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State v Kavo [2014] PGNC 112; N5738 (24 September 2014)

N 5738

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

CR (FC) 721 OF 2012

BETWEEN:

THE STATE

AND:

HAVILA KAVO

Waigani: Salika, DCJ.
2014: 7th, 8th, 14th &15th April
7th, 14th, 15th, 16th & 30th July
24th September

CRIMINAL LAW – Practice and Procedure - misappropriation of property – trust property – responsibilities of trustee – accused a trustee – trust property to be used for trust purpose only.

Cases Cited:
Papua New Guinea Cases

Kindi Lawi v The State (1987) PNGLR 183
Elijah Titus v The State, SCA 96 of 1991, 30th April 1992 an unnumbered and unreported decision of the Supreme Court.

Overseas Cases

R v Freely (1973) 1QB 530
R v Landy (1981) 1WLR 335

Counsel

Mr. C Sambua, for the State
Mr. A Kumbari, for the Accused

24th September, 2014

1. SALIKA DCJ: Introduction: The accused is a Member of Parliament for the Gulf Provincial or Regional Seat. He first won the seat in the 2007 National Elections. He contested for the same seat in the 2012 National Elections and won back the seat. By virtue of being elected member for Gulf he is also the Governor of the Gulf Province. He is the political head of the Province and as such he is also the Chairman of the Gulf Provincial Executive Council.

2. He stands charged that he between the 5th day of February, 2010 and the 12th day of February 2010 at Kerema, dishonestly applied to his own use K131, 3338.00 the property of the Independent State of Papua New Guinea.

Allegation

3. The State alleged that while the accused was serving as a Governor of Gulf Province he incurred K131, 338.00 as his outstanding entitlements from the Provincial Government which was paid out from the Memorandum of Agreement (MOA) Funds drawn from the Kutubu Oil Pipeline Trust Funds intended for impact projects in the Gulf Province and the Kikori Landowners.

4. The State also alleged that the K10 million cheque was released by the Department of Finance on 10 November 2009 to the Gulf Provincial Government as a payment originally drawn out from the Petroleum Outstanding MOA Funds which are trust funds and are held only for purpose of implementing impact projects especially from the Kikori District and for infrastructure development and for Kikori Landowners within the 10 kilometer corridor of the Oil Pipeline that runs from Kutubu in the Southern Highlands through Kikori in the Gulf Province.

5. It is alleged that on 8 December 2009, the accused called a Provincial Executive Council meeting which determined how the K10 million would be used. A list of projects were identified to be funded from the funds. Among the projects outstanding allowances owed to the accused were also listed and approved for payment from those trust funds.

6. The State alleged that the accused then gave instructions for a requisition for expenditure to be compiled and submitted for processing for payment of K131, 338.00 to him. This was duly done and the accused was paid the K131, 338.00 as being payment of outstanding entitlements under the Salaries and Remuneration Commission (SRC) Determination of 2007.

7. The State alleged that the accused was not entitled to be paid K131,338.00 from the MOA funds and that the Gulf Provincial Government and its administration could not use those MOA funds for its own purposes other than the purposes specified under the Trust deed. They therefore argued that the K131,338.00 paid out to outstanding allowances for the accused did not fall into the category of impact projects and as such the money was dishonestly applied by the accused.

Undisputed facts

8. It is not disputed that K131,338.00 was paid to the accused and that he used that money on himself and for his benefit and for the benefit of his wife and family.

9. It is not disputed that K10,000,000.00 was paid into the Gulf Provincial Government Operating Account No. 100586498 held at the Bank South Pacific.

10. It is not disputed that Mark Maipakai, the Member of Parliament for the Kikori Open Seat was the complainant in this matter.

Disputed Facts

11. It is not agreed that K10 million were MOA Funds or Umbrella Benefit Sharing Agreement (UBSA) Funds for the State says they were MOA funds while the defence says the K10 million were UBSA funds.

Issue

12. The pertinent facts upon which the State relied on to mount his prosecution was that the K131, 338.00 came out of the MOA Funds which were specifically for special development projects for infrastructure development and for the landowner impact projects in the Kikori District of the Gulf Province.

13. There was another argument or twist later in the course of the trial that the K131, 338.00 was allowance which was already paid by Parliament on a fortnightly basis and as such this payment was double dipping by the accused. This was the other twist to this allegation. However, I will not deal with the allegation because the State's specific allegation is as stated in the above paragraph.

14. The issues which arise from those allegations are:

(a) Whether the K10 million deposited into the Gulf Provincial Government Operating Account were trust funds;

(b) Whether the K131,338.00 was from the MOA Trust funds or UBSA Funds;

(c) Whether the application of the money in the circumstances was dishonest;

(d) Whether the accused applied the money to his own use;

Issues (a) and (b)

15. There is undisputed evidence that the K10 million Bank South Pacific Cheque was written out from the Petroleum MOA Commitment Trust Account No: 1001501108 to the Gulf Provincial Government. The cheque was then deposited into the Gulf Provincial Government Operating Account. This evidence was given by Robert Israel Peni who is the Bank South Pacific Security Investigation Manager.

16. There is nothing on the K10 million cheque leaf stating that the money in the cheque was converted into a UBSA cheque could be used for anything other than what the MOA Trust Deed directed. Counsel for the accused submitted the K10 million were Umbrella Benefit Sharing Agreement (UBSA) Funds with no conditions attached to its spending. The submission is based on the evidence of Gabriel Yer the former Secretary for Finance and who was a signatory to the K10 million cheque and also from the accused himself and the other witnesses called on his behalf.

17. However, the UBSA is just an agreement was never produced in evidence with no actual financial commitment from the Government and there was no framework as to how this UBSA would be funded and implemented. The MOA Trust Fund on the other hand holds money "in trust" and is in evidence before the court. It has guidelines as to how and when and for what the funds are to be used for.

18. There is no evidence as to who requested for the release of the K10 million. There is no evidence of any accompanying documents attached to the K10 million cheque that was released from the Department of Finance.

19. Cathy Ali, a witness for the State in her evidence said that the K10 million was drawn out from the MOA Trust Account and that it is the only cheque for K10 million paid out at the time. She gave evidence that the funds are held in Trust for development project purposes only.

20. Counsel for the accused submitted that the K10 million were UBSA funds. Evidence however, is that the K10 million came out from the Petroleum MOA Trust Fund Account No. 1001501108. I cannot understand how they can become UBSA Funds when they are drawn directly from the MOA Trust Fund Account. But even if the Funds are UBSA Funds, they are in my respectful view, still trust funds and subject to trust responsibilities.

21. There is also evidence that before the K10 million funds went into the Gulf Provincial Government Operating Account No. 1000586498 had a debit balance of K179.05. The evidence of that is Exhibit "MM", not enough to pay the outstanding allowances owed to the accused. Only after the K10 million trust funds were deposited into the Gulf Provincial Government Operating Account were there then sufficient funds to pay out the allowances to the accused. The State submitted that this goes to show that the Gulf Provincial Government Administration officers paid the accused from the MOA Trust Funds.

22. It is clear to me that the K10 million cheques started its journey as MOA Trust Funds drawn from the Petroleum MOA Commitment Trust Account No. 1001501108. The K10 million cheque was written out in favour of the Gulf Provincial Government with no explanation as to what it was for and why the K10 million was paid to the Gulf Provincial Government. However, the Gulf Provincial Government happily received it and its Provincial Executive Council sat to make plans as to how it should be used. The Provincial Executive Council (PEC), of which the accused is the chairman, identified the special development to benefit from the funds but at the same time decided that the accused's outstanding allowances should be paid from these funds because according to them (that is the PEC) they were UBSA Funds.

23. According to both the State and the defence witnesses the money was either MOA funds or UBSA funds. The Gulf Provincial Government Expenditure plan which is Exhibit R in these proceedings records it as "K10 million UBSA SPECIAL PROJECT FUNDING". It is therefore apparent on the face of the record that the K10 million funding was for special projects. In other words whether the funding was from the MOA or UBSA funds, the funds were to fund special projects.

24. I heard evidence from Gabriel Yer that the UBSA Funding was not tied to any particular project and that it was up to the Gulf Provincial Government to decide how the funds were to be used. What he failed to tell the court was that the funds came out from the MOA Trust Funds. I agree that it was a prerogative of the Gulf Provincial Government to identify and prioritise which projects the K10 million will be spent on. What Mr. Yer also failed to tell the Court was that the K10 million could not be used to pay SRC allowances or overtime payments. Trust Funds by their very nature are held by a person or another for the benefit of another. The Trustee in this case Gabriel Yer and his Department had a duty to carry out the terms of the Trust. MR. Yer and his department were to ensure utmost diligence in discharging their trust duties to ensure that the monies were to be expended on special projects identified by the Gulf Provincial Government. The Gulf Provincial Government and the accused became trustees of the K10 million and ensure utmost diligence in discharging their trust responsibilities.

25. The K10 million was for funding special development projects. The question that arises is whether payment for Provincial Executive Council members, the Governors outstanding allowances and legal fees come under the category of development projects. Payment of outstanding wages for Provincial Executive Council Members, legal fees, Governors outstanding allowances under the SRC Determination in my respectful opinion do not qualify as special development projects. For Gabriel Yer to say there were no conditions attached to the usage of the K10 million is with respect very irresponsible from a top government official responsible for looking after the people's money. Mr. Yer was the Secretary for Finance at the time and for him to give that type of advice to the government and now to this court was and is with respect a serious dereliction of duty as a trustee of people's money. This appears to be the attitude of some of our so called senior public servants who often erroneously advise that trust monies can be expanded on anything and everything. This is a recipe for abuse of the trust funds. This attitude must not and never be allowed to flourish in this country in the Provincial Government and the National Government.

26. In this case outstanding wages of Provincial Executive Council Members and outstanding allowance cannot and should not be paid from this MOA or UBSA Funds. Those costs must be paid from the province's own funds allocated by the National Government through the normal yearly budget appropriation. The payment of the accused's outstanding allowance from the K10 million was improper and an abuse of funds.

Issue (c)

27. The next question is whether there was dishonesty in the obtaining of the funds from the Trust Funds.
28. The defence counsel submitted that there was no dishonesty on the part of the accused in requesting for the payment of K131, 338.00 because those were his accrued entitlements. He further submitted that as the funds were drawn out from the Gulf Provincial Government Operating Account it cannot be said that the funds were MOA Trust Funds.

29. I note that the Gulf Provincial Administration officers were involved in the requisition and processing of the claims for the accused. I also note and there is evidence in the form of Exhibit "T" which lists down the names of officers involved in being paid K1,000.00 each for processing the claims and for working overtime. It is rather unusual that such payments were made also from the same MOA Trust Funds. What were these officers paid for, I ask. If they were claiming overtime, there are Public Service set procedures to make such claims.

30. While the accused may have had a genuine claim for outstanding allowances, he ought to have known that his allowances could not be paid from the Trust Funds, whether it was from the MOA or UBSA. The same goes to the Gulf Provincial Administration officers. They could not process the accused's claim for outstanding allowances from the Trust Funds, and pay themselves K1,000.00 each for processing the accused's claims. This to me smacks of dishonesty. To come now and say that the Trust Funds could be used for payment of outstanding allowances to me is absurd and in my respectful opinion playing ignorance and a total misunderstanding of trust responsibilities and it amounts to a total disregard to the disbursement processes of the Trust Funds. In the case of Kindi Lawi v The State (1987) PNGLR 183 funds were allocated for specific projects by the Department of Finance. The appellant used the money for something else. The same has occurred here. Trust Funds were allocated for specific development projects but they were spent on something else. The accused in my respectful opinion was also a Trustee of the people's funds. They did not suddenly convert themselves from Trust Funds to be "funds to be used at will" by the Gulf Provincial Government. There is no evidence that the K10 million MOA Trust Funds were converted into funds to be used at will. In my respectful view they remained Trust Funds.

31. Did the accused act dishonestly? Again I refer to the useful discussion in Kindi Lawi v The State (supra), where the Supreme Court referred to an English case of R v Landy (1981) 1WLR 355. The court of appeal in that case explained and enlarged upon R v Freely (1973) IQB 530 in these terms:

"['dishonestly'] in section 1 (1) of the ]Theft Act 1968] related only to the state of mind of the person who did the act amounting to appropriation, whether an accused person has a particular state of mind is a question of fact which has to be decided by the jury ... Jurors, when deciding whether an appropriation was dishonest can be reasonably expected to, and should, apply the current standards of ordinary decent people. In their own lives they have to decide what is and what is not dishonest."

32. The court of appeal in the Freely Case said:

"This brings us to the heart of the problem. Is 'dishonesty' in s 1 of the Theft Act 1968 intended to characterize a course of conduct? Or is it intended to describe a state of mind? If the former, then we can well understand that it could be established independently of the knowledge or belief of the accused. But if, as we think, it is the latter, then the knowledge and belief of the accused are at the root of the problem.

Take for example a man who comes from where public transport is free. On his first day here he travels on a bus. He gets off without paying. He never had any intention of paying. His mind is clearly honest; but his conduct, judged objectively by what he has done, is dishonest. It seems to us that in using the word 'dishonestly' in the Theft Act 1968, Parliament cannot have intended to catch dishonest conduct in that sense, that is to say conduct to which no moral obloquy could possibly attach. ... A man's belief and his willingness to pay are things which can only be established subjectively.

33. The court of appeal continued at 1064:

In determining whether the prosecution has proved that the defendant was acting dishonestly, a jury must first of all decide whether according to the ordinary standards of reasonable and honest people what was done was dishonest. If it was not dishonest by those standards, that is the end of the matter and the prosecution fails. If it was dishonest by those standards, then the jury must consider whether the defendant himself must have realized that what he was doing was by those standards dishonest. In most cases, where the actions are obviously dishonest by ordinary standards, there will be no doubt about it. It will be obvious that he defendant himself knew that he was acting dishonestly. It is dishonest for a defendant to act in a way which he knows ordinary people consider to be dishonest, even if the asserts or genuinely believes that he is normally justified in acting as he did" (My emphasis).

34. The authorities cited above relate to English cases relating to the Theft Act 1968 (UK) but in my respectful view the discussion of these cases are relevant and appropriate for PNG circumstances especially where s. 383A(1) of our Criminal Code Act uses the same expression "dishonestly" as the Theft Act 1968 of the United Kingdom. I consider the principles discussed in the English cases to be relevant and apply them here in this case as well.

35. I consider that according to the ordinary standards of reasonable and honest people from the Kikori District, the people of the Gulf Province and Papua New Guinea, what the accused did in being a party to making a PEC decision to pay himself his outstanding SRC allowances from the MOA or UBSA Trust Funds and then accepting the K131,338.00 amounts to dishonesty as those funds were not intended for paying outstanding allowances. This is because there is evidence that the PEC made the decision of which the accused is the Chairman to make those payments.

36. I consider Mr. Maipakai the Member for Kikori the complainant in this matter, for the purposes of this case as a leader of his people. I also consider him to be an ordinary person from Kikori District and according to him what the accused did was dishonest. If an ordinary thinking person like Mark Maipakai considers that what the accused did was dishonest is dishonest. In R v Landy (1981) 1 WLR 355 at 365 the court said:

"I am sure he was acting dishonestly because I can see no reason why a man of his intelligence and experience would not have appreciated, as right minded people would have done, that what he was doing was dishonest".

I adopt this statement and say that the accused should have known or ought to have known with his level of experience and intelligence that, the monies the K131, 338.00 was drawn from were special development project funds and not for paying outstanding SRC allowances. Yet he as the Chairman of PEC went ahead and made a decision not only to pay his allowance but receive and use it.

37. The defence vigorously submitted that this claim was genuine in that the accused was owned his outstanding SRC allowances and that he had an honest claim of right to the monies paid to him. I have no issue with that submission.

The defence also submitted that the claim was processed through the normal and proper procurement process. Again I have issue with that argument. The defence also argued that the Provincial Administration authorized the payment of the claim and that the accused had nothing to do with the payment. I beg to differ on this submission because the accused is not an isolated recipient. Documents indicate that he had earlier discussions on these payments with the Provincial Administration Officials including the Provincial Administrator. He would have known or ought to have known that the Gulf Province Operating account had a debit balance which was not sufficient to pay his outstanding allowances. Not only was that, but he as chairman of the PEC a party to a decision to pay his outstanding SRC allowance.

38. Moreover as the PEC documents shows the K10 million funds were special development project funds. The accused knew or ought to have known that. He therefore could not draw his outstanding allowances from that account. A person of his experience and knowledge ought to have known that these funds were special development project funds and not funds to him and others.

39. The Gulf Provincial Government received the K10 million as a representative of the people of the Gulf Province and held them for the interest of the people. The Supreme Court in the case of Elijah Titus v The State SCA 96 of 1991 30 April 1992, unreported and un-numbered decision of the Supreme Court said the following relating to trust funds:

"It was submitted that according to the Trust the nature of the investments in which the monies could be invested was unlimited. However it is clear that this was a Trust to hold monies and apply monies for the purposes and needs of the people of Lake Murray. The use of the word "Funds" does not abrogate the trust principles. Basic trust principles must apply. Do we need long complicated trust documents to set up the basic principles of trust money? It is accepted principle that monies held on behalf of others can only be kept for the purposes of the fund of trust in what is termed Trustee investments usually Government Bonds and Banks, and where the State is involved, as per s. 12 of the Public Finance (Management) Act and if a trustee does otherwise with them he can be liable for breach of trust. To ever suggest that such monies can be lent to anybody is a clear disregard of normal trust principles. So to even to suggest that the Minister could approve the borrowing of the monies by the accused could be a clear breach of trust principles not only by the appellant but also by the Minister. It is hardly worth noting that even if the Minister had approved that the money could be loaned to the appellant, such loan was not done by accepted loan principles namely loan documents and security.

40. With respect I adopt that statement of the Supreme Court. For Gabriel Yer, the accused and the officers of Gulf Provincial Administration to say that the use of the funds in this case was unlimited and that the Gulf Provincial Administration could determine its own expenditure and spending of that K10 million in any way in my respectful opinion "suggests a clear and dangerous misunderstanding of trust responsibilities". Accordingly, I find that the monies were dishonestly applied.

Issue (d)

41. Did the accused apply the money to his own use? There is no issue here because there is plenty of evidence that the accused used the money for his own benefit and the benefit of his family, more so his wife.

42. Applying the law relating to the use of trust money, I am satisfied beyond reasonable doubt that the accused dishonestly applied money in the amount of K131,338.00 belonging to the State and the Gulf Provincial Government for the benefit of himself and others. Accordingly, I find the accused guilty as charged.
__________________________________________________________
Public Prosecutor: Lawyers for the State
Kumbari Lawyers: Lawyers for the Accused