DC5005

PAPUPA NEW GUINEA
[IN THE DISTRICT COURT OF JUSTICE]
Grade V Civil Jurisdiction
DC NO 2500 OF 2007

TARCISSIUS KILEI
Complainant /Cross Defendant

-v-

GENERAL MANAGER – MEMBER SERVICES
1st Defendant

NAMBAWAN SUPER LIMITED
2nd Defendant /Cross Claimant

PORT MORESBY:	PUPAKA, PM
2008:		22nd MAY

Civil proceedings – Claim for release of housing advance cheque and associated orders – Issue of ownership of cheque  – Law – Property in negotiable instruments discussed – Beneficial interests in cheque discussed – Proceedings misconceived.

Cross-claim – Refund of money paid to contributor’s contractor by superfund –  Issues of policy underpinning housing advance by superfund – Issues of contributor’s contractor’s obligations and liabilities – Whether money spent as intended – Equitable principles – No discernable losses suffered by cross-claimant – Demand in cross-claim unjustified.

The Complainant in person
Mr. Koi for the Defendants /Cross-claimant

6th June 2008

PUPAKA:	The complainant sued, among others, for an order for the release of a housing advance cheque, written by the defendants to another but meant to be expended towards the ultimate benefit of the complainant, which was later recovered and is being retained by the defendants.
The defendants denied liability. They instead filed a cross-claim for full account of the first installment. The complainant’s claim relates to the second installment. The complainant denied liability to the cross-claim.

The parties agreed to rely on their affidavits, subject to the other’s right to cross-examine, and file covering submissions. In the end the complainant thought it not necessary to file final submissions. The following therefore is the judgment of this Court, both on the original claim and the cross-claim.

The facts are disclosed and discussed in the course of this judgment.

The 1st defendant is the principal superannuation fund for public servants in Papua New Guinea. Out of the monies it administers for its contributors, it set aside a fund for an advance scheme whereby its contributors may apply for a housing advance. The fund is specifically for purposes of contributors who need an advance against their contributions to build residential houses or buy one. Those who obtain advances do repay, but it actually goes towards their contribution. By law contributors cannot access their contributions until they retire or resign from their public service jobs.

The mechanics of how the scheme works is not disclosed in evidence by any party so it is not necessary to discuss it here. In any case that would serve no immediate purpose. Suffice to say that an eligible contributor may seek housing advance within limits, but that again maybe further limited by his or her total contributions at any time. Advances are not paid directly to contributors but are paid to their nominated builders or suppliers.

The policy underpinning the procedure followed by the 2nd defendant is also not clearly disclosed but by deducing from some of the things said in court by counsel and the defendants’ witness, I gather that the limit on the advance is to allow as many contributors as possible to access assistance from limited funds set aside for the purpose. Payment is made direct to suppliers or builders who are required to disclose bona fide industry credentials at the time of the application. For instance certificates of incorporation and current VAT registration maybe required to ensure that only credible entities are engaged, such as to further ensure that the advance is actually used to build a home for the contributor and not spent on other activities. Again there is limited funding for the advance so only genuine home buying or home building contributors participate in the scheme.

As for this case, the evidence shows that the complainant colluded and conspired with Mat Trans Limited (the contractor) to secure from the 2nd defendant an advance of K20, 000.00. The first installment of K10, 000.00 was released under the name of the contractor on 31st August 2007. Upon receipt of the cheque the complainant and contractor caused the same to be cashed and the principal of the contractor pocketed K1500.00 (15%) for his troubles. The rest were given to the complainant. 

This outcome, it must be noted, was completely contrary to the spirit and intent of the housing advance scheme, not to mention that the express conditions under which the advance was grant were totally ignored and breached. The complainant was not supposed to receive any funds from the advance, even if he wanted to put the same to the intended uses by himself.

I also need to record that the complainant’s nominated contractor was criminally negligent. It breached expressed undertakings to use the funds for intended purposes. The contractor’s principal would have appreciated the stringent requirements for compliance by contractors, and the contributors who receive advances, but he ignored these requirements and deliberately breached the conditions. Therefore the 2nd defendant should now do more than just require persons or entities like the contractor involved in this case to make refund – it should sue them for damages. In my view the integrity of the scheme administered by Nambawan Super, on behalf of it contributors, is better protected when those who do business with it are upfront and predictable in their conduct. The last thing either Nambawan Super or its contributors want is insincere contributors obtaining advances, with assistance of rouge contractors, and not using it as intended, thereby depriving other genuine contributors from participating in the scheme.

The Complainant’s claim

The complainant sued for recovery of the second cheque, containing the second installment of the total K20, 000.00 approved.

First of all this claim is fundamentally flawed and misconceived. The cheque is, strictly speaking, not the complainant’s. It was written not to him but his nominated contractor. The funds in the cheque, as the complainant well knew, were not for him to access. The only time he, and indeed other contributors too, may access funds (contributions) outright from the 2nd defendant as a matter of right, is upon retirement or resignation. However funds made available as housing advance are done under strict guidelines and conditions. The conditions are such that the contributor’s beneficial interest in the cheque is only in the form of the services the cheque would purchase from his or her nominated contractor or goods obtained from his or her nominated supplier. In short the cheque belongs not to the complainant (contributor) but the nominated contractor or supplier in the first instance.

That of course is not to say that a contributor like this complainant lacks standing to sue the defendants over a cheque or the funds tied to it. If a cheque is needlessly retained a contributor may sue for its release to a nominated contractor or supplier, perhaps after services or supplies have been duly provided under the terms of the housing advance arrangement. However in this case, as we now know, the complainant’s nominated contractor was no genuine contractor. In fact the arrangement was a total sham. It was perpetuated simply to secure release of an advance.

Therefore there really is no need for a protracted explanation on the fine legal technicalities of why the cheque cannot be the complainant’s. Suffice it must to say the cheque, on the face of it, did not belong to the complainant. Moreover the defendants had every right to retain the cheque and cancel the advance once they became aware of the sham of an arrangement. Ergo, without further ado, I would promptly dismiss the complainant’s claim, for release of the second cheque, as being misconceived and baseless.

The Defendants’ Cross-claim

The defendants, not just content to defend the complainant’s suit, issued a cross-claim. The defendants named the principal of the complainant’s nominated contractor, the contractor and the complainant as 1st, 2nd, and 3rd cross-defendants respectively. In the cross-claim they sought to recover the K1500.00 received by 1st and 2nd defendants as “commission”. The defendants also sought orders compelling the complainant /3rd cross-defendant to “account for the use of the funds with actual receipts of payments in accordance with the initial invoice…” etc.

After the cross-claim was served the K1500.00 “commission” money was refunded, so cross-claim against the 1st and 2nd defendants was discontinued on 28th February 2008. Therefore the cross-claim progressed to trial only against the complainant who became the cross-defendant. The sole issue is as to whether or not there is to be compulsion upon the complainant / cross-defendant to “account” for the use of funds he got from the first cheque.

The defendant /cross-claimant did not considered it of any consequence to amend the cross-claim, by expending the relief sought in the cross-claim, to actually recover the cash received by the complainant /cross-defendant. Therefore its later attempt to recover K6500.00, through final submission, is misconceived. I will expound more on this apparent misconception:

The defendant /cross-defendant pleaded the cross-claim principally as a defence. It was intended to block recovery of the final advance installment by the complainant. If one understands the cross-claim from this perspective, it is clear that had the complainant adequately acquitted the funds, the defendants would have released the second cheque to his contractor. This makes sense since the cross-claim does not now seek an account, or indeed recovery, of some K2000.00, the use of which the complainant /cross-defendant seems to have actually furnished receipts.

Secondly, the complainant /cross-defendant showed on the balance of probabilities that he commenced construction of a house in his village. He may not have fully accounted for all the expenditures, but the presumption, and indeed his argument, that he spent money in the building is not negated. Whilst the defendants have proved that the complainant misled them, with the full assistance of his nominated contractor, it does not necessarily mean he misused the money. Again I say that the defendants have not negated the complainant’s argument that he spent the funds towards the building. The complainant may have derailed his chances of securing release of the second installment but there is no convincing reason to order him to refund money that he seems to have expended for the intended purpose in the end.

Thirdly I would hold, after all things are considered, that it would be unfair to order the complainant /cross-defendant to refund any money. In any case he always had sole beneficial interests in the proper expenditure of the funds. In the final analysis the defendant /cross-claimant has suffered no loss in the process. The complainant /cross-defendant is being prevented from obtaining any benefits through release of the second cheque but that is a consequence he brought down upon himself.

Finally, in light of the foregoing, I note that it would serve no obvious or useful purpose to order compulsion to account upon the complainant /cross-defendant. There would be no use for such an order because the defendant /cross-claimant would derive no obvious benefit from such an order.
Conclusion

For all the foregoing reasons I dismiss the complainant’s claim to the second cheque which was written to his nominated contractor and later recovered and retained by the defendants.

For the reasons given too I also dismiss the defendants’ cross-claim.

The parties shall bear their own costs of these proceedings.

_______________________________________________

The Complainant in person
Mr. Koi for the Defendants