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Workers Mutual Insurance (PNG) Ltd (in Liq) v Sivakumaran [2013] PGNC 364; N7862 (28 October 2013)

N7862

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS 690 OF 2011

BETWEEN:

WORKERS MUTUAL INSURANCE
(PNG) LIMITED (in Liq)

Plaintiff

AND:

SATHASIVAM SIVAKUMARAN

Defendant

Waigani: Hartshorn J.

2013: 6^th May & 28^th October

DAMAGES - Assessment of damages – plaintiff sues defendant for non-payment of monies advanced to defendant by way of personal loans – liability established by entry of default judgment - plaintiff has proved its damages on the balance of probabilities – judgment entered in favour of the plaintiff

Cases Cited:

Frank Onga v. The General Manager Engineering Management Pty Ltd (2003) N2321
William Mel v. Coleman Pakalia & Ors (2005) SC790

Counsel:

Mr. K. Imako, for the Plaintiff
Mr. R. Namaliu, for the Defendant

28^th October, 2013

1. HARTSHORN J: The plaintiff sues the defendant for not repaying loans that had been advanced to him by the plaintiff while he was employed by the plaintiff. Default judgment was entered against the defendant for not filing a defence on 16^th April 2012 with damages to be assessed. The matter now comes before me for an assessment of damages.

Assessment of damages – law

2. The Supreme Court in William Mel v. Coleman Pakalia & Ors (2005) SC790 stated:

“The principles that apply to a trial on assessment of damages following entry of default judgment were summarised by Kandakasi J. in Coecon Ltd (Receiver/Manager Appointed) v National Fisheries Authority (2002), National Court, N2182.

His Honour stated:

A survey of the authorities on assessment of damages after entry of judgment on liability mainly in default of a defendant’s defence, clearly show the following:

1. The judgment resolves all questions of liability in respect of the matters pleaded in the statement of claim.

2. Any matter that has not been pleaded that is introduced at the trial is a matter on which the defendant can take an issue on liability.

3. In the case of a claim for damages for breach of contract as in this case, such a judgment confirms there being a breach as alleged and leaves only the question of what damages necessarily flow from the breach.

4. The plaintiff in such a case has the burden to produce admissible and credible evidence of his alleged damages and if the Court is satisfied on the balance of probabilities that the damages have been incurred, awards can be made for the proven damages.

5. A plaintiff in such a case is only entitled to lead evidence and recover such damages as may be pleaded and asked for in his statement of claim.

The Supreme Court adopted and applied those principles in Papua New Guinea Banking Corporation v Jeff Tole (2002) SC694, Amet CJ, Sheehan J, Kandakasi J.

Kandakasi J. applied those principles recently in the National Court in Desmond Huaimbukie v James Baugen (2004) N2589. We believe His Honour succinctly and correctly stated the law. We elaborate on the first principle by saying that once default judgment is entered, the facts as pleaded and their legal consequences in terms of establishing the cause of action as pleaded must be regarded as proven. (See Keith Reid v Murray Hallam and Allcad Pty Ltd (1995) N1337, National Court, Kapi DCJ and Andale More and Manis Andale v Henry Tokam and The State (1997) N1645, National Court, Injia J.)........................

Turning back to the issue raised above as to the role of the trial judge after entry of default judgment, we consider the following to be the correct approach:

the trial judge should make a cursory inquiry so as to be satisfied that the facts and the cause of action are pleaded with sufficient clarity; if it is reasonably clear what the facts and cause of action are, liability should be regarded as proven;

only if the facts or the cause of action pleaded do not make sense or would make an assessment of damages a futile exercise should the judge inquire further and revisit the issue of liability.”

3. The plaintiff also relies on the following passage from the judgment of Kandakasi J. in Frank Onga v. The General Manager Engineering Management Pty Ltd (2003) N2321:

“As noted in Coecon Limited (Receiver/Manager Appointed) vs. The National Fisheries Authority of Papua New Guinea and The Independent State of Papua New Guinea (supra), a plaintiff can discharge his burden of prove (sic) by calling credible evidence. If he is able to do that in relation to what he alleges then, there is no reason why there should (not) be a finding in his favour unless, the defendant is able to rebut it by other credible evidence. Apparent in this is the fact that, once a plaintiff establishes his case on the balance of probabilities, the burden then shifts to the defendant to rebut it. If the plaintiff (sic) (defendant) fails to discharge that burden, it is open to the Court to act on the evidence of the plaintiff.”

The claim

4. From a perusal of the statement of claim it is accepted as proved that:

a) the plaintiff was placed into liquidation by order of the Court on 19^th July 2006 and Mr. David Guinn was appointed its liquidator (liquidator).

b) the defendant was employed as the Managing Director of the plaintiff from 1^st January 2002 to 31^st March 2005. During this time the plaintiff advanced various sums of money to the defendant by way of personal loans.

c) it was a term of each loan that the monies advanced were payable on demand.

d) the plaintiff issued a written demand for repayment of the loans on 6^th April 2011.

e) the defendant has failed, refused or neglected to pay the loans or any part thereof.

The defendant’s case

5. Counsel for the defendant filed written submissions and relies primarily on the affidavit of the defendant sworn 28^th March 2012. That affidavit was filed before default judgment was entered.

Plaintiff's evidence on quantum

6. The plaintiff’s evidence is based on the business records and financial statements of the plaintiff. The defendant’s indebtedness is considered under five headings:

a) the defendant’s loan account ledger balance - K 690,688.64
b) omitted loan advances - K 327,398.22
c) spurious loan repayments - K 2,624,390.41
d) incorrect credits to loan account - K 478,263.00
e) transfers to WMI Pty Ltd in Australia - K 1,298,878.00

The total sum of money advanced to the defendant is K 5,419,618.27.

The defendant’s loan account ledger balance

7. The evidence of the liquidator is that the defendant’s loan account ledger in the plaintiff's accounts as at 31^st December 2004 records that the defendant was indebted to the plaintiff in the sum of K 569,524.83. The 2005 ledger however shows only an opening balance of zero indicating that the defendant’s loan balance of K 569,524.83 was not carried forward to 1^st January 2005. As at March 2005 the ledger balance for the defendant’s loan account was K 121,163.81. When the 31^st December 2004 closing balance is added back, the correct ledger balance is K 690,688.94. The relevant loan account ledgers are annexed to the liquidator’s affidavit sworn 9^th April 2013.

8. The defendant in his affidavit sworn 28^th March 2012 at paragraph 19 admits to a loan balance of an “estimated 177,045.10”, but does not detail how that figure is calculated.

9. Given the detailed evidence of the liquidator and the lack of justification of the defendant’s calculation, I am inclined to believe the liquidator’s evidence on this point.

Omitted loan advances

10. The plaintiff contends that the defendant obtained additional loans, which were not debited to his loan account and not recorded on the loan account ledger. These omitted loan advances total K 327,398.22 and consist of three particular loans. These are detailed in the liquidator’s affidavits sworn 31^st August 2012, 4^th March 2013 and 9^th April 2013, and relevant documentation is annexed to those affidavits. This evidence is not rebutted by the defendant.

Spurious loan repayments

11. The plaintiff contends that the defendant's claims that he made repayments to his loans by 17 cheque payments are spurious as these payments were drawn against the plaintiff’s own bank accounts and not the defendants account. These spurious loan repayments amount to K2,624,390.41 and are detailed in the affidavit of the liquidator dated 31^st August 2012. Copies of the cheques and receipts are also annexed.

12. The defendant deposes that these repayments were drawdowns against his purported entitlements under what he refers to as a Group Retirement and Assurance Benefit Scheme known as GRABS, purportedly offered by the plaintiff. The defendant deposes that his GRABS entitlement was K6.7 million but acknowledges that K3.4 million was not invoiced or evidenced in writing.

13. The liquidator deposes that after an examination of the business records of the plaintiff he concludes that:

a) the plaintiff did not maintain a GRAB scheme;

b) the defendant did not have any “GRAB Scheme Entitlements” or other retirement benefit in the books of account of the plaintiff; and

c) the defendant's allegation that the GRAB scheme entitlement was the source of the funds credited to his loan account is an invention of the defendant for the purposes of this litigation, to create the appearance of an offset against the monies he received from the plaintiff.

14. I set out a précis of paragraphs of the liquidator's affidavit sworn 9^th April 2013 in order to demonstrate how the liquidator formed his conclusions:

• If the defendant had an accrued retirement benefit with the plaintiff of K3.3 million, it would be reflected in the financial records of the plaintiff. However, in the plaintiff’s trial balance as at the 31^st December 2004 no such ledger account is included, nor is there any reference to any GRABS liability account at all.
• Any drawdowns (that is, advances to the defendant) against the alleged GRABS account to credit the defendant’s loan account, would be recorded as debit entries against the credit balance in the GRABS account, with a corresponding credit entry in his loan account, thus reducing the balance of the loan. As noted there is no GRAB scheme ledger account, nor was there any relevant credit entry in the defendant's loan account.
• the defendant's employment agreements do not mention GRABS entitlements. The first employment agreement is dated 14^th June 1996 and the second is dated 1^st January 2001. Notwithstanding that there is no mention of a GRABS entitlement, the defendant alleges GRABS entitlements for the full period of his employment with the plaintiff (excluding the first three months of 2005, after which he was suspended and terminated) i.e. from 1996 to 2004.
• further, two different signed employment agreements dated 1^st January 2001 have been produced in evidence. The latter version of the contract increases the cash component of the defendant’s remuneration from K 91,000 per annum to K321,750 (excluding a housing allowance of K 52,000) and requires the cash to be paid net of tax. In other words, the second contract includes a pay increase of 250% and requires the employer to meet the defendant's tax liability. In any event, neither agreement refers to a GRAB scheme.
• the defendant has entered three employee pay slips into evidence at annexure K2 of his affidavit of 28^th March 2012. The pay slip for 21^st December 2001 shows a gross fortnightly remuneration of K 3,452.00. This corresponds with the version of the employment contract attached to Simon Fraser's affidavit referred to above, which states that the defendant’s fortnightly salary is K 3,500.00. This fact indicates that the second employment agreement was not valid.
• in November 2004 the defendant applied for a loan from Westpac Bank and included in his loan application was a letter from the plaintiff dated 18^th November 2004, signed by the then Deputy General Manager Dennis Reva, confirming that the defendant’s salary was K4,000.00. This also corresponds with the version of the employment contract attached to Simon Fraser's affidavit referred to above.
• notwithstanding the defendant’s affidavits and the brochure annexed, there is no reference in the plaintiff's business records that mentions a GRAB scheme.
• all 17 vouchers for the plaintiff sourced payments totalling approximately K2.6 million that were credited to the defendant's loan account show in the notation “Loan Repayment” or “Repayment of Loan”. However, there is no reference to advances against GRAB scheme on any of the vouchers.
• the GRAB scheme brochure annexed to the defendant's affidavit bears a remarkable similarity to the Group Multifund Benefit Scheme (GMBS) in terms of layout.
• the GRABS brochure states that the scheme is to be available to all, i.e. any “full-time employee of the Department of Health (age to 18-55) nationwide from the private, public, informal or agricultural sector may join the scheme (sic)”. However, at paragraph 19(a)(vi) of the defendant’s affidavit of 28^th March 2012, he states that “GRABS is akin to a superannuation fund for employees of (the plaintiff) including me (sic).”
• in conjunction with the other evidence deposed by me suggesting that the GRAB scheme is an invention of the defendant, I conclude that the GRAB scheme brochure has been created by the defendant solely for this litigation, using the GMBS brochure as a template and cutting and pasting it to suit.
  

15. Again, given the detailed evidence and the analysis by the liquidator, the lack of evidence of the defendant, and that the evidence and conclusions of the liquidator to which I have referred, are not rebutted, I am satisfied that the evidence of the liquidator is to be accepted on this point.

Incorrect credits to loan account

16. The plaintiff contends that there are a number of incorrect credits against the defendant's loan account listed in the defendant's loan account ledger, totaling K478,263.00 consisting of:

a) a false receipt for the purported payment of K 35,000 on 20^th June 2002 by the defendant to credit his loan account. No plaintiff bank deposit record exists for this purported payment by the defendant.

b) the plaintiff received the repayment of a term deposit of K 299,763.00 from the Bank of Papua New Guinea on 20^th August 2004. This repaid term deposit was incorrectly credited against the defendant's loan account.

c) a series of incorrect reversal entries were processed to the defendant's loan account on 30^th June 2003 and 31^st December 2003 respectively. The credit reversal entries on 30^th June comprised three entries being K 20,000, K 20,000 and K 30,000, amounting to a total of K 70,000. On 31^st December, reversal entries of K 23,500, K20,000 and K30,000, amounting to a total of K 73,500 were passed. No documentation or rationale exists in the records of the plaintiff to substantiate these reversal entries.

17. Counsel for the defendant submitted in regard to the above that the records in some instances are not particularised and lack proof that it is the defendant’s debt or the debt of other employees of the plaintiff under their loan account held under the GRABS scheme.

18. From a consideration of this detailed evidence and given the previous evidence of the liquidator that in his view the GRAB scheme is a fiction I am satisfied from a perusal of the evidence of the liquidator that the plaintiff has established its contentions to the required standard.

Transfers to WMI Pty Ltd in Australia

19. The plaintiff contends that the defendant made a number of payments to his family company in Australia called WMI Pty Ltd totaling K1,298,878.00 in 2003 and 2004.

20. The liquidator deposes that the defendant has provided various reasons for these transfers in various affidavits. In his affidavit of 28^th March 2012, the defendant stated that the moneys’ forwarded to WMI Pty Ltd were drawdowns from his GRABS account. However, in his affidavit of 12^th May 2005, he stated that WMI Pty Ltd was used “to assist in securing efficient payments for goods and services rendered for and on behalf of WMG Holdings Ltd... in Australia.” In his affidavit of 29^th April 2005, the defendant stated that WMI Pty Ltd received part of his remuneration. He further deposed that some remittances were made on behalf of the plaintiff, but later in the same affidavit deposed that the funds were partly GRABS money and that WMI Pty Ltd had acted as “post office” for overseas payments for the plaintiff.

21. The defendant’s explanations for the payments to WMI Pty Ltd are further contradicted by a Bank of Papua New Guinea analysis of the plaintiff’s overseas remittances for 2003 and 2004. A summary of these payments shows that they purportedly were for education - K 50,000, travel - K 25,000, Life Premiums - five payments totaling K429,751.00, and General Premiums - three payments totaling K794,127.00.

22. The liquidator deposes that notwithstanding the various explanations for the overseas remittances deposed to by the defendant, it is clear from the details provided in the Bank of Papua New Guinea documentation at the time of making the various transfers, that for the bulk of the payments, the defendant was misrepresenting WMI Pty Ltd in Australia as an insurance company or a reinsurance company. However, WMI Pty Ltd was not and is not an insurance company or a reinsurance company in Australia. By the defendant's own admission, WMI Pty Ltd is his family company.

23. The amount of K 1,298,878.00 therefore represents additional indebtedness of the defendant to be added to the ledger balance of K690,688.64.

24. Counsel for the defendant submitted amongst others, that WMI Pty Ltd is a private company formed by the defendant for the benefit of his family and that the monies transferred are loans drawn as a beneficiary, and payments to a third party on behalf of the plaintiff.

25. Again, I am satisfied from the detailed evidence of the liquidator that the plaintiff has established its contentions to the required standard and the liquidator’s evidence is to be preferred.

Conclusion

26. On the evidence, which on the part of the plaintiff is comprehensive and detailed, I am satisfied that the plaintiff has proved its damages in the sum of K 5,419,618.27 on the balance of probabilities.
Orders

27. In the end:

a) I order judgment for the plaintiff in the sum of K 5,419,618.27 together with interest at 8% per annum on that sum from the date of the issue of the writ until payment of that sum and interest thereon.

b) the defendant is to pay the plaintiff's costs of and incidental to the proceeding.

c) time is abridged.
_____________________________________________________________
Allens Arthur Robinson: Lawyers for the Plaintiff
Namaliu & Company Lawyers: Lawyers for the Defendant