Coffee Industry Corporation v Arabicas Ltd [2000] PGSC 9; SC640 (2 June 2000)

SC 640

PAPUA NEW GUINEA

[IN THE SUPREME COURT OF JUSTICE]

SCM 8 OF 1998

BETWEEN:

COFFEE INDUSTRY CORPORATION

Appellant

AND:

ARABICAS LIMITED

Respondent

Waigani : Amet CJ,
Hinchliffe, Salika JJ

1999: June 22
2000: June 2

Counsel:
A MacDonald, for the Appellants.
P Payne, for the Respondents.

AMET CJ: The Appellant, the Coffee Industry Corporation Pty Limited (the Corporation), is a Company registered under the Companies Act and given powers under the Coffee Industry Corporation (Statutory Functions and Powers) Act 1991 (the Act) to issue certificates of registration for exporters and for manufacturing facilities. The Act requires coffee exporters to be registered before they can export coffee. This registration is renewable every year. The Respondent, Arabicas Pty Limited (Arabicas), is a company involved in the processing, manufacture and export of coffee.

In 1996 Arabicas was granted registration under ss.14 and 16 of the Act for the use of its premises at Goroka for processing and manufacture and export of coffee. At the end of 1996 Arabicas applied for renewal of its registration. The Corporation’s Board granted “permission to build a processing facility for Organically Certified Coffee only”, at its meeting on 28^th November 1996, upon advice from the executive. The executive advised that Arabicas’ then facility at West Goroka did not meet the requirements of the guidelines. As Arabicas intended to move to a new site and re-build the entire processing and manufacturing facility, it was advised by letter dated 13^th December 1996 that as soon as the facility was ready for inspection, it should apply again.

The new facilities was completed and inspected, and on 14^th April 1997 Arabicas was advised by letter from John Fowke the Quality Control Manager that the facilities was good and that he would be placing before the General Manager a recommendation to allow Arabicas to continue to process and manufacture, pursuant to its conditional registration which expired on 31^st March 1996, until the Board authorises the issue of the Certificates at its next meeting. He advised however, that his recommendation to the General Manager was subject to three requests earlier made by the General Manager, by letter dated 13^th December 1996, being satisfactorily met. They were:

(a) Evidence of purchase and installation of the densimetric separator Arabicas was to install,
(b) Description and plan of the drying facility to be installed, and
(c) A listing showing the total weight of each specification of parchment and green bean bought during the October 1995 to November 1996.

Dispute between the Corporation and Arabicas arose as to the necessity for compliance with these three requirements and correspondence was exchanged between Brian Owen of Arabicas and John Fowke of the Corporation.

On 30^th June 1997 John Fowke as Acting General Manager advised Arabicas that the Board, on the 26^th June 1997, made the following decisions regarding Arabicas’ registration:

(a) In respect of the permission to build a processing facility for organically certified parchment, the permission was withdrawn by the Board. The processing of parchment may not be undertaken from today’s date.
(b) In respect of the conditional registration as a manufacturer of coffee products, the conditional registration is extended to 31 October, 1997, with the following condition:

“Not to manufacture and/or label coffee products as being organically or naturally grown and processed.”

This condition is to be observed from today’s date.

(c) In respect of the registration as an exporter of manufactured coffee products, the conditional registration is extended to 31^st October, 1997 with the following condition:

“Not to export or sell locally any manufactured coffee products which are labelled or described or advertised as organically or naturally grown or processed.”

This condition is to be observed from today’s date.

A copy of the brief on which the Board based its decision was also attached to the advice for Arabicas’ information. This brief, amongst other matters, stated the following:

“CIC’s Guidelines for Registered Processors set out the necessary machinery and other facilities needed to secure registration of a processing facility, and Arabicas have been made well aware of these provisions. ...

However, Arabicas has consistently refused to install a densimetric separator, which is necessary before registration may be granted. Arabicas have in fact written to CIC setting their own conditions in this regard. In other words, telling the Board what to do.

For this reason alone it will not be proper to grant registration as a processor of certified organically grown coffee to Arabicas. This matter should be shelved until the November meeting by which time Arabicas must have installed the necessary equipment. However, other pending matters may influence Arabicas decision on this.

In the meantime the company must be instructed not to process parchment coffee.

In addition to the above breach of trust, CIC has become aware that Arabicas purchased several tones of non-certified parchment from another coffee factory in Goroka and processed it. This was in August last year. CIC suspects that this coffee was processed and packed and sold as organically certified coffee, an assumption supported by a discrepancy in figures submitted by Arabicas. .....

Investigations are continuing. In the meantime, there is a very real suspicion that non-certified coffee has been mixed and sold with certified coffee under the label of National Association for Sustainable Agriculture in Australia, or NASSA, the CIC – recognised certification agent for PNG’s coffee industry. Arabicas have once already had their certification suspended by NASAA for a very similar infringement.

The Corporation’s Board next met on 2^nd October 1997 and again considered Arabicas’ alleged non-compliance with the Corporation’s policies. The Commerce and Industry Department, which is one of three Government Departments represented on the Board, conducted its own independent investigation into the dispute between the Corporation and Arabicas and tabled a Brief through its Alternate Director, Jimmy Tine. That Brief made the recommendations that:

1. The Board rescind its decision of 26 June 1997 and re- issue those permits without any conditions and restrictions on them, and
   
2. the CIC Management be prepared to sit down and discuss any issues that affect the operational aspects of any companies involved in the coffee industry, downstream processing before taking such actions as it did to Arabicas.
   

The Departmental Brief based its recommendations on the following observations:

Arabicas have been operating as a Roaster of Organic Coffee and Exporter of the same very comfortably and successfully for more than 6 years without any form of interference and communication related to instructions and directives from CIC Management.

The Company and CIC Management informed that there is not one complaint or rejection of Arabicas roasted coffee by consumers both in PNG and overseas. The two cancellations were a decision based entirely on the CIC Management enforcing the CIC standing Regulations and Policies.

It also observed that, “Our discussions did suggest that there were mis-representation of the company’s conducting of its business. We are of the view that CIC Management may not have put enough time and efforts to provide its legitimate role and function to verify and ensuring their facts were consistent before restoring it to any action which will cost substantial damage to the private sectors interest in their business activity.”

The following comments were recorded in the minutes of the Board Meeting of 2^nd October 1997:

6.5.6 Mr. Tine advised that a separate investigation was undertaken by the Department of Commerce and industry, as the company was engaged in downstream processing by roaster coffee and to this end, the Department was seeking the Board’s mercy to reconsider it’s position.

6.5.7 Mr. Greathead mentioned that if we set the precedence by reconsidering our decision our position then we might have to do it for all the others as well.

6.5.8 Mr. McMillan advised that concession be provided on the condition that they process strictly certified organic coffee, however Annell has been notorious for breaching the rules.

6.5.9 Dr. Kola stressed that the coffee will have to be organic and nothing else.

6.5.10 Mr. Vari advised the Board that Mr. Fowke will be called in to provide a brief on the circumstances as he was well versed on the matter.

6.5.11 Mr. Fowke gave a thorough briefing to the Board on the case. In summary he stated that the company was given concessional permission in late 1996 to meet the guidelines, however in January 1997 the inspectors discovered that nothing was in place and that they were still processing non-organic coffee. And by 31 March 1997 they were to have completed their factory with appropriate machinery in place but they have not complied.

6.5.12 Mr. Tine stressed that the Board should reconsider its position, as there are only 3 companies in PNG involved in down-stream processing of coffee.

6.5.15 Mr. Anis mentioned that the CIC’s standards must be observed to maintain our reputation overseas. The rules were set up for everyone to comply and it appears Arabicas is stubborn and this is not acceptable. The Board’s decision must be upheld.

6.5.16 Mr. Tine advised that his Department promotes down-stream processing and we’d like to protect such company for the benefit of the rural people.

6.5.18 Mr. Ousim mentioned that if the company has stepped out of line then it is our duty to put them into line.

6.5.19 Dr. Kola mentioned that we cannot make an exception for one individual who bluntly refuses to comply with our guidelines.

6.5.20 Mr. Anis mentioned that if the machinery is going to cost only K2, 000 that of course is cheap, then why become arrogant and so stubborn.

6.5.21 Mr. Kopi advised that we have to stick to the guidelines....

6.5.22 Mr. Fowke further advised that the permission has been suspended and the company has been decertified by NASSA.

6.5.23 Mr. Tine mentioned that Arabicas should be given another chance, however Mr. Fowke advised that they have been given plenty of chances to fulfil our requirements and they are just ignorant.

6.5.25 Mr. Vari mentioned that Arabicas will have to comply and we have already overpaid by K1\2 million on one of their properties. They must realise that CIC is empowered under an Act of Parliament.

6.5.26 Mr. McMillan advised that Warner Shand were defending CIC on a number of cases and it appeared that only two (2) operators appeared to be breaching the CIC Act time and time again, namely Wally Perdacher and Annell Williams (Managing Director of Arabicas).

The Corporation’s Chief Executive Officer, Badira Vari advised Arabicas by letter dated 6^th October, 1997 that the Board at it’s meeting of 2 October 1997, re-affirmed it’s decision of 26 June, 1997 to withdraw the permission given to the company to set up a facility to process certified organically-grown coffee. He said:

The Board’s decision was based on the fact that (1) your company has not installed a densimetric table as required by the CIC’s Policy Guidelines and (2) your company has been decertified by NASSA. The Board has further decided that before an application from Arabicas P\L for a processing license can be considered, your company (1) must install a densimetric separator; and (2) regain its organic coffee certification from NASAA, which is the only certifying agency recognised by the CIC for the PNG coffee industry.

On 26^th November 1997 the chief executive officer of the Corporation wrote to the Managing Director of Arabicas reminding Arabicas of the cancellation of it’s registration and certification and made the following assertion:

“We are surprised to find that coffee from your company with the inscriptions Organically Grown Coffee, Bio Farm Certified and Certified Organic By NASSA is still being sold on the shelves of supermarkets in many towns in PNG. We consider this to be a blatant disregard of the decision of the Board of Directors. In addition, we consider that your company has deliberately misled consumers by labelling coffee as being certified organic after NASAA deregistered your company.

As the matter is of relevance to NASAA and the Consumer Council, we are copying this letter to them.”

Arabicas replied to the chief executive officer’s letter on 3^rd December 1997 in the following terms, amongst other things:

“You have once again made unsubstantiated claims against us without consulting us first.

What is your motive behind all these letters that make no sense? Please give us a list of stores and the delivery dates of coffee that you claim have NASAA labels?

You have already been requested by the government departments to sit down with us and discuss any queries you may have. As the CEO and a public servant you are bound by certain rules and ethics as your wages are paid by us, the stake-holders.”

The Board again met on 4^th December 1997. The Minutes of that meeting only disclose the following;

7.19 Mr. Hagon mentioned that apart from the HCE, the Board should endorse the management’s recommendation on the export licenses.

On 30th January 1998 the chief executive officer of the Corporation forwarded Arabicas’ Certificates of Registration advising that both registrations expire on 30th November 1998 and of the conditions placed on the Export License. The two conditions on the Certificate of Registration were:

1. Arabicas Pty. Ltd is not to sell locally or export any coffee purporting to be organically or naturally grown and processed;
   
2. Arabicas Pty Ltd to provide evidence at the next licence review that nationals have been trained in coffee marketing.
   

Arabicas applied for judicial review of the first condition on the following grounds, that:

(a) The Defendant acted ultra vires its powers under the Coffee Industry Corporation (Statutory Functions and Powers) Act 1991 in imposing condition (1) on the Plaintiffs Certificate of Registration dated 4 December 1997.
(b) The Defendant in imposing condition (1) acted harshly and unreasonably in that condition (1) prevents or prohibits the Plaintiff from purchasing “organic” or “naturally” grown coffee from registered coffee manufactures within Papua New Guinea and packaging the “organically” or “naturally” grown coffee for export by the Plaintiff.
(c) The Defendant in imposing condition (1) had regard to irrelevant considerations and in particular had regard to the Plaintiff not being certified by the National Association for Sustainable Agriculture, Australia Limited as a manufacturing or processor of “certified organic” coffee.
(d) The Defendant in imposing condition (1) has acted harshly and unreasonably in that the Defendant has not sought to define what is meant by the terms “organically” or “naturally” grown coffee, such terms not being defined or referred to in the Coffee Industry Corporation (Statutory Functions and Powers) Act 1991.

The learned trial judge allowed the Review, finding that the Board of the Corporation had acted outside its powers in imposing condition 1. He made the following findings:

“I cannot find anywhere that the Corporation has the power to restrict the applicant with use of the words organically or naturally.

I find considering the ‘Wednesday’ principles that;

The Board had regard to matters which it did not have power by statute to consider in the exercise of its discretion,
It applied irrelevant consideration,

It did not properly consider the matters in the exercise of the limited discretion it had. ..........

The Minutes of the meeting of the Board of the 4^th December do not reflect that there was a proper consideration of the condition that was imposed, even if it was within power of the Corporation to impose conditions applying criteria which are not matters reflected in the provisions of the Act nor in Regulations under the Act.

The Corporation has appealed against this decision of the trial judge on the following grounds:

(a) The learned Judge erred in finding that the express power and discretion granted under the Coffee Industry Corporation (Statutory Functions and Powers) Act 1991, Section 14(1)(a) being a discretion to register a coffee exporter upon ‘such conditions and restrictions as it thinks fit’ was not wide enough to require a registered exporter to deal only in certified organic coffee, when the exporter was marketing coffee called Organic or Naturally grown.

(b) His Honour erred in not finding, when an Exporter deals in coffee called Organic or Naturally grown, the appellant is entitled to require any Exporter (including the Respondent) must only deal with such coffee in accordance with Policy Guidelines regulating dealings in Certified Organic Coffee. Such entitlement arising from the discretionary power in Section 14(1)(a) of the Act.

(c) His Honour erred in not finding the power granted under Section 14(1)(a) of the Act included an incidental power to issue and require compliance by exporters with certain Policy Guidelines. Such Guidelines being issued to explain and give effect to the conditions imposed on the Export Licence.

(d) His Honour erred in not finding the Respondent required Consent to export coffee, pursuant to Section 17(2)(e) of the Act. The consent being the Respondents “Certificate of Registration as a Coffee Exporter.” This Consent is under Section 17(2)(e) of the Act “subject to such conditions as are specified in the consent”, and were the conditions endorsed upon the Respondent’s Export Licence.

(e) His Honour erred in not finding the Appellant had, pursuant to the conferral provisions of the Act, the residual power necessary to control by use of Policy Guidelines, the growing and marketing of organic and naturally grown coffee and to define these terms.

(f) His Honour erred in finding the Appellant applied irrelevant considerations in the decision-making process but failed to state what such irrelevant considerations were.

(g) Where the Appellant required the Respondent comply with NASAA criteria, via Policy Guidelines, and such a requirement was within the subject matter, scope and purpose of the Act. His Honour erred in finding the Appellant had regarded matters which it did not have the power to consider, in the exercise of its discretion and applied irrelevant considerations.

4. Errors of Law and Fact or Errors of Fact
   
   • (a) Alternatively, His Honour erred in finding the Appellant applied irrelevant consideration where the Appellant required compliance with NSAA criteria. Where such criteria is necessary to protect the international reputation for quality organic coffee. And where the Appellant, in applying such criteria, was acting for the public for the public good of the coffee industry.
   • (b) His Honour erred in finding the only relevant Policy Guidelines were the “Registered Exporters, Processors and Manufacturers who trade in Organically Certified Coffee” and ignored the “IFOAM Guidelines on Coffee Cocoa and Tea,” regarding cultivation of organic crops, including coffee.
   • (c) His Honour erred in finding there was no proper consideration of the condition imposed because the Minutes of the Meeting of the 4^th Of December 1997 made no specific reference to the Respondent nor the condition. However His Honour failed to find the proper consideration was given at the meeting on the 2^nd of October 1997 and only the decision was adjourned to the 4^th of December 1997 meeting.
     

Submissions by the Appellant

Arabicas cannot export coffee without a registered license pursuant to sections 14 and 17 of the Act and that specifically s.14 (1) allows the Corporation to impose conditions on the license “as it thinks fit.” Arabicas had no automatic legal entitlement to an Export License. It’s only entitlement is a legitimate expectation that it’s application will be determined in accordance with the rules of administrative law.

The Corporation’s power is similar to determining whether an exporter is a “fit and proper person” to be granted a license. Whilst it has been long established that such administrative discretion is not unfettered, the elements of review included past behaviour complained of notwithstanding that such behaviour does not include the breaching of any law or regulation.

The Corporation was thus correct in insisting that only certified organic coffee was permitted to be exported because the international market for organic coffee was small but significant. Because it was an international market the Corporation considered it necessary to adopt internationally recognised standards. These were the IFOAM Guidelines. IFOAM delegated its authority to certify in PNG to NASSA as its agent. The basis for certification is a so-called “audit trail” which confirms that Coffee called Organic can be traced to a farm whose methods of production are genuinely organic, as specified by IFOAM Guidelines. If not grown strictly according to guideline requirements the produce will not be certified. This was the customary practice that Arabicas knew of and in fact complied with it before it was de-certified for disguising the audit trail.

As matter of public policy the Corporation did not endorse the distinction between certified and non-certified Organic Coffee. The Court should be reluctant to overturn such a public policy and allow an unregulated free market.

The lack of statutory definition of Organic and lack of gazetted Regulations are not fatal, they are merely alternatives but not exclusive sources of power and that the primary source of power is the issue of Export License.

The investigations conducted by the Management of the Corporation discovered that Arabicas had sold coffee called organic which included coffee from non-certified sources, that is, from sources not certified by the National Association for Sustainable Agriculture Australia Limited (NASAA) as being grown in accordance with guidelines regarding the method by which organic coffee is to be grown. Details of the investigations and Arabicas’ attempt to disguise the trail of purchase and disguise its source were deposed to in the Affidavits of John Fowkes. The investigation was the basis for the recommendation from the Management to the Board when they considered the renewal of the Export License on 2^nd October 1998 and 4^th December 1998. The investigation was thorough and factual.

In summary the factual findings that Arabicas packaged coffee as organic coffee which included coffee from non-certified sources is deemed to be admitted, in that Arabicas had not in its Affidavit evidence disputed or denied the purchase of uncertified coffee from Namalu, nor had Counsel raised the validity or unreasonableness of the investigations in it’s submission. The Corporation Board imposed the condition on the strength of this finding. Reliance on Policy Guidelines is the primary instrument of maintaining uniformity. If Arabicas wanted to export Organic Coffee, it must comply with the past and current practice of exporting only Certified Organic Coffee, when it is certified by NASAA.

The primary source of this power to demand compliance with this practice arises from S.14 (1) of the Act, which is the power to impose such conditions as it sees fit. This approach and attitude is equitable to all players within the Coffee Industry. The reasonable action for Arabicas to take would be to re-apply for certification from NASAA. The Corporation exercised its discretion in good faith in requiring Arabicas to comply with NASAA criteria as prescribed in the Guidelines.

Arabicas had acted in a manner that could harm the export market of Coffee. The Board came to the conclusion that Arabicas had contaminated its coffee by including non-certified coffee in its coffee processing and selling such coffee as Organic. Arabicas could not be trusted nor would it be proper to allow an exporter to determine its own quality or Organic Coffee because of the possible adverse effect on the Export Market.

In relation to the decision-making procedure, the learned trial judge failed to give credit to the Board’s decision to listen to Arabicas’ representative Mr. J. Tine. The review was in two stages, the first on 2^nd October 1997 and the second on 4^th December 1997. At the meeting of 2^nd October 1997 Mr. J. Tine represented Arabicas and tabled a Brief on its behalf. Mr. J. Fowke gave a thorough briefing to the Board detailing his investigation of Arabicas’ purchase of uncertified Coffee. Mr. Fowke’s brief assisted the Board in making its decision to impose a conditional license on 4^th December 1997. There was no procedural impropriety in this two-stage process. The Respondent was not denied natural justice during the decision making process. Mr. J. Tine was aware of the complaints against Arabicas and prepared a brief in reply.

The learned trial judge misdirected himself in finding that the Corporation required express power to restrict or prohibit the sale of the type of Coffee.

Submissions by the Respondent.

The Guidelines on “Organically Certified Coffee” can be no more than a statement of the policy of the Corporation. They were not gazetted determinations of quality or classification under Section 6(1)(c) of the Act. As guidelines are mere policy statements, the Corporation cannot rigidly enforce them without considering the merits of individual applications for export license. The following statement of principle from “Principles of Australian Administrative Law” 6^th Edition Hotop at p. 236 states:

“A public authority entrusted by statute with a discretionary power must exercise that discretion according to the merits of the particular case, and not inflexibly apply a policy or rule to cases coming before it irrespective of their merits.”

The minutes of the Board meeting of 2^nd October 1997 clearly indicate that the Board regarded the Guidelines in the same way as a regulation and was not prepared to consider the individual merit of Arabicas’ application.

The argument of the Corporation is circuitous in that it says it has a very broad discretionary power in Section 14(1)(a) of the Act and yet it is not prepared to exercise any discretion from its policy guidelines in considering the merits of the application of Arabicas.

The Corporation has no statutory “residual power”. The CIC only has those specific statutory powers granted to it under the Act. The Corporation is a private company incorporated under the Companies Act and which is given certain limited statutory functions. Because of the unusual nature of the Corporation and the regulatory powers that it is given under the Act, the Court should ensure that those powers are exercised according to law. The Act gives the Corporation specific powers but it does not confer any general functions upon it.

By the guidelines the Corporation required Arabicas to be certified by NASAA. There is no reference at all to NASAA within the Act or any regulations made under the Act. The Guidelines of 3^rd January 1997 refer to NASA, however they are no more than a statement of a policy and the Board is required to consider the individual merits of each application for renewal.

In the Case of R. v. Windsor Licensing Justices [1983] 1 WLR 685 the English Court of Appeal considered the manner in which licensing justices had determined an application for renewal of a license. The facts were that a policy had been introduced during the course of the previous year which required a change in the layout of premises used for the sale of takeaway or “off license” alcohol. The applicant had held a licence for six years and upon renewal was refused his renewal for failure to comply with the new policy relating to the layout of the premises. The Court quashed the decision of the justices.

It is important to note that in this case Arabicas was applying to the Corporation Board for renewal of it’s exporters license, not making a fresh application, and the Board was required to consider the individual merits of Arabicas’ application before imposing the condition.

In its deliberations on 2^nd October 1997 the Board had regard to many irrelevant considerations. However, it did not make any decision regarding the renewal of Arabicas’ export licence or any condition to be imposed on it. It appears the Board made the decision on Arabicas’ application on the 4th December 1997. The minutes make no specific reference to Arabicas and simply state that:

“The Board should endorse the management’s recommendation on the export licenses.”

It is clear from the minutes of the meeting of the 4^th December 1997 that the Board failed to consider the merits of Arabicas’ application for renewal and simply “rubber stamped” a recommendation from management without giving the matter proper consideration. The decision making process is flawed as the Board failed to give any consideration to the conditions which it was imposing on Arabicas’ license. The appeal should therefore be dismissed.

Decision

The Act states in the Preamble that it is an Act to:

(a) Provide for the conferral on the Coffee Industry Corporation of statutory powers relating to the control and regulation of the production, processing, marketing and export of coffee.

Section 14 prescribes the powers of the Corporation on Registration of Coffee Exporters in the following terms:

(1) The Coffee Industry Corporation may –

• (a) subject to such conditions and restrictions as it thinks fit, and as are endorsed on the certificate of registration; and
• (b) on payment of the prescribed fee,
  

register a person as a registered coffee exporter.

(2) The Coffee Industry Corporation may refuse to register a person under this section on such ground, as it thinks fit.

The principal issues, as they seem to me, arising from the foregoing circumstances in the original judicial review and the appeal are the following:

1. What are the statutory powers of the Corporation under the Act relating to the control and regulation of the production, processing, marketing and export of coffee,
2. Whether the Corporation had the statutory power to impose the condition that it did, which is the subject of the judicial review and this appeal,
3. If it did have such power, whether it exercised it reasonably in the circumstances, and
4. Whether, in the exercise of the power the Corporation was fair and accorded Arabicas natural justice to present it’s response to the allegations made against it and to be fully heard on its application for renewal.
   

Section 6 of the Act states that the “Corporation has power –

(c) to prohibit, by notice in the National Gazette, the purchase or sale of parchment coffee or coffee cherries except where that coffee complies with minimum quality standards specified in the notice and to impose such conditions under the notice as the Coffee Industry Corporation thinks fit; and
(d) To fix, by notice in the National Gazette, the maximum and minimum prices at which any kind or grade or classification of coffee produced in the country may be bought or sold, and the places or circumstances at or in which such prices shall apply.

Firstly, I accept the submission for the Respondent that the guidelines on “Organically Certified Coffee” are no more than statements of policy of the Corporation. They are not gazetted determinations of quality or classification under s. 6(1)(c) such that the Corporation should apply them rigidly without considering the merits of individual applications for export licenses. As quoted s. 6(1) power is enforced by notice in the National Gazette. I consider that for the guidelines to have binding effect and in particular the requirement to have NASAA certification as a condition for registration as an organic coffee exporter, the guidelines should have been incorporated into regulations or gazettal notice as required under s. 6(1).

I consider that the principle quoted from the Principles of Australian Administrative Law above is apposite to the application of s. 14(1)(a):

“A public authority entrusted by the statute with a discretionary power must exercise that discretion according to the merits of the particular case, and not inflexibly apply a policy or rule to cases coming before it irrespective of their merits.”

The policy requirement for organic coffee exporters to be certified by NASAA is not a statutory requirement under the Act or regulations made under the Act. It has no binding effect. It is no more than a policy statement and in my opinion the Board should, as a matter of principle, consider the individual merits of each application for renewal. I find to be persuasive and applicable the remarks of Slade L J at p. 693 in R. v Windsor Licensing Justices (supra) that:

“The power conferred on licensing justices ----- to grant licences ‘as a new licence or by way of renewal’ to such properly qualified persons ‘as they think fit and proper’ is a power expressed in permissive terms, which is exercisable or not at their discretion. The authorities show that this discretion is a very wide one, both in the case of an original grant and of a renewal. Nevertheless it is a discretion which must be exercised according to reason and justice, not in an arbitrary manner. It is therefore well established that licensing justices must exercise their discretion in each case that comes before them and cannot properly determine an application simply by reference to a pre-ordained policy relating to applications of a particular class, without reference to the particular facts of the application before them.”

I consider therefore that the Corporation did not have statutory or regulatory power to impose the condition that it did by rigidly applying the policy guidelines that required certification by an external institution that did not have statutory or regulatory authorisation. The requirement to have NASAA certification is not a requirement under the Act or any regulation or notice in the national gazette. The imposition of such a requirement, without considering the merits of individual applications is ultra-vires the powers granted under the Act.

Secondly, and importantly in my opinion, if the Corporation did indeed have the power to impose such a condition, for the alleged reasons that Arabicas purchased non organic coffee and mixed it with organic coffee for export, it did not accord Arabicas a fair opportunity to be heard in response to the allegations made against it. The accusations made against Arabicas were serious and required, in fairness, for Arabicas to have been given the opportunity to be heard in its defence against them.

The contention that Mr. Jimmy Tine represented and spoke on behalf of Arabicas in the Board meeting of 2^nd of October 1997 is erroneous. Mr. Tine was the Alternate Director representing the Department of Commerce and Industry and did not represent Arabicas. He presented and spoke to a Brief of the Departments independent investigations into the continuing dispute between the Corporation and Arabicas. Mr. Fowke, the Quality Control Manager, representing the Management, was invited into the Board Meeting of 2^nd of October 1997 and the minutes record that he gave a thorough briefing to the Board. No opportunity was given to Arabicas to present its position and respond to the serious allegations and criticisms made against it as the minutes record.

If the consequences of relying upon such serious allegations, upon an organisation, were to have adverse financial implications, apart from the reputation of the organisation or indeed an individual, the controlling organisation should comply with the basic requirements of the principles of natural justice. The very minimal requirement of natural justice is to give notice that serious allegations were made against it and to give the opportunity to the organisation to respond either in writing or to be represented at the meeting to present its position. This opportunity was not accorded to Arabicas. This amounted to procedural unfairness and so the Corporations decision should not be allowed to stand.

Alternatively, even if the Corporation could be said to have the power to impose such a condition, I consider that it exercised it unreasonably in all the circumstances recounted herein. I consider that to impose such a condition which in fact bans the respondent from purchasing “organic” or “naturally” grown coffee from registered coffee manufactures within Papua New Guinea and packaging it for export is harsh and unreasonable.

The next procedural error, in my opinion, is the considerable reliance by the Corporation on a whole body of irrelevant considerations. At the Board Meeting of 26 June 1997 when the interim conditions were imposed, the Brief from Management to the Board contained the following comments. It accused Arabicas of consistently refusing to install the densimetric separator, setting their own conditions and telling the Board what to do. The Brief stated that for this reason alone it would not be proper to grant registration as a processor of certified organically grown coffee to Arabicas. The minutes of the subsequent meeting of the Board Meeting on 2^nd October 1997 provide further evidence of this procedural error. Some of these irrelevant and prejudicial comments were that:

1. that it might set a precedent by reconsidering its decision and that the Board might have to do it for all others as well;
   
2. Annell Williams (the Managing Director of Arabicas) has been notorious for breaching the rules;
   
3. Rules were set for everyone to comply and it appears Araabicas is stubborn and this is not acceptable. The boards decision must be upheld;
   
4. We cannot make an exception for an individual who bluntly refuses to comply with the guidelines;
   
5. If the machinery is going to cost K2,000 that is cheap, they why become arrogant and so stubborn;
   
6. Have to stick to the guidelines;
   
7. They had been given plenty of chances to fulfil our requirements and they are just ignorant.
   

These comments indicate to my mind abundantly that irrelevant and prejudicial attitudes and perceptions influenced the Boards decision and it failed to consider the merits of Arabicas’ application. Again this amounts to procedural irregularity and the decision therefore should not be allowed to stand.

The trial judge was therefore correct in upholding the application for review. I dismiss the appeal.

HINCHLIFFE & SALIKA JJ: This is an Appeal from an Order of Woods J in the National Court on the 22nd July, 1998. The Order reads, inter alia, as follows:

“1. The condition No. 1. on the certificate of registration as a coffee exporter issued by the Defendant to the Plaintiff as follows:

“1. Arabicas Pty Limited is not to sell locally or export any coffee purporting to be “Organically” or “Naturally” grown and processed” is quashed.”

His Honour was of the view that the Appellant had acted outside its powers in imposing the condition on the Certificate of Registration of the Respondent.

Section 14(1) of the Coffee Industry Corporation (Statutory Functions and Powers) Act 1991 provides as follows:

“14. Registration of Coffee Exporters

(1) The Coffee Industry Corporation may—

(a) subject to such conditions and restrictions as it thinks fit, and as are endorsed on the certificate of registration; and

(b) on payment of the prescribed fee, register a person as a registered coffee exporter.”

The trial Judge was satisfied that there was nothing in the said Act to allow the Appellant to fix the said condition. Apart from what we shall be referring to later, we are unable to agree. The appellant, under the said Section 14(1) has a very wide discretion through the words, “subject to such conditions and restrictions as it thinks fit.” In Taylor v Mostyn [1883] UKLawRpCh 122; 23 Ch. D. 583 the Court said that, “As shall seem reasonable and proper,” imports as wide an authority as “as he shall think fit.” Again in Ex parte Ramshay, 21 L.J.Q.B. 240 it was said that generally, where a power has to be exercised if the donee of the power “shall think fit,” it is for him to determine whether the occasion has arisen for the exercise of the power; and, in the absence of mala fides, his determination is final.

To our mind the Coffee Industry Corporation has been given very broad powers, not only under the said Section 14(1), but under a number of other sections in the said Act because, in particular, the said Corporation is the chief regulator of the coffee industry. That is made clear at the commencement of the Act which reads as follows:-

“Being an Act to —

(a) provide for the conferral on the Coffee Industry Corporation of statutory powers relating to the control and regulation of the production, processing, marketing and export of coffee; and

(b) transfer the undertakings of the Papua New Guinea Coffee Industry Board, the Coffee Development Agency and the Papua New Guinea Coffee Research Institute to the Coffee Industry Corporation; and

(c) to repeal the Coffee Industry Act (Chapter 208), and for related purposes.”

The Coffee Industry Corporation has the responsibility to ensure that the coffee industry in Papua New Guinea maintains an excellent reputation for quality both domestically and internationally. To enable it to work along those lines it was given very broad powers.

The first nineteen paragraphs of the affidavit of John Fowkes (P.49 of the Appeal Book) dated the 25th May, 1998 are extremely important and we set them out hereunder because in particular they explain what the Coffee Industry Corporation is all about.

Mr. Fowkes says:

“1. I am the Special Projects Officer at the Coffee Industry Corporation Pty Limited (“CIC”). Until the third quarter of 1997 I held the position of Quality Control Manager at CIC, a position I was appointed to in 1993. As such I have direct knowledge of the matters referred to herein except where otherwise noted.

Regulation of Coffee Industry

2. CIC was created under the Coffee Industry Corporation (Statutory Function and Powers) Act 1991 (“the Act”) being the successor to the Coffee Industry Act, Chapter No. 208 as amended.
   
3. The statutory purpose under the Act is inter alia, (a) “provide for the conferral on the Coffee Industry Corporation of statutory powers relating to the control and regulation of the production, processing, marketing and export of coffee;”
   
4. The main method by which the CIC regulates the coffee industry is by issuing policy guidelines. There are guidelines for each area of regulation.
   
5. The guidelines are detailed and the CIC expects the parties affected to abide by the guidelines. If the CIC discovers any party who fails to comply with the guidelines it will investigate the matter and seek an explanation.
   
6. If the breach is confirmed and is serious enough, the CIC Board of Directors will resolve not to issue a licence or impose certain conditions upon the offending parties licence. This is the mechanism by which the CIC exercise its statutory duty of care to regulate and control the coffee industry in Papua New Guinea.
   
7. As at present there are three Registered Manufacturers registered under the Act. These Registered Manufacturers are licensed by CIC under the terms of their registrations to buy raw coffee and to roast, grind, package and market fully processed coffee ready for drinking. Each Registered Manufacturer is also registered as an Exporter, but may only export the product of their own manufacturing operation.
   
8. In recent years a small trade has commenced in the commodity known as “Organically Certified Coffee.” This coffee is exported from Papua New Guinea in both unprocessed (“green bean”) form, and in processed, packaged, ready-to-drink form.
   
9. The trade in organically Certified Processed Coffee (ready-to drink coffee) is of minimal importance in terms of volume and export earnings, constituting as it does, less than one half of one percent of Papua New Guinea’s total annual exports of coffee.
   
10. Nevertheless, this product is consumed largely by the health conscious and the environmentally aware middle class consumer in the countries to which it is exported, and thus, has a profile quite out of proportion to its importance in purely commercial terms. Papua New Guinea currently holds the position of one of the top six coffee producers in the world in terms of product quality and of price received for the totality of its annual coffee crop which is the product of some 280,000 subsistence farming families comprising something like one quarter of the nation’s population. The industry’s good reputation is of great importance to the industry and it is a prime task for CIC to ensure its continuance.
    
11. Because of the importance of the export market, it is necessary to adopt internationally recognised standards for Papua New Guinea coffee. Internationally, the Organic Farming Movement is overseen by the International Federation of Organic Agriculture Movements (“IFOAM”) which delegates its authority to issue registration under its rules to accredited organisations around the world. CIC recognises IFOAM and has adopted its standards through a body called the National Australian Association for Sustainable Agriculture (“NASAA”).
    
12. NASAA is the IFOAM-accredited certifying agency for Papua New Guinea, and it is authorised by CIC to provide annually reviewable certifications for organic coffee growers and manufacturers here.
    
13. NASAA is based in Adelaide, South Australia, and maintains an office in Lae, from which inspections and annual certification within Papua New Guinea re carried out by a qualified officer.
    
14. The basis for certification under IFOAM’s international regulation is the so-called “audit trail” a system of records incorporating batch numbers which must be maintained meticulously. The “audit trail” is the means by which a consumer may feel fully assured that the product he/she pays a premium for as being a certified product, can be traced back authentically to the farm or group of farms upon which the raw material was grown under legitimately certified organic farming rules.
    
15. An organisation which is registered by CIC to manufacture coffee products, and which desires to trade in organically certified coffee must first establish links with a number of farmers who are ready to abide by the rules of farming laid down by NASAA. Under those rules, the manufacturer is to deal exclusively and directly with those certified farmers so that the raw material used for the manufacture of products to be marked and sold as being organically certified do come from these farms and from no other source.
    
16. NASAA is then approached and both the nominated farms and the manufacturing organisation itself are assessed to assure compliance with the relevant rules prior to issuance of NASAA certification.
    
17. It is prime requirement that the manufacturer concerned must meticulously maintain NASAA’s conditions for certification including record-keeping, segregation of certified materials from ordinary product and packaging, and the observance of ethical consideration to protect the interest of the end-user.
    
18. As for CIC, the Guidelines for the Registration of Manufacturing Facilities dated 7 September 1990 (copy Annexed as Annexure “A”) state inter alia “Separate and complete daily records of the movement and type of coffee into and out of the warehouse must be kept.”
    
19. A further Guideline for Registered Exporters, Processors and Manufacturers who Trade in Organically Certified Coffee, issued on 3 January 1997 makes it compulsory for such operators to be registered by CIC recognised certified agency and draws such operators’ attention to current IFOAM and NASAA-sanctioned rules and practices. The main purpose of the Guideline is to ensure that Papua New Guinea’s reputation is safeguarded by internationally-recognised rules, (Copy annexed as Annexure “B”):”
    

Basically what happened in this case was that the Respondent, in the past, had been an exporter of “certified organic coffee” but subsequently became decertified by NASAA and therefore commenced to export by using the words “organic” and “naturally grown” rather than using the word “certified.” Hence the reason for the Appellant insisting on the said condition on the Certificate of Registration. The Appellant was of the view that if the Respondent was permitted to use the said words without the word “certified” then not only could it be confusing and misleading to the consumer but it could also cause the quality of the coffee to decline and that could be very damaging to our industry both here and overseas. Being such a huge industry and so valuable to Papua New Guinea the end result could be devastating.

Under normal circumstances we would be satisfied that the trial Judge fell into error in finding that the defendant acted outside its powers in imposing the said condition, in fact we would be satisfied that it acted well within its powers when one considers its important responsibilities. Clearly the occasion would have arisen to exercise its power (See Ex parte Ramshay (supra). The condition imposed on the Certificate of Registration would have been relevant, fair and reasonable and in the best interests of the coffee industry.

His Honour the trial Judge was of the view that the Appellant, under the said Act, had a very wide discretion and that it should exercise it carefully with a full analysis. At P. 240 of the “Appeal Book His Honour says the following:

“It is submitted that the powers under the Act allow the Board to impose such conditions on a license as they see fit. This is the exercise of a very wide discretion and should be done very carefully with a full analysis. Did the Board consider this matter carefully in the exercise of their discretion. This condition was imposed by the Board at a meeting on the 4 December 1997. However the minutes of the meeting of that Board make no specific reference to the applicant nor to that condition.

There is merely a blanket note.”

To our mind the trial Judge has fallen into serious error here because he has not mentioned or considered properly the important meeting on the 2nd October when the Respondent’s actions were fully discussed. That meeting of the Board of Directors of the Coffee Industry Corporation is referred to in the affidavit of Richard Hagon dated the 25th June, 1998.

Paragraphs 14, 15 and 16 (the final paragraph) read as follows:

“14. In light of the recommendation and earlier discussion, the recommendation was accepted by a resolution passed by a majority of directors. I cannot recall any Directors dissenting. Mr. Vari was instructed to impose the recommended condition on Arabicas Export Licence.

15. I have read the Minutes of the Meeting of 4 December. I note they fail to mention Arabicas or the restrictions to be imposed. By this omission, the Minutes are not an accurate record of the meeting. It is likely the reasons for the omission is the matter had been discussed and did not require further debate.
    
16. However, I can recall it was agreed to accept the Managements recommendation to impose a restriction on Arabicas Export Licence.”
    

It is trite law that in a Judicial Review the trial Judge must look at the decision making process. In the present matter the trial Judge failed to look properly at the decision making process thereby falling into error.

Normally we would say that the trial Judge fell into error in finding that the Appellant was ultra vires its powers and we would be satisfied that it was well within its powers to decide on the inclusion on the Certificate of Registration of the said Condition.

But it is fairly obvious from the evidence in the National Court that the respondent was denied natural justice in that it did not get a full and fair hearing by the appellant before the said condition on the Certificate of Registration as a Coffee Exporter was decided upon. If the respondent had been heard then the result may have been different, depending on what the respondent said.

We are of the view that the appellant should have heard the respondent prior to making a final decision on the said condition and to that extent the appellant seriously erred.

We would make the following Orders:-

1. That the decision of the learned Judge in O.S. No. 117 of 1998 be confirmed with regard to the quashing of the condition fixed by the appellants.
   
2. That the appellant now give the respondent an opportunity, within 30 days, to be heard fully and fairly in relation to the proposed condition to be endorsed on the Certificate of Registration as a Coffee Exporter.
   
3. That the appellant advise the respondent of its decision within 14 days of the hearing referred to in No. 3. Above.
   

4. That there be no Order as to costs.

Orders accordingly.
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Lawyers for the appellant: Warner Shand

Lawyer for the respondent: Blake Dawson Waldron