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Kim Foon and Sons Pty Ltd v Minister of Finance and Planning [1996] PGLawRp 771; [1997] PNGLR 483 (24 July 1996)

[1977] PNGLR 483

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

KIM FOON & SONS PTY LTD

V

MINISTER OF FINANCE & PLANNING;
THE INDEPENDENT STATE OF PAPUA NEW GUINEA; and
NATIONAL PROVIDENT FUND BOARD OF TRUSTEES

WAIGANI: DOHERTY J
18 December 1995, March, 24 July 1996

Facts

The plaintiff sought review of the first respondents gazettal of its name pursuant to s 3(2) National Provident Fund Act Ch. 377 thereby obliging it and its employees to subscribe to the Fund without giving actual notice to it.

Held

1. Whilst the Minister had power under s. 3(2) of the Act, he had to exercise that power subject to the rules of natural justice including, giving actual notice of his intention and cause; there must be a proper exercise of the discretion; the minister must have regard to matters which are expressly or impliedly referred to by statute; must ignore irrelevant considerations; must not operate on the basis of bad faith or dishonesty; must direct himself properly in law; and must act as any reasonable person would act and must not be so absurd in its action that no reasonable person would act in that way: Associated Provincial Picture House v Wednesbury Corporation [1947] EWCA Civ 1; [1948] 1 KB 223 applied.
   
2. The section could not be used to amend or vary the clear provisions of the legislation.
   
3. Deliberate manipulation of numbers of employees to evade the Act would be a ground for application of s 3(2) but there must be actual evidence. Mere suppositions on the part of administrators are not sufficient.
   
4. The two-month grace period after gazettal was intended for applications for review, amendment etc.
   
5. The Minister’s decision under s 3(2) had to be a genuine exercise of discretion.
   
6. Section 4 of the Act is intended inter alia to enable officers of the third respondent to make investigations before advising if s 3(2) might be applied.
   

Papua New Guinea cases cited

Gegeyo v Minister of Lands [1987] PNGLR 331.

Gorio v National Parks Board [1982] PNGLR 364.

Kekedo v Burns Philp (PNG) Ltd [1988-89] PNGLR 122.

MacDhui Development v Genia & State [1992] PNGLR 49.
PNG Ready Mixed Concrete Pty Ltd v The State of Papua New Guinea & Others [1981] PNGLR 396.

Other case cited

Associated Provincial Picture House v Wednesbury Corporation [1947] EWCA Civ 1; (1948) 1 KB 223.

Counsels

Ms Stylianou, for the applicant.
Mr Kawi, for 1st & 2nd respondents.
Mr Frank, for the 3rd respondent.

24th July 1996

Doherty J. The applicant seeks certain declarations and review of a decision of the first respondent. The first respondent had applied the provisions of the National Provident Fund Act Ch. 377 (hereinafter "the Act") to the applicant and its employees thereby compelling the applicant and its employees to contribute to the National Provident Fund.

There is no dispute that the applicant has 21 employees, less than provided for in the mandatory provisions of s 3 of the Act and so is not obliged by law to automatically subscribe.

The facts leading up to these applications are set out in affidavits filed by the plaintiff’s director and representatives of the respondents. There was no application to cross-examine on the affidavits and the facts can be outlined as follows.

(a) The plaintiff company has been carrying on business since 1972; it is a foreign company and is so registered.

(b) It employed 21 at time the defendant’s personnel visited the company premises and for some time prior to that. The defendant does not dispute this.

(c) The Act was passed in 1980, It provides for compulsory contributions to the fund from establishments with 25 or more employees (s 3(1)), contributions by establishments whose employees and employer agree (s 3(3)) and a third category of establishments of less than 25 employees pursuant to s. 3(2).

(d) The National Provident Fund manager wrote to the plaintiff on 1st October 1992 asking them to fill in a form SPF 3 which was "to determine their eligibility for coverage under "NPF". This the plaintiff did.

(e) The letter said inspectors would come but none did.

(f) There was no response until a letter of 23rd June 1994 in very similar terms to the letter of October 1992 enclosing the same form SPF3 to "determine eligibility" which the plaintiff completed and returned. The plaintiff says it considered the letter as a general enquiry and responded on that basis. There was a visit by an inspector in March 1994, the records of the plaintiff were checked but no further action was taken and there was no formal reply to the plaintiff’s form SPF 3.

(g) The first respondent gave notice in Gazette No. 66 of 1st September 1994 under s 3(2) of the Act to apply the Act to several establishments employing less than 25 people including the plaintiff.

(h) On 10th October 1994 the National Provident Fund Assistant Manager wrote advising the plaintiff of the Ministers decision gazetted on 1st September 1994.

(i) The plaintiff enquired how this came about. It was informed on 1/12/94 that "NPF management believes the level of staff is now significantly higher and warrants gazettal under s 3(2) of the NPF Act." And that "the Minister has absolute power" and management could not "reverse the gazettal or exempt the company." (I have assumed for purposes of this decision that references to "NPF" in these quotations means the National Provident Fund).

(j) The gazettal notice of 1st September 1994 stated the Act would apply to companies including the plaintiff after expiration of 2 months period from the gazettal notice.

The defendants filed an affidavit of a former employer saying the plaintiff had no superannuation fund. He did not say the plaintiff had more than 21 employees during his seven years employment nor suggest employee numbers were kept low deliberately.

From affidavits filed by the 3rd defendant’s staff, it is apparent several companies were being considered as being "eligible to contribute to NPF despite employing numbers just below 25 employees" ... and "to force their compliance into the NPF Act" (sic). The plaintiff was one such company.

The attitude of National Provident Fund officers is shown in an exchange of memorandum saying "you will be aware there are companies which maintain their employee numbers at 23 and 24 so as to avoid contributing to the NPF. We can use the section quoted above to force their compliance into the NPF Act."

Subsequently the Fund executive officer advised the Minister: "I am advised by my compliance department there are certain employer contributors which deliberately keep their employee numbers below 25 so that the National Provident Fund Act Ch. 377 will not affect their operations." He set out criteria for application of s 3(2) which included those establishments maintaining less then 25 employees to avoid contributions and those where employees had made requests of the National Provident Fund. There is no evidence that the plaintiff came within the latter and the affidavit evidence shows the employees did not wish to join. That has not been challenged.

The internal correspondence put to the Minister suggests that employees of National Provident Fund made their submissions after their own investigations and assessments and the Minister had little or no input. Counsel for the first and second defendant agrees this was the situation.

It is common ground between counsel that s 3(3) of the Act gives power for employer and employees who wish to join to do so voluntarily in contrast to s 3(2) - where the employer is bound, whether he wants to or not once s 3(2) comes into operation.

The plaintiff challenges the Minister’s decision on grounds, which may be summed up as follows:

(1) decision was based on irrelevant considerations;

(2) reasonable expectation by employees that they would not be forced to join;

(3) the Minister exercised his discretion improperly as he failed to consider the scope and intent of the Act which is to apply to establishments of 25 or more employees and has extended the Act in an arbitrary way contrary to public policy;

(4) denial natural justice;

(5) the action was harsh and oppressive within meaning of s 41 Constitution;

(6) failure to comply with s 4 of the Act; and

(7) that the Minister acted in an unreasonable manner and not in accord with the principles in Associated Provincial Picture House v Wednesbury Corporation [1947] EWCA Civ 1; [1948] 1 KB 223.

The first and second defendants did not file a defence but appeared and argued the grounds in a comprehensive and detailed submission.

In submission, plaintiff’s counsel says the applicant had no knowledge and no indication of the intentions of the first and third defendants. The plaintiff were given no notice before September 1994 that the National Provident Fund was taking active steps to invoke s 3(2) of the Act to enable them to put their views nor were they given an opportunity to make representations and this is contrary to natural justice and an arbitrary exercise of power.

Plaintiff’s counsel relies on the concept of natural justice; that prior to the exercise of the discretion, the plaintiff had a right to know and be heard. She relies on such precedents as MacDhui Development v Genia & State [1992] PNGLR 49 for the principle that failure by the Minister to give notice was a breach (in the MacDhui case giving notice was a mandatory requirement in the Act unlike here where no procedure is provided) and where the Minister acted on wrong material, the Court has a duty to interfere when proprietary rights are adversely affected.

In Gegeyo v Minister of Lands [1987] PNGLR 331, it was held that the Minister cannot make a decision without consultation and natural justice require at least advice or notice in writing for the proposal and the reasons for it. Defence counsel sought to distinguish this case on the basis that: (1) there was notice by way of the letters and the intent of the fund was very clear; (2) the requirements of natural justice apply only to s 3(3) of the Act. I quote from his submission:-

"The requirements of natural justice are only observed while proceeding under section 3(3). In absence of a statutory provision giving the applicant a right to be heard, it is submitted that the Court should not imply one into the ambit of section 3(2) of the NPF Act."

I consider the letters do not at all make the intent of the officers of the fund clear. My reading is that these were enquiries about the plaintiff’s staff situation and gave information about the benefits of the fund. There is no statement that submission will be made by the fund to the Minister under s 3(2) of the Act and the plaintiff was being considered. I cannot find any hint or implication suggesting that, dependant on their reply, the Minister might be asked to exercise his discretion under s 3(2).

I consider that some such notice should have been given to the plaintiff. It is only fair that he and anyone else understood the full implications of the enquiries.

I further consider that action by the Fund should have been acted promptly, given lapses of time the plaintiff was entitled to conclude his answers satisfied the Fund and assume he need to take no further action.

Counsel for the defence seeks to distinguish the Gegeyo and Genia cases [supra] submitting "Gegeyo’s case concerned an application for judicial review of the decision of the Minister for Lands to revoke the appointments to the Land Board of Mr Gegeyo and 3 others, just 11 weeks after their appointments were made. The only form of notice was the letter of revocation from the Minister saying that the "Minister has revoked your appointment ...."

I consider the principles very relevant to the present case and cite, with respect, the headnote in Gegeyo v Minister of Lands [supra]:

(2) The power to revoke or suspend an appointment, being a decision affecting the status of persons, the Minister was required to observe the principles of natural justice, to the extent at least of giving advice or notice in writing of the reasons for his proposed decision and if those reasons were likely to reflect adversely on the character integrity or reputation of that person, then by giving that person an opportunity of being heard in his defence."

I adopt that principle and apply it herein. I find that while the Minister undoubtedly did have powers under s 3(2) they must be exercised after alerting prospective candidates and with guidelines that prospective employers can consider and take advice upon.

On this ground, I consider the first and third defendants erred in their administration of s 3(2) of the Act.

The defendants speak in strong terms on policy and intent of the Act, referring to speeches in Hansard leading up to it and submit the Court should take cognisance of those policy decisions and uphold the Minister’s invocation of his powers when considering the plaintiff’s grounds. There is no doubt, the intention and the public policy behind the legislation is intended to benefit those working when age or other circumstances renders them unable to continue working; this accords with the humanitarian attitudes in the preamble to the Constitution but Parliament has passed an Act and set the limit of employees at 25. Parliament can and is well able to change that limit at any time. It is not for administrators nor the Courts to take it upon themselves the duty and power to say circumstances have changed. Parliament has not caught up with those changes yet, so that we will now do what Parliament really intended. The discretion in s 3(2) cannot in effect amend the law; it must be exercised properly and within the scope of the Act.

In considering the respondents view both as shown in their minutes and in submission before the Court, I have asked myself if this legislation is comparable with laws such as tax legislation - where the Courts have drawn a distinction between avoiding and evading tax. I consider the parallels are not exact except to the extent the National Provident Fund and Minister should have real evidence of evasion before deciding it exists and not suppositions as evidenced here.

Counsel for respondent imputes bad faith on plaintiff. I disagree. On the facts, I consider there was no bad faith on any party - complete surprise on plaintiff, over enthusiasm on the respondent Fund - (if they considered employees were not told about the Fund then why did they not go and tell them) and unquestioning acceptance by first respondent.

Whilst I agree with counsel for the respondents that s 3(2) is to be read independently of the preceding subsections and vests a discretion, which must be exercised independently, the Minister must actually exercise it with cause and I consider the Wednesbury principles apply to that exercise.

Counsel for the respondents refers to Wednesbury principles and I accept and apply his summation of them:

(a) it must be a real exercise of the discretion;

(b) the body must have regard to matters which it is expressly or by implication referred by the statute conferring the discretion;

(c) it must ignore irrelevant considerations;

(d) it must not operate on the basis of bad faith or dishonesty;

(e) it must direct itself properly in law; and

(f) it must act as any reasonable person would act and must not be so absurd in its action that no reasonable person would act in that way;

These principles have been applied in several cases e.g. Kekedo v Burns Philp (PNG) Ltd [1988-89] PNGLR 122 setting out the circumstances where judicial review may lie against an administrative decision.

In applying these principles, I consider the first and third defendants did act on a misconceived premise that they had not fully investigated. I have already noted that the Act does not give any criteria for the application of s 3(2) but hold that silence does not empower the Minister to extend the Act to any organisation at will. Taking the policy and matters referred to in the Act, I think the officers may be correct in saying s 3(2) could be properly used to bring organisations manipulating their employee numbers to evade the Act within its parameters. However such a decision needs proof and notice. In this regard, I consider that that is one of the purposes of s 4(a) of the Act.

Counsel also argues the doctrine of legitimate expectation; I accept it does not apply to this case. Having found for the plaintiff I need not elaborate further on this ground.

In summation, I consider the wording of the form and letters sent to the plaintiff seek information to "determine your eligibility of coverage under fund" but do not indicate it will be used to decide if powers of Minister be used to cover the plaintiff and to that extent, coupled with complete lack of reply or response for several months is unfair to the plaintiff. There is a supposition, evidenced in internal minutes that the plaintiff and others were deliberately suppressing numbers of employees to avoid and evade the Act. This overlooks the fact that the plaintiff had that number of employees for approximately 20 years, 8 of those before the Act was passed.

I concede that Minister has clear unequivocal power to apply the Act to others but it is a discretion that must be exercised in a way which incorporates, as quoted in Gorio v National Parks Board [1982] PNGLR 364 at 367:-

"The whole scope and purpose of the enactment must be considered, and one must assess ‘the importance of the provision that has been disregarded, and the relation of that provision to the general object intended to be secured by the Act.’ In assessing the importance of the provision, particular regard may be had to its significance as a protection of individual rights, the relative value that is normally attached to the rights that may be adversely affected by the decision and the importance of the procedural requirement in the overall administrative scheme established by the statute. Furthermore, much may depend upon the particular circumstances of the case in hand."

The matter, which caused me greatest concern, in this case was the apparent lack of action on the part of the plaintiff immediately after the notice in the gazette. Does this amount to acquiescence; was there a right of review that he failed to seek?

The Act itself is silent on the point. It says "the Minister may, after giving 2 months notice in the National Gazette, apply this Act..."

There is no clear provision for an appeal or submission within those two months.

I consider the intend of the two month grace period was to allow submission for review, objection, application for stay or any such application by the affected employer or employees.

There was no application by the plaintiff but this must be seen in the light of the facts. The notice was in the National Gazette - not a practical means of communication although it is intended to be a public notice. To adopt the words of Miles, J. in PNG Ready Mixed Concrete Pty Ltd v State of Papua New Guinea & Others [1981] PNGLR 396 at 407, (also speaking of notices in the National Gazette), "the case is an example of the deficiencies in the system."

The Fund’s officers did not tell the plaintiff until six weeks after the gazettal notice and did not give any indication that there was any avenue other than compliance open to him. When the plaintiff did respond, a reply was not made until after the two-month period had elapsed. I consider this an unfair action on the part of the third defendant and, whilst I consider it is the intention of the Act to have a two month limit period for review, in the instant case I consider the lack of notice coupled with lack of response amounts to an improper exercise of discretion and I am not prepared to refuse the plaintiff relief because of it.

I uphold plaintiff’s application for certiorari of the first defendant’s decision and quash that decision.

Lawyers for the applicant: Warner Shand Lawyers.
Lawyers for the 1st & 2nd respondents: State Solicitors.
Lawyers for the 3rd respondent: Herman Leahy.