Home > Corruption, Papua New Guinea > National Provident Fund Final Report [Part 37]

National Provident Fund Final Report [Part 37]

September 25, 2015 Leave a comment Go to comments

Below is the thirty-seventh part of the serialized edited version of the National Provident Fund Commission of Inquiry Final Report that first appeared in the Post Courier newspaper in 2002/3.

NPF Final Report

This is the 37th extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.

Executive Summary Schedule 4C Continued 

Unauthorised On Market Purchases of Cue Shares, December 30-31, 1997 

At this stage, there were virtually no buyers for Cue shares, however, this did not deter NPF management from buying two parcels of one million and 920,000 shares each totalling $A132,700 and $A139,389 respectively on December 30 and 31.

The value of Cue shares rose immediately to 14.37 cents on December 31, 1997, which significantly increased NPF’s recorded end of year profits and therefore increased the end of year bonus paid under the senior management bonus scheme.

These unauthorised purchases were breaches of duty by Mr Wright and Mr Kaul, which should expose them to personal liability for the loss incurred by NPF.

1998 Mr Jacobs of Cue is terminated and NPF management makes further unauthorised investments 

At the February 1998 NPF board meeting, the trustees were advised that Mr Jacobs of Cue was forced to resign his position and that Cue would change its focus away from Indonesia back to PNG. They were not told however, that management had purchased 1.97 million Cue shares costing K313,052, since the last meeting.

NPF’s last purchase of Cue shares occurred in June 1998, when Mr Wright authorised the purchase of 2,976,455 shares for $A301,384, again without NPF board knowledge or authority.

These purchases were not disclosed to the trustees at the July board meeting nor was the fact that NPF’s unrealised loss on Cue investments then totalled K2,578,000.

This information was hidden away in the investment schedule tabled at the meeting, which was not discussed.

Saga issues Writ against Cue

Saga then issued a writ against Cue, claiming 3US2.16 million and simultaneously Cue’s share price began nose-diving, down to 7 cents in June and 4.4 cents in August.

In September, the board finally looked at the conflict of interest of former trustee and NPF chairman David Copland, who was still a member of the Cue board and considered by Cue to be an independent director. It had taken more than a year for the NPF board to confront this situation since Minister Haiveta had raised it in July 1997.


(a) Mr Wright continued to make unauthorised purchases of Cue shares and failed to specifically notify the board. He was in breach of duty by so doing and is likely to be personally liable to NPF for losses incurred by the breaches of duty;
(b) Mr Fabila and NPF management failed to address the mounting unrealised losses due to the falling price of Cue shares or to propose a recovery strategy. They also failed to advise the board in relation to this issue. This was a breach of duty exposing them to personal liability for the losses incurred;
(c) The continued failure of the NPF Board of Trustees to heed Minister Haiveta’s directions of June 19, 1997 is a breach of their fiduciary duty as trustees;
(d) The board of trustees did not adequately consider the implications of the falling Cue share price in terms of NPF’s investment portfolio and the board sought no independent investment advice concerning that investment. This was a breach of their fiduciary duty to members of the fund; and
(e) All trustees in office at the time are exposed to personal liability for losses incurred by contributors of the fund consequent upon their breach of duty.

NPF’s Selldown Of Cue Shares — 1999 Appointment of PriceWaterhouse Coopers

After PriceWaterhouse Coopers (PwC) were engaged in February 1999 to review NPF’s investment portfolio, the total inappropriateness of the Cue investment and many of NPF’s other investments, was reported to the NPF board and PwC recommended that NPF sell off 100 per cent of the Cue shares as well as most of its other equity investments, in order to reduce its debt.

This sell-down strategy was approved by circular resolution on March 25, 1999.

The problem was to find a way to sell off its Cue shares without realising a massive loss on the investment.

NPF allies itself with Mr Jacobs in selldown of Cue shares 

After very involved negotiations, NPF allied itself with Frank Jacobs, the former Cue managing director who was then representing Anzoil, a junior oil and gas company which wanted to buy into Cue, replace its board of directors, settle the Saga litigation and, hopefully, to cause the share price to rise from its current 4 cents to more like 8 cents per share.

Mr Jacobs and Mr Fabila discussed various strategies that caused much friction between the Cue board and Mr Fabila (see details in paragraph 19 and 20 of the Cue Report).

Mr Maladina fails to disclose a buy offer from CIBC 

During the negotiations, Mr Maladina, NPF’s new chairman, who had been appointed on Prime Minister Skate’s direction, attended a Cue board meeting in Melbourne.

He received an offer for NPF’s Cue shares from CIBC that was more favourable than the deal being finalised between Anzoil and NPF. Mr Maladina withheld the fact of this offer from NPF, and, with Mr Jacobs completing the arrangements of the sale, NPF sold its Cue shares to Palmcove Asset Pty Ltd. The final parcel of Cue shares was sold at 8.1 cents per share.

When Mr Maladina’s failure to disclose the higher CIBC offer became known, it led to a vote of no- confidence in him as chairman followed by his termination as a trustee of the NPF.

Failure to obtain expert advice in selldown 

Once again, NPF management had failed to obtain expert advice on the various offers to buy its Cue shares.


“We find that Mr Maladina failed to advise NPF management and NPF Board of Trustees of the existence of an offer from CIBC made to him while he was attending a Cue board meeting in Melbourne on August 11, 1999. This was a failure to diligently discharge his fiduciary duties. Mr Maladina may be personally liable to the contributors for losses suffered because of his breach of duty. It is unlikely that Mr Maladina could successfully claim he was acting in “good faith”.

Concluding Comments 

The full details of the sorry story of the sell-down of NPF’s Cue shares is set out in paragraphs 19 – 21 of the Cue Report.

NPF suffered a net realised loss of $A7.4 million as a result of its investment in Cue. All trustees in office during the period of this investment seriously failed their fiduciary duty to the members of the fund by failing to seek investment advice, by failing to control and reprimand management for repeated and blatant excesses of authority and by ignoring the conditions imposed by Minister Haiveta in July 1997, which was effectively a direction to return to the investment guidelines.

Mr Copland, Mr Kaul and Mr Wright bear the heaviest responsibility for the losses that NPF incurred. During the period they were making investment decisions and guiding the NPF board to make repeated purchases of Cue shares, they also held undisclosed interests in Cue and stood to gain personally from the investments being pursued by NPF at their instigation.

It is unlikely they or the other trustees could successfully claim that they “acted in good faith” and they would probably be found personally liable for losses incurred by NPF for their failure of fiduciary duty.

Executive Summary Schedule 4D Continued Introduction

Steamships Trading Company Limited (STC) and Collins and Leahy Holdings Limited (CXL) are two of the largest diversified trading companies in Papua New Guinea with interests in retailing, hotels, manufacturing, transport and construction.

The decision to invest heavily in these two companies was largely motivated by NPF chairman David Copland, the former managing director of STC who persuaded Minister for Finance Chris Haiveta, at a meeting at the Gateway Hotel in April 1996 to support a strategy whereby NPF would acquire the shares in STC and CXL held by the Public Officers Superannuation Fund (POSF) and the Defence Force Retirement Benefit Fund (DFRBF) and then proceed to gradually acquire a controlling interest in the companies.

Once in control, the strategy was to merge and manage the two companies. Mr Copland gained the strong support of Minister Haiveta and NPF managing director Robert Kaul.

Implementation of the strategy was put under the direction of deputy managing director and investment manager Mr Wright. The shares in STC and CXL held by the POSF and the DFRBF were acquired and NPF proceeded to acquire further shares on market eventually acquiring a 23 per cent interest in STC and a 37.5 per cent interest in CXL by mid 1996.

NPF financed these share acquisitions with funds borrowed at variable interest rates from the ANZ Bank and as interest rates rose steeply after 1997, NPF began experiencing difficulties servicing the debt. STC continued to return a modest dividend but CXL began to record substantial losses in 1998.

Meanwhile, NPF’s ambition to acquire a controlling interest in STC and CXL was frustrated by STC’s owners, the large and powerful Swires Group.

When NPF’s finances reached crisis point in 1999, it was obliged to try and sell off equities, including its holdings in STC and CXL, and this proved very difficult because there was a very small market for the shares and it was dominated by the Swires Group. In the process, NPF lost heavily on the investment.

On-Market Investment 1996 Approvals for investment in STC 

Mr Wright recommended that the board approve the purchase of up to one million STC shares at up to $A3 per share in 100,000 lots “so as not to spook the price upwards”.

The board resolution, however, was far more modest, resolving on March 27, 1996, to purchase up to K1 million “worth of shares” in STC at a price between $A2.85 and $A3 in 100,000 share lots.

Mr Kaul nevertheless sought and obtained Minister Haiveta’s approval to purchase one million STC shares at levels of $A2.85 to $A3 million, failing to mention the 100,000 share lot limit.

In granting this approval, Minister Haiveta failed to seek the advice of the Department of Finance and Treasury (DoF).

The subsequent purchase of STC shares by management far exceeded the K1 million worth approved by the NPF board and the price was above the $A3 approved limit.

Initial investment in STC – 1996 

Between March 22 and May 24, 1996, NPF purchased 1,054,486 shares in STC at a cost of $A3,153,350 as follows: See table 1.

npf 37 table 1

There were gross defects in management’s performance in obtaining NPF and Ministerial approval. The board approved by invalid, unratified circular resolution up to K1 million worth of shares in 100,000 lots at $A2.85-$A3. Mr Kaul recommended to Minister Haiveta approval to purchase one million shares at $A2.85-$A3.

Mr Kaul did not mention to the Minister that the NPF board had approved acquisitions in lots not exceeding 100,000 per transaction.


(a) Mr Kaul’s request for Ministerial approval to buy STC shares dated March 27, 1996, seriously misrepresented the board resolution of March 25, 1996 which resulted in the Minister approving a greater volume of purchases, at a higher price, than had been resolved by the board. This was a breach of Mr Kaul’s duty to the board. It was also a breach of his fiduciary duty (as a trustee) to the members of the NPF;
(b) Minister Haiveta’s failure to seek advice on the recommendation amounted to improper conduct;
(c) When Mr Wright and Mr Kaul directed Wilson HTM to purchase more than 100,000 shares on April 11, 1996 and in excess of $A3 per share on April 11, April 22 and May 24, 1996 totalling more than $A1 million worth of shares they exceeded the authority given by the board. This amounts to a breach of duty and of fiduciary duty respectively;
(d) To the extent that the purchases exceeded the price approved by the Minister, it was a breach of the PF(M) Act;
(e) The circular resolutions which were not subsequently ratified at the next formal board meeting were invalid; andfile://localhost/Users/timothyking/Desktop/npf%2037%20table%202.jpg
(f) BPNG foreign exchange approval was not obtained for all share acquisitions. Minister Haiveta’s evidence that he failed to seek DoF advice because he assumed Mr Kaul would have previously done so is unacceptable.

Initial investments in CXL — 1996 

Between April 9, 1996 and May 30, 1996, NPF purchased the following shares in CXL: See table 2 below.

npf 37 table 2

Once again, there were gross defects in the way management obtained NPF and Ministerial approval for these initial purchases in CXL.

The board approved, by way of circular resolution the purchase of up to K1 million “worth of CXL shares” at $A2.20- $A2.50 per share.

Mr Kaul sought approval from Minister Haiveta (before the NPF board resolution) to purchase one million CXL shares $A2.20-$A2.50 per share.

The DoF recommendation to the Minister did not provide any critical analysis and failed to pick up the discrepancy between the board resolution and the recommendation.

Minister Haiveta then granted approval on April 15, 1996 without imposing any limit on the number of shares or the total cost.

At the time of his approval, the NPF board’s circular resolution was invalid, as it had not been ratified.

When ratification finally occurred on 26, April, the resolutions gave management a dangerously open- ended discretion “to continue purchasing CXL shares given the currently low trading price of the stock . . . ”.


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  1. September 28, 2015 at 12:01 pm

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