Challenging the State's refusal to extend Special Mining Leases?

The recent decision by the executive government to refuse the extension of the Special Mining Lease (SML) over Pogera raises a lot of issues both commercially and in matters of the State’s prerogative. This article seeks to shed light on whether an SML holder (Developer) can challenge such a refusal under section 36 of the Mining Act 1992 and the mechanics of such a challenge.

First a look at the legal nature of a Special Mining Lease (SML). Under s. 33 of the Mining Act 1992[1], a Special Mining Lease always involves a Mining Development Contract (MDC). The terms of s. 33 provide that the SML applicant must always be a party to a Mining Development Contract (MDC). Whilst resource leases are not ‘leases’ in a conventional sense, they vest ownership of any minerals and property brought onto the land in the lessee and commonly impose obligations on the lessee to pay compensation to landowners and to pay rents and royalties[2]. A Special Mining Lease (SML) is distinguished from other tenements on the basis that it is always accompanied by a Mining Development Contract and can only be granted by the Head of State acting on advice of the National Executive (as opposed to the Minister for Mining in the granting of other tenements under the Act. E.g., mining and alluvial leases etc.) The State is authorised to enter in Mining Development Contracts[3], and the mining developments are done in accordance with the terms of the Contract[4]. In a way an SML is a contract-based lease, of which the terms of the lease including mineral development rights and obligations are to be found in the MDC. 

We also acknowledge that the State asserts the right to either grant or refuse an application for an extension of an SML by virtue of s. 36[5] of the Mining Act. The argument there is that the State has the prerogative to manage its mineral resources and s. 36 provides that right without exception. A closer look at s. 36 reveals that it is prescriptive in nature as it only provides for the process or manner by which an extension can either be granted or refused. Section 36 does not contain grounds by which the State can either refuse or extend an SML, it only provides how a grant or refusal can be made by the State : - The Head of State, acting on advice, and after considering a recommendation from the Mining Advisory Council can either grant or refuse an extension application. A Mining Development Contract is negotiated by the NEC so it is logical for the Head of State to act in the granting or refusal of an SML. The grounds of which, be it an extension or a refusal will be found within the MDC and largely depends on the relationship between the developer and the State.

Section 36 also does not provide that the recommendations from the Mining Advisory Council are binding on the NEC and the Head of State. Section 36 in no way obliges the NEC or the Head of State to act in accordance with the Council’s recommendations, they can either act on or ignore the recommendations.

In my view, there are two threshold issues that must be answered. Does a developer have such a right to challenge a refusal of an SML extension? and secondly, on what grounds?

In my view, I believe the answer to the first issue is YES, by way of section 41 of the Constitution[6]. Section 41 provides the avenue by which such a challenge can be brought. The basis of my view arises from the dicta of Kidu J in SCR No 5 of 1985, Re Raz v Matane [1985] PNGLR 329, where he found there is ‘no doubt that s. 41 of the Constitution confers a right – the right to challenge an act done under a valid law”. The State maintains that its refusal of extension applications are in accordance with s. 36 of the Mining Act 1992, a provision under a valid law.

The application of section 41 is wide and is not limited to the rights guaranteed by the Constitution, but can also extend to cover the statutory exercises of discretion including section 36 of the Mining Act. I take this view because of a number of decided cases. In SCR No 1 of 1984; Re Minimum Penalties Legislation [1984] PNGLR 314, Kapi DCJ at 332-333 described the nature of the right conferred by s. 41 as follows:

“... A remedy under s 41 cannot be described as an enforcement of a right or freedom under s 57 of the Constitution, …. It is a general remedy which is quite distinct and separate from enforcement of a right or freedom (emphasis added) .”

Case law has shown wide application of s. 41 of the Constitution. It has been invoked successfully by a state lease holder against a Minister who had forfeited the state lease under the Land Act. The forfeiture by the Minister was found to be harsh and oppressive even though the lease holder paid his outstanding land rentals late. See Nowra No. 8 v Swokin, Minister for Lands, and the State [1993] PNGLR 498. Section 41 has also been successfully invoked to remedy acts of the Immigration Minister and his Committee of Review established under the Migration Act, that sought to revoke a foreign national’s visa and order for his deportation. Because such acts were executive in nature and not amenable to judicial review, the Court determined the proper test was to consider the justification for the Ministers Act; the effect of such acts and on balance, decide if s. 41 applied. See Raz v Matane [1986] PNGLR 38; and Curran v The State [1994] PNGLR 230.

Furthermore, an alien is not prevented from bringing an application under s. 41. The law allows for aliens to exercise the right to challenge an action done under a valid law. In Raz v Matane [1986] PNGLR 38, the Court held that “an alien is not prevented from bringing proceedings under the Constitution, s 41”. It was decided that the rules of natural justice afforded an alien a “legitimate expectation” to a fair hearing as such, there was no reason why the principle should not be applicable when the person who will be affected by the decision is an alien, just as much as when he is a Papua New Guinean.

When a SML Holder is registered as a corporation in PNG, despite it having foreign shareholders, it enjoys legal personality within Papua New Guinea and is not an ‘alien’. In any case, SML Holders and Developers would have a ‘legitimate expectation’ in the grant or refusal in an SML extension application and as such would not be prevented from challenging the State’s refusal of its SML extension application.

To conclude, the State’s exercise in refusing and SML Holders application for an extension of an SML over when carried out under s. 36 of the Mining Act, is an act done under the provision of a valid law. It is my view that s. 41 of the Constitution may be enforced by the National Court under the Constitution, s 155(4). The National Court can entertain an application under s. 41 and the matter is enforceable in the National Court under s. 155(4) of the Constitution. See: SCR Mo. 5 of 1985; Re: Raz v Matane [1985] PNGLR 329; Avia Aihi v The State [1981] PNGLR 81; and SCR No. 2 of 1981; Re: s.19(1)(f) of the Criminal Code [1982] PNGLR 150.  

As to the grounds of a challenge under s. 41 of the Constitution- such a challenge can be brought successfully, if the act is found to be unlawful although done under a valid law, because the act itself is:  harsh or oppressive.  

Case law has shown that harsh and oppressive acts for the purpose of s. 41, are acts done without adherence to or without considering relevant matters and that is when carried out, unreasonable[7]. Whilst the Courts have emphasized concepts of relevancy and reasonableness in the exercise of executive direction, over time, the Courts have also consistently demonstrated that s. 41 challenges were successfully brought in cases where established equitable principles would have prevailed. As alluded to earlier, since an SML involves contractual undertakings between the State and the developer, it is quite arguable that equitable principles can apply. In Nowra No. 8 Pty Ltd v Swokin [1993] PNGLR 498, the Court granted ‘relief against forfeiture’ of a state lease. In Jivetuo v PNG [1984] PNGLR 174 and Bai v Morobe Provincial Government [1992] PNGLR 150, the Court granted relief through s. 41 largely on the equitable doctrine of proprietary estoppel.

The Court has already demonstrated its power of review in cases concerning excess of jurisdiction or of unreasonableness[8], but Section 41 further encompasses established equitable principles incorporated as part of our underlying law. To put things into perspective, equity renders unenforceable acts to be enforceable, but Section 41 goes one step further - a challenge under s. 41 can render a lawful act unlawful, and is widely inclusive of situations where the principles of equity can be successfully raised.

From a procedural point of view the primary relief sought will be declaratory in nature, where an SML Holder can ask the Court to declare the refusal of an SML extension to be unlawful. Proceedings under s. 41 of the Constitution should be brought by way of Originating Summons in accordance with Order 4 Rule 3 of the National Court rules. Alternatively, the SML Holder may be directed to file a Writ of Summons if there is likely to be a substantial dispute of facts.

There is also the argument that the appropriate procedure would be by way of judicial review. Consequentially, the State in its defence may argue that the decision is not subject to review as the refusal by the Head of State, acting on advice, is non-justiciable pursuant to s. 86 (4) of the Constitution[9] and move to dismiss those proceedings. However, I must point out that s. 86 (4) does not mean that advice given ‘is non-justiciable” does not mean unconstitutional acts are non-justiciable. The cases of State v Independent Tribunal; Ex parte Sasakila [1976] PNGLR 491 and the Minister for Lands v Frame [1980] PNGLR 433 have shown that the contents of the decision by the Head of State can be questioned and allows for an ultra vires (or unconstitutional) act of the Head of State on advice to be challenged, irrespective of s. 86 of the Constitution.

The argument for bringing an action under s. 41 of the Constitution is that the provision itself provides the mechanism by which relief and harsh or oppressive acts made under a valid law, are constitutionally remedied. Section 41 provides constitutional relief against harsh and oppressive acts. An action brought under s. 41, in my view has a better chance of defeating the defence of non-justiciability of executive acts, than a judicial review proceeding, on the basis that it involves a constitutional right to challenge a lawful act that goes against the Constitution for being harsh and oppressive.

Since primary relief sought in an action under s. 41 is declaratory in nature, the law requires certain elements to be satisfied. In Ipara v Mineral Resources Authority [2011] N4216, the Court laid down that in order to obtain a declaration a plaintiff must establish:

(a)                    A controversy between the parties; 

(b)                    The proceeding must involve a right;

(c)                    The proceedings must be brought by a person who has a proper or tangible interest in obtaining the order;

(d)                    The Controversy must be subject to the Courts jurisdiction in obtaining the order;

(e)                     the Defendant must be a person who has a proper or tangible interest in opposing the Plaintiff’s claim; and

(f)                     The issue must be a real one. It must not be merely of academic interest, hypothetical or one whose resolution would be of no practical utility.

A controversy must exist between the SML Holder and the State in the refusing the extension of the SML; proceedings brought under s. 41 involve a right to challenge an act done under a valid law; the Court has jurisdiction to enforce s. 41 by virtue of s. 155 (4) of the Constitution; the State opposes this application as an actor in the controversy[10] and asserts a right subject of the challenge raised in proceedings; and the issue of the lawful act being harsh and oppressive is a real one and a declaration of its unlawfulness will serve as a practical useful remedy.

Section 155 (4) of the Constitution empowers the Courts to make orders which “are necessary to do justice in the circumstances of a particular case” and means that the court “is invested with the unfettered discretion to fashion orders that will ‘do justice’ which is just and fair”[11]. In doing so the law requires that what is justice is ‘justice according to law’, which means that the Court cannot apply its own notion of justice. Should an aggrieved SML Holder choose to bring proceedings under s. 41, submissions can be made to assist the Court to fashion the remedies that will give ‘justice according to law’. The declaratory relief sought to invalidate the State’s refusal is likely to be granted if it appears that the State’s exercised its discretion unreasonably.

Equitable remedies could prevent a party to enforce his strict legal rights, in this case the State’s right to refuse SML extension, but the underlying proposition as stated by Lord Denning in Crabb v Arun District Council [1976] Ch 179 is that “it is for a court of equity to say in what way the equity may be satisfied”. A Developer can seek consequential orders. Such orders include those preventing the State to exercise its power to refuse an SML extension.

At this juncture, we must note that there is a key distinction between an order directing the State to grant an extension, and an order that the State is restrained from refusing an extension application without notice. The former order directs the State to issue an extension, the former restricts the State’s power of refusal under s. 36 by requiring that a notice be given before the State can exercise its power to refuse an application under s. 36 of the Mining Act. The first order, by its terms and for being a directive of the Court to the State will more likely be rigorously opposed by the State in defence of its prerogative powers. The latter order is neither intrusive in its terms, nor is it directive, but rather simply imposes an obligation on a legal right under s. 36 of the Mining Act. Whilst the State may oppose it, the opposition may not be as rigorous as that of the former.

This brings us to the end of this article. However, like all things in law, my interpretation stands to be tested in Court.

FOOTNOTES:

[1] Mining Act 1992, s. 33:

               “33. Grant of a special mining lease.

(1) Subject to this section, the Head of State, acting on advice, shall, on the application of the holder of an exploration licence who is also a party to a mining development contract and after considering a recommendation by the Council, grant to the applicant or his assignee a special mining lease over the land, or part of the land, the subject of the exploration licence.

(2) A special mining lease—

(a) shall be on the prescribed form; and

(b) shall require that as a condition of the lease the holder complies with the approved proposals; and

(c) may include such other conditions, consistent with the mining development contract, as may be determined by the Head of State, acting on advice.

(3) The Head of State, acting on advice, shall not grant a special mining lease under this section in relation to a Mining Project unless the Minister has first given to the Company written notice.

[2] Wade v New South Wales Rutile Mining Co Pty Ltd (1969) 121 CLR 177, 192 (Windeyer J).

[3] Mining Act 1992, s. 17(1).

[4] Mining Act 1992, s. 19.

[5] Mining Act 1992, s. 36:

               “36. Extension of term of special mining lease.

(1) The Head of State, acting on advice, may, on the application by the holder of a special mining lease, and after considering a recommendation from the Council extend the term of a special mining lease for such period or periods each not exceeding 20 years as the Head of State, acting on advice, determines.

(2) An application for an extension of the term of a special mining lease—

(a) shall be on the prescribed form; and

(b) shall be lodged in triplicate with the prescribed application fee; and

(c) shall be lodged in accordance with the procedures specified in Division VI.1.”

[6] Constitution of the Independent State of Papua New Guinea, s. 41:

               41.         Proscribed acts.

(1)          Notwithstanding anything to the contrary in any other provision of any law, any act that is done under a valid law but in the particular case—

(a)          is harsh or oppressive; or

(b)          is not warranted by, or is disproportionate to, the requirements of the particular circumstances or of the particular case; or

(c)          is otherwise not, in the particular circumstances, reasonably justifiable in a democratic society having a proper regard for the rights and dignity of mankind,

is an unlawful act.

(2)          The burden of showing that Subsection (1)(a), (b) or (c) applies in respect of an act is on the party alleging it, and may be discharged on the balance of probabilities.

(3)          Nothing in this section affects the operation of any other law under which an act may be held to be unlawful or invalid.

[7] In SCR No. 5 Re: Raz v Matane [1986] PNGLR 38, the Court began by defining very limited circumstances of which s. 41 could be used to interfere in exercises of executive discretion. The Court stated:

“The act of exercising an executive discretion …, must be real: matters which ought to be considered must be considered; conversely irrelevant collateral matters must be disregarded. When the discretion is exercised within the ambit of considering what is relevant the Court cannot intervene, except where the conclusion nevertheless reached is so unreasonable in the sense that it is a decision that no reasonable body could have come to.”

[8] See Application by John Mua Nilkare, Review Pursuant to s. 155(4) of the Constitution [1998] PNGLR 472.

[9] Constitution of the Independent State of Papua New Guinea, S. 86 (4):

“The question, what (if any) advice was given to the Head of State, or by whom, is non-justiciable.”

[10] The law requires that the Head of State, i.e., the Governor-General should not be named as a party in litigation. The Courts have held that the correct approach in an action where an act of the Head of State or the Governor-General is in dispute, the proper party to name is the Attorney-General as nominal defendant pursuant to s. 3 of the Claims by and against the State Act 1995. See O’ Niell v Klapat [2014] 2 PNGLR 262.

[11] Per Amet CJ and Los J in Application by John Mua Nilkare, Review Pursuant to s. 155(4) of the Constitution [1998] PNGLR 472.