N6074

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS (JR) NO. 775 OF 2014

BETWEEN:

INSPAC (PNG) LIMITED
Plaintiff

AND

SALAMO ELEMA, Acting Insurance Commissioner
Defendant

Waigani: Gavara-Nanu J
2015: 17th July & 28th August

PRACTICE & PROCEDURE –Insurance Act, 1995; ss. 36 and 37 - Powers of the Insurance Commissioner to regulate insurance industry – Risk insurance and reinsurance – Statutory requirements - Exemption under s. 37 – Construction of s. 36 (1) and (2) – Engagement of insurance and reinsurance brokers by insurers and reinsurers.

PRACTICE & PROCEDURE – Insurance Act, 1995 – General policy on insurance industry – Rights of insurers to reinsure offshore – Rights of insurers to engage offshore brokers – Contractual and fiduciary duties of insurers to policy holders. 

Case cited:
Papua New Guinea Cases

Avia Aihi v. The State [1981] PNGLR 81
Gari Baki v. Allan Kopi (2008) N4023
The State v. James Yali (2005) N2932 
Kekedo v. Burns Philp (PNG) Ltd & Ors [1988-89] PNGLR 122 
Pacific MMI Insurance Ltd v. Salamo Elema (2010) N4032
Ramu Nikel Limited v. Honorable Dr Puka Temu, MP (2007) N3116
Reference by East Sepik Provincial Executive (2011) SC1154
Salamo Elema v. Pacific MMI Insurance Limited (2011) SC1114
The Independent State of Papua New Guinea v. Downer Construction (PNG) Ltd (2009) SC979

Other cases:

Associated Provincial Picture Houses Ltd v. Wednesbury Corporation [1947] 2 All ER 680; [1948] 1 KB 223
Council of Civil Service Unions v. Minister for the Civil Service [1984] 3 All ER 935
R v. National Rivers Authority [1997] Env. L.R. 14; (1996) 8 Admin. L.R. 567

Counsel:

I. Molloy with R. Thompson, for the Plaintiff
G. Egan with N. Ako, for the Defendant 

28th August, 2015 

1. GAVARA-NANU J: This is an application by the plaintiff to review the decision of the defendant made on 5th November, 2014, refusing its application dated 27 August, 2014, under s. 37 of the Insurance Act, 1995, for an exemption from the requirements of s. 36 of the Act in respect of its treaty reinsurance program. 

2. The plaintiff is a licensed insurer in Papua New Guinea. It had a treaty reinsurance program which was due to expire on 30th November, 2014. It wanted to negotiate a new program, hence its application of 27 August, 2014 for an exemption. It should be noted that s.36 (1) makes it mandatory for all risks situated in Papua New Guinea to be insured or reinsured with local (licensed) insurers unless exempted under s. 37. 

3. Central to this application are two Circulars the defendant issued to all licensed insurers, reinsurers and brokers on 5th June, 2013 and 15 July 2013 respectively.
 
4. The subject of the 5th June, 2013, Circular, was – "Placement of Treaty Insurances". In that Circular the defendant stressed the requirements of ss. 36 and 37 (5) and (6). The defendant among other things said:

"….It is clear from the above provisions that the intent of the Act is to ensure that risks situated in Papua New Guinea are being (sic.) insured or reinsured by licensed insurers or reinsurer(s) include treaty insurance as well (sic.). This is clarified under s.37 (5) of the Act where the requirement for an application for exemption relating to Treaty Reinsurance may be submitted to and considered by the Commissioner for off shore remittance, if required. (refer extract above(sic.).

As you are all aware in applying for exemption, there is a requirement imposed on the applicant under s. 37 to provide evidence that:

i. the risk has been offered to all the license insurers but all are unable to provide the cover; and

ii. in the event that the license insurer(s) are able to provide cover the applicant must provide evidence that the costs to the insured person of insuring or reinsuring the risk with a licensed insurer are greater by 17.5% than the costs to the insured person of insuring or reinsuring the risk with an offshore insurer or insurer. 

…. In the same way that all licensed insurers are given the first preference to provide cover for risks situated in Papua New Guinea, the licensed insurer(s) must also be given the first preference to provide reinsurance support for those risks. In the event that the licensed insurer(s) is not able to provide the required insurance support then an application for exemption can be made as provided under s. 37 of the Act. 

The circular does not force any insurer by way of instruction to arrange treaty insurance with the local reinsurer(s) only. What it intends to advise, however, is to require all insurers to first approach the local insurer(s) for their treaty insurance needs.

We are aware of the issues relating to capacity, facilities, level of security, expertise, etc. These however, are issues that the licensed insurer(s) will have to deal with and decide whether or not to accept the treaty reinsurance to its own balance sheet.

In accordance with section 36 of the Act, if the licensed insurer is unable to provide the treaty reinsurance support, an application for exemption under section 37 may be made to the Commissioner to have the treaty reinsurance placed offshore.

Accordingly the industry is advised that any new treaties or any treaty renewals must be first offered to the licensed reinsurer(s) as of the date of this Circular. 

Proposals for reinsurance brokers are being evaluated and will be considered for entry into market as soon as license requirements are satisfied" (my underlining). 
 
5. In the 15 July, 2013, Circular, the subject was – "Reinsurance Placement Through Licensed Reinsurance Broker(s)". In that Circular, the defendant stressed that, that Circular and the 5 July, 2013, Circular were both issued in accordance with the spirit of the Act and were intended to "protect the industry from unlicensed entities and for the licensed entities to operate within the Act". In the Circular, the defendant, among other things, said:

"….We wish to clarify the placement of reinsurance business by licensed reinsurance brokers as follows:

i) All licensed insurers may opt to directly approach the licensed reinsurer to seek reinsurance support. In the event that the licensed reinsurer is not able to provide the required reinsurance support, the licensed insurer may apply for exemption from the Insurance Commissioner to place the reinsurance offshore;

ii) The licensed insurers will not be allowed to use the services of an off shore reinsurance broker.

 The licensed insurers must not mislead this Office by applying for placement with offshore reinsurer(s) but then place with an offshore reinsurance broker(s) either directly or indirectly to do the actual reinsurance placements. 

Hence it is recommended that the licensed reinsurance broker should be utilized due to the risk of non-compliance with the Act.

iii) Alternatively, should the placement of the required reinsurance involve the participation of a reinsurance broker, then that reinsurance broker must be licensed under the Act. That is, all licensed insurers are required to utilize the services of the licensed reinsurance broker, should their insurance needs require the involvement of a reinsurance broker.

The licensed reinsurance broker then can apply for offshore exemption on behalf of the licensed insurer, in the event that the licensed reinsurer is not able to provide the reinsurance support.

The licensed reinsurance broker must provide evidence to the Commissioner that the licensed reinsurer and insurers are not able to provide the reinsurance cover either partially or fully before the Commissioner grants approval.

The existing placement of treaty and facultative reinsurance will continue until expiry. Upon expiry we expect the renewals to comply with this Circular.

The reinsurance business referred to here will encompass both treaty and or facultative reinsurance.

I expect your full cooperation and compliance with this instruction" (my underlining).

6. It is not disputed that an insurance company called Pacific Re Limited is the only licensed reinsurer in Papua New Guinea. The company itself needs reinsurance offshore because obviously it cannot reinsure itself. 

7. In order to comply with the two requirements imposed by the defendant on the licensed insurers in the Circular of 5 June, 2013, which in essence were the requirements under ss. 36 (1) and 37 (6) of the Act, the plaintiff approached Pacific Re Limited, with an offer to place its (the plaintiff's) risk reinsurance with it (Pacific Re Limited). The latter agreed to accept only 15% proportion of the risk offered. Thus, it was plain that, Pacific Re Limited did not have the capacity to accept a proportion of risk higher than 15%, and more significantly, the costs to the insured person of insuring with Pacific Re Limited would have been greater by 17.5 % than the costs to the insured person of insuring or reinsuring with an offshore insurer or reinsurer. This is a requirement under s. 37 (6) (b) of the Act. These two factors would have met the two requirements imposed on the insurers in the defendant's Circular of 5 June, 2013, thus paving the way for the plaintiff to be granted an exemption under s. 37 and to enable it to reinsure its risks offshore. However, the Circular of 15 July, 2013, imposed another requirement on insurers seeking reinsurance offshore viz. they could only utilize the licensed brokers for all their onshore and offshore insurance and reinsurance. The only licensed broker for that purpose was Global Re Brokers Limited. This requirement by the defendant was previously emphasized by the defendant's predecessor in a Circular dated 2 April, 1996 which the defendant reaffirmed to the insurance industry in a memo dated 16 June, 2010. However, it should be stated at this juncture that the engagement of a licensed broker is not a requirement that an insurer applying for an exemption under s. 37 must meet. 

8. It is to be noted that the 5 June, 2013 Circular made no mention of the need for licensed insurers to utilize a licensed insurance or reinsurance broker for the placement of their treaty reinsurance offshore. 

9. The Circular of 15 July, 2013, on the other hand, stressed that licensed insurers would not be allowed to use the services of offshore reinsurance brokers or unlicensed brokers for their offshore reinsurance.

10. In a letter dated 19 September, 2014, the defendant responded to the plaintiff's application for exemption under s.37. In paragraphs 2 and 3 of that letter the defendant said:

"….It is a requirement under the Insurance Act, that prior to seeking exemption to place your reinsurance risk off-shore, you must first exhaust available resources or facilities in PNG. We note that you have complied with this requirement of the Act by first seeking to place your Treaty Reinsurance risks with Pacific Re Limited, which is the only reinsurance company in PNG. Consistent with Government policy, the Office of the Insurance Commissioner takes the view that the insurance industry in PNG must be developed. In that regard it wishes to develop the area of reinsurance broking in the country. If your company needs to use a reinsurance broker to renegotiate its treaty insurance, the Office of the Insurance Commissioner insists that you must use local reinsurance brokers only. As Global Re Brokers Limited is the only licensed reinsurance broker currently licensed in PNG, you must use Global Re Brokers to renegotiate your Treaty Reinsurance program. You are not allowed to use off-shore reinsurance brokers as this will be a breach of section 36 (2) of the Act if you do so" (my underlining). 

11. In a letter dated 22 October, 2014, the plaintiff responded by reminding the defendant that the use of a broker, whether for onshore or offshore insurance or reinsurance, was not a relevant consideration the defendant had to take into account in deciding whether to grant an exemption under s. 37. The plaintiff urged the defendant to approve its application for an exemption, and as a matter of courtesy advised the defendant that it intended to engage the services of AON Benfield, an offshore broker, for its offshore treaty reinsurance placements. 

12. Finally, in a letter dated 5 November, 2014, to the plaintiff the defendant reiterated that if the plaintiff wanted to engage the services of a broker, it could only use a licensed reinsurance broker viz. Global Re Brokers Limited. In the letter the defendant among other things said:

 "….Under Section 36 (2) of the Act, it is illegal to use unlicensed offshore brokers such as Aon Benfield, to place your treaty reinsurance offshore. As you intend to place your risks through Aon Benfield, in direct contravention of 36 (2) (sic.) of the Insurance Act, 1995, the Office of Insurance Commissioner hereby refuses your application for exemption for the 2014/15 treaty renewal" (my underlining). 

13. Sections 36 and 37 of the Insurance Act, 1995, are set out under PART VI of the Act, which has the following heading: PART VI – ALL RISKS SITUATED IN PAPUA NEW GUINEA TO BE INSURED WITH LICENSED INSURERS. 

14. The relevant parts of s. 36 are subsections (1) and (2). They are in these terms:

36. All risks situated in Papua New Guinea to be insured with licensed insurers.

(1) All risks situated in Papua New Guinea and for which insurance, including re-insurance, is required shall be insured with a licensed insurer unless exemption is granted under Section 37.

 ….(2) A person who-

 (a) insures; or

 (b) as agent, broker, or insurer arranges insurance of, a risk situated in Papua New Guinea with a person other than a licensed insurer, except in accordance with an exemption under Section 37, is guilty of an offence. 

 Penalty: A fine not exceeding K50,000.00 or an amount equivalent to the gross annual premium in respect of that risk effected outside Papua New Guinea, whichever is the greater. 
 
15. The relevant parts of s. 37 are subsections (1), (3), (4), (5), (6), (7), (8) and (9). They are in these terms:

 37. Exemption. 

(1) Subject to Subsection (5), where the Commissioner is satisfied that the existing facilities and available capacity of licensed insurers are fully utilized he may, on application in accordance with Subsection (4), grant to a person an exemption from the provisions of Section 36. 

 …. (3) The Commissioner shall consider an application under Subsection (2) and –

(a) subject to Subsection (4) may grant an exemption or refuse to grant an exemption; and 

(b) shall advise the applicant in writing of his decision under Paragraph (a) not later than seven days prior to the date on and from which insurance is required. 

(4) An exemption granted under this section may be subject to such conditions as the Commissioner considers appropriate.

(5) An application made in accordance with Subsection (2) which relates to Treaty Reinsurance may be submitted to, and be considered and determined by the Commissioner, as if the Treaty Reinsurance Agreement constituted a single risk, without requirement to have approved individual contracts within the Treaty Reinsurance Agreement. 

(6) Subject to Subsection (8), the Commissioner shall not refuse an application for exemption under this section in respect of the insurance or re-insurance of a risk where-

(a) a licensed insurer has the facility and capacity to insure or re-insure the risk; and

(b) the costs to the insured person of insuring or re-insuring the risk with a licensed insurer are greater by 17.5% than the costs to the insured person of insuring or re-insuring the risk with an off-shore insurer.

(7) In comparing costs for the purposes of Subsection (6) (b), the Commissioner shall consider all relevant cost factors including premiums, commissions and other fees and charges.

(8) The Commissioner may refuse an application for exemption to which Subsection (6) applies, where he is of the opinion that the circumstances are exceptional or in the National interest.

(9) No funds in respect of any premium for insurance or reinsurance to which this Part relates may be remitted outside Papua New Guinea unless and until written advice of an exemption has been received by an applicant for exemption.

16. Notably, in the defendant's letter to the plaintiff dated 5 November, 2014, in which the defendant refused to grant an exemption to the plaintiff under s. 37, the defendant failed to address the requirements of subsections (6), (7) and (8). More significantly, subsection (8), under which, the defendant had power to refuse an exemption where in his opinion there are exceptional circumstances or where circumstances are in the national interest. In this regard, I do not consider the defendant's rigid application of the general policy of his Office that insurers must only use or utilize the licensed insurers and brokers for their insurance and reinsurance can be regarded as being in the national interest. The rigid manner in which the policy is applied and enforced against the insurers is really against the national interest because it is more likely to stifle the insurance industry than enhance and facilitate its growth. 
 
17. Clearly the failure by the defendant to address the requirements of s. 37 which are relevant considerations for a grant of an exemption led the defendant to consider and take into account irrelevant considerations relating to the requirements of s. 36 which are not relevant for purposes of deciding whether to grant an exemption. This has also led the defendant to erroneously construe and misapply s. 36. 

18. It is a standard practice in the insurance industry that insurers not carry the entire risk. Instead they insure or reinsure a proportion of the risk with other insurers (reinsurers) so that they are capable of meeting even catastrophic claims or unusually large claims such as claims related to earthquakes, volcano eruptions, tsunamis, floods, wild bush fires and so on. 

19. It is convenient to note that reinsurance is either "treaty reinsurance" or "facultative reinsurance". Treaty reinsurance refers to an agreement whereby an insurer (insured) agrees to place all insurance of a specific kind with a particular reinsurer, and the reinsurer agrees to accept all such reinsurance. The reinsurer agrees to meet the losses of the policies under such agreement. Facultative reinsurance on the other hand refers to reinsurance in respect of a specific or a particular risk. Under this agreement, the reinsurer will only pay for the costs of the policies it has agreed to meet. Policies under such agreement are those not covered in the treaty reinsurance. It should be noted that all insurers enter into treaty reinsurance agreements which are essential for the practical operation of the insurance industry. 

20. Consistent with these basic principles, any offshore reinsurer engaged by a licensed insurer such as the plaintiff must be one which is established in the global market, with substantial financial resources and a credible financial rating. Such reinsurers must have the capacity to accept and meet the risks placed with them. What is of paramount consideration for insurers is the interests of their policy holders, who must have trust and confidence in the insurers or reinsurers as to their capacity to meet any form of claim they (the policy holders) may make.

21. In this case, the plaintiff has argued that the refusal by the defendant of its application for an exemption under s. 37 was not based on any non-compliance of any relevant requirement under the Act. The plaintiff pointed out to the Court that no issue really arises from its application for exemption under s. 37 because the defendant has already conceded in its letter dated 19 September, 2014, to the plaintiff that it had met the requirements under s. 37 for an exemption. The plaintiff submitted that given such concession by the defendant, the real reason the defendant refused its application for an exemption was its (plaintiff's) decision to engage AON Benfield as its offshore reinsurance broker. The plaintiff submitted that this was not a relevant consideration for the defendant to take into account when deciding its application for an exemption. It was submitted that this is shown clearly by the defendant's insistence that the plaintiff engage services of a licensed reinsurance broker only, viz. Global Re Brokers Limited, even for its offshore reinsurance and telling the plaintiff in a letter date 22 October, 2014, that its decision to engage AON Benfield as its offshore reinsurance broker was in breach of s. 36 (2) of the Insurance Act. 

22. Mr. Molloy of counsel for the plaintiff submitted that the relevant considerations for an application for exemption are contained in s. 37 (1) and (2) but the defendant failed to address any of those considerations when he refused the plaintiff's application. It was further submitted that the plaintiff had fully complied with the requirements for an exemption under s. 37 (2) and that it should have been granted an exemption. With regard to the plaintiff's intention to engage AON Benfield as its broker, Mr. Molloy submitted that a foreign broker carrying on business in another country, arranging reinsurance outside of Papua New Guinea for a licensed insurer, is not carrying on business in Papua New Guinea and is not required to be licensed in Papua New Guinea. It was submitted that AON Benfield fell into that category, thus it was legal for AON Benfield to be engaged by the plaintiff, because once the plaintiff had met the requirements under s. 37 for an exemption, the plaintiff was no longer bound by the terms of s. 36. Mr. Molloy argued that the defendant had taken into account irrelevant matters and circumstances and has proceeded on an erroneous view of s. 36 (2), that the plaintiff would be in breach of the subsection if it engaged AON Benfield as its offshore reinsurance broker.

23. Mr Egan of counsel for the defendant submitted that the words "carry on" and "general insurance business" as defined in the Act, can only refer to general insurance business carried on in the country by a licensed insurer or reinsurer, such that, any risk which is situated in Papua New Guinea "must not be insured with an unlicensed offshore insurer or reinsurer unless an exemption under s. 37 of the Act, is first obtained". He highlighted the various penalties in substantial fines prescribed in the Act, which may be imposed on an insurer if a risk situated in Papua New Guinea was insured with an unlicensed offshore insurer or reinsurer without that insurer first obtaining an exemption under s. 37.
 
24. It was also submitted by Mr. Egan that the requirement under s. 36 (1) for all risks situated in Papua New Guinea to be insured with licensed insurers includes reinsurers by reason of the definition of "general insurance business". He stressed the substantial penalty imposed under s. 36 (2) for the offence of brokering insuring or acting as an agent for the insuring of a risk situated in Papua New Guinea with an unlicensed insurer. He submitted that the defendant's refusal of the plaintiff's application for exemption was proper and was in accordance with s. 37 (3) (a) and (b). He argued that the defendant therefore acted within his powers when refusing the plaintiff's application for exemption. Mr. Egan argued that these requirements were correctly stated by the defendant in his letter to the plaintiff dated 5 November, 2014.

25. Mr. Egan submitted that the engagement of AON Benfield by the plaintiff as its offshore broker would be in breach of s. 36 (2) of the Act. He submitted that the exemption permitted under s. 36 (2) relates only to offshore insurers or reinsurers. He argued that it does not relate to an unlicensed offshore insurance broker or reinsurance broker. As such, it was argued that the plaintiff can only use brokers which are licensed in Papua New Guinea, which in this case was Global Re Brokers Limited. He submitted that the plaintiff cannot engage AON Benfield because it is not a licensed broker, thus AON would be guilty of the offence prescribed under subsection (2) if it arranged reinsurance of risks situated in Papua New Guinea with an offshore reinsurer on behalf of the plaintiff. He argued that the plaintiff has an option to deal directly with an offshore reinsurer for its reinsurance. It is to be noted that this option was conveyed to the plaintiff and other members of the industry in the 15 July, 2013, Circular.

26. It was submitted that by opting to engage AON Benfield the plaintiff had breached s. 36 (2) and that it continues to do so, thus providing a valid reason for the defendant to refuse the plaintiff's application for exemption under s.37 of the Act.

27. In my view, this application turns on the proper construction of ss. 36 (2) and 37, more particularly the former because the defendant refused the plaintiff's application for an exemption based on his construction of the subsection.
 
28. It is to be noted that the defendant's Circular of 5 June, 2014, also reiterated the things he stated in his previous Circulars dated 25 January, 2000 and 28 January, 2008. The Circular of 25 January, 2000 was issued to all the Principal Officers of insurers, insurers and brokers. In that Circular, reference was made to the application of ss. 36 and 37 of the Act. The Circular also made reference to the new policy aimed at encouraging the growth of the insurance industry in Papua New Guinea and further mentioned the establishment of the local reinsurer, Pacific Re Limited. The Circular of 28 January, 2008, was issued to the Chairman of the Papua New Guinea Insurance Council. The focus of that Circular was offshore treaty reinsurance placements. Then, in a subsequent memo dated 16 June, 2010 to all the Principal Officers of insurers, reinsurers and brokers, the defendant made reference to a Circular dated 2 April, 1996, by his predecessor and advised that that Circular was binding and must be complied with. The Circular of 2 April, 1996, referred to the legislative protection of the insurance market in Papua New Guinea and the "specific preclusion of foreign brokers". The Circular made general reference to the Insurance Act, but no specific provisions of the Act were referred to or discussed, particularly ss. 36 and 37 which one would have thought are pivotal. The Circular emphasized the need for the involvement of licensed insurers and brokers by the insurers. The Circular stated that an objective of the legislation was to: "support the local insurance market through protection of licensed insurers and licensed brokers". The Circular, among other things, stated:
 
 "The legislation ensures that there is no place for the involvement of a foreign broker whatsoever in the management of insurance risks in this country, with the sole exception that a licensed broker here may seek technical assistance, but may not take directions, from an appropriate specialist. These requirements of the Act also apply equally to the parent or shareholder interests of brokers licensed in Papua New Guinea as a separate entity". 

29. Notably, in the Circulars of 25 January, 2000, 28 January, 2010 and even 5 June, 2014, there was nothing said about insurers utilizing licensed brokers as a condition for them to be granted exemption for offshore reinsurance placements. In the Circular of 5 June, 2014, the only matter the defendant mentioned about brokers was that there were proposals for the establishment of reinsurance brokers in Papua New Guinea. Later, the defendant for the first time mentioned in the Circular of 15 July, 2014, the need for insurers to involve and utilize licensed reinsurance brokers for them to be exempted from the requirements of s. 36.
 
30. Under the terms of s. 36 (1) two things ought to be noted. First, it is a mandatory requirement that all risks situated in Papua New Guinea for which insurance and reinsurance is required, must be insured with licensed insurers. Second, an insurer carrying such risks may be relieved from that requirement or obligation if it is granted an exemption under s.37. 

31. Section 36 (2) inter alia, provides that it is an offence for a person who insures; or as agent, broker, or insurer to arrange insurance of a risk situated in Papua New Guinea with a person other than a licensed insurer (an offshore insurer) except where such insuring of a risk or arrangement is in accordance with an exemption under s. 37.
 
32. I accept the defendant's argument that a licensed insurer or broker is a party to whom Part III of the Insurance Act applies. Section 18, which is a provision under Part III confers a discretionary power on the Commissioner to issue a license to an insurer and or a broker. However, for the present purposes, nothing turns on this. 

33. Turning now to the requirements under ss. 36 (1) and 37 (1) and (6) of the Act, I find that the plaintiff has met the relevant requirements for an exemption under s. 37 and is entitled to be exempted from the requirements of s. 36. Firstly, the plaintiff has involved the only licensed reinsurer namely, Pacific Re Limited, by offering to place its risk reinsurance with it but the latter could only accept 15% proportion of the risk offered. In other words, Pacific Re Limited did not have the capacity to accept any more than 15% proportion of the risk offered. This has forced the plaintiff to look offshore for the reinsurance of the balance of the risk. Secondly, it is clear from the limited capacity of Pacific Re Limited as a reinsurer the costs to the insured person insuring or reinsuring risks with it would be greater by 17.5% than the costs to the insured person insuring or reinsuring with an offshore reinsurer. In the circumstances, I find that the plaintiff having met the requirements for an exemption under s. 37 was and is no longer bound by the requirements of s. 36. It therefore has the right to place its treaty reinsurance with an offshore reinsurer and to engage AON Benfield as its offshore reinsurance broker or any other competent offshore broker of its choice for that matter.

34. The defendant is steadfast in his view that the plaintiff would be acting in breach of s. 36 (2) if it engaged AON Benfield as its broker because, AON Benfield is not licensed under the Act. This would of course apply to any other offshore reinsurance broker the plaintiff may want to engage. The defendant argued that the plaintiff must engage the services of a licensed broker, which in this case is Global Re Brokers Limited, the only licensed broker, even for offshore reinsurance. 

35. With respect, in spite of the force in the argument of the defendant, I am not able to accept his construction of s. 36 (2). In my view, the subsection by its terms makes its requirements subject to s. 37. To accept the defendant's construction of s. 36 (2) would in my respectful view result in the subsection being misconstrued. As a general rule of statutory interpretation, the subsection should be construed as a whole in order to find its proper meaning and context: The Independent State of Papua New Guinea v. Downer Construction (PNG) Ltd SC979; Salamo Elema v. Pacific MMI Insurance Limited (2011) SC1114; Gari Baki v. Allan Kopi (2008) N4023 and The State v. James Yali (2005) N2932. When the subsection is construed in that way, it then becomes clear that the subsection does not prohibit the plaintiff from engaging AON Benfield as its broker, or any other offshore broker for that matter. The subsection rather allows or gives the plaintiff who has met the requirements for an exemption under s. 37 the right to engage an offshore broker of its choice, which in this case is AON Benfield. In my view when the subsection is given its proper construction, the word "broker" in the subsection cannot be restricted to a licensed broker. The word "broker" as opposed to a "licensed broker" is in my respectful view deliberately used in the subsection. Thus, the word "broker" in the subsection is in this context is inclusive of an offshore broker, or an unlicensed broker such as AON Benfield. In any event, if I am wrong in this view, the fact remains that once the plaintiff met the requirements of s. 37 the requirements of s. 36 no longer applied, because it (plaintiff) was automatically entitled to be exempted or was deemed to have been exempted from the requirements of s. 36: Reference by East Sepik Provincial Executive (2011) SC 1154. The effect of this is that the plaintiff was free and entitled to place its reinsurance treaty offshore and engage the services of an offshore broker on the basis of an exemption it should have been granted.

36. Moreover, there is undisputed evidence that the plaintiff had made reasonable inquiries into the capacity of Global Re Brokers Limited and found it to be lacking capacity to be engaged to provide services as a broker for offshore treaty reinsurance placements or program. I accept that evidence. Therefore, the defendant's insistence that the plaintiff engage Global Re Brokers Limited (despite its lack of capacity) can only be described as unreasonable and an abuse of power. In any event, the defendant has contradicted itself by admitting that the plaintiff has complied with the relevant statutory requirements for an exemption under s.37. This is fatal to the defendant's defence of this application. 

37. I accept the argument by the defendant that AON Benfield would be guilty of an offence prescribed under s. 36 (2) if it arranged insurance or reinsurance of a risk situated in Papua New Guinea with an offshore reinsurer. However, that is only if the plaintiff did not meet the requirements of s. 37 to be exempted from the requirements of s. 36. In this case, the plaintiff has met the requirements of s. 37 and is entitled to be exempted from the requirements of s. 36. It therefore follows that any arrangement by AON Benfield to insure or reinsure risks situated in Papua New Guinea with an offshore reinsurer on behalf of the plaintiff would be protected by the exemption that the plaintiff was entitled to under s. 37. For the same reason, the engagement of AON Benfield by the plaintiff would not be in breach of s. 36 (2). Once the plaintiff met the requirements for an exemption under s. 37, the requirements of s. 36 no longer applied to the plaintiff. The plaintiff has the statutory protection under the exemption to not only place its reinsurance offshore but also to engage an offshore broker for its offshore reinsurance. 

38. I therefore find that the actions of the defendant in refusing the plaintiff's application for exemption after it (the plaintiff) had met all the necessary requirements under s. 37 to be unreasonable: Associated Provincial Picture House v. Wednesbury Corporation [1947] 2 All ER 680; [1948] 1KB 223. The defendant in this case had quite clearly used its licensing powers under Part III of the Insurance Act, to refuse the plaintiff's application for exemption. In my opinion, that was an abuse of power and the decision was clearly of a kind which no reasonable tribunal could have reached. That is to say, the decision was unreasonable in the Wednesbury sense or principle, which is a ground upon which this application can be granted. See, also Council of Civil Service Unions v Minister for the Civil Service [1984] 3 All ER 935 at 954 per Roskill LJ; Kekedo v Burns Philip (PNG) Ltd [1988-89] 122 at 124 per Kapi DCJ and Ramu Nikel Limited v. Honorable Dr Puka Temu, MP (2007) N3116. The decision was in that regard also ultra vires, and therefore null and void. 

39. In my view, there cannot be any doubt that the defendant's refusal of the plaintiff's application for an exemption under s. 37 was made in his capacity as the authority with power to regulate the insurance industry, by issuing licenses to insurers and insurance brokers. The defendant used his licensing powers to deny the plaintiff its right to place its treaty insurance with an offshore reinsurer and to engage an offshore broker, despite the plaintiff's compliance with s. 37. In this regard, I accept the plaintiff's argument that this case is similar to the case of R v. National Rivers Authority [1997] Env. L.R. 14; (1996) 8 Admin. L.R.567. In that case the respondents, who had power under the Freshwater Fisheries Act, 1975, to issue licenses for salmon fishing, used their licensing powers to deny the plaintiff its right to fish salmon by refusing to issue the plaintiff a license for salmon coops. The respondents took this position after the plaintiff, whose land ran through a river, in which salmon was fished, had made some repair works in the river including works done to a weir. The plaintiff claimed that the works were for repair and maintenance, to maintain the depth of the river and were not intended to alter the flow of water in the river. The plaintiff was required to obtain permission from the relevant authorities for the works but did not. The plaintiff's use of salmon coops for salmon fishing was however legal. A dispute arose between the respondents and the plaintiff regarding the legality of the plaintiff's works and whether the works affected the flow of water in the river. The dispute was required to be resolved by a court through declaratory relief if the parties could not resolve the matter through arbitration. Instead the respondents refused to license the plaintiff's salmon coops and demanded that the plaintiff prove that his works in connection with the weir were lawful, in order to obtain a licence for the salmon coops. Brooks J, held that the respondents were not entitled to use their licensing powers to enforce their side of the argument in an ongoing dispute and thereby deny the plaintiff's right to fish salmon with salmon coops. 
 
40. In this case, there is really no dispute that the plaintiff has satisfied the requirements under s. 37 to be exempted from the requirements of s. 36. That much has been conceded by the defendant. Thus, in my view, the insistence by the defendant that the plaintiff engage a licensed broker to arrange its treaty reinsurance offshore was not motivated by or due to any statutory duty. Rather, it was motivated by a general policy of his Office to promote and encourage the local insurance industry to grow. He wanted to implement this policy by requiring the insurers to fully utilize the services of the licensed reinsurers and brokers first before engaging offshore reinsurers and brokers. Although on its face value, the policy may seem good for the insurance industry, the defendant also has a statutory duty as the regulator of the industry to take a balanced approach by taking into consideration the business and commercial interests of the insurers and other players in the industry. The concerns about the growth of the insurance industry cannot be considered in isolation from the commercial and business interests of the main players of the industry, namely the insurers and brokers, particularly, the contractual and fiduciary obligations the insurers have to their policy holders. Those contractual and legal obligations cannot be usurped or circumvented by the defendant by forcing and imposing unreasonably rigid policy considerations on the insurers: Pacific MMI Insurance Ltd v. Salamo Elema (2010) N4032. In my view, such an approach is likely to have the opposite effect of stifling the growth of the insurance industry in Papua New Guinea. 
 
41. I have no doubt that all industry members, including the plaintiff, fully support the policy and desire to see the local insurance industry grow and build its capacity to a level where it can be competitive in the global market. However, the material before the Court suggests that this is still a long way off and that the industry is still growing and developing in terms of its capacity. Both Pacific Re Limited and Global Re Brokers Limited did not have the capacity to reinsure all the risks in Papua New Guinea or be the only brokers to all the insurers. Clearly, the defendant's insistence that the plaintiff engage Global Re Brokers Limited as its broker for its treaty reinsurance has no proper and legal basis. In my view, the defendant has also seriously contradicted himself when, on the one hand he acknowledges that the industry is still growing, but on the other hand continues to demand that insurers engage the same reinsurers and brokers who he knows lack capacity for both onshore and offshore reinsurance. The defendant simply had no valid reason to refuse the plaintiff's application for an exemption under s. 37. 
 
42. In the result, given the manner and circumstances in which the defendant refused the plaintiff's application for exemption, I consider that it would not be appropriate for me to remit the matter back to the defendant to deal with. In my view the proper course to adopt is to make appropriate substitute orders, pursuant to the inherent supervisory powers vested in this Court by virtue of s.155 (4) of the Constitution: Avia Aihi v. The State [1981] PNGLR 81. 

43. Consequently, the Court makes the following orders:

i. the decision of the defendant given on 5 November, 2014, to refuse the plaintiff's application under s. 37 of the Insurance Act, 1995, for an exemption from the requirements of s. 36 of the Act. is hereby quashed.

ii. the plaintiff having satisfied the requirements set out under s. 37 of the Insurance Act, is exempted from the requirements of s. 36 of the Act, and that it may engage the services of AON Benfield as its broker to arrange its treaty reinsurance with an offshore reinsurer of its choice.

iii. the defendant will pay the plaintiff's costs of and incidental to this application.

44. Overseas counsel certified.

Orders accordingly.

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Young & Williams Lawyers: Lawyers for the Plaintiff
Rageau Manua & Kikira Lawyers: Lawyers for the Defendant