Home > Corruption, Papua New Guinea > National Provident Fund Final Report [Part 79]

National Provident Fund Final Report [Part 79]

November 20, 2015 Leave a comment Go to comments

Below is the seventy-ninth 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 79th 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 9 Continued

Property mentioned at the 99th NPF Board meeting

The property was mentioned at item 5.10 of the minutes of the 99th NPF Board meeting on 23rd February 1996 but not in relation to the proposed sale to Mr Paska, which was consequently not discussed at Board level.

Mr Paska contracts to buy

Mr Leahy prepared a contract of sale and forwarded it to Mr Paska who signed the contract and returned it to the NPF Managing Director, Mr Kaul, on 6th December 1996, saying he had rented the property to tenants and that all rent collected would be remitted to NPF. He said that he was anticipating final settlement 2 weeks from the date of his letter.

Mr Paska makes part payment and seeks Ombudsman Commission approval

There was some delay while Mr Paska sought to obtain a bank loan but, meanwhile, he paid K24,000 to NPF on 10th July 1997 as a deposit on the purchase.

On the same day, he wrote to the Ombudsman Commission seeking approval to buy the property. He stated that the NPF Board had “approved consideration of my interest in acquiring the property”. He also said he had obtained legal advice that there was no conflict of interest. Mr Paska did not advise the Ombudsman Commission that he had already signed the contract of sale and been receiving rent on the property since December 1996 and that he had paid K24,000 towards the purchase price.

Mr Leahy communicates with Ombudsman Commission

On 11th July 1997, Mr Leahy wrote to the Ombudsman Commission in support of Mr Paska, saying that following his expression of interest, Mr Paska had been asked to make an offer to the Board and that he had offered K96,000. Mr Leahy falsely said that this offer had been approved by the Board in Mr Paska’s absence. At this stage, the Board had not considered Mr Paska’s offer.

During early August, the Ombudsman Commission sought details from Mr Leahy of the Board resolution approving the sale to Mr Paska (These inquiries were followed up by a formal letter on 22nd August 1997). As there had not yet been such a resolution, Mr Leahy proceeded to manipulate the NPF Board in order to bring such a resolution into existence.

Mr Leahy manipulates NPF Board to retrospectively create a resolution approving the sale to Mr Paska

The NPF Board held its 108th meeting in Kavieng on 22nd August 1997, and it seems as though a late item was introduced, orally, as there was no mention of it in the pre-prepared management papers. The item sought to amend the minutes of the 99th Board meeting held some 18 months earlier on 23rd February 1996. This meant that Item 5.10 of the earlier minutes was replaced with a new item 5.10 that purported to describe how Century 21 had been listing the property for K110,000, that there were interested buyers but “the sale price appeared to be beyond market valuation”, that an offer of K96,000 to purchase from Mr Paska was tabled and discussed by the Trustees to ensure it was fair market value and that it was resolved to accept Mr Paska’s offer (Century 21 later refused to confirm its alleged role as stated in the amended minute).

It is recorded that the Board resolved at the 108th meeting to approve the amendment to item 5.10 of the minutes of the 99th meeting and that Mr Paska was not present during the 108th meeting.

Mr Leahy provides misleading statement to the Ombudsman Commission

In answer to the Ombudsman’s letter of 22nd August 1997, Mr Leahy replied on 23rd September 1997, enclosing a signed extract of item 5.10 of the minutes of the 99th NPF Board meeting held on 23rd February 1996. The extract was certified by Mr Leahy on 23rd September 1997, as if it were an item recorded at the 99th meeting on 23rd February 1996.

The item so certified, was the amended item, which had been resolved on the 27th August 1997, at the 108th Board meeting.

Quite clearly, this was a false representation deliberately designed by Mr Leahy to deceive the Ombudsman Commission. Mr Leahy’s conduct was unprofessional. This Commission has recommended that he be referred to the President of the Papua New Guinea Law Society and the Ombudsman Commission for further investigation.

Mr Paska withdraws offer to purchase and PNGTUC becomes the purchaser

Despite these false representations designed to encourage the Ombudsman to approve the sale to Mr Paska, the Ombudsman Commission still delayed its ruling. Mr Paska then withdrew his offer to purchase the property at the 110th meeting on 11th December 1997. He requested that the sale be made to the PNGTUC instead for K96,000. Mr Paska, who is the General Secretary of the PNGTUC, was present at that meeting and did not declare his conflict of interest.

Delay in executing contract

PNGTUC paid a deposit of K9,600 in February 1998 and remained in possession of the property receiving rent for it. Despite considerable correspondence between NPF and PNGTUC and exchange of documents, the contract was not finally executed until 6th November 1998. This was an extraordinary long delay, considering that the PNGTUC had already been allowed to take possession (which was highly irregular) and was receiving rent for the property.

The settlement of this transaction was continually postponed as the PNGTUC experienced difficulty securing the required financing. Meanwhile, however, the rent received accumulated and they enjoyed the benefit of it.

On 18th September 2000, NPF’s new legal counsel, Mr Kamburi, issued a “Notice to Complete Settlement” to PNGTUC. On 11th October 2000, PNGTUC responded that K61,950 had been collected in rent, that K4,000 had been spent on improvements and K52,000 was held in trust. PNGTUC (unsuccessfully) sought a rent sharing agreement with NPF.

The sale was finally settled on 20th October 2000 and PNGTUC paid the full balance of the K96,000 purchase price. There had been no independent valuation of the property and the 1995 proposed purchase price of K96,000 had not been reassessed during the 5 years to the settlement date.

Reluctant payment of rent by PNGTUC

On 10th January 2001, after NPF had instituted legal proceedings, PNGTUC paid NPF K50,000 of the rentals they had previously collected. The letter enclosing the bank cheque for that partial rent payment concluded:-

“the balance will most probably be in the vicinity of K10,000 – K15,000 … Hopefully this amount will be settled sooner rather than later”.

Findings

(a) The disposal of Allotment 13 Section 73 Korobosea failed to comply with Government tender procedures. The Board and management staff may be held responsible by members of the Fund for any loss incurred in the sale of this property.

(b) No valuation of the property was made to determine the commercial value of the property.

(c) The sale of this property to PNGTUC and the conduct of NPF management in their handling of this sale in the face of Mr Paska’s conflict of interest was nepotistic and improper.

(d) Although Mr Paska had previously declared his conflict of interest as a Trustee and contracted purchaser, he was also General Secretary of the PNGTUC but did not abstain from discussing on the sale of this property to PNGTUC and was therefore in a conflict of interest situation.

(e) The long delay in completing the conveyancing enabled PNGTUC to rent the premises and receive K61,000. NPF instituted legal proceedings against PNGTUC. In January 2001, PNGTUC still owed between K10,000 – K15,000 to NPF.

(f) Mr Leahy engineered the approval by a new Board resolution on 22nd August 1997, which created a substitute minute of the meeting of 23rd February 1996 intending to mislead the Ombudsman Commission. He should be referred to the PNG Law Society to consider whether disciplinary measures should be imposed upon him.

(g) The Ombudsman Commission should be notified about the events leading up to the amended Board minute, which was created specifically to mislead the Ombudsman Commission. They should be asked to consider whether an offence has been committed and / or whether there is a gap in the legislation, which may require legislative amendment.

Concluding comments

Mr Paska’s initial expression of interest to purchase the property was done openly and he disclosed his conflict of interest in a frank and refreshing manner. Based on his own evidence to the Commission and on the evidence of contemporaneous documents produced, he was acting honestly and transparently, though he was clearly not aware of the law of Trusts.

At that stage, Mr Leahy should have pointed out that it would be inappropriate for Mr Paska as a Trustee to buy any portion of the Trust property and it would amount to a breach of fiduciary duty by Mr Paska and a breach of duty by management to sell it to him.

In any event, it would have been particularly necessary, in these circumstances, to get an independent valuation and to advertise for tenders. Instead, Mr Leahy struck a purchase price based on the land and construction costs and prepared contract documents, without doing either and without referring the matter to the Board. Mr Paska was allowed into possession before executing the contract documents, well before settlement took place. He then rented out the property taking the benefit of the rent for himself. It would have been a simple and inexpensive procedure to have placed an advertisement calling for tenders at that time, but that was not done.

Mr Paska’s disclosure to the Ombudsman was not complete and Mr Leahy’s manipulation of the NPF Board to be able to provide the Ombudsman Commission with a “manufactured” resolution apparently approved 18 months earlier in February 1996, was improper.

When Mr Paska withdrew from the purchase in December 1997 and “handed it on” to the PNGTUC as purchaser, he ignored the fact that he remained in a position of conflict as a Trustee of NPF (the vendor) and general secretary of the PNGTUC (the new purchaser).

The fact that the NPF management and Trustees allowed the completion of the settlement to drag on until 20th October 2000, with rent of K61,000 accumulating in PNGTUC’s hands, was a very serious beach of common law and fiduciary duty to the members of the Fund. That this neglect of duty was occurring in favour of Trustee Paska, initially as purchaser and then as secretary general of the substituted purchaser, was nepotistic and improper conduct.

PROCUREMENT OF LEGAL SERVICES

The Commission makes a detailed analysis of NPF’s “in-house” legal service capacity from January 1995 through to December 1999, noting that there were always two full time “in-house” lawyers and sometimes three. Having studied the individual experience and capabilities of the “in-house” lawyers employed during the period, the Commission concludes that throughout this entire period, NPF had the capacity to carry out all routine PNG domestic legal work, “in-house”. There was, however, always the need to brief out work of more complexity or involving specialist skills or international connections.

NPF had no system or practice of monitoring the legal work briefed out to external lawyers or of calling for tenders. It was simply left to Mr Leahy’s discretion.

Outsourced legal services during 1995 & 1996

The study each matter outsourced to each firm, year by year.

For 1995 and 1996, outsourcing was modest and justifiable, considering the nature of the matters outsourced.

1997

Analyses outsourcing of general matters and investment related matters. Outsourcing of general matters was very modest and mostly, appropriate.

Findings

The Commission has found:-

(a) The general pattern for legal fees in 1997 was to outsource complex matters or those matters requiring specialised legal expertise.

(b) Goroka matters were briefed out to Pryke & Co.

(c) Fees paid to Warner Shand and for a ‘lost certificate’ to Carter Newell, should have been handled “in house”.

Investment related matters in 1997 are reported upon in paragraphs 6.4.4 to 6.4.4.4, which analyse the fees paid to each firm involved. By far, the greatest fees were paid to Carter Newell. However further study showed that K38,376.12 of these fees were for services provided by Carter Newell for the ANZ Bank regarding loans to NPF. The Bank billed these fees to NPF in the normal course of banking business.

It is notable, however, that the first record of NPF itself briefing Carter Newell, occurs soon after Mr Leahy’s wife commenced working for Carter Newell, after their return from Mr Leahy’s study leave in July 1997.

Findings

(a) The general pattern regarding investment related fees in 1997, was to outsource complex matters or those requiring specialized legal expertise, coupled with the “briefing out” of the conveyancing settlement in Lae.

(b) The Bomana conveyancing matter, the Gordons lease and the insurance policy documentation could have been done in-house.

(c) The Commi-ssion cannot explain why the accounts show an expenditure on outsourced legal services of only K61,483 when the voucher evidence clearly shows that an expenditure of K68,646 actually occurred.

1998

The general fees for 1998 are reported in paragraph 6.4.5.1 through to 6.4.5.3. After commenting upon figures which had been wrongly recorded, the only matter of significance is the sizeable sum of K27,389.84 paid to Carter Newell for which NPF was not able to supply vouchers.

Findings

(a) After deducting disbursement and similar fees NPF’s total expenditure on outsourced general legal fees in 1998 was K29,705.34.

(b) By far, the greatest fees were paid to Carter Newell (K27,389.84) for a mixture of specified and unspecified matters. As the vouchers were not available, the Commission is unable to determine whether the fees paid to Carter Newell were for complex matters or matters requiring specialized legal skills. Evidence from other sources indicates that at least some of these matters should have been done by NPF’s in-house lawyers.

(c) The outsourcing to Fiocco Posman and Kua and to Pryke & Co. were in order.

The investment related outsourced legal fees for 1998 are reported in paragraphs 6.4.6 to 6.4.6.8, firm by firm. After wrongly recorded items were deducted, they still totalled a massive K244,780 plus a further A$33,541.65 and US$24,183.39.

On a firm-by-firm basis, the aborted AUD Bond issue accounted for over K72,000 of the Kina fees and another heavy expenditure concerned Crocodile Catering (Some of this was sourced from funds held offshore with Wilson HTM).

A large part of the K27,389.84 briefed out to Carter Newell was capable of being handled “in-house”. Once again, NPF was unable to produce vouchers for matters briefed out to Carter Newell.

Findings

(a) A substantial part of these 1998 investment related legal fees paid both onshore (to Gadens Ridgeway and Allens Arthur Robinson) and offshore (to Clifford Chance, Corrs Chambers Westgarth and Troy & Gould) were related to the AUD Bond.

Some part of the fees paid onshore (to Carter Newell) and offshore (to Deacon Graham James) were related to the Maluk Bay venture.

(b) These referrals were clearly made on the basis that the matters were complex and required specialized legal expertise.

(c) There are also some instances of domestic referrals where, in our view, the work should have been able to be performed by NPF’s in house legal staff and should not have required reference to external lawyers.

TO BE CONTINUED

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  1. November 23, 2015 at 12:00 pm

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