Home > Corruption, Papua New Guinea > National Provident Fund Final Report [Part 28]

National Provident Fund Final Report [Part 28]

September 11, 2015 Leave a comment Go to comments

Below is the twenty-eighth part of the serialized edited version of the National Provident Fund Commission of Inquiry Final Report that first appeared in the Post Courier newspaper in 2002/3.

NPF Final Report

This is the 28th extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.

Executive Summary Schedule 3B continued 

Findings 

(a) The donation of K100,000 to the Aitape Relief Fund, authorised by Mr. Fabila, was without NPF Board approval, in excess of Mr. Fabila’s powers and beyond the powers of NPF.
(b) Mr. Fabila was in breach of his fiduciary duty to the members of the Fund and may be personally liable unless he can successfully claim that he acted in good faith. On the facts found by the Commission it is unlikely that a “good faith” defence would be successful.
(c) The request by Minister Dr. Fabian Pok for the NPF to contribute K100,000 by 2pm on the day of the request was improper.
(d) Seeking approval of the NPF Board by way of Circular Resolution is not a valid resolution within the terms of the NPF Act, which envisages that valid resolutions will be made “face to face” at a properly constituted meeting of the NPF Board. The danger of proceeding by way of circular resolution was well illustrated, as several trustees expressed serious concerns and it was left to Mr. Fabila to decide what to do and to decide how the amount of K100,000 would be distributed.

Requests for donations by Mr. Skate 

During 1998, the Prime Minister Mr. Skate and his wife requested donations from NPF. As Mr. Fabila was specifically appointed to the position of managing director of NPF as a friend of Mr. Skate, he must have been under considerable pressure to agree to the requests.

Findings 

(a) Mr. Fabila was in breach of his fiduciary duty to the members of the Fund in authorising payments of K2000 and K5000 to the PNG Sports Federation and Bougainville Children’s Fund.
(b) In view of the public controversy in which NPF was correctly criticised for acting beyond power in donating to the Aitape Relief Fund, Mr. Fabila cannot really claim to have been “acting in good faith” and hence is personally liable to NPF members for these losses.

1999 

NPF’s tax return for this year showed a total of K23,241.70 in donations was made by NPF. However, there could be more donations made that the Commission investigation could not locate.

1. 6th January 1999 NPF Soccer Club K1,000
2. 12th January 1999 POM Rugby Football Union K 700
3. 12th January 1999 The Scots Limited K1,000
4. 25th March 1999 Hiri Moale Festival K5,000
5. 25th March 1999 Brothers Rugby Union Club K1,000
6. 31st March 1999 Hula United Church K1,000
7. 4th May 1999 Mama Tapi K 200
8. 5th May 1999 U/Church POM East Circuit K 500
9. 11th May 1999 Cross Road Shelter K 500
10. 18th May 1999 Air Niugini K4,378
11. 24th June 1999 POM Golf Club Inc. K1,000
12. 24th June 1999 Miss NCD FRC K1,500
13. 24th June 1999 PNG Netball Federation K1,000
14. 30th June 1999 Brothers Rugby Union Club K4,000
15. 30th June 1999 Hiri Production K 600
16. 28th July 1999 Lihir Red Cross K1,000
17. 10th August 1999 Takone Amatr. Volleyball Ass. K 300
18. 25th August 1999 Miss Mary English K 500
19. 26th August 1999 Orogen Minerals Limited K1,000
20. 1st September 1999 United Church – East Papua M/land Region K 500
21. 29th September 99 PNG Cricket Board K 700
22. May 1999 Cop Publishing Pty Ltd K2,400

A greater number of donations were made during this year than in previous years despite the fact that NPF was going through an acute cash flow problem and was struggling to manage the substantial losses from its investment portfolio. Mr. Fabila’s action in approving donations during this difficult time was imprudent and beyond any legal authority. It amounted to a breach of his fiduciary duty to the members of the Fund and was improper conduct.

NPF Board seeks to control donations

The Board passed a resolution during their 120th Board meeting held on 29th September 1999 to adopt a policy that demanded that NPF management must seek prior Board approval before responding to any form of request for donations. This resolution resulted in NPF not making further donations during that year.

Mr. Fabila’s evidence

Mr. Fabila has agreed in his evidence that there was no power to make donations set out in the NPF Act, nor is the matter dealt by any policy document. He explained that the various causes were “Worthwhile” and that he felt that NPF should donate to such causes in order to be a good “corporate citizen”. Mr. Leahy, as in-house legal counsel, failed to give advice on NPF’s powers to make donations and this amounted to a breach of his professional duty to the NPF. Mr. Fabila failed to seek legal advice.

Findings

(a) The National Provident Fund Board of Trustees had no legal power to make donations. Those who authorised and approved the donations (Messrs Maladina, Fabila and Leahy and the Trustees who supported the Aitape Disaster donation) albeit with the best of charitable intention – acted beyond power and are legally personally liable to the Fund for their unauthorised actions. The Trustees (including the managing directors) were in breach of their fiduciary duty to the members and their personal liable for each donation, which they authorised stems from breach of this fiduciary duty.
(b) Dr. Fabian Pok acted improperly in requesting NPF to contribute to the Aitape Disaster appeal and should be referred to the Ombudsman Commission for possible breach of the Leadership Code.
(c) Prime Minister Skate acted improperly in requesting NPF to contribute to the Prime Ministers Celebrity Walk & Banquet and should be referred to the Ombudsman Commission for possible breach of the Leadership Code.
(d) The Commission considers that most of the people who requested donations should not be criticised, as their mere request did not put pressure on NPF management. The Commission takes a different view when the request comes from National Leaders who are or are seen to be in a position of power over the NPF.
(e) Mr. Herman Leahy failed in his duty as Legal Counsel in not providing a legal opinion on NPF’s power to make donations.
(f) The Commission finds that the payments (made from Trust moneys) were not made in good faith as no due diligence in this respect was exercised at all. The position may have been different if advice on the power to make donations had been sought and erroneous advice had been given and relied upon.
(g) The Board’s belated direction to management in September 1999 succeeded in bringing the donation problem under control. It was a rare example of how firm guidance and direction given to management by the NPF Board during the period under investigation.

PROMOTIONAL ADVERTISING COSTS 

Introduction

The Commission appreciates that the NPF Board of Trustees did have power to advertise and to charge the cost and expenses against the Fund in some circumstances (such as publishing a list of employers who are in default in the payment of Fund contributions for instance).

This section however is dealing with overseas advertising of a promotional nature. The Commission believes that there is no point in promoting NPF overseas unless it is for a specific purpose where there would be tangible benefits in increasing member’s funds.

The Commission also notes that the high cost of these advertisements came at a time when NPF was facing serious cash flow problems. NPF management failed to properly consider NPF’s financial position before agreeing to participate in the advertising campaign.

Finance Inspectors report on selected “paid vouchers” 

The Finance Inspectors report was the starting point for the Commission’s investigation, which focussed on two foreign publications, on which substantial sums of members’ money had been expended. These two publications were:-

(a) World Report Limited and
(b) Universal News Inc.

World Report Ltd.

This organisation had a post office box address, telephone and facsimile number in London but no street address.

Introduction of World Report Limited to NPF 

Mr. lairo Lasaro in his capacity of Treasury Minister and Minister responsible for NPF introduced the representative of World Report to Mr. Fabila in his letter dated 8th August 1998. Similar letters of introduction from Prime Minister Skate, other Ministers including Mr. Masket langalio, Sir Rabbie Namaliu, Mr. Dibara Yagabo and Mr. Michael Nali were produced and given to Mr. Fabila by the representative of World Report, Ms. Joanna Bergin, at the initial meeting.

Contract and cost of advertising in the Independent Newspaper 

A single paged Advertising Contract 098/0156 between World Report Limited and NPF, was signed by Ms. Joanna Bergin and Mr. Fabila, for a double page spread, full colour insertion in the Independent Newspaper at a cost of US$98,800. Payment arrangements were 50 percent within 30 days from the date of the contract and the balance within 60 days from the date of the contract.

Misleading report to NPF Board of Trustees 

In the management report to the Board for the months of August / September 1998, Mr. Fabila raised the matter of NPF advertising in the Independent Newspaper. Mr. Fabila made three fundamental errors in his report.

  • Firstly, he said World Report published the Independent, which is not the case.
  • Secondly, he said a commitment was made to pay “up to US$98,800” when the reality was a valid contract to pay that exact amount had already been signed by him.
  • Thirdly, he said the advertisement was to be included in a book about PNG published by World Report Limited, when in reality, the payment was for a one off supplement inserted in only one issue of the Independent newspaper.

NPF seeks a discount 

On the 16th November 1998, Mr. Fabila wrote a letter to Ms. Bergin acknowledging receipt of the invoice and at the same time seeking a discount on the contracted price, giving the reason that NPF had done a lot of artwork for the NPF advertisement. This request received a very negative reply.

NPF then remitted part payment of US$69,160. World Report Ltd were obviously concerned about the part payment and responded by sending a number of faxed letters to Mr. Fabila with copies to Mr. lairo Lasaro as Minister responsible for NPF.

On the 15th January 1999, the balance of US$14,820 was remitted.

Involvement of Minister Lasaro

As we have indicated earlier, letters of demand to Mr. Fabila for the remaining part of the contracted payment were being copied to Mr. Lasaro. This raises the possibility that the Minister had become personally involved and needed to be advised that payment had been made. Mr. Lasaro in his sworn statement to the Commission however said that his involvement was to help World Report Ltd and NPF to resolve the issue of payment.

Mr. Fabila’s evidence 

Mr. Fabila in his evidence said that because Ms. Bergin also presented him with supporting letters from the Prime Minister Mr. Skate, Sir Rabbie Namaliu, Mr. langalio, Mr. Yagobo and Mr. Nali, which were typed on the appropriate Ministerial letterheads, he assumed the Government supported the venture and wanted NPF to pay for advertising in the World Report supplement in the Independent Newspaper. He therefore signed the contract in front of NPF legal counsel Mr. Herman Leahy, who according to Mr. Fabila was satisfied with the terms of the contract.

Mr. Fabila described how Mr. Lasaro had contacted him three times to discuss payment of the outstanding amount. Mr. Fabila was adamant that NPF should not have paid the outstanding amount until it had inspected the final outcome of the advertisement. He said Mr. Lasaro insisted on him paying. Mr. Fabila said that he then authorised the payment.

Minister Lasaro’s sworn statement 

Minister Lasaro agrees that he received a letter from Prime Minister Skate about supporting the World Report promotion of PNG. He also agrees that he wrote a letter to Mr. Fabila introducing the World Report. He explained that he contacted Mr. Fabila only about paying the outstanding amounts to World Report Limited, because as a Minister of State, he was concerned about PNG’s image overseas.

Findings 

(a) Prime Minister Skate had selected Mr. Fabila and appointed him as Managing Director of NPF (See report on Structure and Mr. Fabila’s own evidence Transcript pp.1781-1783). There is also evidence that Mr. Lasaro, as a Minister appointed by Mr. Skate, was accustomed to accepting Mr. Skate’s direction. In these circumstances, on all the evidence, the Commission finds that Mr. Fabila found it difficult to refuse directions from both Prime Minister Skate and Minister Lasaro.
(b) When Ms. Joanna Bergin personally handed a letter of recommendation signed by Minister Lasaro to Mr. Fabila and similar letters signed by at least four other ministers, he (Mr. Fabila) interpreted this as a political direction to commit NPF to advertise in the Independent and he accepted that direction.
(c) Mr. Fabila was in breach of his fiduciary duty to the members of the Fund by accepting Minister Lasaro’s letter as a direction and then committing NPF to a binding contract with World Report Ltd.
(d) The evidence is that Mr. Fabila realised that the paid advertisement was not in the best interest of NPF members. It is unlikely he would succeed in claiming he “acted in good faith” and is therefore probably personally liable for loss incurred by NPF if that loss can be quantified.
(e) Mr. Fabila entered into a contract with World Report Ltd without authority from the NPF Board and then provided the Board with false and misleading information in order to obtain Board ratification.
(f) Mr. Fabila’s conduct was improper and in breach of his fiduciary duty as a Trustee to the members of the Fund. Mr. Fabila may be personally liable for loss suffered by NPF arising from this contract and it is unlikely he could successfully claim a defence of “acting in good faith”.
(g) The Trustees were placed in a difficult situation by management as contractual relations had already been entered into without their knowledge. Even so the Trustees were remiss in not castigating Mr. Fabila and in not resolving to put in place clear directions to avoid repetition of unauthorised decisions by management in the future.
(h) The letter from the Prime Minister seems to have been circulated to other Ministers who then had the identical or very similar letter printed out under their own letterhead. These letters were then addressed to NPF and probably to other bodies asking them to participate in this advertising opportunity. This would be likely to have impressed the recipient of those letters as being a strong Ministerial push, initiated by the Prime Minister himself.

TO BE CONTINUED

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  1. September 14, 2015 at 12:00 pm

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