PNG Law Reports 1993
[1993] PNGLR 38
N1162
PAPUA NEW GUINEA
[NATIONAL COURT OF JUSTICE]
GLADYS EVELYN KUMAR,
MICHAEL RAY MANNING
AND JOE ROKPA
V
PETER WAMA,
PAUL EXCELL AND
ENGINEERING MANAGEMENT PTY LTD
Mount Hagen
Woods J
7-8 June 1993
16 July 1993
CONSTITUTIONAL LAW - Suspension of provincial government - Role of Administrator - Provincial government company - Administrator is not beneficiary of the company but merely public servant delegate of the Minister - Administrator has no power to appoint trustees and transfer shares.
COMPANY LAW - Incorporation - Separate legal person - Corporate personality.
EMPLOYMENT - Contract of - Wrongful termination - Damages.
DAMAGES - Wrongful termination - Frustration, distress, and disappointment.
Facts
The third defendant company was established by the Western Highlands Provincial Government to carry on, undertake, etc., the management and administration of the Engineering Division of the Provincial Government. The two issued shares of the company were held by two employees, one of whom included the third plaintiff, who became a director and Chairman of the Board of Directors of the company. The Western Highlands Provincial Government was suspended, and the first defendant was appointed Administrator of the province. He purported to remove the two shareholders, designate himself and another as shareholders of the company, and remove the directors, secretary, and other officers of the company. These included the first and second plaintiffs. In an action for wrongful dismissal, the Court held:
Held
1.       The directors held the shares in trust for the Provincial Government.
2.       The company is a separate legal person and the beneficial ownership of the shares vested in the State as successor to the Provincial Government. The State acts through the Head of State, acting on advice, or by the Minister so authorized.
3.       The administrator, not succeeding to the beneficial interests of the shares, could not appoint trustees and terminate staff, and any such termination was invalid and, therefore, wrongful.
4.       As, in fact, the services of the first and second plaintiffs as employees of the company had ceased through the wrongful act of the Administrator, reinstatement was inappropriate. The better remedy was an order for damages for their wrongful termination.
5.       The measurement of damages is with reference to the period of notice to validly terminate their service, i.e. three months.
6.       The general rule is that damages for disappointment and distress are not recoverable unless they proceed from physical inconvenience caused by the breach or unless the contract is one the object of which is to provide enjoyment, relaxation or freedom from molestation.
Cases Cited
Baltic Shipping Co v Dillon (1993) 67 ALJ 228.
Fink v Fink (1946) 74 CLR 127.
Hamlin v Great Northern Railway Co (1856) 1 H & N 408; 156 ER 1261.
Counsel
P Kopunye for the plaintiff.
I Molloy and P Waine for the defendants.
16 July 1993
WOODS J:  This is a claim for damages for wrongful termination by the first and second plaintiffs as employees of the Engineering Management Pty Ltd and for a declaration that the third plaintiff still holds the chairmanship of the Engineering Management Pty Ltd.
Engineering Management Pty Ltd was set up by the Western Highlands Provincial Government to manage certain aspects of the responsibilities of and work of the Provincial Government.
According to the Memorandum of Association of the company, Article 3 i, it was established to establish and carry on, undertake, take part or engage in the management and administration of the Engineering Division of the Western Highlands Provincial Government. The subscribers to the company were William Konjibi and Patrick Bang, who each subscribed for one share. There is no documentation explaining in what capacity they were the shareholders of the company. However, it appears to have been understood that they were holding the shares in trust for the Western Highlands Provincial Government. A search of the company's file at the Companies Office in February 1993 showed that there were two shares issued and paid up in the company and that these two shares were in the names of Joseph Rokpa, the third plaintiff, and Patrick Bang. The search suggested the shares were held in trust for the Provincial Government. Mr Ropka gave evidence that he was the Secretary to the Western Highlands Cabinet prior to the suspension of the Provincial Government, that he was appointed to be a shareholder with Mr Bang by the Cabinet, and he, thus, became a director and Chairman of the Board of the company. On 18 December 1992, the Western Highlands Provincial Government was suspended, and on 21 December 1992, Peter Wama was appointed Administrator.
On 21 December 1992, Peter Wama in his capacity as Administrator removed the two above shareholders of Engineering Management Pty Ltd and caused himself and a John Tembon to be appointed the shareholders of the company. As Administrator, he deemed himself to be the sole beneficial shareholder of the company and, thereupon, caused the directors, secretary and other officers of the company to be removed and replaced. Thus he took steps to first suspend and then terminate the first plaintiff and to terminate the second plaintiff. He then appointed the second defendant as the manager of the company, he having previously been the manager before his termination earlier. 
However, I am unable to find under what legal authority or power Mr Wama was able to act as he did to transfer the two shares in the company and, in effect, take over the legal control and management of the company.
Mr Wama's appointment and position as Administrator is not directly covered in any legislation, but rather is under the powers of the National Executive Council, as set out in the Organic Law on Provincial Government s 98 (1), to "exercise and perform all the executive powers, functions, duties and responsibilities of the provincial government".
Of course, the National Executive Council cannot itself take over the day to day supervision of the public service and the province. Therefore, under s 98 (2)(b) it authorises the appropriate Minister, in this case the Minister for Village Services and Provincial Affairs, to act on behalf of the Council, and he then appoints a person to represent him physically in the province. This person is the Administrator, who is no different than a senior public servant. He has no legal identity or capacity, he purely represents the State. His role is to report on the operation of the province to the Minister and the National Executive Council and provide general direction and control of the public service through the Provincial Secretary. However, the Administrator does not assume the legal identity of the Provincial Government. The State has taken over that, and that can only be exercised in accordance with s 98 by the Head of State, acting on advice, or by the Minister so authorised.
For general public service purposes, the role of an Administrator as the senior public servant acting as delegate of the Minister would be sufficient. However, with Provincial Government corporations we are not dealing with public servants under the Public Service Act, we are dealing with a legal entity under the Companies Act which has a life and legal status of its own. Mr Wama had no legal identity as Administrator to execute documents appointing trustees and shareholders. Even if, as submitted, he was acting for the beneficiary of the trust, he still has no legal identity. The only person who has any such legal status or identity and can take any action as the beneficiary of any trust is the Head of State or the Minister authorised by the National Executive Council. The Minister cannot delegate any legal identity to the Administrator to take such legal action. That is made clear by s 99 (3) of the Organic Law:
"The exercise or performance of a power, function, duty or responsibility of a suspended provincial government by the National Executive Council does not affect the identity or existence of the provincial government and of its separate rights and liabilities, and for those purposes the National Executive Council shall be treated as the agent of the suspended provincial government for all purposes".
One cannot help feeling that Mr Wama has acted precipitously without the correct legal advice to assume he has the power to appoint trustees and transfer shares and act as the sole beneficial shareholder of the company.
Whilst the letter dated 21 December 1992 from the National Executive Council directs Mr Wama to take whatever appropriate action is necessary to secure control of the business arms and statutory bodies to allow for their smooth and effective operations, that letter makes it clear that "all action taken in respect of that direction must comply with the legal requirements which apply in the circumstances".
I note from a document called A Brief for the Administrators for Suspended Governments that the National Executive Council itself recognises that there is no specific provision for appointment of administrators - see 6.1 of the brief - and that s 98 (2) clearly envisages that the Minister can be directed by the National Executive Council on the exercise of the powers and functions of the suspended governments. 6.2 of the brief notes generally that the Administrator represents the Minister, carries out the instructions of the Minister, reports to the Minister, and generally provides general direction and control to public servants through the Provincial Secretary.
I can find nothing wrong with the advice given in this brief, but I must emphasise that this brief clearly realises that the Administrator has no legal identity as the suspended Provincial Government. That status is in the State. The Administrator merely physically represents the State in the province for the purpose of direction and control of the public servants. 
So how does the Administrator comply with the direction of the National Executive Counsel in the letter of 21 December? Presumably by coming to the province as Administrator, calling on the public servants to report to him and, in respect of government corporations calling on their shareholders and management to report to him. I note here that Joe Ropka was no more than a senior public servant in the province. The Administrator would then report to the Minister, give such directions as required by the Minister, and only then, if there were difficulties, recommend to the Minister that the National Executive Council should act as necessary as the beneficiary of the shares under the Trustees and Executors Act. 
I, therefore, find that any meetings of Engineering Management Pty Ltd called by Mr Wama and any appointments of trustees or appointments of shareholders and any terminations of staff are invalid and, therefore, wrongful. And I note here that neither the shareholders nor the directors were given notice of any meetings of the company. This means that Mr Bang and Mr Ropka are still the shareholders of the company, as noted in the search of the company records.
Of course, in actual practice the Minister would have a substantial measure of control of the operations of the company as he would have the power to withhold any monies from the company for its day to day operation and to direct or not the work required to be done for the province under the objects for which the company was established.
As, in fact, the services of the first and second plaintiff as employees of the company have now ceased, it is quite clear that they have been wrongfully terminated. In the circumstances, I do not think it is appropriate to consider reinstatement. It is not necessary for me to go into the reasons why they were terminated although I find it strange that the second defendant was the manager of the company and, therefore, the immediate superior of the first and second plaintiffs for a substantial period when it is alleged that they acted irregularly, their actions presumably coming under the direct supervision and control of the second defendant. There are copies of letters in evidence dated September 1992 from the second defendant as managing director, which recommend an increase in the salaries for both Mrs Kumar and Mr Manning for their "consistent hard work" and "long and dedicated service" and note that Mr Manning "performs his duties well" and "the architectural section has seen an increase in work load". These letters must raise doubts as to the validity of any suggestion of unsatisfactory service.
I find that the first and second plaintiffs are entitled to damages for their wrongful termination. Under their contracts of employment, the plaintiffs could be terminated for no reason at all upon the giving of three months notice. I will, therefore, apply that period as the appropriate period for the measure of damages. 
DAMAGES
The first and second plaintiffs are claiming damages in accordance with their contracts of employment and also damages for frustration, distress and disappointment. Dealing with the latter first, as a matter of ordinary experience it is evident that while the innocent party to a contract will generally be disappointed if the defendant does not perform the contract, the innocent party's disappointment and distress are seldom so significant as to attract an award of damages on that score. The general rule is that damages for disappointment and distress are not recoverable unless they proceed from physical inconvenience caused by the breach or unless the contract is one the object of which is to provide enjoyment, relaxation or freedom from molestation. The authorities here start with Hamlin v Great Northern Railway Co 156 ER 1261, where Pollock CB said that a plaintiff in an action for breach of contract is entitled to recover whatever damages naturally result from the breach of contract, but not damages for the disappointment of mind occasioned by the breach of the contract. It was considered that the damages that naturally result could not include disappointment and distress, as the latter is too remote, or not direct enough. In Fink v Fink (1946) 74 CLR 127, Dixon and McTiernan JJ held that, in assessing the amount to be awarded for breach of contract, resentment, disappointment, and the loss of esteem of friends are not proper elements. The sound policy underlying this rule is clearly stated by Brennan J in Baltic Shipping Co v Dillon (1993) 67 ALJ 228. The institution of contract, by which parties are empowered to create a charter of their rights and obligations inter se, can operate effectively only if the parties, at the time when they create their charter, can form some estimate of liability in the event of default in performance. But no approximate estimate of liability could be formed if the subjective mental reaction of an innocent party to a breach and resultant damage were added on as further damage without proof of pecuniary loss by the innocent party. If the mental reaction to breach and resultant damage were itself a head of damage, the liability of a party in breach would be at large and liable to fluctuation according to the personal situation of the innocent party. If a promisor were exposed to such an indefinite liability in the event of breach, the making of commercial contracts would be inhibited.
A contract of employment does not contain a clause for peace of mind, it is a contract for employment on certain terms and it envisages in its very terms the possibility of premature termination. In the circumstances, I am not satisfied that frustration and distress should be a head of damage in these contracts.
The first plaintiff, Mrs Kumar, was employed as Administrative Officer under a contract of employment that was currently due to expire in November 1993. Her salary was K1,141.13 net per fortnight. She was terminated from 16 February 1993 but was owed salary from 30 January.
There have been two sets of figures presented, one from the plaintiff herself and one from the company accountant. The figures that seem to be correct are as follows:
 	K	
12 working days - 30.1.93 - 16.2.93	1,693.36	
3 months notice	8,890.12	
Sick leave	4,586.70	
Long service	1,877.02	
School fees	1,200.00	
Student airfares	700.00	
Leave fare	1,350.00	
Repatriation	700.00	
 	K20,997.20	
The second plaintiff, Mr Manning, was employed as architectural co-ordinator under a contract of employment which was due to expire in May 1993. His salary was K1,261.12 net per fortnight. He was terminated from 19 January 1993 but was prepaid to 29 January. There have been two sets of figures presented, one by Mr Manning himself and one from the company accountant.
The figures that seem to be correct are as follows:
 	K	
3 months notice salary (less 10 days)	7,386.56	
Long service leave	3,920.00	
Personal effects allowance	1,578.86	
Leave pay	1,127.52	
 	K14,012.94	
With respect to the third plaintiff, I have already found that the actions of Mr Wama to change the trustees and hold board meetings was invalid. So I find that Mr Rokpa is still a shareholder and Chairman of the Board of Directors.
With respect to the cross-claim by Engineering Management Pty Ltd, having found that Mr Wama's acts were invalid, it is not necessary to consider that. In any regard, I would find it hard to give the cross claim any real credibility in view of the letters from the second defendant as Managing Director in September 1992 about the good work of the first two plaintiffs and his recommendations that their salaries should be increased.
I find for the plaintiffs against the three defendants and award damages of K20,997.20 to the first plaintiff, damages of K14,012.94 to the second plaintiff and order that the third plaintiff is still a shareholder and Chairman of the Board of Directors of Engineering Management Pty Ltd.
I order the three defendants to pay the costs of the plaintiffs.
Lawyer for the plaintiff: P Kopunye.
Lawyer for the defendants: Maladina Lawyers.