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Pacific Assurance Group Ltd v Elema [2018] PGNC 400; N7540 (30 October 2018)

N7540

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS (JR) NO. 138 OF 2014

BETWEEN
PACIFIC ASSURANCE GROUP LIMITED
Plaintiff

AND

SALAMO ELEMA, Acting Insurance Commissioner
Defendant

Waigani: Makail, J
2015: 27^th February
2018: 30^th October

JUDICIAL REVIEW – Review of decision of Insurance Commissioner – Decision to refuse exemption of reinsurance – Reasons given for refusal – Unreasonableness of decision – Insurance Act – Section 37

INSURANCE LAW – Insurance – Reinsurance – Exemption of reinsurance – Requirements for exemption considered – Insurance Act – Section 37

Cases cited:

Nil

Counsel:
Mr. I. Molloy with Ms. R. Thompson, for Plaintiff
Mr. G. M. Egan with Mr. M. Koiri, for Defendant

JUDGMENT

30^th October, 2018

1. MAKAIL, J: This is an application for judicial review of a decision of the Acting Insurance Commissioner to refuse an application for exemption of the plaintiff’s treaty reinsurance program on 19^th March 2014.

Insurance and Reinsurance

2. According to Section 36(1) of the Insurance Act, 1995 all risks situated in Papua New Guinea and for which insurance, including reinsurance, is required shall be insured with a licensed insurer unless exemption is granted under Section 37.

Offence

3. Section 36(2) makes it an offence if a person who insures or 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. The offence carries a fine of not more than 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.

Requirements for Exemption

4. Under Section 37, an exemption may be granted by the Insurance Commissioner on application by a licensed insurer. The applicant must apply in writing and must, amongst other things, show that, that it has fully utilised its existing facilities and available capacity, costs differentials between onshore licensed insurers and offshore insurers and particulars of the proposed arrangements to insure the risk outside Papua New Guinea (“PNG”).

Forms of Reinsurance

5. There are two standard forms of reinsurance; one is the treaty reinsurance and the other, facultative reinsurance. Treaty reinsurance refers to an agreement whereby the insured (reinsured) agrees to place all reinsurance of a specific kind with the reinsurer and the reinsurer agrees to accept all such reinsurance. Facultative reinsurance refers to a contract that is specific to the particular risk insured, so that the reinsured and reinsurer are free to choose whether to cede and accept respectively the specific risk.

Refusal of Exemption

6. In this case the plaintiff is one of the licensed insurers in PNG. It applied for exemption of its treaty reinsurance program to the defendant on 11^th March 2014. On 19^th March 2014 the defendant responded to its application. He refused the application. The reason he gave was that the plaintiff intended to place its treaty reinsurance with a foreign reinsurance broker named Guy Carpenter who was not a licensed reinsurance broker in PNG. He considered that the engagement of Guy Carpenter was illegal under Section 36(2).

Grounds of Review

7. The plaintiff seeks a review of the refusal of its exemption application on the ground that it was an unreasonable exercise of discretion by the defendant. It alleged that the defendant failed to take into account that it has met the requirements of Section 37 and instead took into account irrelevant matters such as a purported requirement that it must use the services of Global Re Brokers Ltd to arrange its treaty reinsurance and comply with his circulars of 5^th June and 15^th July 2013.

Relief Sought

8. It seeks an order in the nature of certiorari to bring the decision of the defendant into this Court and have it quashed. It further seeks an order to have the application for exemption remitted to the defendant to consider according to the findings of the Court or alternatively, the Court substitute its decision for the decision in question.

Local Reinsurer

9. By the circulars of 5^th June and 15^th July 2013, the defendant informed members of the Insurance Industry that the provisions of Section 36 would now be enforced in relation to treaty reinsurance and that he would not grant an extension if the local reinsurer indicated that it would accept the risk, and that all reinsurance had to be arranged using Global Re Brokers Ltd.

Defendant’s reasons for refusal

10. The position of the defendant is undoubtedly clear. He wants licensed reinsurer(s) to be given the first preference to provide reinsurance support to those risks. In the event that the licensed reinsurer(s) is not able to provide the required reinsurance support then an application for exemption can be made under Section 37.

11. His position was conveyed to all licensed insurers, reinsurers and brokers including the plaintiff by way of a circular dated 5^th June 2013. As licensed insurers may require a broker to seek reinsurance support, the defendant sent a further circular dated 15^th July 2013 to remind them to ensure that when seeking reinsurance support locally and the licensed reinsurer is not able to provide the required reinsurance support, the licensed insurer may apply for exemption from him to place the reinsurance offshore and that licensed insurers will not be allowed to use the services of an offshore reinsurance broker. This is because offshore reinsurance brokers are not licensed reinsurance brokers in PNG and it would be illegal for a licensed insurer to engage them. Otherwise, the licensed insurer may directly seek reinsurance support from offshore reinsurers.

12. The defendant said that the reason for regulating and strengthening this area of the Insurance Industry is to “build a sound and vibrant local insurance sector, build up (sic) the capacity of the industry, general employment, general revenue for the government, bring modern technology and skills to the market, facilitate insurance coverage to the uninsured, etc”.

Issue

13. The question then is, did the defendant base his decision on the requirements of Section 37 of the Act?

Plaintiff’s Submissions

14. The Plaintiff submits that the defendant did not and if he had, he would have formed a view that it had met the requirements and would have granted its application for exemption. Instead, the defendant went outside Section 37 and insisted on it to meet a purported requirement that it engage Global Re Brokers Ltd to arrange for reinsurance renewal.

15. It further submits that it may constitute an offence to engage an offshore insurance broker to arrange a reinsurance renewal under Section 36(2) but no adverse finding should be made against it because it is not a requirement under Section 37 for a licensed insurer to engage one for that purpose. Thus, it was unreasonable for the defendant to refuse its application on this ground.

Policy Considerations as opposed to Legal Requirements

16. The position taken by the defendant and the reasons he gave for refusing the plaintiff’s application is genuine. However, the reasons are not based on the requirements of Section 37. They are based on policy considerations which are not legal requirements and the plaintiff cannot be expected to meet them. On the other hand, I accept the plaintiff’s submissions. First, it has complied with the requirement in relation to the existing facilities and available capacity of the locally licensed reinsurer under Section 37. It has sought and Pacific Re Ltd has agreed to accept 5% of the Marine Treaty risk and 10% Personal Accident Treaty risk subject to there being no significant changes to the existing Treaty Reinsurance Program.

17. Secondly, it has provided to the defendant particulars of its existing Treaty Reinsurance Program showing the name and identity of each of the reinsurers, and their percentages, and the amount of the proposed reinsurance premium. The current proposal was to renew the arrangement on the same terms and conditions.

18. Thirdly, in terms of the requirement on payment of income tax, based on past Non-Resident Insurance Tax on all payments made to Lloyds and other offshore reinsurers as required by the Income Tax Act, it confirmed that adequate and same sort of arrangement will be made for payment of income tax by the off-shore reinsurers in accordance with the Income Tax Act.

19. Finally, it confirmed that based on existing practice for obtaining annual approval from the Central Bank for remittance of monies up to an agreed limit of K16.3 million to include premium payments for the reinsurers, adequate arrangements will be made to secure approval required under the Central Bank (Foreign Exchange & Gold) Act.

Order for Certiorari

20. In my view the plaintiff has met the requirements for a grant of exemption imposed by statute and for the defendant to ignore them and insist on a further requirement that the plaintiff engage Global Re Brokers Ltd to arrange its reinsurance renewal is beyond the requirement of statute and unreasonable.

21. Secondly, I accept the plaintiff’s submission that no adverse findings can be made against its application when the defendant formed a view that the engagement of the reinsurance broker Guy Carpenter was illegal under Section 36(2). This is because the engagement of an offshore reinsurance broker is not one of the requirements of Section 37. In my view it is and was an irrelevant matter and the defendant should not have been taken it into account to refuse the plaintiff’s application for exemption under Section 37.

22. In other words, the remedy for the Insurance Commissioner under Section 36(2) is to prosecute the plaintiff for failing to engage a licence reinsurance broker to arrange its treaty reinsurance renewal offshore. It is a distinct and separate remedy to the power conferred on him to grant an exemption under Section 37.

23. For these reasons, I am satisfied that the defendant did not base his decision on the requirements of Section 37. The application for judicial review will be upheld and the decision of 19^th March 2014 will be brought into this Court and quashed forthwith.

Grant of Exemption

24. The question of remittance to the defendant to reconsider the application for exemption or alternatively, substitution of decision is a matter open to the Court to consider. As a general rule, the Court must be reluctant to dwell into the affairs of an administrative or subordinate authority for good reasons. An administrative or subordinate authority is better placed to resolve its disputes than the Court. However, there may be instances where the Court may intervene and substitute its decision for the decision under dispute. The Court’s supervisory powers under Section 155(4) of the Constitution may be exercised where there is evidence to support a finding in favour of the plaintiff and a remittance will further delay the resolution of the dispute. I add cost is another consideration.

25. In this case the uncontested evidence is that the plaintiff has met the requirements of Section 37. These requirements are canvassed at [16] to [19] above and the application should have been granted. However, for the reasons given by the defendant, it was refused. Secondly, to remit the application to the defendant will further delay the resolution of the dispute and finally, further costs will be incurred to pursue the application. For these reasons, I am satisfied that the Court will substitute its decision for the decision in question.

26. The order will be that the plaintiff is exempted from the requirements of Section 36 and it may engage the services of Guy Carpenter as its broker to arrange its treaty insurance with an offshore reinsurer of its own choice.

Costs

27. Finally, the defendant shall pay the plaintiff’s costs of the application for judicial review, to be taxed if, not agreed.
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Young & Williams Lawyers: Lawyers for Plaintiff
Albatross Law: Lawyers for Defendant