrangements, if any, between the Kambang Holdings Limited (and the Lutheran Shipping Services) and the SELERI LIMITED for the provision of management services to the Kambang Holdings Limited or its operating divisions.

Kindly call into the Lutheran Shipping Services to collect your personal properties and any belongings from the Office that you have been occupying in Lae and handover the keys to that office to Mr. Tonessi EWEBI or Mr. Peter LOIZE before the close of business on Friday, 26th September 2008.

Let me thank you for having the opportunity to share in the working experience with you and of anything that we all have done the last five years for the good of Lutheran Shipping Services.

19. I am of the view that the plaintiff unilaterally terminated the contract of 31st May 2003 on or about 24th September 2005 and ceased to be on the payroll of the defendant as an employee. Commencing September 2005, the plaintiff was engaged as a consultant through his company. The termination of the contract was therefore lawful.

20. For all the above reasons, I make the following orders: (i) the plaintiff's claim is dismissed; (ii) the defendant's counterclaim is also dismissed; and (iii) the plaintiff shall pay the costs of the proceeding.

Sialis Tedor & Associates Lawyer: Lawyer for the plaintiff
Warner Shand Lawyers: Lawyer for the defendant

National Court of Papua New Guinea

Kewoing v Kambang Holdings Ltd [2012] PGNC 41; N4582 (16 February 2012)