7. Establishment of Provident Fund
1. For the purpose of this Act, there shall be a fund tond to be called the
Solomon Islands National Provident Fund, hereinafter
referred to as the
Fund, into which shall be paid all contributions required to be made under
the provisions of this
Act and out of which shall be met all payments
required to be made by the Fund under the provisions of this Act.
2. The Board shall be the Trustee of the Fund, and, and the moneys belonging to
the Fund:
(a) shall, subject to the directions of the Minister;
(i)
bosited in a bank or banks onks or any branch thereof in the Solomon
Islands, or
(ii) be invested in accordanordance with the provisions of any law relating to
trusts, or
(iii) be invested in any other security or any othe other loan specifically
approved as an investment for the purposes
of this Act by the Minister or
guaranteed by the Government under the Public Finance and Audit Act 1978;
and
(b) may, subto the approval of the Mini Minister, be used for acquiring
shares or interests in or establishing any business
or business entity that
appears to the Board as likely to serve the interests of all or a
substantial portion of the
members of the Fund:
Provided that it shall be lawe lawful for the Board -
(a) to make loans or advances nces to its officers or servants as part of their
conditions of employment, or grants, payments,
loans or advances for such
purposes relating to such conditions as aforesaid; and
(b) to make loans to members of the Fund for sucr such purposes as the Board may
approve, upon such terms as the Board
may consider reasonable.
My interpretatiothat the first sentence of S.7(2) enjoins the board to
take into account duties of a trustee in regard
to the funds contributed,
when the board considers; depositing or investing sums as in (a), and (b),
and also when making
loans, grants or payments to its own employees or loans
to members, as authorised in the provisions in S.7(2). Mr. Radclyffe
was
right in his submission that the court is to regard SINPF (the board) as a
trustee charged with the duties of a trustee.
The power to acquire shares and establish business is co by S.7(2)(b),
but cout conditions are attached; the shares to
be taken or business to be
established must serve the interests of all or a substantial proportion of
the members of
the fund, and the Minister (of Finance) must give his
approval. Mr. Radclyffe conceded that the Minister gave his approval
for the
acquisition of the shares in SMI and for establishing SMI, a business
entity. He, however, contended that the
acquisition of the shares did not,
“serve the interest of all or a substantial proportion of the members,” of
the fund
and that the decision was not an informed and responsible one.
Those contentions cannot succeed on the facts in the case papers
on the case
file. The shares taken in SMI by SINPF have been taken for the whole
membership of the Fund. If SMI succeeds
in its business, it will declare and
distribute dividends. Dividends on all the 75% shares held by SINPF will be
paid
to it and according to SS.20 and 20A(2) of SINPF Act, the sum will have
to be paid into the "general revenue of the Fund.”
When SINPF in turn makes
payment to members it will be to all the members, not even to just a
substantial proportion.
Unequal payments or any other forms of
discriminatory payments have not been disclosed or suggested in the facts
before
court. Whether SMI will make profit or not is not relevant in the
consideration of the clause, "to serve the interest
of all or substantial
portion of the members of the Fund".
The decision to up shares cannot be said to be uninformed and
irresporesponsible. Various studies were carried out including
the study carried
out by Mr. Sivakumaran and confirmed by a Mr. Roger Anton. Both men appear
on paper to have the necessary
expertise. If their expertise was doubted it
was for the plaintiffs to show it. Perhaps most importantly, from the point
of view of the board, it had the very detailed report of Mr. Teama, the
General Manager, to rely on. On the other hand,
it must be noted that the
SINPF Act does not expressly require that such reports be obtained before
the board takes the
decision to invest. It may, however, be inferred from
the board's duty as a trustee about to take decision to invest trust
money.
Moreover, it is not the plaintiffs' case that the board acted unreasonably
by, taking into consideration facts
that are extraneous, or acted in bad
faith, maliciously or corruptly. There has been no evidence of such
unreasonableness.
It may be that some people think that establishing SMI was
bad investment. That is not ground to declare the decision unlawful.
The Act
in effect gives executive discretion to the board under the watchful eye of
the Minister of Finance. For the
court to interfere with the board's
decision, it must be shown that the board acted unlawfully by exceeding its
authorised
scope of investment, or by not complying with the procedure that
requires approval of the Minister or by acting unreasonably
in the ways I
have mentioned above. Two cases in which that statement of the law was
applied are Clement Waiwori v Attorney General HC CC191 of 1990
and the often cited English case of Associated Picture Houses v
Wednesbury Corporation [1947] EWCA Civ 1; [1947] 2 All ER 680. In the latter case the
English Court of Appeal, Lord Greene M R, observed that people may have
different views about
executive discretion, even the judge may have
different view from that of the executive, that does not make the executive
decision unlawful, as long as it was made within the four corners of the
law. That was a case in which proprietors of
picture houses did not like the
decision of the licensing authority, exercising its power under an Act, the
Sunday Entertainment
Act, 1932, imposing in cinematograph licence, condition
that children under the age of 15, whether accompanied or not, were
to be
excluded from picture houses on Sunday. The court held that the licensing
authority did not act ultra vires. It did not exceed its
powers under the Act, it was entitled to take into consideration the
well-being and physical and
moral development of children. There are many
well known good cases in which actions said to be ultra vires
legislations have been considered, I need not catalogue them here.
ecision is that the decision of the SINPF board to acquire uire shares and
thereby establishing SMI was not unlawful under
S.7(2) of the SINPF Act. The
board did not exceed the scope of investment it is authorised to engage in,
and it obtained
approval from the Minister as required. Proposed
declarations numbered 2 and 3 are refused.
SINPF Power to Take up Life and Medical Care Insurance for Members
The second set of questions to answer arises fre contentions of the
plaintiffs numbered 1, 4 and 6. They say that
payments out of the funds of
SINPF to SMI for insurance premiums for life and medical care policies of
members were,
ultra vires, not approved by the Minister under
S.20 A (3) and not paid in furtherance of social security measure. The
questions
to answer are similar to the first ones, they are: Does the SINPF
Act authorise payments out of the funds of SINPF for purposes
that include
taking such insurance policies for members? If so, are conditions to be
fulfilled attached to the authority,
and are there specific procedures to be
complied with? Answers are in S.20A of the Act; it reads:
“20A.(1) There is herebhereby established an account which shall be known as the
General Reserve Account into which shall
be paid -
(a) any income of the Fund remainingining unappropriated at the end of any
financial year; and
(2) The moneys in the General Reserve Account shall form part of the Fund
and any interest arising from the investment
thereof shall be placed to the
general revenue of the Fund.
(3) Thrd may, from time to time, ime, authorise the expenditure of moneys
held in the General Reserve Account for the
furtherance of such social
security measures as may be approved from time to time by the Minister."
ass="Mss="MsoNormal" style="margin-top: 1; margin-bottom: 1">
So the Act in S.20A (3) authorises payment out of the General Reserve
Account. That was indeed the source of the sums
paid to SMI as premiums. But
condition has to be met, the board must first determine that the payment is
"for the
furtherance of social security measure." Is taking up life and
medical care policies of members a purpose that can be
described as social
security measure? The answer is obviously, yes. Taking life and medical care
policies for members
is no doubt providing financially for their protection
and for the protection of their dependants in the event of ill health
or
death. Mr. Radclyffe conceded during submission. Was approval of the
Minister obtained as required under S.20A (3)?
Mr. Radclyffe submitted
strongly that approval by the Minister under S.20A(3) to pay premiums out of
the General Reserve
Account was never obtained, the approval obtained was
only that required under S.7(2)(b) for investment, that is, for taking
up
shares in SMI. I am unable to see the factual basis for the submission, on
the contrary, Hon. Michael Maina, then
Minister of Finance, in his affidavit
sworn on 20th July 1998, stated that he gave approval for payments to take
up shares
and approval for payment of insurance premium, "for short term" -
see paragraphs 7 (f), (g), 10 and 11, and the minutes
of the meeting of
SINPF board and management with the Minister on 5.3.97, at minute 19.6(e) in
particular. Perhaps Mr.
Radclyffe's submission is based on the fact that
approval for taking up shares was specifically communicated by the Minister
to the SINPF board in a letter dated 4.6.97, annexure C. It might have been
better for the Minister to write a similar
letter about approval to pay out
premiums, but his having not done so does not mean that he did not give his
approval.
Is the court to disregard the minutes of the meeting of 5.3.97 and
the affidavit of the Minister? On what basis? If the affidavit
and minutes
were contested, I expected Mr. Radclyffe to have filed affidavits of facts
disproving the affidavit of Hon.
Maina and the minutes of the meeting on
5.3.97. Mr. Radclyffe did not file such affidavit of facts. The burden is on
the plaintiffs who raised the issue of approval to prove it, and indeed the
burden is on the plaintiffs who challenged the
exercise of administrative
discretion that appears regular on the face to prove that the discretion has
been exercised
unlawfully - see the English case of Short v Poole
(1926) Ch 66 cited by Mr. Ros’e in his well researched written
submission. The case also states the important point of law that when court
is asked to decide the validity of an administrative (executive) decision,
the court does not judge the social, political
or economic wisdom or such
other wisdom, but judges whether the administrative (executive) decider has
taken his decision
within the powers authorised by the legislation or other
laws and has followed the procedure required, and further that he
has not
acted unreasonably by not taking into account facts he ought to have taken
into account or has taken into account
facts he ought not to, or has acted
in bad faith, dishonestly and corruptly. The appeal in Short v
Poole
would have succeeded today in England because of legislation against
discrimination. Personally I would have questioned
whether terminating
employment of a married woman teacher because she was sufficiently provided
for by the husband, was
not a decision which took into account extraneous
reasons and therefore unlawful. In this case, there has been no evidence
to
show that the SINPF board was guilty of those factors that would render
their decision unlawful.
The plaintiffs' case about "otheres" was not presented nted in submission of
Mr. Radclyffe. It appears to me
that there is no basis for the statement in
the originating summons that "other monies" were paid unlawfully. If
the
payments were for expenses or were incidental to acquisition of shares in
SMI or were for expenses or were incidental
to taking up members insurance
policies, then they were "other monies" paid lawfully because they were
payments
in pursuance of purposes that the Court has. already decided were
lawful purposes under SS 7 and 20A of the Act. The payment
of $321,192.14
for premiums of mortgage protection policies is lawful in 2 ways. Firstly,
the sums were paid to protect
loans to members, loans that SINPF can
lawfully invest in under S.7(2) (a) (iii) of the Act. Secondly, insuring
housing
loans of members, even if the loans did not come from SINPF, would
be payment in furtherance of social security measure, the
protection of the
housing needs of members. The payment is therefore lawful under S.20A(3) of
the Act. If there was issue
about approval for the payments by the Minister,
it was for the plaintiffs to raise and prove the issue. Payment of "other
monies" in the context of this case was lawful.
<
Alt I have found as a fact that approval by the Minister for pfor payment of
insurance premiums out of the General Reserve
Account was obtained, there is
a very important fact to note. The Minister stated in his affidavit that his
approval
was, "for short term." He said that short term was, "at least 12
months." It would have been better if
the Minister clearly specified the
period for which his approval was to last. I take it that when he attached
condition
of "short term" to his approval he was mindful of not over-drawing
from the general reserve for the one purpose of
insurance. His fear is now a
reality although only a short time has passed. In view of the heavy drawing
from the general
reserve and in view of the fact that the general reserve is
likely to be wiped out in less than 2 years, I rule that the phrase
"short
term" must take its minimum intended meaning of a period of 12 months. SINPF
board must go back to the
Minister and ask for his approval for payment of
insurance premiums for the policies of members, out of the General Reserve
Account, if payment is to be made out of the account beyond 12 months.
My decision is that when the SINPF board authorised payment of premiums to
SMI for taking up life and medical care polices
for its members, the board's
authority was lawful under S.20A (3) of the SINPF Act. The payments made
were in furtherance
of social security measure and were approved by the
Minister. The declarations numbered 1, 4, 5 and 6, proposed by the
plaintiffs are refused. Proposed declaration numbered 5 was merely argument
in submission about declaration numbered 4, it
is a repetition of 4.
Extraneous Facts Mentioned in Affidavit
A
point which I shall mention because I have considered, although parties,
especially the plaintiffs, did not raise,
is that the Minister and Mr. Teama
mentioned in their affidavits several social and economic benefits to
Solomon Islands
and its people, of establishing SMI and of insuring SINPF
members with SMI Employment opportunities and acquisition of expertise
by
Solomon Islanders generally are two of those benefits. I found as fact that
the decisions to invest in and insure
with SMI were not made because of
those considerations, and that the Minister did not base his approvals on
those considerations.
They were merely welcomed incidentals. Had I found
that those benefits were the basis of the decisions taken by SINPF board
or
the Minister, I would have held that the decisions of the board and
approvals by the Minister were unlawful because
they would have been
ultra vires.
Duty of Trustee when Investing
Proposed declaration 7 raised by the plaintiffs is a very important one in
the running of SINPF generally. I have already
decided that the SINPF
(board) is a trustee. It is therefore charged with the duties of a trustee
when it deals with
funds and assets of members, the beneficiaries. The law
requires of trustees strict compliance with their duties. The standard
is
abbreviated in the Latin expression exacta diligentia.
In the long past in England, from where our law was adopted, great care was
required of a trustee when he invested money
of the beneficiary -
Cestuis que trust. An example is in the statement of Lord Alvanley
in Pocock v Readington (180) 5 ves 8 that: "When a trustee
instead of executing the trust as he ought, by laying out the property in
well secured real estates
or upon government securities, takes upon him to
dispose of it in another manner, the cestuis que trust may call upon
him to account.” Because of the very strict duty of trustees then, they
usually applied to court to approve proposed investment of trust money.
The
Legislature sought to resolve the uncertainty by legislating about areas of
investments that trustees could invest
in. It would be difficult if not
impossible to apply English enactments about trust in Solomon Islands
because the enactments
authorise investments in institutions that do not
have equivalence in Solomon Islands. The law about the duty of a trustee
concerning investing money of the beneficiary has now crystallised to
requiring the trustee, first to invest only in
areas that his trust deed or
statutory authority permits, then he is to exercise the degree of diligence
that a man of
ordinary prudence would exercise in his own affairs, but he is
not allowed to exercise discretion to speculate hazardously
with trust funds
for investment as sometimes ordinary businessmen of prudence may do with
their own money. A trustee
is restricted to selective investments and is
required to avoid hazardous investments. The mere fact that an Act of
Parliament
authorises certain areas of investment does not excuse a trustee
from his duty to consider appropriately, within the area authorised,
which
investment is not hazardous. In modern times he has expert advice which he
should make use of if it is within means.
A useful statement of the duty of
a trustee in investing money is that of Lord Lindley LJ in the case of
Re Whiteley (1886) 33 Ch D347 at page 385. The statement is:
“Thy of a trustee is not to tato take such care only as a prudent man would
take if he had only himself to consider, the
duty rather is to take such
care as an ordinary prudent man would take if he were minded to make an
investment for the
benefit of other people for whom he felt morally bound to
provide.”
lass="MsoNoMsoNormal" style="margin-top: 1; margin-bottom: 1">
In this case I do not think that the plaintiffs have proved that insurance ance
business is hazardous or that the defendants
did not act prudently when it
took the decision to invest in SMI, or when it took up policies in SMI for
members. On
the contrary the defendant obtained expert studies and reports.
The submission that the SINPF board as trustee was required
to consult with
members first is misconceived. The board as trustee has no such duty, and
the SINPF Act does not require
the board to consult members first. It may do
so as a matter of public relation, not a requirement of law. I am not
persuaded
that the defendant breached its duty as trustee. I refuse to make
the proposed declaration numbered 7.
class="MsoNoMsoNormal" style="margin-top: 1; margin-bottom: 1">
The alternative ground of negligence gener cannot succeed on the fact facts
assembled in this case. While I agree that
the defendant is placed in a
situation that it owes duty of care to Members of SINPF when the defendant
deals with funds
and assets, I cannot find any facts that suggest that the
duty of care has been breached. On the contrary the facts suggest
that the
defendant took the necessary measures to avoid uninformed and injurious
decision. I agree with Mr. Ros’e that
a case in negligence would have been
better brought by writ of summons so that full particulars would have been
pleaded.
The case of the plaintiffs in negligence is dismissed.
<
Legality of Actions NPF Does Not Necessarily Mely Mean Wise Business
Decision
The court has decided that the SINPF board did not act unlawfully, when it
it
took decision to invest in SMI and to
take up life and medical care policies
for its members. That does not mean that in the SMI business, things are all
well
for SINPF. The court's decision simply means that when the SINPF board
took the decisions and implemented them, the decisions
were lawful because
they were within the powers given to the board in the SINPF Act, the board
complied with conditions
and followed procedures by obtaining approvals of
the Minister for the two transactions of acquiring shares in SMI and paying
premiums for insurance of members. It does not even mean that business-wise
no better deal could have been struck between
SINPF, Workers Mutual (PNG)
and Mr. Sivakumaran, or that wider consultation about the compulsory nature
of the insurance
policies of members could have not been better in public
relation. On the facts presented to court, it seems that SINPF now
has some
very difficult situations in its business with SMI, whereas the other two
shareholders, Workers Mutual (PNG)
and Mr. Sivakumaran have good business.
class="MsoNoMsoNormal" style="margin-top: 1; margin-bottom: 1">
The first difficult situation is that SINPF members are now the othe only clients
(customers) of SMI. It is like a shopkeeper
selling only to his family
members, whatever profits he makes comes from the funds of his family, and
he is worse off
because the expenses of the shop must be met from the sales
proceeds which are his family's funds. The profit is therefore
just his
family's money reduced by the expenses of his shop. He is worse of because
his family's funds are now reduced
by family expenses and expenses of his
business. As the SINPF is a shareholder in SMI together with Workers Mutual
(PNG)
and Mr. Sivakumaran, and SINPF members are the only clients of SMI, it
means that profit that SMI will make will simply be
from the money of SINPF
alone, after administration expenses and tax will have been deducted.
Workers Mutual and Mr.
Sivakumaran will then share in the profit, the money
of SINPF alone, with SINPF. That is where the merit of the plaintiffs'
case
is, but the merit is in business wisdom, not because the arrangement of
SINPF with Workers Mutual (PNG) and Sivakumaran
was made unlawfully beyond
the powers of SINPF as stated in SINPF Act. The business difficulty of SINPF
might change
if SMI gets a large number of clients who are not members of
SINPF. Moreover, it might have been fairer if SINPF also took
up 25% shares
in Workers Mutual (PNG) and 10% shares in the businesses of Mr. Sivakumaran.
<
The second difficult situation on it SINPF is now obliged by t by the
contract of insurance with SMI to pay monthly premiums
of about $1,122,594.
In 9 months it paid up to $10,103,354.73 which has reduced SINPF's General
Reserve from about $24,000,000
to about $13,896,646. The reserve was saved
over 8 long years. To stop paying the insurance premiums now means that
SINPF
members will breach their contract of insurance with SMI, they will
most likely forfeit their policies together with the $10,103,354.73
already
paid to SMI as premiums. As SMI has only paid out $1,808,790.76 in claims,
it will now make a huge profit of
about $8,294,564 out of which SINPF will
get only 75% being about $6,220,923. Workers Mutual (PNG) gets about 15%
being
$1,244,184 and Mr. Sivakumaran gets 10% being about $829,960. It will
obviously be a loss to SINPF but hefty profits to Workers
Mutual (PNG) and
Mr. Sivakumaran in just 9 months.
The third difficulty is similar to the second. If SINPF, the majority
shar shareholder in SMI decides to press for dissolution,
voluntary winding up of
SMI, it simply will result in the bulk of the money being shared out in the
proportion of 75:15:10: The bulk of the money will
have come from SINPF. Again SINPF will have lost, the other 2 shareholders
will have made
hefty profits as illustrated above, and of course, will, take
back their capitals in the sums of $750,000 and $500,000.
class="MsoNoMsoNormal" style="margin-top: 1; margin-bottom: 1">
The fourth difficulty is unavoidable. The Minister gave his approval unde under
S.20A(3) of the Act to have sums paid
out of the General Reserve Account for
insurance premiums, only for a short time. The short time was said to be,
"at
least 12 months". What happens after the short time? SINPF must now go
back and ask for further approval under S.20A because
the payment of
premiums for members' policies lasts beyond a short time, it is in practice
everlasting. What happens
if the Minister now refuses to give his approval?
The fact that the general reserve fund of about $24,000,000, built over 8
long years have been run down by $10,103,354.73 in just 9 months, may cause
the Minister to withhold his approval. If
he withholds approval, there will
be loss to SINPF. If he approves, the general reserve of SINPF will be wiped
out. SINPF
board has real difficult administrative or executive decision to
take, and the Minister has difficult choice of approving or
not approving to
make.
In summary my decisions are as follows:
1. SINPF board did not act unlawfully under the SINPF Act when it acquired
shares in SMI. SINPF took decisions lawfully
to do business with Workers
Mutual (PNG) and Mr. Sivakumaran, through a joint company, SMI. It is not
for the court to
decide the business wisdom of the matter, that
responsibility is split between the board of SINPF and the Minister. The
court only decides whether or not the board or the Minister has exceeded
powers under the SIIPF Act or has acted in bad
faith or corruptly.
ass="Mss="MsoNormal" style="margin-left: 36.0pt; margin-top: 1; margin-bottom: 1">
2. SINPF board did not act unlawfully under the SINPF Act, when it paid for
and took up life and medical care insurance
policies for all its members.
<
3. SINPF must not pay insurance premiums from the General Reserve Account to
SMI beyond 12 months in view of the uncertainty
in the phrase "short term"
that the Minister used to describe the period that his approval for payment
of premiums
from the General Reserve Account was to last, unless SINPF
obtains approval of the Minister.
/p>
4. As of now, although the businbusiness through SMI is being carried out
lawfully, SINPF has got serious difficulties
in the business through SMI.
Workers Mutual (PNG) and Mr. Sivakumaran do not have the same difficulties,
instead they
stand to gain from the difficulties of SINPF.
class="Mss="MsoNormal" style="margin-left: 36.0pt; margin-top: 1; margin-bottom: 1">
5. All the declarations numbered I to 7, proposed by the plaintiffs are
refused.
6. The claim of the plaintiffs in neglinegligence is dismissed.
7. The three orders asked for bfor by the plaintiffs are refused.
8. Parties to bear thwn costs.
p>
Delivered this Monday 31st> day of August 1998span>
At the High Court
Honiara
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