|
|
Home
| Databases
| WorldLII
| Search
| Feedback
Supreme Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]
SCA NO. 67 OF 2006
NATIONAL SUPERANNUATION FUND LTD.
Appellant
AND:
PACIFIC EQUITIES AND INVESTMENTS LTD.
First Respondent
AND:
SECURITIES COMMISSION OF PAPUA NEW GUINEA
Second Respondent
AND:
MELANESIAN TRUSTEE SERVICES LTD.
Third Respondent
Waigani: Lay, J
2006: 7 and 11 July
RULING ON APPLICATION FOR A STAY
SUPREME COURT-Practice and Procedure-application for a stay of National Court order-jurisdiction of a single judge of the Supreme Court-Unit Trust-Trust Deed-Termination of Trust Manager-Duties of Trustee-funds invested by public.
Facts
1. The Appellant is a major holder of units in a public unit trust called the Pacific Balance Fund ("PBF"). The First Respondent is the Manager of PBF and the Third Respondent is the Trustee of PBF, under a Trust Deed. The Securities Commission (the Second Respondent) gave a direction purportedly pursuant to the Securities Act to the Trustee to terminate the services of the Manager in respect of PBF. The Manager appealed to the National Court.
2. Separately, the Appellant complained to the Trustee that there were serious breaches of the Trust Deed by the Manager. The Trustee called a meeting of the Unit Holders as it was required to do by the terms of the Trust Deed. In the Securities Act appeal proceedings in the National Court the Manager obtained an injunction order staying the calling of the Unit Holders Meeting until after the determination of that appeal.
3. The Appellant appealed against the injunctive orders and applied to a single judge of the Supreme Court for order staying the injunctive orders granted by the National Court.
Held
1) To obtain a stay the Appellant has to demonstrate an arguable case in the appeal;
2) A single judge of the Supreme Court cannot grant orders which would affect the orders to be made in the appeal. An order having the effect of making any orders made in the substantive appeal of academic interest only, is beyond the jurisdiction of a single judge;
3) The Appellant had an arguable case because:
a) the National Court appeal under the Securities Act would not be determinative of the issues between the Appellant, the Manager and the Trustee;
b) it was arguable the trial judge was wrong to hold that the Court will determine the future of the Manager when the Trust Deed quite clearly gave that right and responsibility to the Unit Holders;
4) Where the Manager of a Unit Trust has the responsibility for preparation of the accounts it has a positive duty of disclosure to the Unit Holders;
5) The Court should be reluctant to interfere with the Trustee’s duties and Unit Holders rights in relation to the Manager, as provided in the Trust Deed;
6) In balancing the overall interest of Justice the transparency and accountability in the application of funds invested by the public should carry greater weight than the interests of individual corporations having roles in the administration of the Trust.
7) Order granted staying the injunction insofar as the injunction prevented the Unit Holders meeting being held, but not staying the injunction which prevents dismissal of the Manager.
Cases Cited
O’Brien v Komesaroff [1982] HCA 33; (1982) 150 CLR 310
Wau Ecology Institution v Registrar of Companies (2005) SC794
Gary McHardy v Prosec Security and Communication Ltd SC646
Green & Ors v Wilden Pty. Ltd & Ors [2005] WASC 83
Wawa Trading Co Pty. Ltd v Lie Tat Swie and Bank of New South Wales Pty. Limited [1982] PNGLR 375
Mauga Loggin Co Pty. Ltd v South Pacific Oil Palm Development Pty. Ltd (No.1) [1977] PNGLR 80
Films Rover International Ltd. v Cannon Film Sales Ltd. [1987] 1 WLR 670.
Counsel
E. Anderson, for the Appellant
D. Steven, for the First Respondent
C. Raurela, for the Second Respondent
A. Nambau, for the Third Respondent
1. LAY, J.: The Appellant seeks a stay of orders made by His Honour Injia DCJ in proceedings CIA No. 19 of 2006 given on 29 June 2006 in Port Moresby, the Orders being:-
(1) until the determination of this appeal:-
(a) the second respondent, its servants or agents including Pacific Balance Fund, Nasfund and any other Unit holders of PBF are restrained from taking any steps whatsoever to remove or retire the Appellant (now First Respondent) as the manager of The Pacific Balance Fund.
(b) The Unit holders of Pacific Balance Fund including Nasfund are restrained from including any agenda and reaching any resolution on the removal of the Appellant in their meeting scheduled to be held on 14 July 2006 or any other meeting.
(2) The appellant (now First Respondent) take steps to prosecute the appeal in the July sittings of the National Court, failing which the Registrar should place the matter on the summary determination list to be summarily determined in the August sittings of the National Court.
(3) Costs is reserved
(4) The time for entry of these orders is abridged to take effect within three (3) days herefrom.
2. The Appellant is a Unit Holder in the Pacific Balance Fund ("PBF"), which is a unit trust investment fund whose capital origins stem from the former Investment Corporation Fund of Papua New Guinea. There are over 30,000 Unit holders and the Appellant is the holder of 21 percent of the units. The First Respondent is the Manager of PBF appointed pursuant to the trust deed dated 22 October 2001 signed between Investment Corporation of Papua New Guinea and the Third and Second Respondent which is the Trustee of PBF and a duly licensed trustee under Section 72 of the Securities Act 1997.
3. I interpose here a general description of public unit trust deeds taken from the judgement of Mason J in O’Brien v Komesaroff [1982] HCA 33; (1982) 150 CLR 310 (a copyright case):
This concept involved the vesting of property in a trustee who was bound by a trust deed to deal with the property as directed by the manager (usually a private corporation). The trust property was held for the benefit of "unit holders", these being members of the public who subscribed to the trust and derived income from their investment in proportion to their unit holding.
4. The Securities Commission gave directions to the Second Respondent to terminate the appointment of the First Respondent as Manager of PBF. The First Respondent exercised its rights pursuant to the Securities Act 1997 Section 13 to appeal, which is proceedings CIA No. 19 of 2006 in the National Court. The Appellant was not a party to those proceedings which were between the First Respondent as appellant, the chairman of the Securities Commission of Papua New Guinea as the first respondent and the Third Respondent in these proceedings as second respondent.
5. Certain consent orders were entered into between the parties in CIA No. 19 of 2006 on 22 February 2006 to preserve the status quo and the position of the Manager and the Trustee whilst the appeal to determine whether the Securities Commission had the power to give the direction to the Second Respondent to remove the First respondent as Manager, was heard and determined.
6. Quite separate and independently from the Securities Commission actions and appeal CIA No. 19 of 2006 the Appellant in these proceedings alleged to the Trustee (the Second Respondent) that there were serious breaches of the Trust Deed by the Manager. Clause 20 1.1(1) of the Trust Deed provides:
"21.1 the Trustee covenants with the Manager in relation to the Trust, with the intent that the benefit of these covenants enures not only to the Manager but to the Unit Holders of the Trust jointly, and to each of them separately that it will:
(1) where the Manager is in material breach of a provision of this deed convene a meeting of Unit Holders within 42 days of the date on which the Trustee first receives actual notice of the occurrence of the events contemplated by this paragraph to consider the removal of the Manager."
7. Pursuant to that duty the Second Respondent gave notice of a meeting of the Unit Holders to be held on 14 July 2006. The First Respondent then applied by motion in proceedings CIA No. 19 of 2006 for orders preventing the meeting called for the 14 July 2006 from being convened. The Appellant was heard on that application, which resulted in the orders set out above.
8. The Appellant's appeal is from the whole of the orders recited at the beginning of these reasons.
9. The powers of a single judge of the Supreme Court to grant interim orders pending the hearing of an appeal stem from Sections 5, 10 and 19 of the Supreme Court Act and the Supreme Court Rules O.3 r.2.
5. Incidental directions and interim orders.
(1) Where an appeal is pending before the Supreme Court-
(a) a direction not involving the decision on the appeal; or
(b) an interim order to prevent prejudice to the claims of the parties; or
(c) an order in any proceedings (other than criminal proceedings) for security for costs; or
(d) an order dismissing an appeal in any proceedings (other than criminal proceedings) for default in furnishing security; or
(e) an order admitting an appellant to bail,
may be made by a Judge.
(2) A direction or order made under Subsection (1) shall be deemed to be a direction or order of the Supreme Court.
(3) A direction or order made under Subsection (1) may be discharged or varied by the Supreme Court.
Section 10 is not relevant to this application. Section 19 provides:
19. Stay of proceedings on appeal.
Unless otherwise ordered by the Supreme Court or a Judge, an appeal, or an application for leave to appeal, to the Supreme Court does not operate as a stay of proceedings.
Order 3 rules 1 and 2 of the Supreme Court Rules provide as follows:
(a) a direction not involving a final decision upon the proceedings;
(b) an interim order to prevent prejudice to the claims of the parties;
(c) an order for security for costs; or
(d) an order in the nature of orders such as are referred to in Section 8(1)(a), (b), and (c) of the Act-
may be made by a Judge.
10. In any application before a single judge the first examination must be to determine that what is sought is not outside the powers of a single judge as expressed in Section 5(1)(a) or O.3 r.2 (a), that is that the orders sought are not involving the decision on the appeal or a final decision on the proceedings. What is meant by " not involving the decision on the appeal" was explained by the Supreme Court in the case of Wau Ecology Institution v Registrar of Companies (2005) SC794 where the court said:
" ... the meanings "entail", "include" and "affect in its operations" are the meanings intended by the legislature in using the word "involved" in the provision.... s5(1)(a) is not speaking of the decision "on appeal", that is the decision appealed from,..., but is referring to the decisions which will have to be made by the Court to determine the issues raised on the appeal".
11. To determine what has to be decided by the Supreme Court one has to look at the grounds of appeal, which are lengthy, but I summarize the issues arising as follows:
The Court was in error:
3.1 in not finding that issues arising out of the exercise of the Appellant's private rights pursuant to the Unit Trust Deed were not properly before the Court in CIA No. 19 of 2006;
3.2 in impliedly finding that the Unit Holders were the servants or agents of the Trustee;
3.3 in impliedly finding that some possible actionable right was held by the Manager against the Unit Holders;
3.4 in not holding that the meeting of the Unit Holders might choose to either remove or to retain the Manager─ in inferentially holding that it was inevitable that the meeting would resolve to remove the Manager;
3.5 in holding that if a resolution is reached for the removal or retiring of the Manager the processes under clauses 20 3.2 to 20.3.6 of the Unit Trust Deed will follow;
3.6 in holding that the orders granted by consent in CIA No. 19 2006 were generally protecting the rights of the Manager under the Unit Trust Deed against the world in general and the Unit Holders and not simply against the Securities Commission;
3.7 in holding that "any activities of the Unit Holders must not interfere with (the Manager's) rights recognized by the Court order to remain as the Trust Manager.";
3.8 in not holding that the orders made in CIA No. 19 of 2006 only restrained actions arising from the determination and directions of the Securities Commission and in not holding that the meeting and agenda restrained by the orders of his Honour were not actions arising from the determination and directions of the Securities Commission properly under appeal CIA No. 19 of 2006.;
3.9 in holding impliedly that there was a conflict or dilemma between the appeal and the rights of the Unit Holders under the Unit Trust Deed;
3.10 In holding that there existed at that time a dispute over the position of Manager between the different stakeholders requiring resolution by the court when by the contractual terms of the Unit Trust Deed the resolution was clearly in the hands of the Unit Holders;
3.11 In holding that the dispute over the position of Manager must be decided by the Court;
3.12 in impliedly holding that the determination of the appeal in CIA No. 19 of 2006 would resolve the question with respect to the performance of the Manager and that therefore an injunction against the meeting and the proposed resolution should be put in place until the appeal was determined;
3.13 in not finding that the dispute, if it existed, must be resolved by reference to the provisions of the Unit Trust Deed;
3.14 in failing to find that the balance of convenience and the interests of justice lay in refusing the injunction;
12. If I were to grant the first-order sought in the Notice of Motion for the Appellant, that is to stay all of the orders appealed from and allow the meeting to vote on removal of the Manager and if passed for the consequences to follow, each of the issues to be determined in the above-mentioned grounds of appeal, would then be of academic interest only when the appeal came on for hearing. The meeting would have been held and the resolution to remove the Manager put to the vote, and if carried the other steps under the Unit Trust Deed would follow and the Manager would be removed. In that way such an order "affects in its operation" the decision on the appeal. I therefore conclude that an order which leaves the questions on appeal to be determined for academic interest only, and having no practical utility for the parties, is an order beyond my jurisdiction as a single judge of the Supreme Court.
13. An order which permits the meeting, and a vote on a resolution to remove the Manager, but which prohibits any other steps being taken to remove the Manager, would preserve the utility of the points taken on appeal, because it would still be necessary to determine whether the orders appealed from should be set aside to permit the resolution, if passed, to be put into effect. I will therefore consider whether such an order should be made.
14. Briefly summarizing, the submissions for the Appellant are that the rights of the First Respondent in an appeal under Section 13 of the Securities Commission Act are completely different, separate and distinct from the rights of the parties under the Unit Trust Deed, the latter being a matter of contract, and fiduciary duty the removal of the Manager being a matter entirely for the Unit Holders, and the determination of the Section 13 appeal will not resolve the issue of the Unit Holders rights under the Unit Trust Deed. The First Respondent submitted that there is no jurisdiction under Section 5 of the Supreme Court Act or single judge to make the orders sought by the Appellant and that it has not had a reasonable opportunity and will not have such an opportunity to fairly put its position to the Unit Holders because it expects the majority of the unit holders will not attend the meeting, but will vote by proxy form. Those voting by proxy will not have the opportunity to hear any explanation given by the First Respondent at the meeting and the proxy form may well have been placed in the post before the First Respondent's written explanation was received in the post by the Unit Holders.
15. Supreme Court Act s19 provides that an appeal does not operate as a stay unless "otherwise ordered by the Supreme Court or a judge". Inferentially the Court or a judge may order a stay, and this is an exercise of the jurisdiction given by s.5(1)(b) of the Supreme Court Act and O.3 r.2 of the Supreme Court Rules "to make an interim order to prevent prejudice to the claims of the parties." Some of the matters to be taken into account when considering an application for a stay are set out in the case of Gary McHardy v Prosec Security and Communication Ltd SC646 as follows:
"...the judgment creditor is entitled to the benefits of the judgment. The other factors include the following:
Whether leave to appeal is required and whether it has been obtained;
Whether there has been any delay in making the application.
Possible hardship, inconvenience or prejudice to either party.
The nature of the judgment sought to be stayed.
The financial ability of the applicant.
Preliminary assessment about whether the Applicant has an arguable case on the proposed appeal.
Whether on the face of the record of the judgment there may be indicated apparent error of law or procedure.
The overall interest of justice.
Balance of convenience.
Whether damages would be sufficient remedy."
16. In this case leave is not required and there has been no delay in making the application.
17. It seems to me the factors which are in the balance as far as hardship, inconvenience and prejudice to the parties is concerned, are on the one hand the expense and effort the Appellant has gone to assist the Trustee to arrange a meeting of the Unit Holders and the prejudice the Appellant perceives it is suffering by reason of the Manager’s continuation and the loss of its right to have a Unit Holders meeting in accordance with the terms of the Unit Trust Deed, and on the other hand the possibility of the loss by the Manager of its position with the PBF and the reflection this may have on its role as manager of other Trusts.
18. The judgment to be stayed is itself an interlocutory order to preserve the status quo until an event, namely the hearing of the appeal CIA 19/2006. I agree with Counsel for the Appellant that it is clear that the resolution of the issues on that appeal will not in any way resolve the issue between the Unit Holders, the Trustee and the Manager as to whether the Manager should continue in that role. The appeal is restricted to the powers of the Securities Commission.
19. The financial ability or strength of the Appellant is not an issue, it is a large and strongly performing superannuation fund with ample resources to meet any order for damages.
20. On the question of whether the judgment exhibits any possible error of law or procedure and whether there is an arguable case, I adopt the following general propositions on the duty of trustees from the judgment of Hasluck J in Green & Ors v Wilden Pty. Ltd & Ors [2005] WASC 83:
"It is the duty of a trustee to adhere to the terms of the relevant trust deed. Other equitable rules are to be applied subject to any provisions contained in the trust instrument itself. In addition, it is the duty of trustees to act fairly by all the beneficiaries and to keep proper accounts. A trustee should exercise the same diligence and prudence as an ordinary prudent man of business would exercise in conducting that business if it were his own subject to the circumstances of the case: Speight v Gaunt (1883) 9 App Cas 1 at 19.
467 Where the trustee deviates from the terms of the Trust Deed, he acts at the peril of failing to satisfy the Court that the deviation was necessary or beneficial. Harrison v Randall [1852] EngR 127; (1851) 68 ER 562 at 567. A trustee who acts as a protagonist for some beneficiaries and in antagonism to others commits a breach of trust and may be discharged. Hunter v Hunter [1938] NZLR 520.
468 A trustee must not abuse his position by making it a means of profit or benefit to himself or any third party. This means that the trustee must account for benefits or gains obtained in circumstances where there was an actual or significant possibility of a conflict between personal interest and fiduciary duty. Further, he must account for any benefit or gain obtained by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it.
469 Trustees may receive remuneration where this is expressly or impliedly provided for in the instrument of trust or where there is a special agreement between the trustees and the beneficiaries that the trustees shall be paid for their services. The courts are wary about upholding such agreements and will refuse to enforce them where there appears to be the slightest sign of unfairness or undue pressure.
470 A trustee has a positive duty of disclosure to a beneficiary. This duty involves an obligation to keep proper accounts and to have them always ready when called upon to render them. Kemp v Burn [1831] EngR 10; (1863) 6 ER 740. The duty is to provide a full rather than a reluctant response to a request for information by the beneficiaries. Re Whitehouse [1982] QdR 196"
21. That case was long and difficult and dealt with many issues. I rely on the above passage principally for the concepts that the trust deed is paramount and that those administering the trust have a duty to keep proper accounts at all times and have them available and to make disclosure to the beneficiaries, in this case the Unit Holders. In the context of public unit trusts, applying those principles, I find that in the ordinary course the terms of the trust instrument prevail over other equitable principles. The Unit Holders are the ultimate determiner of the position of Manager pursuant to the Unit Trust Deed. The Trustee had both a contractual and a fiduciary duty to call a meeting of the Unit Holders on being informed that there were breaches of the Unit Trust deed by the Manager. Whether or not the Manager should remain is not a matter for determination by the Court. The role of the Court is limited to interpretation of the Unit Trust Deed and within the context of that deed the determination of such issues as whether a meeting has been called or has proceeded in accordance with the requirements of the deed, and subject to its terms, other equitable principles, when those issues are brought before it in proper proceedings. I therefore consider that the Appellant has an arguable case that the ruling in the Court below was wrong in impliedly holding that the Court should determine the future of the Manager.
22. As to the principle that "a trustee has a positive duty of disclosure to a beneficiary" in the context of this case where the accounting function devolves on the Manager pursuant to the terms of the deed I consider that principle could be expressed as - the Manager has a positive duty of disclosure to the Unit Holders. I note there are significant accounting issues with respect to the trust, there is a proposal to write off K37 million and some issues with convincing the auditors that there is sufficient documentation to explain the write off. It is not surprising that the PBF finds itself in the position of having to write down its asset value. It was widely publicised and the subject of amending legislation that the Appellant was in a similar position. PBF has now been established for over three years during which time the First Respondent has been its Manager. The Trustee and the Unit Holders can legitimately question whether the Manager has demonstrated the capacity to be able to rectify the deficiencies of the accounts inherited from the Investment Corporation of Papua New Guinea. In that context the fact that there have been no meetings of the Unit Holders called since the inception of the trust would naturally be concerning to Unit Holders. The Court should be reluctant to interfere with the exercise of Trustee’s duties and Unit Holders rights in those circumstances. I therefore consider that the Appellant has an arguable case that the Court ought not to have interfered with those rights by injunctive order.
23. As I have already mentioned CIA 19/2006 will not determine the Manager’s position vis a vie the Unit Holders. The outcome of that appeal will not affect the rights of the Unit Holders in any way. It will only determine the Securities Commission’s powers. I consider it follows that the Appellant has an arguable case that the National Court appeal proceedings were an inappropriate proceedings for determining whether the Court should intervene by way of injunction in the exercise of the Unit Holders rights or the Trustee’s duties under the Unit Trust Deed.
24. The difficulty facing the Manager is that at any meeting of the Unit Holders it cannot avoid the fact that it is in breach of the Unit Trust Deed in respect of the un-audited accounts for the years 2002 and onwards. The only way it can avoid such a position is to defer a Unit Holders meeting until the issue of the 2002 accounts is resolved. Such a meeting has been deferred three years. There is no evidence of when the accounts will be rectified. There must be grave doubts as to whether the Court should lend it powers to deferral of a Unit Holders meeting and interference in the mechanism specified in the Unit Trust Deed for resolution of concerns over the Manager’s performance, for a purpose (rectification of the accounts) which is open ended as to time, even when the Orders of the Court are limited as to time.
25. Having made those observations concerning the merits of the case I also note that neither myself nor the judge in the National Court were assisted by any case law authority on unit trusts or by analogy any case law on shareholders rights or any case law on injunctive relief which ‘spills over’ from proceedings to affect other parties rights. For example, in Mareva injunction matters, the Court will usually modify the terms of an injunction so as not to interfere with rights in contract acquired by bankers prior to the issue of the injunction: See Wawa Trading Co Pty. Ltd v Lie Tat Swie and Bank of New South Wales Pty. Limited [1982] PNGLR 375. I appreciate that this matter has proceeded rapidly but there is still a duty on counsel to assist the Court with authority. A matter should not be left for determination based on the views of general principle of one judge or another. The way in which the Court attempts to prevent itself from falling into error is to be guided by precedent.
26. The First Respondent’s claim that it has not and will not have the opportunity to properly put it’s case to the Unit Holders has not really been put any stronger than an assertion at this stage. It was not demonstrated to me that the material put to the Unit Holders by the Notice of Meeting was materially deficient or presented in an unfair manner. Nor was it demonstrated to me that the First Respondent’s ‘mail out’ was significantly more complete or put the First Respondent’s case in a way different and superior to the way it was put in the Notice of Meeting, so that anyone receiving the Notice of Meeting but not the First Respondent’s mail out would be at a significant disadvantage. All I can say about that claim is that it has been made in submissions and that it was supported by similar claims in Mr Ruimb’s affidavit. That there is a risk that Unit Holders may not receive the First Respondent’s mail out or not receive it in time to direct their proxy with the assistance of it is I acknowledge a real possibility. Whether that would place a Unit Holder at a material disadvantage I cannot say.
27. Whether damages would be a sufficient remedy for the First Respondent is to my mind doubtful because of the flow on effect which the removal of the Manager may have on its business as a profession fund manager. Other business may be lost as a commercial reality which it would be difficult to show as being connected to these proceedings. I find damages would not be an adequate remedy for the First Respondent. As there are no up to date accounts of the PBF it is difficult to say anything about potential loss to the Appellant. That there are no accounts is in itself a serious prejudice to the Appellant and all of the Unit Holders not strictly measurable in monetary terms and thus not readily compensable by damages.
28. Where considerations are evenly balanced the balance of convenience usually indicated that the status quo be maintained: Mauga Logging Co Pty. Ltd v South Pacific Oil Palm Development Pty. Ltd (No.1)[1977] PNGLR 80. I am also attracted by the principle of adopting the course which does the least damage: See Films Rover International Ltd. v Cannon Film Sales Ltd. [1987] 1 WLR 670.
29. On the issue of the overall interests of justice it seems to me that transparency and accountability in the administration of funds invested by the public should carry greater weight than the interests of individual corporations entrusted with roles in the administration of a trust, especially where those corporations have contractual and fiduciary duties to the investors.
30. Weighing all of those considerations I have come to the conclusion that the course which I can and should adopt which keeps faith with the Unit trust Deed, does the least damage, preserves the positions of both parties to the greatest degree possible and does not involve the decision on appeal is to stay the orders of the National Court so as to permit the resolutions proposed in the Notice of Meeting to be put to the vote; but to prevent any action being taken on that vote, if carried, until determination of this appeal.
ORDERS:
If at the meeting of 14 July 2006 a resolution to remove the Manager is carried, no action shall be taken by the Trustee to put that resolution into effect until after this appeal is heard and determined unless the Manager voluntarily executes a retirement deed.
Gadens Lawyers: Lawyers for the Appellant
Stevens Lawyers: Lawyers for the First Respondent
Elemi Lawyers: Lawyers for the Second Respondent
Murray and Associates: Lawyers for the Third Respondent
PacLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.paclii.org/pg/cases/PGSC/2006/12.html