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 (Cook Islands))
|
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.
3.
After the general election, this policy was then implemented through the
presentation to Parliament by the new Government of a Bill (“the Bill”) which
in due course became the 2000 Act. The 2000 Act set up a National
Superannuation Fund (“the Fund”) to which contributions were to be made by
employees and employers, and from which superannuation payments were to be
made.
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
5.
The Court of Appeal helpfully set out at [2014] CKCA 4, para 14 the main
features of the 2000 Act. With a couple of omissions (which are more comments
than descriptions) and with a few small additions and alterations, that summary
is as follows:
(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.”
7.
The Court of Appeal also gave this “overview” of the 2000 Act, which the
Board considers to be accurate:
“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
8.
The Trust Deed contemplated by the 2000 Act (as described in para 5(e)
above) was executed by the Board and the Public Trustee of New Zealand, which
is now called the Public Trust, on 19 September 2001. The Public Trustee, which
remains the trustee, is based in New Zealand and the judge unsurprisingly
described it as “a highly reputable trustee” (judgment, para 86) in a passage
quoted by the Court of Appeal ([2014] CKCA 4, para 59).
9.
The Court of Appeal helpfully summarised the terms of the Trust Deed, at
[2014] CKCA 4, para 16, and the Board again adopts the summary, with
modifications:
(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.
The Cook Islands Constitution
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.
11.
Article 41(1) effectively entrenches the Constitution by requiring any
legislation which amends the Constitution to “[receive] the affirmative votes
of not less than two-thirds of the total membership (including vacancies) of
the Parliament” and to satisfy certain other requirements. (Article 41(2)
imposes an additional requirement for some categories of legislation which amend
the Constitution, but it is not relevant for present purposes).
12.
Article 40 is headed “No property to be taken compulsorily without
compensation”, and paragraph (1) is in these terms:
“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.”
14.
Article 65 states that, subject to paragraph (2) of article 64, every
enactment shall be construed and applied so as not to abrogate, abridge or
infringe (or authorise the abrogation, abridgement or infringement) of any of
the rights and freedoms mentioned in article 64(1).
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.
16.
The first contention is that the mandatory contributory nature of the Scheme,
which requires employees to pay contributions, and thereby to be deprived of a
proportion of their remuneration, without any realistic access to those contributions
until retirement or death, is disproportionate, and therefore contrary to article
40(1) and/or article 64(1)(c) of the Constitution, given that there is (i) no
Government guarantee or other underwriting of the Scheme (“a Guarantee”), (ii)
no entrenchment of the Scheme constitutionally (“Entrenchment”), and (iii) no
right to make early withdrawals for any reason (save under section 53, referred
to in paras 5(k) above 18 below). This is essentially a proportionality attack:
in the absence of a Guarantee and Entrenchment, it is said that the deprivation
of property resulting from implementation of the Scheme is disproportionate. In
this connection, the appellants contend that the Court of Appeal adopted the
wrong approach to the question of proportionality, and that, if the right
approach is adopted, the Scheme fails the proportionality test.
17.
The Minister’s case on this first contention is that the Court of Appeal
applied the right test in relation to proportionality, but, whether or not it
did, the Scheme as set up by the 2000 Act is proportionate despite the absence
of a Guarantee, Entrenchment, or right of early withdrawal of which the
appellants complain.
18.
Secondly, and separately, the appellants argue that the 2000 Act infringes
article 40(1) and/or article 64(1) of the Constitution by virtue of its
treatment of migrant workers, in that section 53 (whose effect is summarised in
para 5(k) above) effectively forces them to forfeit the value of half their
investment in the Fund (namely the employer’s contributions), or alternatively
because they are deprived of interest on their contributions when they are
repaid.
19.
The Minister contends that, on analysis, section 53 of the 2000 Act infringes
neither of the two articles of the Constitution.
20.
In the courts below, various other points were taken, but those points
are now abandoned and it is unnecessary to say more about them.
21.
The Board will first consider whether the Scheme is disproportionate,
and therefore unconstitutional, because of the absence of a Guarantee, Entrenchment,
or right of early withdrawal; and it will then turn to the narrower issue of
whether the Scheme is unconstitutional in the light of, and to the extent of,
its treatment of migrant workers.
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.
23.
The Board does not accept that article 40(1) is engaged in this
connection. There is no question of “property [being] taken … compulsorily”, as
contributions are not taken from an employee: rather they are invested for his
or her benefit, albeit compulsorily and in a manner outside the employee’s
control. The fact that the fees and costs involved in administering the Scheme
are taken from the aggregate contributions takes matters no further in this
connection: it is an inevitable and plainly lawful incident of the existence of
any superannuation scheme.
24.
There is, at least on the face of it, a somewhat more credible case for saying
that the compulsory investment in the Fund involves the compulsory acquisition
by the Trustees of the Fund of a “right over or interest” in the contributions
within article 40(1). However, all such contributions, and the resultant
investments, remain vested in the employee who paid it (see paras 5(e)(ix) and
9(a)(i) and (ii) and 9(a) and (b) above), and the investments so vested will in
due course be used for the benefit of the employee or his family. Accordingly, the
Board rejects that contention also.
25.
In relation to article 64, by contrast, the Board agrees with the courts
below that the appellants are right to contend that article 64(1)(c), is
engaged by the operation of the Scheme. The compulsory extraction of contributions
from an employee’s wages does represent a “deprivation” of those contributions,
even though they (and any resulting investments) are held for the benefit of
the employee, and the contributions (and investments) remain vested in him or
her. This was rightly not disputed by the Minister, and it is therefore unnecessary
to say more about it.
26.
Accordingly the appellants’ constitutional rights under article 64(1)(c)
are engaged, and it is therefore necessary to address the contention that the
Scheme is unconstitutional on the ground that the interference with employees’ article
64(1)(c) rights is disproportionate, in the light of the absence of a Guarantee,
Entrenchment or right of early withdrawal.
27.
So far as the alleged lack of proportionality of the Scheme is
concerned, both the Chief Justice and the Court of Appeal analysed the relevant
evidence and law very fully and very carefully. Much of the argument before the
Board involved the appellants and the Minister respectively attacking and
defending the analysis conducted by the Court of Appeal. In that connection,
the Board considers that there is force in the appellants’ criticism that the
Court of Appeal did apply the wrong test in two respects. First, it placed too
much weight on the presumption of constitutionality. Secondly, it appears to
have concluded that the question of proportionality in a case such as the
present was substantially equivalent to “Wednesbury irrationality”.
28.
Accordingly, the Board will first discuss the presumption of
constitutionality and the applicable approach to proportionality, and it will
then consider the central issue, namely whether the Scheme is indeed disproportionate.
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.
31.
Greater circumspection is required when it comes to the second
component. The Board would accept that, save perhaps in extreme circumstances,
a statute should be presumed to be constitutional until it is shown to be
otherwise, that (in so far as it is helpful to speak of a burden in such
circumstances) the burden is on the party alleging that a statute is
unconstitutional, and that any court should be circumspect before deciding that
a statute is unconstitutional.
32.
However, the Board is not convinced that the second component of the
presumption can normally reach any further than this (unless it is no more than
the proportionality exercise under a different name). It is true that there are
cases where the Board described the burden on a party who alleges that a
statute is unconstitutional as “heavy”. However, where the issue is one of
construction, that description is simply an application of the first,
uncontroversial, component of the principle, as enunciated, for instance, by
Lady Hale in Omar Maraj. And, in so far as the issue of
constitutionality turns (as here) on proportionality, this second limb of the
presumption normally adds nothing to the ingredients of the proportionality
exercise. However, it is right to acknowledge that the notion that there is a
heavy burden on a party who alleges a statute is unconstitutional has obvious
force where the allegation of unconstitutionality turns on issues of fact - eg
the motive of the legislator (as was discussed in Hinds at p 224).
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.
35.
The Board considers that, in suggesting that the 2000 Act could only be
declared unconstitutional on the grounds of disproportionality if it could be
shown to be arbitrary, the Court of Appeal applied an inappropriate test. The
test of arbitrariness may well be an appropriate way of testing the lawfulness
of at least some ordinary administrative decisions and actions, applying the
so-called Wednesbury test. However, the proportionality exercise is
rather different, as indeed is clear from the two judgments in Bank Mellat referred
to above.
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.
39.
So far as the decision-maker is concerned, in this case it was
Parliament. The legislature is entitled to a wider margin of judgment than the
executive. Unlike a person exercising delegated powers, the legislature has a
wider range of options open to it, and, as a result of being elected it, enjoys
democratic legitimacy and has direct democratic accountability. Further, as a
practical matter, it is, normally at any rate, difficult to identify the
motives of a legislature, given that different members may have different
reasons for voting the way they did, and, in relation to a number of Bills, many
of the members who vote in favour do not speak.
40.
The constitutional right raised in relation to this issue in the case is
the right to property. While this is an important right, every interference
with property rights must be assessed on its facts. In this case an employee
loses control of the money which he contributes to the Fund, and there is a
risk of its diminution or even its total loss. However, this is not a case of
actual deprivation of money: it is more a case of enforced long term investment
of money, albeit that the investment is one over which the owner of the money
has not only no choice, but also very limited control, either over how the
money is invested or when and how he or she can withdraw the eventual proceeds
of the investment.
41.
In these circumstances, this case is very much at the lower end of the
intensity of review spectrum. The nature of the decision (particularly as the
criticisms advanced by the appellants plainly have macro-economic
implications), the identity of the decision-maker (the democratically elected
legislature) and the nature of the interference with the constitutional right
(which, while serious, is relatively mild) justify the argument that any court
should be particularly diffident before acceding to the appellants’ case on
this first issue. While the Court of Appeal was wrong to conclude that
arbitrariness was the hurdle which any proportionality challenge had to cross,
it is fair to say that any challenge to the constitutionality of the 2000 Act
on the grounds alleged by the appellants faces an uphill task, and may not fall
very far short of arbitrariness. However, as explained, arbitrariness is an
unhelpful test in this context.
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.
43.
It is argued on behalf of the appellants that their complaints about the
lack of a Guarantee or Entrenchment comes in at either the third or the fourth of
the four stages of the proportionality analysis. There is a potential degree of
overlap between the two stages, and, at least in this case, there is no point
in discussing which of the two stages is involved in the appellants’ arguments.
The Board will consider the argument on the basis that applies at both stages.
44.
So far as it is contended that the Scheme fails on the ground that a
less intrusive measure could have been used, it is true that it can be said
that, if the Scheme had included a Guarantee and if it had been entrenched
constitutionally, the deprivation which it involves would have been less “intrusive”
than it actually is. However, when it comes to the third stage in the
proportionality analysis, as Lord Reed explained in Bank Mellat, para
75:
“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.”
45.
As to the fourth stage, it involves the court asking whether a fair
balance has been struck. In this case, that requires the court to ask whether
the absence of a Guarantee and Entrenchment means that a fair balance, which
would otherwise be accepted as having been achieved, has not been achieved.
The alleged disproportionality
of the Scheme: a Guarantee
46.
As it was developed by Dr McCoy on behalf of the appellants, the
contention that the Scheme is disproportionate because of the absence of a Guarantee
appeared to involve two points. The first was that a Guarantee would ensure
that any defalcations in relation to the assets in the Fund should be made good
by the Government. The second was that the Guarantee should not be limited to
making good defalcations, but should effectively involve the Government
underwriting a minimum return to members of the Scheme.
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”.
50.
More specifically, as the Court of Appeal pointed out in para 198 of its
judgment, the protection afforded under the Scheme (for instance through having
an independent and respected trustee based in New Zealand, a Board only one of
whose six members is appointed by the Government, and its assets vested in its
members) is significantly greater, indeed of a wholly different order, from
that which existed in relation to the scheme which was unlawfully plundered in
the 1990s.
51.
Furthermore, if the real threat to the safety of the investments in the
Fund comes from the Government, it is hard to see how a guarantee from the
Government would add much, if anything to the protection afforded to Scheme
members.
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.
53.
The contention that the Government should guarantee a minimum return to
Scheme members rests on the notion that compulsory use of 5% of an employee’s
earnings for saving for his or her retirement cannot be justified under a
state-sponsored superannuation scheme if the employee is required to take the
whole of the investment risk.
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.
58.
In rejecting the appellants’ case for a Guarantee, the Court of Appeal
also relied on an actuarial report, which concluded that, over its 14 years of
existence, the Fund had been financially successful, and assessed the chances
of a cumulative loss over any five-year period as being 0.4%. In the Board’s
view, this was something which can properly be taken into account when
assessing the appellants’ claim that there should be a Guarantee.
The alleged disproportionality
of the Scheme: Entrenchment
59.
So far as Entrenchment is concerned, the appellants rightly accept that
there is nothing in the Constitution which requires the 2000 Act to be
constitutionally entrenched. The Court of Appeal rightly observed at [2014]
CIKA 4, para 190 that it would be unusual to entrench constitutionally
legislation which did not “creat[e] the constitutional structure of a state,
especially to preserve the specific rights and freedoms deemed by its Parliament
to be sacrosanct.” This does not, of course mean that the appellants’ argument
on Entrenchment must fail, but, given that they are seeking to persuade a court
that lack of Entrenchment undermines the lawfulness of the Scheme as set up by
the 2000 Act, it serves to increase the pitch of the uphill slope that they
have to climb.
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.
61.
Nonetheless, there is, as already mentioned, substantial protection
afforded to Scheme members. All the assets in the Fund are held in the name of
an independent trustee, albeit subject to the limited powers of guidance which
are conferred on the Board (see para 5(f) and (g) above). In addition, the
trustee is based in New Zealand, and is highly reputable. Further, there is only
one representative of the Minister, and no other Government representative on
the Board (see para 5(c) and (d) above). In addition, the beneficial ownership
in the assets acquired with an employee’s contributions are beneficially vested
in the employee (see para 9(a) above). Accordingly, as the Court of Appeal
rightly pointed out in para 199 of its judgment, the Government cannot decide
to acquire control or ownership over any of the assets in the Fund without
giving rise to a potential claim under article 40 or article 64 of the
Constitution, and thereby ensuring judicial scrutiny of any such decision. In
other words, any action by the Government which involved an infringement of
article 40 or article 64 rights would be unconstitutional, and, to that extent,
Entrenchment would take matters no further. In other words, the Scheme is in
practice constitutionally entrenched, or at least constitutionally protected,
to a significant extent.
62.
Having said that, it is plain that Entrenchment would give a degree of
extra protection to those who have made contributions to the Fund. To that
extent, the Board cannot agree with the Court of Appeal when it said in para
201 of its judgment that it did “not consider that entrenchment of the Act
would have produced a less intrusive deprivation” (although the Court made a
fair point at para 200 when it suggested that Entrenchment could render it much
more difficult to make beneficial changes to the Scheme). However, it remains
the fact that it would not be a very substantial advance on the constitutional
protection that such persons already enjoy under the Scheme. Quite apart from
this, although the implementation of the Scheme does involve a deprivation of
the contributions within the meaning of article 64(1)(c) of the Constitution,
there is nothing expropriatory about the Scheme, which also weakens the case
for Entrenchment.
63.
In support of his argument in support of Entrenchment, Dr McCoy again
relied on the history summarised in para 48 above. The Board does not consider
that this factor can alter the conclusion that the lack of Entrenchment does
not render the Scheme disproportionate for the reasons given in paras 50 and
51, and to a lesser extent para 52, above.
The alleged disproportionality
of the Scheme: Early withdrawal
64.
In addition to relying on the absence of a Guarantee and of
Entrenchment, the appellants say that the Scheme is disproportionate because of
its inflexibility, in that its terms do not permit members to access the funds
vested in their names prior to retirement for purposes such as education or
housing.
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.
66.
Whether to include terms in the Scheme which permit early withdrawal,
and the contents of any such terms, are issues which involve policy choices
which were very much for the legislature as the decider of policy. At least in the
absence of any good reason to the contrary, the Board sees no grounds for a
court questioning the legislature’s decision that the Scheme should include no
such rights.
Conclusion on the first issue
67.
In conclusion on this first issue, while the Scheme could undoubtedly
benefit from serious reconsideration so far as some of its provisions are
concerned (as the Court of Appeal rightly recognised - see [2014] CKCA 4, para
217), the Board does not consider that the absence of a Guarantee, Entrenchment
or right of early withdrawal renders it unconstitutional. The terms of the 2000
Act and the Trust Deed, as summarised in paras 5 and 9 above, ensure that the
Scheme is sufficiently secure and sufficiently independent of Government
interference to avoid the need for a Guarantee or for Entrenchment. Of course,
no system can be devised to ensure that anyone’s money is completely safe from
being lost or wrongly taken, but the terms of the 2000 Act (and the Trust Deed)
provide sufficient protection of the rights of the Scheme members to ensure the
Scheme’s constitutionality.
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.
76.
The fact that it is fairly standard for any pension scheme which
entitles a member to withdraw his funds from the scheme early, to contain a
provision which penalises him for doing so, is, in the Board’s view, no answer
to this. One is here concerned with a specific group of people who are required
to be members of a scheme, and who either can be seen as people who ought not
to have been required to be members, or who, by their circumstances, will be almost
bound to wish to withdraw their funds early. That point is reinforced by the
fact that, in this case, it is only migrant workers who are entitled to
withdraw from the Scheme.
77.
Section 53, by excluding the portability of the contributions
originating with the employer treats the employee as if he had not earned these
contributions and as if they were not vested in him. It recognises that in
fairness, the employee should not be deprived of accrued pension rights, but it
fails to appreciate that these extend as much to the sums directly contributed
by the employer (but earned by the employee) as to the sums directly
contributed by the migrant employee. All the contributions, from whatever
source, are in employment terms earned by, and in Trust Fund terms “fully
vested” in, the relevant migrant workers.
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.
79.
This suggestion is supported by the fact that there do appear to be
international standards which recognise and contain recommendations which
address the problem of migrants’ social benefits. The Secretary-General of the
United Nations, in his report to the General Assembly dated 18 May 2006 on
international migration and development including benefits and the protection
of migrants, A/60/871, para 98, addressed the need to enhance the portability
of pensions by collaboration between countries of origin and destination, and
continued:
“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.
80.
The International Covenant on Economic, Social and Cultural Rights of 16
December 1966, records (in article 9 read with article 2(2)) the undertaking of
states to guarantee the rights of everyone to social security without
discrimination. The United Nations’ Economic and Social Council’s (“ECOSOC’s”)
General Comment No 19 dated 4 February 2008 on article 9 explains that this
means that
“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.”
82.
The Court of Appeal (Williams P, Barker and Paterson JJA) referred to
the “rather anomalous position of migrant workers not being allowed to access
the employer’s contribution” as “one of the ‘strands in the rope’” (para 204).
However, their judgment went on (para 205) to reject the challenge to section
53, for reasons which the Board cannot accept, namely because they thought that
“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.
85.
The Board is also unable to accept the Court of Appeal’s next paragraph
in which it sought to rationalise its approach and conclusions, as follows
(para 207):
“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.
86.
Not surprisingly, in these circumstances, there is no support for the
Court of Appeal’s approach in the respondents’ written case before the Board.
The nearest this comes to any similar point is an unsupported speculation that
“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.
89.
It is true that it is a standard feature of pensions schemes that the
interest of different groups may have to be balanced, but, in the Board’s view,
that generalisation does not exclude the need to consider what balancing (or
other) factor may reasonably be considered to justify forfeiting part of a
migrant worker’s earnings accrued in the Fund on his permanent departure. None
has been articulated and the Board can see none.
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).
91.
For these reasons, the Board is of the view that section 53 is
unjustifiable in its present form, on the grounds that it unjustifiably
deprives migrant workers of their property consisting of the employer
contributions standing to their credit and unjustifiably discriminates against
them. The Board accordingly proposes to declare that
section 53(2) of the 2000 Act (set out in para 68 above) should be read
and applied as if the word “employee” was struck out in each of the two places
where it appears before the word “contributions” and
that section 53(3) should be treated as deleted, but it will allow the parties
28 days after this judgment is handed down in which to make written submissions
if they so wish about the terms of declaratory relief.
Conclusion
92.
The appeal therefore fails on the first ground relating to the overall
constitutionality of the Scheme as a whole, but succeeds on the second ground
relating to section 53. The Board will humbly advise Her Majesty accordingly to dismiss this appeal in respect of the first
ground and to allow it on the second ground by making a declaration in the
terms proposed in the immediately preceding paragraph or such other terms as
the Board may determine in the light of any submissions thereunder.
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.
95.
Modern states commonly legislate to compel those within their
jurisdiction to spend their money or apply their other property to purposes
which are conceived to be in the broader interests of the community. The social
and financial problems associated with rising life expectancy have led many
states to adopt compulsory savings schemes of one sort or another. These are
generally very long term schemes covering an employed community comprising very
diverse groups with different and sometimes inconsistent interests. In the
nature of things they may have features that incidentally favour some groups
more than others. They may favour long term members over early leavers, younger
age groups over older ones, residents over non-residents, high taxpayers over
low taxpayers, and so on. The design of a major pension scheme commonly
requires difficult choices to be made. I do not doubt that a sufficiently gross
measure of unfairness in the making of those choices might properly be struck
down as unconstitutional. But within broad limits, the way in which different
societies resolve such dilemmas involves legitimate policy choices.
96.
The starting point is that from the time that the employee’s and
employer’s contributions are credited to the fund, they are held in trust for
the employee. He therefore has an equitable interest in the fund, so far as it
represents contributions from either source, albeit that in the case of migrant
workers that interest is partially defeasible in the event that he leaves the
territory and elects to take his contributions out. It is partially defeasible
because if he elects to do that he will recover only his own contributions. He
will lose the benefit of the employer’s contributions and of any return that
may have been made on the investment fund while he was a member. The appellants
object to this on two grounds which, although elided in argument and in the
majority’s analysis, are actually distinct. The first is that it is
discriminatory, and the second that it is confiscatory. Different
considerations apply to these two objections.
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.
98.
Turning to the other objection to section 53, I agree that the loss upon
early withdrawal of the portion of the notional fund representing the
employer’s contributions is confiscatory. But I think that this was legitimate
even if it was not admirable. The employer’s contributions are earned by the
migrant’s services during the period of his employment. But what is earned is a
contribution to the fund on the basis that the employee will receive its value
in the form of a pension at pensionable age. This is the very thing that the
employee renounces by leaving early. It would have been entirely in accord with
the Constitution for migrant workers to be exempted from the obligation to
participate in the scheme. The reality is that the migrant worker who elects to
leave the scheme is put back in the same position as if he had never been
required to join. He will be paid a sum which reverses the interference with
his property rights arising from his having been required to spend 5% of his
income on pension provision. Subject to the performance of the fund (which is a
different issue), he is no worse off than if his 5% had never been taken.
99.
No separate complaint is made about the fact that a migrant worker
withdrawing his contributions receives them without interest of a proportionate
share of any return made on the fund. Nor could it have been. Over a period as
short as three years, the fund may have achieved positive or negative returns.
The migrant who withdraws his contributions on leaving does not share in any
positive return, but neither will he suffer from negative returns. This aspect
of the scheme is well within the range of policy solutions which could
reasonably be adopted in the interests of the entire community of participants,
including the migrant workers themselves.
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.
