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You are here: BAILII >> Databases >> The Judicial Committee of the Privy Council Decisions >> Arorangi Timberland Ltd & Ors v Minister of the Cook Islands National Superannuation Fund (Cook Islands) [2016] UKPC 32 (17 November 2016) URL: https://www.bailii.org/uk/cases/UKPC/2016/32.html Cite as: [2016] UKPC 32, [2017] WLR 99, [2017] 1 WLR 99, [2016] WLR(D) 611 |
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Michaelmas Term
[2016] UKPC 32
Privy Council Appeal No 0033 of 2015
JUDGMENT
Arorangi Timberland Limited and others (Appellants) v
Minister of the Cook
Islands
National Superannuation Fund (Respondent) (
Cook
Islands)
From the Court of Appeal
of the Cook
Islands
before
Lord Neuberger
Lord Mance
Lord Clarke
Lord Sumption
Lord Toulson
JUDGMENT GIVEN ON
17 November 2016
Heard on 6 and 7 April 2016
Appellants Dr Gerard McCoy QC Timothy Arnold Zoe McCoy (Instructed by Tim Arnold PC) |
|
Respondent Michael Ruffin David James (Instructed by
Crown Law Office ( ![]() |
LORD NEUBERGER AND LORD MANCE
Introductory
1.
This is an appeal brought by seven appellants against a decision of the
Cook
Islands’
Court of Appeal (Williams P, Barker and Paterson JJA), reversing
the first instance decision of Weston CJ, who held that the superannuation
scheme set up by the
Cook
Islands’
National Superannuation Act 2000 (“the 2000
Act”) was unconstitutional and therefore invalid. The respondent to the appeal
is the Minister of
Cook
Islands’
National Superannuation Fund (“the Minister”).
2.
Prior to 2000, the only forms of financial support for retired people
provided by the Cook
Islands’
Government were (i) a universal old age pension
for all those over 60 years of age (which the Court of Appeal described as
“very modest”), and (ii) a pension under a defined benefit scheme which was limited
to public servants, and which had been closed to new entrants since 1995.
During the 1999 general election, the New Alliance Party’s manifesto included a
policy for establishing a national superannuation scheme for all employed
Cook
Islanders.
4.
The appellants raise two principal arguments to challenge the validity
of the 2000 Act. The first is that the 2000 Act, or the Scheme established pursuant
to that Act, is invalid as it involves a taking or deprivation contrary to
article 40(1) and/or 64(1)(c) of the Cook
Islands
Constitution (“the
Constitution”). The second principal argument is that section 53 of the 2000
Act is unjustifiably discriminatory contrary to article 64(1) of the
Constitution. At first instance, in a judgment given on 31 January 2014, the
Chief Justice accepted both these arguments, but on appeal, in a judgment of
the court given on 17 November 2014, the Court of Appeal rejected them - [2014]
CKCA 4.
The factual, statutory and constitutional background
The 2000 Act
(a) The compulsory
nature of contributions to the Fund. The membership of the Scheme set up by the
2000 Act (“the Scheme”) and, thus, an obligation to contribute to the Fund is
compulsory for every person who is in employment in the Cook
Islands
or whose
employment is outside the
Cook
Islands
while the employer is resident in the
Cook
Islands
and for every employer in respect of an employee who is so
employed -
see section 36 of the 2000 Act.
(b) The quantification of contributions to the Fund. The Scheme was phased in and, once it applied to an employee’s class of employment, the contributions were calculated as a percentage of the employee’s earnings. For one year following the date on which the Scheme becomes applicable to a class of employees, the employer and employee are both required to pay 3% of the employee’s earnings. That percentage rises to 4% in the second year and thereafter 5% per annum. These rates may be amended by Order-in-Council in accordance with a recommendation of the Board and the Trustee - see section 39 of the 2000 Act.
(c) National
Superannuation Board (“the Board”). The Board comprises five members. One is
the Financial Secretary of the Cook
Islands
who is to be a permanent member
while the other four are nominees of particular interest groups. Those groups
are the
Cook
Islands’
Workers Association Inc, the
Cook
Islands’
Chamber of
Commerce Inc, the private sector employers who are not members of the Chamber
of Commerce, and one member nominated by contributors to represent them. Only
one member of the five member Board has any association with the
Cook
Islands’
Government - see section 4(2) of the 2000 Act.
(d) The Board’s functions. The initial function of the Board was to prepare a Trust Deed (“the Trust Deed”) to establish the Fund. Other functions include the appointment and removal of the Trustee administering the Scheme under the Act (“the Trustee”), enforcing collection and payment of contributions to the Fund, monitoring the performance of the Trustee under the Trust Deed, advising the Trustee and reporting to and advising the Minister as the Minister requires. The usual obligations of members of the Board to act in good faith, with reasonable care, diligence and skill and with honesty and integrity are stated in the Act - see sections 11 and 12 of the 2000 Act.
The Trust Deed
(e) The obligation to prepare the Trust Deed rested with the Board and not the Government. The Board was required to appoint the initial Trustee and to submit the Trust Deed to the Minister and provide him with a certificate from the Chairman of the Board certifying that the Trust Deed was not inconsistent with the 2000 Act. Under section 16 of the 2000 Act certain provisions were mandatorily to be included in the Trust Deed. They included obligations:
(i) To establish the Fund;
(ii) To appoint the initial Trustee;
(iii) To provide for the conditions of entry of members to the Fund;
(iv) To provide for the conditions as to termination of membership of the Fund;
(v) To provide for the conditions under which benefits become payable and the way in which the benefits are to be determined;
(vi) To provide for the circumstances in which the Fund may be wound up, and the way in which the assets of the Fund are to be distributed in the event of a winding up;
(vii) To contain no restrictions on the Trustee’s powers of investment other than which is provided in section 19 of the 2000 Act;
(viii) To subject the Trustee to all equitable duties and responsibilities that a trustee has at law;
(ix) To provide for separate accounts for each contributor;
(x) To give the Trustee power to borrow money for the purposes of making any investment or paying any benefit or meeting any liability or for the purpose of management of the Fund;
(xi) To give the Trustee power to enter into any insurance or reinsurance contract relating to the payment pursuant to the Fund of any pension or other benefits contingent on the death or survival of human life; and
(xii) To provide for the remuneration and reimbursement of expenses of the Trustee, investment manager and agents.
(f) The Trustee. The Trustee must be a company under the Trustee Companies Act 1967 (New Zealand) or the Public Trust Office Act 1957 (New Zealand), or an independent professional corporate trustee of similar standing and experience in the trusteeship of superannuation schemes or plans. The Trustee must be appointed by the Board which has the power to replace a Trustee. Another provision requires the Trustee to be appointed “following a transparent and contestable process” - see sections 2 and 11 of the 2000 Act.
(g) The investment of the Fund. The Trustee is responsible for investing the Fund on a prudent commercial basis consistent with best practice portfolio management. It is required each year to provide to the Board its investment strategy for the year which is to include the Trustee’s expectation as to risk and return and anticipated specific investments and class of investments. Under section 19 of the 2000 Act, the Board does have a power to direct the Trustee to invest the Fund:
(i) To meet the Government’s expectation as to the Fund’s performance, including the Government’s expectation as to risk and return;
(ii) Not to invest in a specified investment or class of investments to which the Crown already has a direct or indirect exposure, for the purpose of limiting the exposure; and
(iii)
To invest a proportion of the Fund not exceeding 20% within the Cook
Islands.
(This direction can only be given after consultation with the Minister).
(h) Amendment of Trust Deed. The Board has the right after consultation with the Trustee to rescind, alter or add to any of the provisions of the Trust Deed. However, an amendment is not adversely to affect a contributor’s right or claim to benefits or the amount of those benefits that have accrued up until the date of the amendment without the consent of the contributor, unless the amendment is required to comply with the Act or is solely to correct a mistake which has advantageously altered a contributor’s right or claim to accrued benefits of the amount of those accrued benefits - see section 21 of the 2000 Act.
(i) Taxation. By virtue of section 27 of the 2000 Act, the Trustee on behalf of the Fund and the Fund are exempt from income tax. An employer’s contribution is deductible for tax purposes and an employee pays tax on the employee’s contribution to the Fund. Benefits received by a member are free of tax in the hands of the member.
(j) Transfer between Funds. An employee who was in an existing superannuation fund may cease contributions to that fund if the fund so permits and transfer the employee’s benefit in the fund to the Fund. If the employee’s existing superannuation fund does not permit withdrawal of funds to enable them to be transferred to the Fund, the employee is exempted from the provisions of the Act and is not obliged to be a contributor in the compulsory scheme.
(k) Withdrawal. The only
right to withdraw before reaching retirement age is where a person is resident
in the Cook
Islands
for the sole purpose of being employed under a contract of
service of not more than three years. If such a person so elects, he or she
receives a refund of the employee contributions on the person’s permanent
departure from the
Cook
Islands.
The employer’s contributions are not paid to
the employee but are transferred to the reserve account within the Fund. However, such a person may not make such an election, in
which case he or she will retain the investments vested in them and will in due
course receive a (no doubt very modest) pension in the same way as an employee
who is a permanent resident of the
Cook
Islands
- see section 53 of the 2000
Act.
(l) Where a beneficiary ceases to make contributions, the amount standing to his credit shall continue to accrue interest until it is applied to provide a benefit from the Fund - see section 54.
(m) Benefits not available. Unless provided in the Act or the Trust Deed, in no event may any benefit be assigned or charged or attached or passed to any creditor or a contributor by operation of law. Nor shall any money payable on the death of any contributor be assets for the payment of the deceased contributor’s debts or liabilities - see section 63.
6.
So far as Government influence over the management and investment of the
Fund is concerned, the Court of Appeal referred to the fact that, when speaking
to the second reading of the Bill in November 2000, the Deputy Prime Minister
said that the 2000 Act had been “designed to be completely above board and
completely independent of Government interference” - see Cook
Islands
Hansard 23 November 2000 at 825. The Court of Appeal then said this, which
has not been challenged on this appeal:
“One of the Board’s functions is
to ‘report to and to advise the Minister, as the Minister requires’. There is
no general provision requiring the Board to comply with any Ministerial instruction
or advice. There is the investment power … where[by] the Board may, after
consultation with the Minister, direct the Trustee to invest in certain funds.
This is not an obligation to comply with any direction which the Minister may
give and some of the restrictions on the exercise of this particular power
suggest that they are designed to ensure that the Fund is not put at risk. The
only provision which may carry an inference that the Government expects a
certain type of investment is the requirement [referred to in para 5(g)(iii)
above] to invest a proportion of the Fund not exceeding 20% within the Cook
Islands.
Once again, the restriction of 20% may be said to be designed to
protect the Fund but at the same time give some impetus to local investment for
the sake of the economy.
There is a right for the Minister with the concurrence of Cabinet to make representations to the Board in respect of the general policy of the Government as that policy may affect the Fund and which is not inconsistent with the Act or the Trust Deed. The Board is then required to consult with the Minister and may, but is not obliged to, have regard to any such representation. Such representation must be conveyed to the Board and Trustee in writing by the Minister. It must be tabled in Parliament within 14 sitting days of the representation being made and the response being provided to the Minister.”
“The Act contains the essential
elements of the Scheme which is operated by a Board in accordance with the
terms of the Trust Deed. It is a compulsory defined contribution Scheme with
very limited rights of withdrawal before an employee reaches the age of
retirement. The contributions of both the employer and the employee become the
property of the employee. The limits on investing in the Cook
Islands
may be
intended to reduce the possibility of making unwise investments similar to some
past investments made by the Government [of the
Cook
Islands]
…”
The Trust Deed
(a) Contributors’ accounts are dealt with in clauses 15-17.
(i) A member has a compulsory account and if the member elects he or she may also have a voluntary additional account. At the time the member is entitled to a pension, that member might also have a pension account. The mandated contributions of the employer and the employee go into the member’s compulsory account.
(ii) A member’s compulsory account is fully vested in the member - clause 69. There is no such provision relating to the member’s voluntary account. A member’s compulsory account shows the balance vested in that member after crediting mandated contributions of both the employee and the employer, any amount transferred from another superannuation fund, any insured benefit which may be credited to that member, less any insurance premium paid on behalf of the member in accordance with the terms of the Trust Deed and an amount determined by the Trustee, subject to the consent of the Board, to be debited and paid to the reserve account to meet fund expenses.
(iii) In addition, the balance will be adjusted either positively or negatively annually with an amount calculated by applying the appropriate crediting rate for the Fund account. The “crediting rate” is in effect based on the Fund’s performance and the value of their assets. Because the crediting rate may be negative and there will be deductions for managing the Fund and paying an insurance premium on behalf of the member, a member’s interest in the Fund may be less than the combined contributions of the member and the employer.
(b) Pension accounts are dealt with in clause 20. When an employee is entitled to a benefit and retires the balance in the compulsory account is transferred to a pension account and used to provide a pension that may also be used to buy an annuity for the employee. After acquiring an actuarial report the Trustee in consultation with the Board may increase or reduce the pension factor and may make other alterations to the benefits payable to a member.
(c) Reserve accounts are dealt with in clauses 27 and 28. There is provision for both a general reserve account and a pension reserve account. Funds may only be transferred to those reserve accounts, which may only be transferred from a member’s compulsory account to meet the expenses of the Fund.
(d) Benefits payable are described in clauses 42-46. Subject to some specified exceptions, benefits are payable by way of pension. If the balance of a member’s compulsory account is less than $25,000, it may be paid as a lump sum. Apart from that, a member entitled to a pension may elect to take a cash sum of up to one-quarter of the balance in the member’s compulsory account. Benefits are usually paid when a member reaches normal retirement age, provided a member has not received earlier benefits from the Fund. There are provisions for earlier payment for total and permanent disablement and provisions for payment on the death of a member. There are also provisions for payment of a spousal benefit and payment of an insurance benefit in the case of premature death.
(e) A trustee’s indemnity is contained in clauses 79-81. The Trustee is indemnified against all liabilities and expenses incurred in the execution of its duties and will have a first and paramount lien on the Fund for such indemnity. The indemnity will not be available if the Trustee or a director of the Trustee fails to act in good faith or honestly in a matter concerning the Fund, or the acts or omissions of the Trustee or of that director are the result of wilful or negligent default or wilful or negligent breach of trust or the dishonesty or fraud of any of its directors, officers or other persons or persons appointed by the manager.
(f) Powers of investment are identified in clause 94. The powers of investment vested in the Trustee are extensive and it has the same powers it would have as a beneficial owner of the Fund. These powers are subject to the provisions of the Act including the power of the Board after consultation with the Minister to make the directions referred to in para 5(g) above.
(g) Dissolution of the Fund is covered by clause 117. The Fund dissolves if it no longer has any members or on a date the Board determines in consultation with the Trustee and Cabinet. It also terminates the day prior to the date of expiration of the perpetuity period but the definition of “perpetuity period” in effect means that it is in existence for very many years to come.
(h) Distribution on
dissolution is
the subject of clause 118. On dissolution, the funds are paid in accordance
with the Trust Deed to the contributors entitled to them less the expense of
dissolution. Any surplus does not go to the Government of the Cook
Islands.
It
may at the discretion of the Trustee be paid to members, former members or
pensioners or other dependants by way of further benefits.
10. The Constitution is based on the Westminster Model, whose character was explained by the Board in Hinds v The Queen [1977] AC 195, 213-214.
“No property shall be taken possession of compulsorily, and no right over or interest in any property shall be acquired compulsorily, except under the law, which of itself or when read with any other law -
(a) Requires the payment within a reasonable time of adequate compensation therefor; and
(b) Gives to any person claiming that compensation, a right of access, for the determination of his interest in the property and the amount of compensation, to the High Court; and
(c) Gives to any party to proceedings in the High Court relating to such a claim the same rights of appeal as are accorded generally to parties to civil proceedings in that court sitting as a court of original jurisdiction.”
13. Article 64 is headed “Fundamental human rights and freedoms”. It provides as follows:
“(1) It is hereby recognised
and declared that in the Cook
Islands
there exist, and shall continue to exist,
without discrimination by reason of race, national origin, colour, religion,
opinion, belief, or sex, the following fundamental human rights and freedoms -
(a) The right of the individual to life, liberty, and security of the person, and the right not to be deprived thereof except in accordance with law;
(b) The right of the individual to equality before the law and to the protection of the law;
(c) The right of the individual to own property and the right not to be deprived thereof except in accordance with law: ...
(2) It is hereby recognised
and declared that every person has duties to others, and accordingly is subject
in the exercise of his rights and freedoms to such limitations as are imposed,
by any enactment or rule of law for the time being in force, for protecting the
rights and freedoms of others or in the interests of public safety, order, or
morals, the general welfare, or the security of the Cook
Islands.”
The arguments raised before the Board
15.
The appellants, some of whom are employers, and the rest of whom are
employees, in businesses carried on in the Cook
Islands,
contend that the
Scheme, as set up by the 2000 Act infringes the Constitution, and is therefore
invalid. Their argument raises three main contentions.
The constitutionality of the Scheme without Guarantee, Entrenchment or early withdrawal rights
Introductory
22.
As explained above, the Scheme is said by the appellants to infringe
article 40(1) and/or article 64(1)(c) of the Constitution on the grounds that
it is disproportionate to deprive employees in the Cook
Islands
of a
significant proportion of their wages, with no guaranteed return and no
significant means of access until retirement, given that there is no Guarantee
or Entrenchment, and no right of early withdrawal.
The presumption of constitutionality
29. So far as the presumption of constitutionality is concerned, the Court of Appeal said that it had two components. The first was the principle that a court should, if possible, interpret a statute so that it does not conflict with any constitutional limitations - see Observer Publications Ltd v Matthew [2001] UKPC 11, para 49. The second component which the Court of Appeal identified was that “[t]he constitutionality of a Parliamentary enactment is presumed unless it is shown to be unconstitutional” - see Public Service Appeal Board v Omar Maraj [2010] UKPC 29, para 29.
30.
The Board has no doubt but that the first component is an important and
valid principle of statutory interpretation, and indeed it is included in the
Constitution - see article 65. As Lord Cooke
said in Observer Publications,
para 49, legislation should, if possible, be “read down” so as to comply
with constitutional requirements. And, as Lady Hale said more recently, “in
interpreting [statutory] provisions, the Board should presume that Parliament
intended to legislate for a purpose which is consistent with the fundamental
rights and not in violation of them” - Public Service Appeal Board v Omar
Maraj [2010] UKPC 29, para 29.
33. In the present case, there is no significant issue of fact between the parties: the effect of the Scheme as set up by the 2000 Act is agreed, as is the fact that there is no Guarantee, Entrenchment or early withdrawal right The issue is simply whether the absence of each of those three features means that the Scheme is disproportionate thereby rendering the 2000 Act unconstitutional. In those circumstances, in agreement with the Chief Justice, the Board considers that the presumption of constitutionality takes matters no further, unless it is treated as an aspect of proportionality, in which case it adds nothing and, indeed, merely serves to confuse. In that connection, when considering the second component of the presumption of constitutionality, the Court of Appeal does appear at times to have conflated it with the margin of judgment which the court accords to the legislature when considering the proportionality of a statute. Thus, in paras 45 and 46 of their judgment, in support of what they had concluded in connection with the presumption of constitutionality, the Court of Appeal quoted passages from judgments in La Compagnie Sucrière de Bel Ombre Ltee v Government of Mauritius [1995] 3 LRC 494, 503 and Grape Bay Ltd v Attorney General of Bermuda [2000] 1 WLR 574, 585, both of which were expressly concerned with the “margin of appreciation” which the court should accord the legislature.
The proper approach to proportionality
34. So far as proportionality is concerned, the Court of Appeal rightly referred to the judgments of Lord Sumption and Lord Reed in the United Kingdom Supreme Court in the case of Bank Mellat v HM Treasury (No 2) [2014] AC 700, paras 20-21 and 68-76 respectively. However (drawing from its earlier decision in Clarke v Karika [1985] LRC (Const) 732, 746), the Court of Appeal suggested at para 39 of its judgment that the 2000 Act could only be impugned on grounds of disproportionality if it “does not rest upon any reasonable basis, but is essentially arbitrary”. The test of arbitrariness was also treated as the appropriate test in a passage in Woods v Minister of Justice, Legal and Parliamentary Affairs [1994] 1 LRC 359, 362 cited with approval by the Court of Appeal in para 49 of its judgment.
36. Thus, in para 20 of his judgment, Lord Sumption explained that an issue of proportionality:
“depends on an exacting analysis of the factual case advanced in defence of the measure, in order to determine (i) whether its objective is sufficiently important to justify the limitation of a fundamental right; (ii) whether it is rationally connected to the objective; (iii) whether a less intrusive measure could have been used; and (iv) whether, having regard to these matters and to the severity of the consequences, a fair balance has been struck between the rights of the individual and the interests of the community. These four requirements are logically separate, but in practice they inevitably overlap because the same facts are likely to be relevant to more than one of them.”
37. As Lord Reed said in para 69 of his judgment in Bank Mellat, “the intensity [of a proportionality review] - that is to say, the degree of weight or respect given to the assessment of the primary decision-maker - depends on the context”. Thus, the intensity of the review which the court carries out in a proportionality exercise depends on a number of factors, including in particular the right involved, the nature of the issue and the identity of the decision maker.
38. As to the nature of the issue involved in this case, the 2000 Act was a measure of social policy with significant macro-economic implications, and, particularly bearing in mind the specific criticisms advanced by the appellants, with considerable budgetary implications for the Government (which are anyway engaged, not least because of the tax foregone on contributions to the Scheme). Whether to introduce such a scheme, and, if so, what its general terms should be, and in particular whether they should include a Guarantee, Entrenchment and/or early withdrawal rights are, by their very nature, decisions as to which the courts should accord the Government a generous margin of judgment (or appreciation). When it comes to policy choices of a social and macro-economic nature, the courts should be particularly diffident about interfering, given the nature of the functions, expertise and experience of the judiciary as against the executive or (as in this case) the legislature - see eg R (Rotherham Metropolitan Borough Council) v Secretary of State for Business, Innovation and Skills [2015] UKSC 6; [2015] PTSR 322, paras 22-23 and 61-65.
The alleged disproportionality of the Scheme: General
42.
As explained in para 36 above, this question involves addressing four
questions or requirements. It is rightly accepted by the appellants that the
first and second requirements of the four stage proportionality test are
satisfied. The objective of the 2000 Act and the Scheme is to relieve poverty
in the Cook
Islands
by providing substantially greater financial security than
previously existed for those who have ceased to be economically active. That is
plainly an important, indeed a laudable, aim, and it is one which is plainly sufficiently
important to justify the limitation of the fundamental right contained in
article 64(1)(c). It is also indisputable that the 2000 Act (and the Trust
Deed) are rationally connected to this objective.
“the limitation of the protected right must be one that ‘it was reasonable for the legislature to impose’ and that the courts [are] ‘not called on to substitute judicial opinions for legislative ones as to the place at which to draw a precise line’. This approach is unavoidable, if there is to be any real prospect of a limitation on rights being justified: … a judge would be unimaginative indeed if he could not come up with something a little less drastic or a little less restrictive in almost any situation, and thereby enable himself to vote to strike legislation down …; especially, … if he is unaware of the relevant practicalities and indifferent to considerations of cost.”
The alleged disproportionality of the Scheme: a Guarantee
47.
So far as the notion of a simple Guarantee to protect the members of the
Scheme against defalcations is concerned, it appears to the Board to be hard to
argue that the protection afforded under the terms of the 2000 Act and the
Trust Deed (see in particular the terms summarised in paras 5(c), (f), (g) and
(h) and 9(a)(ii) above) are insufficient. The protection afforded to Scheme
members appears to be the sort of protection which is given in any well-drafted
private superannuation scheme. Accordingly, at least on the face of it, the
Board cannot perceive any justification for the argument that it was positively
disproportionate for the Cook
Islands’
Parliament not to have included a simple
government Guarantee to protect the members of the Scheme against defalcations.
48.
Dr McCoy argued with some force that
the prospect of the Cook
Islands’
Government seeking to take action which
disadvantaged members of the Scheme was not fanciful. He said that “Governments
[of the
Cook
Islands]
in the past had repeatedly plundered public and
Governmental funds” and that there had been “past rampant government
maladministration” in the
Cook
Islands.
In particular, he pointed to the fact
that governments of the
Cook
Islands
in the past had a “history of
misappropriating any accessible source of funds including the assets of the
Government’s then superannuation scheme for public servants”, which occurred in
the 1990s. Sadly, there is undoubtedly force in that point, as can be
appreciated by reading paras 140-147 of the Court of Appeal judgment in this
case, as well as the judgments in Malcolm v Tanga [2006] NZAR 97 (CIHC)
and George v Attorney General OA No 1/2013, 22 July 2013. Accordingly,
Dr McCoy suggested that, even if a Guarantee would not otherwise be required to
achieve proportionality, the unfortunate history of the
Cook
Islands
indicated
that it was required in this case.
49.
It is obviously inimical to the rule of law for a court to refuse ever
to contemplate the possibility that the executive, or even the legislature, may
in the future act unlawfully or improperly. On the other hand, it is very
difficult to see how there can be a coherent system of government and maintenance
of the rule of law unless there is generally mutual respect and confidence
between the legislature, the executive and the judiciary. The history of the
governance and financial management of previous Cook
Islands
administrations
does give cause for concern. But it does not appear to the Board that the
unfortunate history upon which Dr McCoy understandably relies justifies
concluding that proportionality requires a Guarantee, if
(as the Board has concluded) it would otherwise not be required. As the
Court of Appeal said in para 196 of its judgment, “for all its economic trials
and tribulations, the
Cook
Islands
has been, since Independence, a stable
law-abiding democracy”.
52.
It is true that (with one exception, where the scheme got into
difficulties) in those other small Pacific Islands
which have state-sponsored
compulsory superannuation schemes are guaranteed by the relevant government. It
is also true that that a World Bank Report (Averting the Old Age Crisis:
Policies to Protect the Old and Promote Growth, 1994) supports the notion
that superannuation schemes should be guaranteed in some way so as to ensure a
minimum return for members. However, those points do not take matters much
further, other than to emphasise that it is perfectly reasonable to contend
that the Scheme should have such a guarantee; but that is not the issue.
54.
Whether or not there should be a sharing of the investment risk between
employees and the Government, and, if so, how such sharing should be achieved,
are essentially questions as to the allocation of risk between two groups of
people, namely members of the Scheme and Cook
Islands’
taxpayers. It appears to
the Board that it would require an exceptional case before a court could
properly hold that a legislative decision on such an issue could be rejected as
being disproportionate. Self-evidently, it is very difficult for a judge, who
has relatively limited relevant experience and appreciation of the competing
demands on the nation’s finances, to decide that the conclusion which the legislature
reached on such a macro-economic, policy-based issue was unreasonable or
disproportionate.
55.
The nature of a defined contribution superannuation scheme is that the
members’ contributions are invested, and that the eventual retirement benefits
are dependent, to a substantial extent, on how the investments perform. Unlike
the traditional, but now very rare, defined benefit schemes, there is no
guaranteed level of retirement benefit. The very fact that the cost of such a
guarantee was becoming very high, in many peoples’ view, prohibitively high,
explains the almost universal closing of defined benefit schemes in much richer
societies than that of the Cook
Islands.
It accordingly can be said with some
force that, at least unless the level of guaranteed benefit is very low, the
provision of a guarantee such as the appellants seek in this case would involve
the
Cook
Islands’
Government running a real risk of creating economic problems
for the future.
56.
Dr McCoy again relied on the recent unfortunate history of the Cook
Islands,
summarised in para 48 above, to support his case for a guaranteed
minimum return. The Board has some difficulty in seeing any relevant
connection. In any event, it can be said with some force that, if the previous
financial problems in the
Cook
Islands
are relevant, then, from the point of
view of taxpayers, that represents a good reason for not entrenching the 2000
Act, and, even more powerfully, for not providing a Guarantee. If there is a
risk of the financial difficulties recurring, that would suggest that the
Government should avoid entering into any substantial commitment unless it has
no alternative. This point ultimately simply serves to emphasise that the
decision whether to provide a Guarantee involves balancing the competing
interests of two substantial groups, Scheme members and taxpayers, and reaching
what is very much a policy-based decision.
57.
It is also true that some of the state-sponsored superannuation schemes
in other small Pacific islands
have a government guarantee of a minimum return
to members. However, others do not. In any event, as explained in para 52 above,
the point is of no real assistance to the appellants anyway.
The alleged disproportionality of the Scheme: Entrenchment
60.
However, as Dr McCoy put the point on behalf of the appellants “if the
threat or risk of deprivation in the form of non-return or partial return [of
employees’ contributions] is put beyond easy reach by Entrenchment, then the
degree of deprivation constituted by the initial capturing of compulsory contributions
…, is correspondingly lessened.” He makes the point that, in the absence of
Entrenchment, legislation could, for instance, render the Fund taxable,
increase the maximum proportion of the Fund to be invested in the Cook
Islands,
or increase the Government’s regulatory control over the terms of the Trust
Deed.
The alleged disproportionality of the Scheme: Early withdrawal
65.
The Board has little hesitation in agreeing with the Court of Appeal
that this line of attack on the proportionality of the Scheme must fail. It is
hard to see how it can convincingly be contended to be inappropriate for a
superannuation scheme to include terms which protect a member’s capital from
being spent in the meantime, even for worthwhile purposes, so as to ensure that
it is available to fund his or her needs in retirement. Indeed, such a
contention appears to lie rather uneasily with some of the arguments raised by
the appellants on the need for a Guarantee of a minimum return, which is based
on the notion that employees in the Cook
Islands
should have a reasonably sized
pension.
Conclusion on the first issue
The constitutionality of the treatment of migrant workers
68.
The Board turns to the appellants’ challenge to the constitutionality of
the treatment under section 53 of the 2000 Act of employees who are not
permanent residents in the Cook
Islands.
It is convenient at this point to set
out the relevant part of the 2000 Act containing section 53. It is headed
“Preservation of rights” and consists of two sections, reading as follows:
“53. Withdrawal – (1) Subject to the provisions of this Act and the provisions of the Trust Deed not inconsistent with this Act, a contributor shall not be entitled to withdraw any amount to that person’s credit in the Fund.
(2) Where a person is
resident in the Cook
Islands
for the sole purpose of being employed under a
contract of service of not more than three years and all of that persons
employee contributions for the time being to the credit of that person were
made in respect of earnings paid under that contract of service then that
person shall be entitled to receive a refund equal to the aggregate of those
employee contributions on the persons permanent departure from the
Cook
Islands,
subject to the provision of such evidence as the Board may require
that the persons departure will be permanent.
(3) Where a person is paid his or her employees contributions under subsection (2) then, the employers contributions shall be transferred to the reserve account within Fund.
54. Preservation of right - Except as otherwise provided, where at any time a person ceases contributing to the Fund, the amount to the credit of that person shall continue to attract interest until it is applied to provide a benefit from the Fund.”
69.
In summary, as set out also in para 5(k) above, non-resident employees
(“migrant workers”) who are employed for up to three years have to contribute
to the Scheme in the same way as employees who are permanently resident in the
Cook
Islands
(“resident workers”). However, unlike resident workers, migrant
workers are entitled (but not obliged) to be repaid their contributions at the
end of their employment, but this right only extends to their own contributions,
and not to the contributions made for their benefit by their employers. In the
event of a migrant employee making such an election, the employer’s contributions
are transferred to the Fund’s reserve account (as to which see para 9(c)
above). There, they inure to the benefit of other members of the superannuation
fund (in practice, mainly
Cook
Islanders)
and/or to the
Cook
Islands
government
which has in practice largely underwritten the fund’s expenses.
70.
The factual background to this issue is set out in an affidavit from the
Executive Director and an executive member (and past President) of the Cook
Islands
Chamber of Commerce (Lynnette Margaret Samuela and Stephen Nigel
Anderson). In their affidavit, they made clear that, while they did not support
the challenge based on the arguments considered in paras 22-67 above, they took
issue with the fairness of and justification for the provisions of section 53.
Their affidavit describes the development over the years of extensive
dependence of
Cook
Islands’
hotel and tourism businesses on migrant workers,
the bulk of whom come from countries such as Fiji, the Philippines, Indonesia,
Kiribati and are driven to work in the
Cook
Islands
by economic pressures. It
notes that migrant workers are “often only semi-skilled” and in general
modestly paid; that it is
Cook
Islands
policy to discourage migrant workers
from long term residence (with section 17 of the Entry, Residence and Departure
Act 1971-72 thus providing for every entry permit to expire after two or less
years); and that many migrant workers aim to return home after maximising
remittances while in the
Cook
Islands.
The affidavit describes the limited
portability of superannuation for foreign workers as “very unsatisfactory” and
“the nett effect of the Act [as] constitut[ing] a ‘tax’ that falls
disproportionately on these lower paid workers in a way that seems discriminatory”.
71. As a matter of law, the appellant’s challenge to section 53 in its present form can be analysed as raising two complaints. The first complaint is that section 53 involves unjustifiable discrimination against migrant workers, contrary to article 64(1) of the Constitution, because they are required to forego the benefit of their employer’s contributions. The second complaint is that, because the section requires migrant workers to forego the benefit of their employer’s contributions (which are vested in them), they are deprived of property without justification or compensation, contrary to article 40(1) and/or article 64(1)(c) of the Constitution (set out in paras 12 and 13 above). The Board considers it convenient to address these complaints together. There is no challenge to the finding by the Court of Appeal of deprivation of the claimants’ property within the meaning of article 64(1)(c) and the critical question is whether there is unjustifiable discrimination.
72.
Under the 2000 Act, migrant workers become members of the Fund, and contributions
have to be made in respect of them, in the same way as is the case with any
Cook
Islands’
inhabitant. Under the 2000 Act and the Trust Deed, all contributions
made in respect of and standing to the account of a particular employee are
“fully vested” in that employee: see para 9(a)(ii) above. The employee earns
the employers’ contributions by the work he does, just as he earns the benefit
of his own contributions by deductions from the pay which he would otherwise
receive for the same work. Migrants and ordinary inhabitants are to that extent
in identical positions. But their position in practical terms is significantly
different. Migrants are not expected to remain in the
Islands
or to live there
during their retirement. It is not in their, or probably anyone’s, interests
that they should be locked into a
Cook
Islands’
pension scheme until their
retirement. After migrants leave the
Islands,
the prospects of their claiming
any limited pension which they had earned there, perhaps decades earlier, are
inevitably slight.
73.
The Court of Appeal in para 9 of their judgment accurately described the
Fund as “aimed at providing financial security for Cook
Islanders
in their retirement”,
and in para 12 they quoted the Deputy Prime Minister as saying at the second
reading of the Bill which became the Act that “the purpose of the Bill is to
establish a compulsory National Superannuation Fund from which benefits are to
be provided to employees upon their retirement from employment in the
Cook
Islands”.
This was in the long term interests of the
Islanders
as individuals
and of the
Cook
Islands’
community, which would otherwise face the problem of
what to do about an elderly and in some cases indigent section of the
community. This aim provided the rationale for two essential features of the
Fund, namely that it was compulsory and that the ability of individuals to draw
benefits before retirement was severely restricted. However, for reasons which
the Board has set out, migrant workers are a distinct social group to whom that
rationale does not apply. They are not
Cook
Islanders
and are not expected to
live in the
Cook
Islands
until retirement. On the contrary, they fulfil a
particular purpose for the
Islands’
economy by being admitted for a short term
only.
74.
Two decisions of the Grand Chamber of the European Court of Human
Rights establish that “[t]he right not to be discriminated against … is also
violated when states without an objective and reasonable justification fail to
treat differently persons whose situations are significantly different”, and
that discrimination can “take the form of disproportionately prejudicial
effects of a general policy or measure which, though couched in neutral terms,
discriminates against a group”: see Thlimmenos v Greece
(2000) 31 EHRR 15, para 44 and DH v Czech Republic (2007) 47 EHRR 3,
para 184 respectively. It is therefore in the Board’s
view no answer to say that there has been no discrimination because there would
have been none if section 53 had not been enacted (since the treatment of
migrant workers would have been identical to that of indigenous workers); and
that far from section 53 being open to objection, it merely gives to migrant workers
an extra choice and therefore a more privileged position. If section 53 had not
been enacted, migrant workers would have been admitted to the Islands
on a
purely temporary basis and compelled to contribute to the Fund, but not allowed
to remove what they had earned on their permanent departure from the
Islands.
This would in the Board’s view have been a good example of a disproportionately
prejudicial effect of a general measure on a distinctly different group from
those, ie indigenous workers, whose welfare in retirement constituted the aim
behind the establishment of the Fund.
75.
In these circumstances, the Cook
Islands
legislature in enacting the
Scheme has recognised that fairness requires that special provision be made for
the special position of migrant workers. However, having recognised that the
position of migrants cannot sensibly be equated with that of ordinary
inhabitants, the
Cook
Islands
legislature has, as the Board sees it, gone only
half way in section 53 towards compensating for the difference. It entitles
migrants to the return of half their interest in the Fund, while in effect
giving the benefit of the other half of the migrants’ interest in the Fund to
the Fund and/or other pension-right holders and/or (because the evidence is that
the government has largely been funding the expenses of the Fund) to the
benefit of the
Cook
Islands’
Government itself. Section 53 has left migrants
with a choice between (a) a (little more than theoretical) right to claim a
pension on the same basis as an ordinary inhabitant at a date which is likely
to be years or decades in the future and (b) a (practical) right to return
(without interest, though no specific complaint is made about this) of only
half the pension contributions standing to their credit in the Fund on leaving
the
Cook
Islands
after two years.
78.
The upshot of section 53 is, in practice, that advantage is taken of
migrant workers’ vested pension contributions to the benefit of the reserve
fund, and so to the benefit either of the body of Cook
Islands’
workers or of
the Fund or the
Cook
Islands’
Government. Migrant workers are necessary for the
Cook
Islands’
economy, but they are not welcome for too long (hence the two-year
entry permit limit). They are accepted as requiring special treatment in view
of their special position. But the treatment offered (which they will and do in
practice accept) treats them in effect as a class of worker who can be expected
to work for less than the wages which
Cook
Islands’
inhabitants receive. On
this basis, if it extended generally, a migrant worker working in various host
countries for periods of two years throughout his life, would, for precisely
the same work as the inhabitants of such countries, lose the benefit of in effect 5% (assuming para 5(b) above to
reflect present
Cook
Islands’
contribution rates) of the equivalent of
his or her total income over his or her working life, compared with such
inhabitants. According to the evidence of Mr Wilkie Rasmussen, leader of the
Opposition in the
Cook
Islands,
the position differs in other Pacific
countries, such as Samoa, Tonga, Fiji, the Solomon
Islands,
Tuvalu and Vanuatu.
They are said to allow migrants who permanently depart a full return of pension
contributions standing to their credit. That suggests that section 53 is
internationally anomalous in practice.
“Best practices in this area include allowing the totalization of periods of contribution and ensuring that migrants receive a fair replacement rate from each of the pension systems to which they contributed.”
In paras 76 and 113 of a later report dated 25 July 2013, A/68/190, the Secretary-General again referred to the need to enhance the portability of social security and other acquired right for migrants.
“Where non-nationals, including migrant workers, have contributed to a social security scheme, they should be able to benefit from that contribution or retrieve their contributions if they leave the country.”
A footnote in this connection refers to para 98 of the Secretary-General’s report A/60/871. It should perhaps be added that there is no justification for treating the reference to migrants receiving “their contributions if they leave the country” as contemplating so discriminatory a result as would obtain if it was taken as excluding employer’s accrued contributions.
81.
In the Board’s view, the limitation of recovery under section 53 is both
anomalous and unfair. This is a view which appears in large measure to have
been shared by the courts below - both consisting of judges closer to the Cook
Islands
and particularly well placed to make a judgment on such matters. At
first instance, Weston CJ, correctly in the Board’s view, saw section 53 as
recognising that it would not be fair to lock departing migrants in (para 217),
and went on:
“But it is by no means clear to me why migrant workers should lose their employer contributions in those circumstances. Whatever the reason, dispossessing migrant workers of their employer contributions seems both unnecessary and unfair.”
“A citizen, not a migrant worker
leaving the Cook
Islands,
is not entitled to withdraw contributions which are
locked in until the age of retirement. Whatever the court may think of the
fairness of such proposal [sic] it was well within the legislature’s power to
legislate on such matters of social policy.”
It is not entirely clear what the “proposal” in question here was, but it was probably the submission that migrants should have been entitled to withdraw the whole of their contributions. On that basis, the comparison drawn with ordinary inhabitants simply ignores the differences between their positions, which section 53 aims but fails fully to address and redress.
83. The Court of Appeal went on to refer to Pillai v Mudanayake [1953] AC 514 as a case where the Board held that “alleged discrimination against immigrants, namely Indian Tamils, was intra vires the Ceylon Legislature because it was based not on their nationality but on their migratory habits”. This case has however no relevance at all to the present. It was concerned with primitive anti-discrimination legislation - the Ceylon (Constitution and Independence) Order in Council, 1946 as amended - which only precluded the imposition of “disabilities or restrictions to which persons of other communities … are not made liable”, and all that it decided was that migrants were not a “community” under this Act and so not then protected from discrimination.
84.
The Court of Appeal next quoted a prior Cook
Islands’
Court of Appeal
decision, Clarke v Karika [1985] LRC (Const) 732, as authority for the
proposition that the constitutional right to equal treatment or non-discrimination
was “offended only if the classification rests on grounds wholly irrelevant to
the achievement of the state’s purpose”. If that was ever the law in the
Cook
Islands,
the Board considers that it certainly cannot be now. It represents a
quite inadequate approach to the “exacting analysis” and determination required
by the passage in Bank Mellat set out in para 36 above.
“There is a legitimate purpose to
the challenged provisions regarding migratory workers because they act as
disincentive to people migrating and depopulating the Cook
Islands.”
This suggestion appears to the Board both speculative and
implausible. The only evidence that the Court of Appeal referred to in this
part of its judgment was that (adduced by the appellants) of Mr Trevor Clarke,
Chairman and Chief Executive of Cook
Islands’
Trading Corporation. His view was
that the 2000 Act “appears to abuse the rights of outward emigrants, of
contract workers, and of employers”. As to the relationship between emigration
and immigration, he explained that outward immigration - meaning in context,
clearly, of the indigenous population - was massively high, and that this had
led to “increasing inward migration, on a short term basis, of workers from
overseas”. The problem of indigenous emigration has in short nothing to do with
section 53.
“the legislature may, rightly or wrongly, have thought that the return to the employer of the employer’s contribution could act as an incentive to structure the workforce with short term contracts so as to recover contributions, thereby diminishing the overall strength of the scheme, and horizontal equity between employers.”
This is however addressing a hypothesis that section 53 might have provided for return of the employers’ contribution in respect of any departing migrant to the employer. That would certainly give the employer an incentive to employ short term migrant labour, and would be just as unfair to migrant workers as the present system. It offers no justification for depriving departing migrant workers of the value of such contributions. They are a much needed part of the workforce, but have to leave after at most two years.
87.
In the above circumstances, it is for the Board, in its role as a
constitutional court, to evaluate the constitutionality of section 53, applying
the approach indicated in Bank Mellat so far as that raises issues of
proportionality, and bearing in mind that the Scheme as a whole falls within
the area of social policy. In contrast to the position under the general
challenge to constitutionality which the Board has rejected, the Board is here
concerned with a specific provision, bearing on the position, and vested
rights, of a specific (and socially disadvantaged) category of pension-right
holders, migrants. That there is a valid and necessary objective behind a
provision enabling migrant workers, who are only permitted to stay for a short
period of years, to recover (albeit without interest) pension contributions
vested in them is unquestionable. But the objective in excluding from such
recovery the equivalent of employers’ contributions is unexplained, save that
it will obviously benefit other ordinary pension-fund holders, the Fund and/or
the Cook
Islands’
Government. No substantial justification at all has been
shown for such an exclusion. It is not, and could hardly be, suggested that the
viability of the Scheme depended on it. The Scheme as a whole could, so far as
appears, have operated by enabling migrants to recoup (without interest) the
full value of the contributions vested in them. The benefit which section 53 in
its present form gives to ordinary pension-right holders and/or the
Cook
Islands’
Government was and is uncovenanted. It failed to strike a fair balance
between migrants and the
Cook
Islands’
community, and was disproportionate, to
vest in the benefit of the employers’ contributions made in respect of migrants
leaving the
Cook
Islands
and wishing to take with them their accrued pension
rights.
88.
No doubt it is true that schemes such as the present are primarily
intended to be long term, and it may be regarded as generally undesirable to
allow any contributions to be repaid before the long term picture of the
development of a Fund such as the present has emerged. But migrants in the Cook
Islands
are in a special position, where they are not only needed in the
Cook
Islands’
economy, but are also required to participate, and so acquire vested
interests, in the Fund, while at the same time being expected and required to
stay only short term. Section 53 recognises their special position, but only
partially. Its effect in its present form is, the Board concludes, both
confiscatory, in that it deprives migrants of vested rights without
justification, and discriminatory, in that it fails to make appropriate
adjustments to cater for their special circumstances and needs.
90.
It is also true that the Act had democratic and bipartisan approval. However,
that is self-evidently insufficient on its own to render a provision
constitutional, although it is a factor which may have weight, particularly in
cases which are near the margin. One of the principal reasons for having
constitutional rights is that the ordinary majoritarian political process
cannot necessarily be relied on to protect minorities. In the Board’s view, for
the reasons already given, the fact that the discriminatory provision has
democratic support is not enough to justify its constitutionality. It is also
perhaps worth pointing out that a migrant worker would not be part of the
electorate unless he was a Commonwealth citizen or a permanent resident of the
Cook
Islands
(article 28(1)(a) of the Constitution). Migrant workers are
plainly not permanent residents, and the Board has no information what
proportion of them are likely to be Commonwealth citizens (although such
evidence as there is as to their origins suggests that the great majority would
not be).
Conclusion
93. The parties are requested to make submissions in writing as to the terms of any order including costs, such submissions to be lodged with the Registrar (and simultaneously served on the other party) 28 days after this judgment is handed down.
LORD SUMPTION: (dissenting in part)
94.
I agree with the advice which the majority proposes to tender to Her
Majesty, except on one point, which relates to the treatment of migrant workers
in section 53 of the Act. We are not on this appeal concerned with the wisdom
of the policy underlying section 53. Nor are we concerned to ask what is the
best kind of pension scheme for a community like the Cook
Islands,
or how
treatment of migrant workers under this pension scheme compares with their
treatment under other schemes enacted in supposedly comparable communities. The
only question before us is its constitutional validity.
97.
In my opinion the treatment of migrant workers who elect to take out
their contributions on leaving the territory is not discriminatory. Migrant
workers have all the same rights as denizens, namely the right to a pension
derived from both employer and employee contributions. The only difference is
that they have an additional right, namely a right of early withdrawal, which
denizens do not have. It is entirely up to them to decide whether to exercise
that right. To that extent, they are treated more favourably than denizens. The
only basis on which this could be said to discriminate against migrant workers
is that their different situation required them to be treated more favourably
still, by being allowed to take out their entire fund when they leave the
islands.
The difficulty about this argument is that it proves too much. If it
is correct, then the Act would be discriminatory even if section 53 had been
omitted, and migrant workers had been required to take a pension deferred to
retirement like everybody else. So, implicit in the majority’s advice is the
proposition that it is unconstitutional not to have a special category of
migrant workers entitled to withdraw their entire share of the fund when they
leave. The basis of this proposition is that it is unreasonable to expect a
migrant worker to accept a deferred pension at retirement age. This seems to me
to be a surprising suggestion. Deferred pensions are a standard feature of
occupational pension schemes whether private or state-sponsored. Before the
introduction by statute of portable pensions in the United Kingdom, deferred
pensions were routine, and in effect mandated by statute because it was a
condition of Inland Revenue recognition of an occupational pension scheme that
its terms prevented the taking of benefits before a minimum stipulated
retirement age. So far as this is a problem, it would be mitigated if the pension
was portable. But even portable pensions are deferred. Objectively, deferral
has substantial advantages for the employee, including professional investment
and a measure of protection against short term fluctuations in returns
affecting the value of the pensioner’s fund at pension age. It is suggested
that, reasonable or not, in practice migrant workers will not wait until
pensionable age to claim their entitlement. In fact, we have no idea whether
this is so or not. There is not a shred of evidence on the point.
100.
None of this is affected by the relevant international obligations of
the Cook
Islands.
The International Covenant on Economic, Social and Cultural
Rights of 16 December 1966 is not part of the municipal law of the
Cook
Islands.
Moreover, article 2(3) of the Convention specifically reserves the
right of developing countries, “with due regard to human rights and their
national economy”, to determine the extent to which they will apply the social
or economic rights recognised by the Convention to non-nationals. The official
commentary observes (para 36) that non-nationals should nevertheless be
entitled to benefit from their own contributions, which is exactly what section
53 provides for.
101.
This appeal is concerned with the policy choices made on a major issue
of domestic social policy with important budgetary implications. The Cook
Islands are a very small community with limited resources, which has enacted
these provisions after careful consideration and with democratic and bipartisan
approval. I can see why even short term migrants should be entitled on leaving
the scheme to recover the value of their own contributions, but I am not
prepared to say that it is unconstitutional to limit their rights to that,
especially when they have the option of taking a deferred pension on the same
basis as everyone else.