N10524

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

IN THE MATTER OF AN APPEAL PURSUANT TO SECTION 56 OF CAPITAL MARKET ACT 2015
CIA NO. 3 OF 2023 (IECMS)
BETWEEN: 
MELANESIAN TRUSTEE SERVICES LIMITED AS TRUSTEE FOR THE PACIFIC BALANCE FUND
Appellant 

V

SECURITIES COMMISSION ON PAPUA NEW GUINEA
Respondent

Waigani: Anis J
2023: 10th & 18th October

APPLICATION FOR STAY – section 56(3) – Capital Markets Act 2015 – preliminary issue – whether stay application competent – whether s.56(3) applies to stay or whether it may be invoked for interim restraining orders only against the decision of the Commission before the decision is effected or implemented pending the outcome of the appeal – whether other sources may be invoked outside of s.56 to seek interim restraining orders or stay orders pending the outcome of the appeal – consideration - ruling

Cases Cited:

Kalinoe v Paraka (2010) SC1024

Counsel:

M Goodwin, for the Appellant
L A Jurth, for the Respondent

RULING

18th October, 2023

1.	ANIS J:  This matter concerns an application for stay filed by the appellant.  The application was contested.  I heard it on 10 October 2023 and reserved my decision to a date to be advised.

2.	This is my ruling.

BACKGROUND

3.	The appellant is appealing the decisions of the respondent for (i) revoking its Capital Market License and (ii) for replacing the appellant with Weathermen Capital Advisors Limited (Weathermen) as the interim Trustee for Public Balance Fund (PBF/Fund).  This is not the first appeal concerning the matter.  On 14 August 2023, the appellant filed proceeding CIA No. 2 of 2023 (CIA No. 2/first appeal) in the National Court to challenge an earlier revocation and interim appointment decisions of the respondent.  Let me elaborate.  By a letter of revocation dated 9 August 2023 (first LoR), the respondent notified the appellant that it had exercised its powers under s.48(1)(a), (2)(a)(i)(iii), (5), (10) of the Capital Market Act 2015 (CMA) and had revoked the appellant’s Capital Market License, that is, the license that it had to conduct its business as the Trustee of the Fund.  

4.	The respondent had said in its first LoR that premised on its internal investigations into the affairs of the appellant as the Trustee of the Fund, its investigations revealed, amongst others, various breaches by the appellant of the provisions of the CM Act and the Securities Act 2015 (Securities Act).  At para 4 of the said letter, it said:

“Our investigation revealed that:-

1.	MTSL was excessively paid as fund manager of a passively managed fund, not in accordance with the current global standards;
2.	MTSL performed poorly as trustee of PBF;
3.	MTSL delayed as Trustee to outsource its fund management duties;
4.	MTSL lacked a lot of good Corporate Governance Practices as both Trustee and Fund Manager of PBF;
5.	Historical performance and analysis of the fund reveals that its performance in comparison to other funds is quite poor, its investment tactics may have been short term and aggressive & MTSL was paid excessive fee of K180 million between the years 2010 to 2022; and
6.	The liquidity of PBF is considered to be at risk.”

5.	The first LoR also said that the respondent had appointed Weathermen to replace the appellant as the Fund’s interim trustee.

6.	The appellant was aggrieved and appealed that decision to the National Court in CIA No. 2.  The appeal was heard and was allowed by the National Court on 18 August 2023.  The final orders of the Court (Court Order) included the following:

“1.	The Appeal is allowed.

2.	The decisions of the Respondent of 9 August 2023 to:

a)	Revoke the approvals for a Capital Market License granted to the Appellant as Trustee for the Pacific Balance Fund pursuant to section 48(1)(a), (2)(a)(i) & (iii), (5), and (10) of the Capital Markets Act 2015 by letter from the Respondent to the Appellant dated 9 August 2923 (“Letter of Revocation”), effective immediately; and

b)	Appoint Weathermen Capital Advisors Limited as interim trustee to the Pacific Balance Fund pursuant to section 202 of the Capital Markets Act 2015,

are set aside.

3.	The Appellant’s Capital Market License to operate as Trustee for the Pacific Balance Fund in accordance with the provisions of the Capital Market Act 2015 is restored.
……
5.	The Appellant shall have 30 days from today to respond to the letter of revocation of license dated 9 August 2023 from the Respondent to the Appellant.

6.	The Respondent shall consider the response from the Appellant and arrive at a decision.
……”

7.	In adherence to term 5 of the Court Order, the appellant provided a comprehensive response to the First LoR by way of a letter dated 14 September 2023 (Letter of Response).  The appellant denied any wrongdoing on its part of its duties, functions and responsibilities as the trustee of the Fund.  In summary and at paras 4 and 5 of the Letter of Response, the appellant said,

“MTSL complies with all legislation and regulations and has in place a strong and robust governance structure.

We trust that the information provided to you below is satisfactory and provides thorough details and explanations to all of the issues raised and allegations made against MTSL in the Letter of Revocation and allows SECOM to professionally and accurately assess the license position and renewal application of MTSL.”

8.	On 25 September 2023, the respondent, in adherence to term 6 of the Court Order and by way of a letter of revocation (second LoR), notified the appellant of its decision.  In the second LoR, the respondent notified the appellant that it had revoked the appellant’s Capital Marketing License.  The respondent also notified the appellant that it had also exercised its power under s.202 of the CM Act and had appointed Weathermen as the Fund’s interim trustee.

9.	Aggrieved by this decision, the appellant files the present appeal.

APPEAL

10.	The appeal is filed under s.56 of the CM Act.  The section reads:

“56. APPEALS.

(1)  A person who is aggrieved by the decision of the Commission under this division shall appeal to the National Court within 14 days after the person has been notified of the decision.

(2)  The National Court shall determine the appeal and -

(a)	confirm the decision of the Commission; or
(b)	set aside the decision of the Commission; or
(c)	refer the matter to the Commission to deal with the matter through its administrative process.

(3)  The appeal under Subsection (1), shall not affect the decision of the Commission which shall take effect immediately upon issue, unless the appellant sought an order against the Commission restraining the Commission from effecting its decision until the National Court deals with the appeal.

(4)  The Court shall take into account the interest of investors or public interest when determining the appeal under Subsection (1).”

[Bold lettering and underlining are mine]

11.	My reading of s.56(2) is this.  The National Court is given limited but express options under the Act on what relief it may grant.  It has 3 options that it may choose from as stated under s.56(2).  Of course, I do not think that the provision prevents the Court from making consequential orders to implement or give effect or clarity to the relief that it chooses to grant.

12.	My next reading is in regard to s.56(3).  The provision is written in mandatory terms.  Thus, what it says is that an appeal that is filed by an aggrieved party shall not affect the decision of the Commission which shall take effect immediately upon issue.  And the only way where an aggrieved person may prevent the Commission from giving effect to its decision or from effecting its decision as stated therein, is that the aggrieved person must seek and must obtain a Court Order to restrain the Commission before the Commission could give effect to its decision.  In practical terms, the wording of the said provision makes it difficult for an aggrieved party to react, that is, in terms of seeking to obtain a restraining order should that party intends to challenge the decision of the Commission in an appeal filed under s.56.  The wordings used in s.56(3) that the decision of the Commission shall take immediate effect upon issue, I note, appears to recognize, give effect to or be in conformity with, s.48 (10) of the CM Act, which state:

“(10) A person whose licence is revoked or suspended under this section shall, for the purposes of this division, be deemed not to be licensed from the date that the revocation or suspension takes effect, as the case may be.” [Underlining mine]

13.	Having perused the CM Act in general, and after considering the oral submissions by counsel for the respondent on the significances of various provisions in the said legislation, there appears to be very good reasons for such strict adherence to or compliances with provisions under the CM Act.  I note that the Commission also has discretion under the CM Act when it comes to revocation or suspension of a license.  For example, if the Commission revokes a Capital Market License of a trustee, its decision may also include appointing an interim trustee under s.202 like in the present matter, or the Commission may permit the trustee whose license has been cancelled, to continue in the interim with conditions.  This is provided for under s.49(2), which reads:

“(2)  Where any licence is revoked or suspended under this division, the Commission may, by notice in writing, permit the holder of a capital market license to -

(a)	in the case of a revocation, carry on business operations for the purpose of closing down the business connected with the revocation; or
(b)	in the case of a suspension, carry on only essential business operations for the protection of interests of clients of the licensed person during the period of suspension,

subject to such conditions as the Commission may specify in the notice.”

14.	I also note from the said legislation including s.56 that emphasis is placed on the interests of the investors and the public, that is, in view of the significant role that a licensed trustee plays or carries to manage an investment fund or entity, and also and most significant is the regulatory role that the Commission plays to control or manage the securities and capital market industries of the country.

STAY APPLICATION

15.	The appellant’s stay application was filed on 28 September 2023.  Terms 2 and 3 of the application states:

“2.	Pursuant to section 56 (3) of the Capital Markets Act 2015, the decisions of the Respondent that are the subject of this Appeal are stayed, and the Respondent is restrained from effecting its decisions until the National Court deals with and determines this Appeal.

3.	Pursuant to section 56 (3) of the Capital Markets Act 2015, Order 14 rule 10 and Order 12 rule 1 of the National Court Rules, and Section 12 of the Laws Adoption and Adaption Act Ch, the Appellant is granted an interim injunctive order restraining the Respondent, and any of its officers, agents and appointees, from interfering with the business and operations of the Appellant as Trustee for the Pacific Balanced Fund, including the bank accounts of the Appellant and the Pacific Balanced Fund, pending determination of this Appeal.”

16.	The application is supported with 2 main affidavits, that is, the affidavits of Lawrence Stephens (Co-Chief Executive Officer of the appellant – 6 Volumes) and Jerry Singirok (director of the appellant) filed 28 September 2023 and 6 October 2023 respectively.

17.	The respondent opposed the application.  It relies on 2 affidavits of James Joshua (Acting Executive Chairman of the respondent) which were both filed 2 October 2023.

PRELIMINARY CONSIDERATION

18.	I prefer to begin by making reference to the respondents’ second LoR.  A true copy of the letter is marked as JJ-20 to Mr Joshua’s affidavit (Document No.7).  Of relevance for this purpose is what is stated at page 8 of the said letter, which is, and I quote in part:

“Therefore, pursuant to Section 48(2)(a)(i)(iii) of the Capital Market Act 2015 (CMA), the Commission hereby REVOKE the approvals (deemed to be a Capital Market License pursuant to Section 121(1) of the Securities Commission Act 2015 and Section 37 of the Capital Market Act 2015 (CMA) granted to MELANESIAN TRUSTEE SERVICES LIMITED as the Trustee of Pacific Balance Fund (PBF).

The revocation is effective immediately and pursuant to Section 202 of the Capital Market Act 2015 (CMA), the Commission appoints WEATHERMEN CAPITAL ADVSORS LIMITED as the interim Trustee. The Interim Trustee is directed to perform the functions of the Trustee and Fund Manager of PBF for a period of three months until such time a new Trustee and Fund Manger are appointed.

Enclosed is the revocation gazette of MTSL’s Capital Market License published in a National Gazette Number G767 of 2023, dated Monday 25th of September 2023.

Please take all necessary steps to refrain from dealing with any PBF’s assets and to transfer all custody and authority of PBF’s assets and bank accounts to the Interim Trustee to take more prudent approach to avoid potential issues.

MTSL is further directed to facilitate a smooth transition and management of PBF by handing over the books and PBF records and reasonably assist the new Interim Trustee to facilitate this change.
……”

[Bold lettering mine]

19.	So, what this letter means is that the Commission’s decision in its Second LoR was effected immediately upon issue.  When I consider the appellant’s evidence and in particular the affidavit of Mr Stephens, he deposes at para 6 that the respondent’s second LoR was served or issued to them on the next day on 26 September 2023.  

20.	In view of my reading of s.56(3) of the CM Act, as stated above herein, what this means in my view is that the stay application appears fatally flawed and misconceived, and I find so accordingly for reasons which I summarise herein:

•	appeals that are filed under s.56 of the CM Act are of a special category in that emphasis or paramount consideration is given premised on the interests of the investors and the public at large (s.56(4));
•	the correct mode prescribed by s.56(3) is to apply to seek interim injunctive relief or interim stay order, to restrain the Commission from making or giving effect to its decision pending the outcome of an appeal that is filed;
•	the appeal provisions under s.56 do not expressly permit an applicant to apply and seek a general or blanket stay order against the decision of the Commission;
•	thus, to apply for a general stay order in itself is not permitted by s.56(3);
•	a stay order and an injunction are conceptually different; see: Kalinoe v Paraka (2010) SC1024;
•	s.56(3) permits an aggrieved party to apply for an interim restraining order only;
•	thus, in my view, the stay application herein appears misconceived and cannot be allowed to be heard or granted;
•	the appellant has invoked the Court’s jurisdiction in the substantive appeal under s.56 thus the Court’s jurisdiction is restrictive to the use of and the application of the said provision;
•	other sources including provisions under the National Court Rules and the Adoption and Adaptation Act in my view do not apply nor can they be invoked in an application that is made under s.56 of the CM Act;
•	if the stay application is to be regarded as an application that is duly made under s.56(3) for interim restraining orders, the fact of the matter is that the decision of the respondent in its second LoR had been effected; the event that is sought to be restrained on an interim basis pending the outcome of the appeal, had occurred in that the respondent had already implemented its decision on 26 September 2023; thus even if the appellant had filed an application for interim injunctive relief, it would have been obsolete.

21.	Lastly, I also take into account the fact that the respondent has also in the interim, after taking into account the interest of the investors or the unit holders as well as public interest, and pursuant to s.202 of the CM Act, appointed Weathermen as PBF’s interim trustee.  This may pave way for the investors or the unit trust holders to be at liberty to make decisions concerning their business interests. 

SUMMARY

22.	It is therefore for these preliminary reasons that I am minded to refuse the stay application.  As such or premised on these findings, it is not necessary for me to consider the other arguments.

COST

23.	An award of cost is discretionary.  I am minded to award cost to follow the event on a party/party basis to be taxed if not agreed.

ORDERS OF THE COURT

24.	I make the following orders:

1.	The Appellant’s stay application is dismissed.

2.	The Appellant shall pay the Respondent’s cost of the application on a party/party basis to be taxed if not agreed.

3.	Time for entry of these orders is abridged to the date and time of settlement by the Registrar of the National Court which shall take place forthwith.

The Court orders accordingly.
________________________________________________________________
Goodwin Bidar Nutley:	Lawyers for the Appellant
In-house Counsel:	Lawyers for the Respondent