STATE V EREMAS WARTOTO [2017] CR780; N6695

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    Businessman Eremas Wartoto was was found guilty on one count of misappropriation pursuant to Section 383A of the Criminal Code Act 1974, namely he dishonestly applied to his own use the sum of K6,791,408.20 the property of the State. He was found not guilty on a second of dishonestly applying to his own use the sum of K1,198,483.80.

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  • N6695
    PAPUA NEW GUINEA
    [IN THE NATIONAL COURT OF JUSTICE]

    CR No. 780 OF 2015

    STATE

    V

    EREMAS WARTOTO
    Waigani: Manuhu, J.
    2016: 16, 17, 18 & 29 February 1,7,8,9 & 11 March
    2017: 29th March

    CRIMINAL LAW – Particular offence – Misappropriation – A company awarded
    repair and maintenance contract by the State – Accused sole director and
    shareholder – Advance payments made contrary to prescribed procedures –
    Whether funds used for prescribed purpose – Whether company entitled to
    receive advance payment – Relevant legal issues.

    Cases cited:
    Lawi v The State [1987] PGSC 12; [1987] PNGLR 183.
    State v Wyborn [2004] PGNC 3; N2847.
    Wartoto v The State [2015] PGSC 1; SC141.

    Counsel:
    P. Huygens, A Kupmain & S. Osembo, for the State
    J. Haiara & P. Yange, for the Accused

  • Page 2 of 23

  • 29th March, 2017

    The Indictment
    1. MANUHU J: The accused was indicted on two counts of misappropriation
    pursuant to Section 383A of the Criminal Code Act 1974 (The Code). The first
    count is that he dishonestly applied to his own use the sum of K6,791,408.20 the
    property of the State. The second count is that the accused dishonestly applied to
    his own use the sum of K1,198,483.80 the property of the State.

    2. After presentation of the indictment, defence counsel, Mr. Haiara, made an
    application under section 558 of the Criminal Code for the indictment to be
    quashed on basis that it was calculated to prejudice or embarrass the accused in
    that the allegations are based on contract and do not amount to the alleged criminal
    offences. The Court considered the application and ruled that the application was
    unmeritorious.

    Arraignment
    3. The Court proceeded to arraign the accused. The following facts were put to
    the accused. The Kerevat National High School (“KNHS”) was in a bad state of
    disrepair in 2008. A team visited the school in 2008 to assess the damages and
    carry out a scope of the works. This was divided into two main areas, namely the
    building and the water sewerage systems.

    4. In July 2008 the Minister for National Planning and Rural Development
    provided one million kina to attend to the water sewerage issues. The contract was
    awarded to Palmalmal Earth Moving and Construction. The company commenced
    the work in October 2008.

    5. A separate team namely the Regional Management Team attended the school

  • Page 3 of 23

  • to conduct a scoping of the work required for the school buildings, water and
    sewerage systems and the school perimeter. The group was led by Jeff Sanderson.

    6. A process was being followed whereby tenders were sought from a number
    of contractors. However given the urgency to the matter, the Department of
    National Planning and Monitoring (“DNPM”) requested the Central Supply and
    Tenders Board (“CSTB”) for a “closed tender” process for the rehabilitation of the
    school. Given that the work was urgent, the board approved the issuance of a
    Certificate of Inexpediency (“COI”). No open or public tender was sought. The
    contract was awarded to Sarakolok West Transport Limited (“SWT”) of which the
    accused was the sole director and shareholder.

    7. At the initial stages of procurement, the use of a “closed tender” process by
    DNPM and CSTB was irregular because this process is generally not allowed
    except in cases where there is a declared Natural Disaster, Defence Emergency,
    Health Emergency or Situation of Civil Unrest. In such cases, a Certificate of
    inexpediency is required to be issued. A “declared Health Emergency” is not
    defined in the Financial Instructions or the Public Finance (Management) Act
    1995. In this case, there is no evidence that there was a “declared Health
    Emergency”, however, the issue of COI was said to be justified because the
    deteriorating state of the facilities posed a significant risk to the health of the
    students and school community.

    8. In November 2008, the contract was awarded to SWT for the value of
    K7,989,892.00 which included rehabilitation works to the boys dormitories and
    ablution blocks, girls dormitories and ablution blocks, sewerage system and water
    supply system.

    9. SWT began work at KNHS in December 2008 and completed work in
    January 2010. During and after renovation period, numerous complaints were
    made against the company alleging incomplete and substandard work. As a result,
    four independent assessments were conducted by various authorities in relation to

  • Page 4 of 23

  • the work done by SWT. Each assessment, which was conducted by different
    individuals of varying expertise indicated incomplete and substandard work by
    SWT. The reports indicated that no work had been done on the sewerage and
    water supply system.

    10. The sum of K7, 989, 892.00, being the contract price, was paid to SWT in
    two phases – 85% of the contract price, being K6,791,408.20, was paid, effectively
    in advance, prior to commencement of work , and 15 %, being K1,198,483. 80,
    was paid some 10 months after work began at KNHS. The manner of payment of
    the contract price was highly irregular for the following reasons:

    PAYMENT OF 85% OF THE CONTRACT PRICE
    (a) A letter (exhibit R2) dated 28 November 2008 bearing the letterhead
    of CSTB and signature of Mr Kimmins, (the then Chairman of CSTB)
    addressed to Mr Joseph Lelang, (the then Secretary of DNPM), was
    faxed from the accused’s business address in Cairns on 28 January 2009.
    On the face of the letter, 85% of the contract price was to be paid in
    advance to SWT. The reason was that the contract was to be completed
    before the school reopened for 2009. In order to complete the contract in
    such a short time frame, materials needed to be imported from overseas.
    The bulk of the water supply and sewerage system material had to be
    imported.
    (b) This letter was faxed from facsimile number 074 053855, a number
    registered under Travel Car Cairns, Australia, one of SWT’s companies.
    On receipt of the letter, 85% of the contract price namely K6,791,408.20
    was authorized and funds were paid into ANZ Bank account number
    12621572 on or about 29 January 2009. This is an account held in the
    name of SWT limited. The accused and his wife Louisa Wartoto were
    the sole signatories of the account. The accused was the person who
    determined that the money was to be paid into that account.

    (c) The signature of Mr Kimmins on the letter is a forgery;

    (d) Mr Kimmins has no association with Travel Car Cairns;

  • Page 5 of 23

  • (e) CSTB does not have authority to make decisions on funding
    arrangements;
    (f) As the letter is a forgery no real or proper authority had or could be
    obtained to release the funds. The money was released based on a forged
    document which has the design to mislead the illegal and improper
    release of the funds.
    (g) Even if the letter was a legitimate document and the funds were
    released in the correct manner after correct protocol and procedures has
    been followed, the funds released still did not comply with the contract
    and were not used for the purpose for which the funds were released.
    (h) Advance payment is not normal practice and is only allowed if
    provided for by the terms of a contract and under certain conditions
    which have to be met by the contractor. In this instance, the contract
    expressly forbids any advance payments.
    (i) Even though the contract expressly prohibited any advance payments,
    if any advance payments were going to be made, the terms of the
    contract regarding advance payments required the Employer, being the
    State, to pay advance payment to the Contractor, being SWT, “of the
    amounts stated in the contract data by the date stated in the contract data
    against provision by the contractor of an unconditional bank
    guarantee…” in which case the Contractor would also be required to
    provide copies of invoices demonstrating that funds were used for the
    allowed purpose;
    (j) According to bank records and numerous documents obtained from
    various suppliers and contractors, the advance payment received was
    never applied for the purpose for which it was provided, namely to allow
    the accused to place orders for materials to be imported, the bulk of
    which will be for the water supply and the sewerage system. The funds
    were not used for the purpose for which the funds were released but
    rather for personal expenses, repayment of loans, the purchase of new
    motor vehicles and to fund various other projects which were not related
    to the rehabilitation project of the Kerevat National High School.
    (i) Work in relation to the water supply and sewerage system was never

  • Page 6 of 23

  • done. While there was some pretence that the water supply was going to
    be attended to, in reality no such work was done. With regards to the
    water supply, a hole was drilled to between 7 to 10 meters. Thereafter the
    drilling project was simply abandoned.

    PAYMENT OF 15% OF CONTRACT PRICE
    (j) The normal practice is that the balance of the Contract Price will
    usually be paid to the Contractor upon successful completion of works
    and after a Certificate of Completion is issued by the project manager;
    (k) The letter upon which the 85% was paid in advance also stipulated
    that the balance will be paid upon completion.
    (l) In this case, the 15% balance was paid to SWT even though it had not
    completed the project and had never been issued a Completion
    Certificate by the project manager.
    (m) The 15% was paid as a result of an invoice sent from the accused’s
    company to DNPM in September of 2009.
    (n) An amount of K1, 198, 483.80 was paid into the Westpac bank,
    account number 6000017950, of SWT Limited. The accused and his wife
    were the sole signatories of the account.

    11. The prosecution alleged that both of these advance payments were
    dishonestly applied by the accused.

    12. The charges and the brief facts were explained to the accused. However,
    immediately before the accused was able to plead to the charges, defence
    counsel made another application under section 566 of the Code and submitted
    that the Court should permit the accused to present his explanation and
    evidence there and then in respect of the charges. It was clear that counsel
    misconstrued the provision he had relied upon. The application was again
    dismissed promptly.

  • Page 7 of 23

  • 13. The accused eventually pleaded not guilty to the two charges.

    Brief Preview of Evidence
    14. Most of the evidence were documentary evidence comprising of letters, the
    contract bank statements, vouchers, invoices, spreadsheets, reports and other
    official records. Evidence on movements of funds in question are captured in these
    documentary evidence. The prosecution called an expert witness from Australia to
    assist the Court to understand the evidence on how funds were expended. The
    defence also called witnesses to testify on their personal involvement and
    experience on work done and how much money was spent on the project.

    15. It appeared to be a difficult case given the substantial amount of money and
    the large volume of materials involved. The Court has had ample time to consider
    the evidence, the submissions, and the case laws that were relied upon, and has
    opted to keep the judgment as simple as possible and to the point.

    Undisputed facts
    16. It is not disputed that the accused, was the sole director and shareholder of a
    company SWT between 2008 and 2010. SWT was awarded a contract number
    COI 39/2008 in November 2008 by the State for the rehabilitation of KNHS
    facilities. The contract price was K7, 989, 892.00.

    17. The scope of works under the contract to be done by SWT consisted of
    rehabilitation of the boys’ dormitories and ablution blocks, girls’ dormitories and
    ablution blocks, and the school’s water supply and sewerage system.

    18. A letter under the letterhead of CSTB dated 28 November 2008 was sent to
    the Secretary DNPM, Mr. Joseph Lelang, advising of an upfront payment of 85%
    of the contract price to be paid to SWT in order for SWT to import the bulk of the
    material for the water and sewerage facilities from overseas. The letter indicated
    that 15% will be paid to the contractor upon completion of the work. In December
    2008, SWT moved on site at KNHS and began mobilisation work. The contract
    price was paid in two phases: eighty-five per cent (85%) advance payment which

  • Page 8 of 23

  • amounted to a sum of K6, 791, 408. 20 was paid to SWT on 30 January 2009.
    Fifteen per cent (15%) which amounted to K1,198,483. 80 was paid to SWT on 14
    October 2009, some 10 months later.

    19. The K6,791,408.20 was drawn from the Rehabilitation of Education Sector
    Infrastructure Trust account numbered 100151131 held with Bank South Pacific
    (“the BSP RESI account”). It was paid via special clearance into an ANZ account
    numbered 12621572 held in the name of SWT. The signatories to the account were
    the accused and his wife Louisah Wartoto. The K1,198,483.80 was also drawn
    from the BSP RESI account. It was paid via special clearance on 14 October 2009
    into a Westpac account numbered 6000017950 held in the name of SWT. The
    signatories to the account were the accused and his wife Louisah Wartoto.

    20. It is not disputed that SWT started work at KNHS in December 2008. A
    hand over take over ceremony was held at the school in January 2010.

    Disputed facts
    21. Numerous complaints were made regarding the quality of works done by
    SWT. These complaints were made before and after SWT left the work site. The
    prosecution tendered documentary evidence to show that independent assessments
    were carried out on the works done by SWT and according to all the reports, work
    done by SWT was incomplete and of substandard quality.

    22. The prosecution’s case is that the 85% was dishonestly misappropriated well
    before completion of rehabilitation work on the high school. And the remaining
    15% was not paid after completion of the job as stipulated by the contract. It was
    paid before completion of work. SWT was not entitled to receive the 15% payment
    before completion of work.

    23. The accused does not deny that there were complaints regarding the quality
    of work done by SWT but he contends that the funds in question were managed
    under the “fungibility” concept and through that concept, the rehabilitation work

  • Page 9 of 23

  • on the high school was completed and funds were expended accordingly through
    SWT group of companies. It was asserted that SWT did in fact spend additional
    funds over and above the contract price on the rehabilitation work.

    Identification of issues of fact
    24. The Court has considered what both counsel have proposed to be the
    relevant issues. The Court is of the view that in relation to Count One, the main
    issue is whether the 85% funds were expended on the specified purpose, namely,
    the Kerevat project. In relation to Count Two, the only issue is whether SWT was
    entitled to receive the 15% payment at the time the payment was made. The
    relevant legal issues will be identified and considered in due course after the facts
    are assessed, weighed and settled.

    Procedural breaches
    25. The prosecution’s allegations in relation to serious breaches of financial
    procedures, financial practices, terms of the contract, and so on will not be
    considered against the accused for the following reasons.

    26. Firstly, the offence of misappropriation was not provided for under the Code
    originally. Stealing was the only offence then for matters of this nature. The
    problem was that the prosecution had difficulty dealing with misapplication of
    funds by persons authorized to hold such funds, especially public officials. This
    led to the enacting of the misappropriation provision to deal with offences of this
    nature. When a person is charged for misappropriation, therefore, how he took
    possession of funds is not the core issue. The core issue is how he dealt with the
    funds.

    27. Secondly, the accused is given the benefit of the doubt in relation to any
    procedural breach on the basis that those procedural breaches were committed with
    direct and deliberate involvement of Joseph Lelang and Brian Kimmins. The
    letters and documents bearing their names and signatures were not forged by the
    accused. The Court does not accept their evidence suggesting that these
    documents were forged. There is simply no evidence that the signatures were

  • Page 10 of 23

  • forged, and forged by the accused.

    28. Joseph Lelang had to be summoned to give evidence. When he appeared, he
    made an unusual, if not bizarre, application to be excluded from giving evidence
    which application was dismissed promptly. When he gave evidence, his demeanor
    was poor. He took so much time to answer questions as if he feared he might
    incriminate himself.

    29. Brian Kimmins did not say he did not sign the letter of 28 November 2008.
    He merely stated that he could not have signed the letter because he was not
    authorized to approve the payment. There is a difference between ‘I did not sign’
    and ‘I could not have signed’. The latter is less convincing. The Court was not
    impressed with his answer. There is simply no evidence that the letter, on CSTB
    letterhead, is a forgery.

    30. Joseph Lelang and Brian Kimmins should be thoroughly investigated for
    their blatant facilitation of procedural breaches in this matter. If warranted, they
    should also be prosecuted under the appropriate laws.

    31. Given their involvement, it is possible the accused did not think he was
    wrong in his request for the 85% advance payment. However, after the funds were
    paid into the SWT account, the accused had full control of the funds. How he
    expended the funds, rightly or wrongly, falls squarely on him. If the funds were
    expended on the rehabilitation work on the high school, the accused should be
    acquitted. If he did not apply the funds for the intended purpose, he may be found
    guilty if all the elements of the offence are proved.

    The Expert Witness
    32. Mr. Francis Dolan is the expert witness for the prosecution. He was called
    to explain how the funds were expended and more importantly, whether they were
    spent on the project. Mr. Dolan has appeared before the Courts in Australia on a
    number of occasions as an expert witness to give evidence on cases of similar

  • Page 11 of 23

  • nature. He has over 20 years of experience in investigative accounting and
    forensic accounting work in Australia. His Curriculum Vitae is in FDA-8.

    33. He has in his affidavit made on 9th September 2015 and in his oral
    testimony explained the methodology of his investigation and the tracing of the
    funds in question. See FDA -7. In the investigation, the documents he relied on
    were “bank accounts, banking records, financial records, business records,
    computer records, seized documents, and other sources in order to trace the funds
    obtained by SWT.” All of these source materials form part of the evidence for the
    prosecution, and the defence had copies of all of these documents.

    34. I have considered his demeanor and his investigation reports. I consider him
    to be a very experienced investigator. His investigation, findings and conclusions
    are supported by source materials, are credible and can be relied upon by the
    Court. The Court is satisfied that Mr. Dolan possesses the necessary credentials
    and the Court declares him as an expert witness for the purpose of these
    proceedings.

    Count One: Whether funds were used for the specified purpose?

    The prosecution’s evidence
    35. The main issue of fact in relation to Count One is whether the 85% payment
    was expended on rehabilitation work on the high school. On the evidence, the
    85% payment, namely K6,791,408.20, was deposited into SWT ANZ Bank Ltd
    account BSB 018909 account number 12621572 on 29 January 2009. The account
    statement covering 29 January 2009 to 30 June 2009 is in evidence. From that
    statement, at the time of deposit, the account was at a negative balance of
    K154,636.95. After the deposit, there was a credit balance of K6,636,771.25.

    36. There were a number of deposits totaling K1,264,056.86 that were made into
    this account. Thus, the account had a total deposit balance of K8,055,464.20 for
    the given period.

  • Page 12 of 23

  • 37. However, by 26 June 2009, that is, within five months, as shown at the end
    of the bank statement, the account was at a negative balance of K65,590.17.
    Where did the funds go? The account statement has records of receiving accounts
    which funds were transferred into. The receiving accounts were tendered by the
    prosecution into evidence, including transfers to accounts operated by companies
    owned by the accused. The receiving accounts were then examined. Where
    vehicles were purchased, the prosecution has tendered into evidence, by consent,
    the relevant documents from the motor car dealers. Where funds were used to
    service loans, the relevant documentary proof were admitted into evidence by
    consent. Where funds were transferred to overseas accounts, the relevant transfer
    documents were tendered by consent. The expert witness has carried out this
    enormous exercise tracing the paper trails of all the funds in question. Where there
    were no records, the expert witness has categorized them as Unknown.

    38. Table 1 is a summary of all transactions that occurred between 29 January
    2009 and 26 June 2009. There were no deposits into the said account after 26 June
    2009.

    Table 1.
    Classification Total
    Asset-Motor Vehicle Purchases – Boroko Motors 128,000.00
    Asset-Motor Vehicle Purchases – Ela Motors 1,177,896.15
    Asset-Motor Vehicle Purchases – Kimbe Auto 50,000.00
    Asset-Motor Vehicle Purchases – PNG Motors 716,357.14
    Asset-Interest in TSL Homes 63,642.36
    Business Expenses 433,000.07
    Bank fee and charges 6,638.50
    Payments to Eremas Wartoto 200,025.00
    Payments to John Ilam 17,895.53
    Payments to Litia Ilam 429,321.90
    Payments to Louisah Wartoto – PNG 153,514.37
    Payments to Louisah Wartoto – Transfers to Australia 200,040.00

  • Page 13 of 23

  • No details available 25,741.33
    Other persons 104,311.28
    Queen Emma Lodge Ltd 855,786.46
    SWT – Other Accounts – First Investment Finance Loan 590,000.00
    SWT-Other Accounts – Credit Corporation Payments 506,149.11
    SWT-Other Accounts – Finance Corporation Payments 244,909.56
    SWT-Other Accounts Westpac PNG Leases 502,709.11
    SWT-Other Accounts-ANZ Loan and Lease Repayments 273,220.03
    SWT-ANZ 752 Overdrawn balance 154,636.96
    SWT – Transfer to other SWT Accounts 1,123,164.99
    Travel Car Australia Transfers 98,504.36
    TOTAL K8,055,464.21

    39. It can be seen that there are expenditures that are not related to the Kerevat
    project. The motor vehicles purchased were for the accused car hire business. A
    vehicle purchased in Kimbe was not for the Kerevat project. Loan repayments
    have nothing to do with the Kerevat project. The overdraft balance was
    automatically debited from the account when the advance payment was deposited.
    It had nothing to do with the Kerevat project.

    40. Below is a list of expenditures, derived from Table 1, that are, even to a lay
    person, clearly unrelated to the project.
    • Asset-Motor Vehicle Purchases – Boroko Motors 128,000.00
    • Asset-Motor Vehicle Purchases – Ela Motors 1,177,896.15
    • Asset-Motor Vehicle Purchases – Kimbe Auto 50,000.00
    • Asset-Motor Vehicle Purchases – PNG Motors 716,357.14
    • SWT – Other Accounts – First Investment Finance 590,000.00
    • SWT-Other Accounts – Credit Corporation Payments 506,149.11
    • SWT-Other Accounts – Finance Corporation Payments 244,909.56

  • Page 14 of 23

  • • SWT-Other Accounts Westpac PNG Leases 502,709.11
    • SWT-Other Accounts-ANZ Loan and Lease Repayments 273,220.03
    • SWT-ANZ 752 Overdraft balance 154,636.96
    • TOTAL K 4,343,878.06

    41. There are other items in Table 1 that are not so obvious to a lay person.
    Documentary evidence pertaining to these transactions were examined and traced
    by the expert witness. His findings are reflected in the third, fourth and fifth
    columns of Table 2:

    Table 2.
    Expenditure Amount* Kerevat Not Unknow
    Kerevat n
    Asset – interest in TSL 63,642.36 63,642.36
    Homes
    Business Expenses 433,000.07 52,298.0 361,589.00 19,113.07
    0
    Bank fees and charges 6,638.50 107.50 6,531.00
    Payments – Eremas Wartoto 200,025.00 200,025.00
    Payments-John Ilam 17,895.53 13,327.0 1,568.00 3,000.53
    0
    Payments – Litia Ilam 429,321.90 6,600.90 422,721.00
    Payments – Louisah Wartoto, 153,514.37 42,979.3 110,535.00
    PNG 7
    Payments – Louisah Wartoto, 200,040.00 200,040.00
    Aus
    Payments – Unknown 25,741.33 3,057.00 10,262.00 12,422.33
    Payments – Other persons 104,311.28 104,311.28
    Payments – Queen Emma 855,786.46 58,656.0 684,414.00 112,716.4
    Lodge 0 6

  • Page 15 of 23

  • Transfer to other accounts 1,123,164. 1,115,000. 8,164.99
    99 00
    Travel Car Australia 98,504.36 84,802.00 13,702.36
    TOTAL K3,711,58 K177,02 K3,365,44 K169,119
    6.15 5.77 0.64 .74
    *From Table 1.
    42. This summarizes the transactions that occurred between 30 January 2009
    and 26 June 2009 in relation to SWT ANZ Bank Ltd account BSB 018909 account
    number 12621572, and how those funds were eventually expended. That was the
    prosecution’s evidence on Count One.

    The defence evidence
    43. The accused does not deny the payment of 85% into SWT ANZ Bank Ltd
    account BSB 018909 account number 12621572 on 29 January 2009. He does not
    deny that the 85% was not used for the specific purpose. He admitted that the
    money was used for other purposes. Section 589 of the Code provides that an
    accused person may admit on the trial any fact alleged against him, and the
    admission is sufficient proof of fact without other evidence. In this case, the
    admission, with evidence, seals and confirms the prosecution’s evidence on how
    the funds were expended as illustrated in the tables.

    44. However, the accused placed reliance on the concept of “fungibility”, which
    he understood to mean that all funds come in then they becomes one. Because of
    that he said it was very easy to pay out funds to work on the project. Accordingly,
    the Kerevat project was done through SWTs Kokopo Impress Accounts and the
    groups consolidated accounts consisting of Queen Emma Lodge, Litia Ilam’s
    account, Louisa Wartoto’s Rabaul claim account, Eremas Wartoto’s claim account
    and Kandrian Ltd’s account for purchase of materials overseas mainly in China.
    The total Project cost for KNHS is K9, 885, 047. 00 which is K1,975,000.00 more
    than the initial contract price because of the variation claim due to late completion
    caused by State failure to give vacant possession.
    45. The accused may have such a unique method of managing the project funds.
    The evidentiary burden is, however, on him to overcome the prosecution’s

  • Page 16 of 23

  • evidence by accounting for all the funds he received. It is for him to counter the
    prosecution’s evidence and explain how the 85% funds were managed under the
    “fungibility” concept. It is for him to produce credible financial reports with
    supporting source documents to support his explanation. Unfortunately, when he
    gave evidence he did not produce any such detailed report accounting for the 85%
    fund.

    46. In the context of the “fungibility” concept, Daniel Grant, an accountant by
    profession who had been engaged by SWT on a Consultancy basis as SWT’s
    external accountant and auditor, gave evidence on how much money was expended
    on the high school project. His affidavit, including supporting documents, was
    admitted into evidence.

    47. Unfortunately, his affidavit and documents contained errors and, for that
    reason, he broke down, was confused and failed to answer questions in cross-
    examination. He was sweating in the air conditioned court room. He eventually
    explained that he did a rush job on his affidavit. He was asked to give evidence
    when the trial was already in progress, an indication of lack of preparation on the
    part of the defence. However, Daniel Grant deserves credit for his honesty in
    conceding that his documents contained serious errors.

    48. The Court does not accept the materials that were tendered through Daniel
    Grant as they are plagued by errors and are not supported by source materials.

    49. In any case, it is clear that the “fungibility” concept cannot be regarded as a
    prudent accounting system of managing project funds when funds from the 85%
    payment were being used to purchase assets for other businesses owned by the
    accused, for instance. And, while State funds were being used to replenish his
    businesses, there were no corresponding cash balance in his various business bank
    accounts. No prudent businessman is entitled to use funds held in trust for a
    specified purpose to replenish his businesses. The concept is not a genuine concept.
    The rejection of the “fungibility” concept is a decisive blow to the defence case as
    the defence case revolves around the concept.

  • Page 17 of 23

  • Completion of work
    50. There are further reasons why the defence evidence on work done should be
    rejected. Witnesses were called to show that materials were purchased from as far
    as China, for instance. Evidence on hire of plants and machinery were produced
    by the defence. Pictures of buildings were also tendered into evidence. These
    pictures were impressive but the Court could not assess if materials beneath the
    paintings were quality materials. Former students of the school were called to give
    evidence that there were no problems with water pressure. Their credibility was
    seriously undermined as their affidavits were identical, word for word, comma for
    comma, and paragraph for paragraph.

    51. Ideally, the foregoing evidence, together with a proper report by a person
    qualified to carry out such investigation would be useful for the defence. A report
    from a qualified witness, a builder, for instance, would have been ideal to
    effectively challenge and create doubt on the evidence of Elliot Kadir for the
    prosecution. This point was explained on a number of occasions to defence
    counsel throughout the hearing, for fairness sake. No such witness was called by
    the defence.

    52. According to Elliot, the East New Britain Provincial Administration
    appointed the Gazzelle Restoration Authority-PIU to carry out an independent
    assessment and submit a report on the project. The Gazzelle Restoration Authority
    Project Manager, Peter Buak, appointed acting Principal Engineer then, Noel Kelly
    to organize a technical team to carry out the investigation. The team was made up
    of Elliot, who was Project Architect then, two Unitech one year Industrial Training
    students Adam Wilson and Esau Talvat, and Hasluck Matalau, who was Senior
    Technical Officer – Building then with a lot of experience.
    53. A copy of the contract was obtained to assess the value of works, what work
    was done, scope of works, and so on. The team also obtained a copy of the tender
    document. These documents were perused before the site investigation.

  • Page 18 of 23

  • 54. The investigation was done on 16 and 17 February 2010. It should be noted
    that the projected was supposedly completed in January 2010. The investigation
    was done because of numerous complaints against SWT. On 16 February 2010,
    Noel Kelly, Elliot, Hasluck Matalau, Adam Wilson and Esau Talvat went to the
    project site and assessed the works done. They “physically inspect works on site
    against the conformed contract documents, scope of works and Bill of Quantities to
    assess if works have been completed or not.”(sic.). The sewerage system was
    inspected by the team on 17 February 2010.

    55. His affidavit (Exhbit M) provides a comprehensive analysis of the
    information collected and the team’s findings. Elliot also stated that SWT “did
    maintenance works to the Male & Female Dormitories and Ablution Blocks at a
    cost of K6,858,292.00 which is totally ridiculous to me as the quality of work done
    does not represent the amount.” The team concluded that that the project was only
    57% complete.

    56. I have no reason to disbelieve Elliot. While he may be an inexperienced
    architect, he was part of a team which had experienced members. The final
    assessment can be attributed to the team. The Court is satisfied that the evidence
    given by Elliot is credible and can be relied upon by the Court.

    57. Elliot fixed the value of work done at 57% which equates to K40957.15 out
    of the 85% funds. This means that the Certification of Completion issued by
    Joseph Lelang dated 5 March 2010, only weeks after the investigation, and any
    other certification of completion, cannot be relied upon. Similarly, the ceremonial
    gathering to commemorate the completion of the project does not prove that work
    on the project was completed.
    Finding of fact
    58. The evidence presented by the prosecution on how funds were expended,
    supported by the accused own admissions, and his failure to account for the 85%
    funds under the “fungibility” concept, remains solid. It would not have made any
    difference if the accused was able to demonstrate, as he claimed, that SWT spent

  • Page 19 of 23

  • more than the contract price on the project because the alleged offence had already
    been committed at the end of June 2009.

    59. The Court will, however, give the benefit of the doubt to the accused in
    relation to funds under Unknown column in Table 2. As a matter of practice, they
    would be deemed as funds spent on the project. Therefore, funds spent on the
    project increases to K346,145.51 (5.1%). The remaining amount of K6,445,262.69
    (94.9%) was spent on other purposes. The Court finds accordingly.

    60. The Court’s finding appears to be in conflict with Elliot’s 57% estimate. On
    Elliot’s estimate, SWT would have spent more on the project. The only plausible
    explanation is that SWT continued to spend money on the project until January
    2010. SWT must have used funds from other sources to work on the project.

    61. However, the State does not have any interest in funds from other sources. It
    is only interested, rightly so, in the 85% payment which had been depleted by 26
    June 2009. Evidence shows that the commission of alleged offence was complete
    on or around 26 June 2009. What the accused did from July 2009 to January 2010
    under the “fungibility”concept does not alter the fact that the State’s funds had
    already been misapplied as of 26 June 2009.

    The Legal Issues
    62. There were a number of interconnected legal issues raised. It was submitted
    that the State did not have an interest in the funds immediately after it was paid on
    29 January 2009. On the facts of this case, this argument is shallow and simply
    does not make sense. Those funds were paid to SWT for a specified purpose. The
    State had an interest in the achievement of that specified purpose. That interest
    then confers upon SWT the legal obligation, which was also stipulated in the
    contract, to apply the funds for the specified purpose only. The State had an
    interest in the funds and how it was to be spent.

  • Page 20 of 23

  • 63. SWT was not at liberty to spend the funds on other purposes as it pleased
    prior to completion of the project. The accused cannot seriously claim honest
    claim of right for him to use the funds as he pleased. In other words, State did not
    lose its property or ownership rights and or interest in the 85% payment after it was
    deposited into the SWT account. The funds remained the property of the State
    until such time the project was completed.

    64. In the matter of Wartoto v The State [2015] PGSC 1; SC1411 (27 January
    2015), Injia CJ; Sakora, Kirriwom, Kandakasi, Davani, JJ held at paragraph 70 on
    the issue of ownership of property that:

    “Based on the law as we have stated and discussed above, we would answer
    the question under consideration in the case before us in these terms. The
    State has all its interest or property rights in public funds paid to a private
    contractor for certain public works, until the purpose for which the
    payments are made is achieved or accomplished.”

    65. It is incredible that defence counsel has raised the issue in spite of the
    Supreme Court’s pronouncement.

    66. Section 383A (3) (d) of the Code also states that:

    “…persons to whom the property belongs include the owner, any part
    owner having a legal or equitable interest in or claim to the property
    and person who, immediately before the offender’s application of the
    property, had control of it.”

    67. In the case of Lawi v The State [1987] PGSC 12; [1987] PNGLR 183, Kidu
    CJ Amet Cory JJ held inter-alia that:

    “There cannot be any doubt that the moneys were grants for
    particular public purposes, with the implied conditions that they be
    expended on those public purposes. The moneys were most definitely
    not the appellant’s private property to expend on his own purposes or

  • Page 21 of 23

  • anybody else’s as he desired. The two amounts of money were
    National Government grants and in my view the National Government
    had a legal and an equitable proprietary interest in them until they
    were expended for the purpose for which they were granted.”

    68. It was also submitted that SWT, which was awarded the contract, is not the
    accused. The accused should not be charged at all. SWT should be charged. This
    submission is baseless. SWT is not a person. It is an entity. It does not talk. It
    does not bleed. It does not have a head to enable itself to conceive a sinister
    purpose. The person behind SWT is the accused just like a driver behind the
    steering wheel of his car. In a motor vehicle accident, the driver gets charged, not
    the car. A car cannot be sent to jail. A company cannot be sent to jail. SWT cannot
    be sent to jail. In criminal law, the accused is SWT in person. There is no
    corporate veil in criminal law. This argument that the accused cannot be charged is
    unfounded in law. See State v Wyborn [2004] PGNC 3; N2847.

    69. It was further submitted that the Court can only find the accused guilty on
    the exact amount pleaded in the indictment. If the Court’s finding is short of the
    amount pleaded, even by one toea, the accused should be acquitted. This is an
    unhelpful submission especially when counsel was advised in the course of the
    trial at least twice that the argument is wrong in law. If counsel’s argument is
    indeed law, and thankfully it is not, all convictions since 1975 would have to be
    recalled and reviewed. And we are likely to experience widespread misuse of
    funds because it would be so easy to misapply funds and avoid conviction.

    70. Property is an element of the offence of misappropriation. A certain amount
    gets pleaded in the indictment. The prosecution may fail to prove existence of
    property. In that case, the element of property is absent. The defendant should be
    acquitted. However, where the prosecution does not prove the exact amount but
    less, the lesser amount satisfies the element of property.

    71. Dishonesty is an element of the offence of misappropriation and has to be
    considered. The events preceding the payment of the 85% have all been excluded

  • Page 22 of 23

  • for reasons the Court has given. Whether the accused was dishonest or not would
    be apparent from how the funds were expended. The Court has found that
    K6,445,262.69 was not used on the project. All of these expenditures benefited the
    accused and his businesses and no one else, not even any charity organization.

    72. It is simple. Dishonesty is established if you used and benefited from
    somebody else’s funds without his authority. The State did not pay 85% of the
    contract prize for the accused to service his loans and purchase assets for his other
    business operations. The accused should have waited until completion of the
    project. He was not entitled to use the funds as he pleased while the Kerevat
    project was still in progress. If this is not dishonesty, what is it?

    73. The blatant misapplication of funds with little or no regard for the State and
    high school in his Province demonstrates dishonesty that extends over and beyond
    the bounds of a contractual dispute. The level of dishonesty in this case warrants
    criminal prosecution. The accused is properly before this Court and is properly
    charged for misappropriation.

    74. The Court is satisfied beyond reasonable doubt that the element of
    dishonesty has been established.

    The Verdict
    75. The Court is satisfied that the prosecution has established all the elements of
    the offence of misappropriation. Accordingly, the Court finds the accused guilty
    for misappropriating K6,445,262.69, the property of the State.

    Count Two
    76. The facts in relation to Count Two were not disputed. Under the contract,
    the 15 % was to be paid after completion of the project and after issuance of a

  • Page 23 of 23

  • certificate of completion. In this case, the 15% balance was paid to SWT even
    though it had not completed the works and a completion certificate had not been
    issued by the project manager.

    77. An amount of K1,198,483.80 was paid into the Westpac bank account
    number 6000017950 of SWT Limited on 14 October 2009, some two to three
    weeks after the demand for payment was made. The accused and his wife are the
    sole signatories of the account. The funds were expended by the accused.

    78. There were arguments about whether these funds were used on the Kerevat
    project or not. The Court is of the view that how the funds were used is immaterial
    because the purpose for the 15% payment is different to the 85% payment. The
    15% was for SWT after completion of the project. The crucial issue is timing of
    the payment. If it was paid before completion, the accused was not entitled to it.
    If it was paid after completion, the accused was entitled to it.

    79. The Court is satisfied that SWT was not entitled to receive the payment in
    October 2009 when the project had not been completed. However, given the
    involvement of DNPM in approving the payment when requested, the Court is
    unable to find beyond reasonable doubt the existence of a criminal intent.

    80. The accused is, accordingly, not guilty in relation to the second count of
    misappropriation.

    __________________________________________________________________
    Public Prosecutor : Lawyer for the State
    Haiara’s Legal Practice : Lawyer for the Accused