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INTERGENERATIONAL FUNDS IN THE PACIFIC Tony Angelo,* Brian Bell,** Bayley Roylance***
Intergenerational funds are increasingly used worldwide to manage and preserve wealth for future generations. They are especially vital in the Pacific, considering that most countries rely heavily on finite natural resources and have limited opportunity for a diverse economy. Amongst the existing intergenerational funds, the treaty-based trust model, as exemplified by the Tuvalu Trust Fund, may provide the most stable and reliable regime for the trust's operation and management in the context of the Pacific countries. Most importantly, the treaty framework may sufficiently restrict the extent of the discretion and powers which governments may exercise over the fund, especially in terms of the freedom to alter the fund. Nevertheless, recent developments in the Pacific and elsewhere such as the Seychelles Conservation and Climate Adaptation Trust and the Intergenerational Trust Fund for the People of the Republic of Nauru have shifted away from the treaty-based fund model. Those structures potentially strike a balance between the benefits of the treaty model and the accommodation of specific political and social circumstances. Therefore, the most appropriate form for intergenerational funds is not only a legal but also a practical concern. Whatever model is applied, it should be contemplated within the unique context of the host country to suit its specific purposes and interests.
I INTRODUCTION Intergenerational funds are of great interest to countries of the Pacific. New funds are created regularly and for an increasing range of objects. The purpose of this paper is to complement the legal commentary which was begun in a paper published in the Journal of Pacific History1 and also to update legal developments within the
* Professor of Law, Victoria University of Wellington.
** PhD (Waikato), Private Consultant, [email protected].
*** BA/LLB (VUW), Barrister and Solicitor of the High Court of New Zealand. 1 Tony Angelo, Brian Bell and Bayley Roylance "Intergenerational Trusts in the Pacific" (2016) 51(2) Journal of Pacific History 186. 114 (2016) 22 NZACL
intergenerational trust area. It takes account of the work of the New Zealand Institute for Pacific Research and some fund developments which have occurred since the publication of that research. The commentary in the Journal of Pacific History focused on the Tuvalu Trust Fund. Recent experience demonstrates that some evolution, away from the treaty- based trust fund model that the Tuvalu Trust Fund presents, has been necessary. Many variations of trust fund legal models have been used either when the treaty model is not available or when an alternative to the treaty model is more suited to the circumstances of the case. In developing these matters, Part II provides a legal conceptualisation of intergenerational trust funds and distinguishes them from non-trust intergenerational funds; Part III and the Appendix present a tabulation of the key legal features of existing funds; Part IV discusses alternatives to the Tuvalu Trust Fund model and in particular the Norwegian Government Pension Fund, the Seychelles debt swap arrangement, and the Nauru Trust Fund; Part V reflects on the causes of variation from the Tuvalu Trust Fund model in the Pacific and what may encourage use of alternative models in future. II LEGAL CONCEPTUALISATION OF INTERGENERATIONAL TRUST FUNDS The conclusion of an earlier review of trust funds in the Pacific was that a trust fund established by a treaty, as exemplified by the Tuvalu Trust Fund, is the ideal model for intergenerational funds in the Pacific.2 Since then, some new funding mechanisms have been introduced into the sphere of intergenerational funds. In Nauru, the Intergenerational Trust Fund for the People of the Republic of Nauru (Nauru Trust Fund) came into operation from 30 April 2016. In the same period, Seychelles successfully finalised its debt swap with Paris Club creditors to create income for its trust fund, instead of relying entirely on contributions from domestic revenue or overseas donations. These recent developments present structural alternatives for intergenerational funds in the Pacific. The definition of intergenerational funds may vary, depending on the standpoint of the authors. For instance, in the New Zealand Institute for Pacific Research (NZIPR)'s 2016 report,3 'sovereign funds' is defined as a pool of assets which is managed and invested by national governments in order to achieve predetermined
2 See Angelo et al, above n 1. The Fund has distributed $107 million to the Government over 30 years with an average 5.1% real return. 3 Aaron Drew The Role of Sovereign Funds in Pacific Island Nations (New Zealand Institute for Pacific Research, 9 November 2016) at 5. 114 (2016) 22 NZACL INTERGENERATIONAL FUNDS IN THE PACIFIC 115 intergenerational trust area. It takes account of the work of the New Zealand Institute economic purposes.4 The NZIPR report focused on the long-term economic purposes for Pacific Research and some fund developments which have occurred since the of the funds and classified them into five groups.5 This classification excludes trusts publication of that research. which are not controlled by government and also those which are established for environmental protection. Further, from a legal perspective the classification of The commentary in the Journal of Pacific History focused on the Tuvalu Trust intergenerational funds should address not only purposes but also ownership and Fund. Recent experience demonstrates that some evolution, away from the treaty- governance. based trust fund model that the Tuvalu Trust Fund presents, has been necessary. Many variations of trust fund legal models have been used either when the treaty The core concept of a Common Law trust is that there be a settlor (donor) who model is not available or when an alternative to the treaty model is more suited to transfers property to the trust (or trustees) and that there are trustees who hold the the circumstances of the case. property to the purpose or object of the trust. Any such trustees are accountable to a third party (beneficiaries).6 When an intergenerational fund is a trust, the ownership In developing these matters, Part II provides a legal conceptualisation of of the fund is split between the holder of the legal interest and holder of the beneficial intergenerational trust funds and distinguishes them from non-trust intergenerational interest; this has the potential to limit political inference by the government of the funds; Part III and the Appendix present a tabulation of the key legal features of day. existing funds; Part IV discusses alternatives to the Tuvalu Trust Fund model and in particular the Norwegian Government Pension Fund, the Seychelles debt swap The distinction made here between trust funds and other intergenerational funds arrangement, and the Nauru Trust Fund; Part V reflects on the causes of variation is primarily on the basis that non-trust funds are owned and controlled by a state from the Tuvalu Trust Fund model in the Pacific and what may encourage use of government. By contrast, while trust funds may be government managed, they are alternative models in future. not solely government owned. Where held by the government, any distribution must II LEGAL CONCEPTUALISATION OF INTERGENERATIONAL accord with the beneficial interest in the trust fund. Where the government is the TRUST FUNDS beneficiary of the fund, the trust fund must not be held by the government alone because the beneficiary and the trustee of the trust cannot be the same person. The The conclusion of an earlier review of trust funds in the Pacific was that a trust trust fund should stand distinct from any other government account. fund established by a treaty, as exemplified by the Tuvalu Trust Fund, is the ideal model for intergenerational funds in the Pacific.2 Since then, some new funding mechanisms have been introduced into the sphere of intergenerational funds. In
Nauru, the Intergenerational Trust Fund for the People of the Republic of Nauru (Nauru Trust Fund) came into operation from 30 April 2016. In the same period, 4 At 7-8. Seychelles successfully finalised its debt swap with Paris Club creditors to create 5 At 8. These purposes include (i) to stabilise the macro-economy, (ii) to preserve and transfer wealth across generations, (iii) to discharge pension liabilities, (iv) to support development plans, and (v) to curb the risks income for its trust fund, instead of relying entirely on contributions from domestic posed by foreign exchange reserves. For a definition of sovereign wealth funds, also see Abdullah Al-Hassan, revenue or overseas donations. These recent developments present structural Michael G Papaioannou, Martin Skancke and Cheng Chih Sung Sovereign Wealth Funds: Aspects of alternatives for intergenerational funds in the Pacific. Governance Structures and Investment Management (IMF, Working Paper WP/13/231, 11 November 2013); International Working Group of Sovereign Wealth Funds Sovereign Wealth Funds: Generally Accepted The definition of intergenerational funds may vary, depending on the standpoint Principles and Practices "Santiago Principles"
6 There are trust funds established using offshore trust centres which operate a statutory arrangement called a 2 See Angelo et al, above n 1. The Fund has distributed $107 million to the Government over 30 years with an trust. These trusts are not specially designed to deal with the concerns of a State intergenerational trust fund; average 5.1% real return. that is to say their operation is not always transparent and a primary goal is often the avoidance of tax. 3 Aaron Drew The Role of Sovereign Funds in Pacific Island Nations (New Zealand Institute for Pacific Research, 9 November 2016) at 5.
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Simple fulfilment of the establishment requirements of the English Common Law trust creates a fiduciary relationship of the trustee to the beneficiary or to the trust purposes which serves to protect the trust property from misuse. This is achieved by the severe limitations placed on the ownership right of the trustee and corresponding consequences for all who deal with the trustee. Once the trust is established, the whole body of principles relating to, for instance, fair dealing, good faith, absence of conflict of interest, and beneficiary rights comes into play. There is therefore in most cases no need to spell out the fiduciary relationship of the trustee to the trust beneficiary or purpose. It is for this reason that a trust arrangement often focuses more on elements of the arrangement which derogate from the core principle7 and why in non-trust arrangements, specific clauses are added to incorporate fiduciary (trust-like) duties. III INTERGENERATIONAL FUNDS IN THE PACIFIC A Overview Although alternative models are available and have been used successfully in some other countries, trust funds remain popular and have been frequently used by Pacific nations. This Part considers the existing funds in the Pacific and assesses their structures and the mechanisms for accountability, integrity, and assurance. A tabulation of selected Pacific intergenerational funds is provided in the Appendix to this paper. For an intergenerational fund, accountability is provided by the requirement for public reporting, the engagement of independent advisors, and the conduct of a regular annual financial audit. The control is typically by the beneficiaries. In terms of integrity, there is a need to avoid conflicts of interest whether by trustees or government. It may be necessary in the interest of transparency and accountability and the successful operation of the fund for beneficiary and settlor representatives to be involved in the governance of the trust fund. Where that is so, it becomes important to have an independent voice within the governance structure. Assurances can be given through the establishment of investment policies either in the founding documents or as a requirement of the management team. It is also important to provide for a conditioned termination. It is contrary to the spirit of an intergenerational trust fund that the fund can be easily wound-up.
7 For instance, the inclusion of a specific limitation on trustee liabilities. 116 (2016) 22 NZACL INTERGENERATIONAL FUNDS IN THE PACIFIC 117
Simple fulfilment of the establishment requirements of the English Common Law B Creation trust creates a fiduciary relationship of the trustee to the beneficiary or to the trust A Common Law trust can be established without formality but for national funds purposes which serves to protect the trust property from misuse. This is achieved by with intergenerational purposes only formal arrangements are suitable. Such the severe limitations placed on the ownership right of the trustee and corresponding formality goes towards securing both the longevity and transparency of a trust fund. consequences for all who deal with the trustee. Once the trust is established, the Whatever the form of its creation, an intergenerational trust gives the arrangement whole body of principles relating to, for instance, fair dealing, good faith, absence status and privileges within the beneficiary, and often within the settlor, countries.8 of conflict of interest, and beneficiary rights comes into play. There is therefore in most cases no need to spell out the fiduciary relationship of the trustee to the trust 1 Parliamentary legislation beneficiary or purpose. It is for this reason that a trust arrangement often focuses Parliamentary legislation is a very flexible way to create a trust. Subject to the 7 more on elements of the arrangement which derogate from the core principle and provisions of any supreme constitution, a Parliament can provide for any content it why in non-trust arrangements, specific clauses are added to incorporate fiduciary deems desirable and adopt all the best practice features9 in the legislation. (trust-like) duties. Parliamentary legislation also has the advantage of publicity at the time of the III INTERGENERATIONAL FUNDS IN THE PACIFIC creation and also at the time of any change, if amendment is required. A Overview The termination of the trust is under the Parliament's control, regardless of what the legislation may say on the topic. That is a potential weakness of this system – a Although alternative models are available and have been used successfully in change of political will could defeat the original purposes of the trust. some other countries, trust funds remain popular and have been frequently used by Pacific nations. This Part considers the existing funds in the Pacific and assesses If such a trust was placed within a constitutional setting, and had the status of a their structures and the mechanisms for accountability, integrity, and assurance. A constitutional institution, that would give added security of being party of the tabulation of selected Pacific intergenerational funds is provided in the Appendix to supreme law. In a vulnerable state, the trust may be no less important or central to this paper. the country's governance than for instance an Ombudsman or a Leadership Code. In order to maintain the trust's constitutional protection and to limit political control, For an intergenerational fund, accountability is provided by the requirement for there might be a requirement for a qualified majority or special procedure to change public reporting, the engagement of independent advisors, and the conduct of a the trust arrangements. The statute also should provide the trust with a legal regular annual financial audit. The control is typically by the beneficiaries. personality separate from that of the government. As a consequence, the trust In terms of integrity, there is a need to avoid conflicts of interest whether by property will not be public money and therefore not subject to government budgeting trustees or government. It may be necessary in the interest of transparency and systems or national appropriation requirements. accountability and the successful operation of the fund for beneficiary and settlor 2 Subordinate legislation representatives to be involved in the governance of the trust fund. Where that is so, it becomes important to have an independent voice within the governance structure. Regulations provide a document that is public but one that is less secure than parliamentary legislation. Regulations are made and amended by executive action of Assurances can be given through the establishment of investment policies either which little or no notice may be given and in relation to which there may be no public in the founding documents or as a requirement of the management team. It is also important to provide for a conditioned termination. It is contrary to the spirit of an intergenerational trust fund that the fund can be easily wound-up.
8 This is relevant to fiscal benefits in the country where trust funds are invested. 9 For the best practice features of a fund, see the "Santiago Principles", above n 5.
7 For instance, the inclusion of a specific limitation on trustee liabilities.
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engagement.10 The terms of the regulations however must be consistent with any empowering legislation. 3 Deed To establish a trust by agreement or deed is a simple and relatively informal way to proceed. Any such agreement is subject to the law of its creation. All terms would need to be consistent with the governing legal system. Therefore, the trust would have to comply for instance with any rules against perpetuities11 and the law on tax.12 A deed could be secret, as publicity is not of the essence of the deed's creation. This factor could be a critical weakness because transparency and accountability are two of a fund's most effective provisions to guard against abuse by trustees. A deed is not by nature a government document and therefore cannot create a legal person.13 The deed system increases the vulnerability of the trust as the creators/settlors may amend it if they have a change of heart about the purpose or rules of the fund. 4 Treaty The creation of trust by treaty, as exemplified by Tuvalu Trust Fund, is presented as an ideal model for the Pacific trusts for many reasons. First, as a treaty would be subject to international law, there are relatively few legal constraints on the establishment and content of such an arrangement. All the best practice provisions could be included. Although the freedom from taxation cannot be granted by the treaty, the treaty may include undertakings by the parties about fiscal matters.14 The treaty should be given domestic effect by domestic legislation, particularly in the country of the beneficiary.15 Second, although treaties may have a minimum degree of publicity, if a party's treaty-making process requires reference to parliament or to a parliamentary body, there is the possibility for public debate and public awareness. The greater the
10 The Kiribati Revenue Equalization Reserve Fund is substantially controlled by regulations. It is a special fund under s 107 of the Constitution. It has a statutory base in the Public Finance (Control and Audit) Act 1976, and under that Act, the Public Finance (Revenue Equalisation Reserve Fund) Rules 1983 were made.
11 For example, see cl 20 of the Tokelau International Trust Fund Deed where the vesting period is stated to be within the limits of the Perpetuities Act 1964 (NZ).
12 Section CW 59B of the Income Tax Act 2007 (NZ) specifies that income arising from the Niue International Trust Fund or Tokelau International Trust Fund is "exempt income" for that Act's purposes.
13 The trust might however have been created as a corporation by other law devices such as a charitable trust, or a company limited by guarantee. 14 See for example, art 20 of the Tuvalu Trust Fund Treaty.
15 Tuvalu Trust Fund (Finance and Information) Act 1987. 118 (2016) 22 NZACL INTERGENERATIONAL FUNDS IN THE PACIFIC 119 engagement.10 The terms of the regulations however must be consistent with any number of states involved, the better it is for publicity. Public reporting to parties empowering legislation. and to beneficiaries would ideally be incorporated as a requirement in the treaty. 3 Deed Third, the treaty framework can ensure the sustainability and reliability of the trust fund. A trust established by a treaty may require the signatory states to first To establish a trust by agreement or deed is a simple and relatively informal way obtain approval from their competent authority before carrying out the formal to proceed. Any such agreement is subject to the law of its creation. All terms would proceedings to amend the treaty. In comparison, a trust fund established by a deed need to be consistent with the governing legal system. Therefore, the trust would (or a memorandum of understanding) can be amended or revoked simply by a mutual have to comply for instance with any rules against perpetuities11 and the law on tax.12 agreement among the parties. Likewise the status of a trust fund established through A deed could be secret, as publicity is not of the essence of the deed's creation. a statute can be affected by a change of mind of the legislative body in the host This factor could be a critical weakness because transparency and accountability are country. Despite the fact that its establishment may be more time consuming than two of a fund's most effective provisions to guard against abuse by trustees. A deed other models, a treaty can provide an intergenerational trust fund with the robustness is not by nature a government document and therefore cannot create a legal person.13 necessary to accommodate its intergenerational nature. The deed system increases the vulnerability of the trust as the creators/settlors may Because the treaty system depends significantly on international political matters, amend it if they have a change of heart about the purpose or rules of the fund. political practicalities often prevent its use. The same concerns arise if there is a need 4 Treaty to alter the treaty. If amendment is difficult and the winding-up of the trust fund is The creation of trust by treaty, as exemplified by Tuvalu Trust Fund, is presented the alternative, that defeats the original purpose of the fund. As a result, many parties as an ideal model for the Pacific trusts for many reasons. have settled for the creation of a trust by deed or legislation. It is most important that a robust but flexible system be established at the beginning. It helps if there is a limit First, as a treaty would be subject to international law, there are relatively few on the matters on which all trustees must agree and on the matters can only be dealt legal constraints on the establishment and content of such an arrangement. All the with by amendment to the treaty. best practice provisions could be included. Although the freedom from taxation cannot be granted by the treaty, the treaty may include undertakings by the parties 5 Memorandum of understanding about fiscal matters.14 The treaty should be given domestic effect by domestic Creation of a fund by a memorandum of understanding (MOU) was adopted by legislation, particularly in the country of the beneficiary.15 the governments of Australia and Nauru for Nauru's 2016 fund. This MOU seems to Second, although treaties may have a minimum degree of publicity, if a party's be a hybrid of deed and treaty. Given a similarity to a deed, the document carries treaty-making process requires reference to parliament or to a parliamentary body, some of the risks of a deed. The MOU is by nature a contractual arrangement and there is the possibility for public debate and public awareness. The greater the can be amended simply by consent of the parties. On the other hand, with no express provision on the governing law, it avoids complying with the legal requirements for a trust under any specific national law. Instead, it accommodates the flexibility of 10 The Kiribati Revenue Equalization Reserve Fund is substantially controlled by regulations. It is a special fund the funds created by treaty or legislation. under s 107 of the Constitution. It has a statutory base in the Public Finance (Control and Audit) Act 1976, and under that Act, the Public Finance (Revenue Equalisation Reserve Fund) Rules 1983 were made. C Management and Organisation 11 For example, see cl 20 of the Tokelau International Trust Fund Deed where the vesting period is stated to be The trustee should be a body corporate and hence have legal personality in its within the limits of the Perpetuities Act 1964 (NZ). own right.16 Such a body corporate would be operated by a Board of Directors (or a 12 Section CW 59B of the Income Tax Act 2007 (NZ) specifies that income arising from the Niue International similar committee structure). Complementary state legislation can support the clear Trust Fund or Tokelau International Trust Fund is "exempt income" for that Act's purposes.
13 The trust might however have been created as a corporation by other law devices such as a charitable trust, or a company limited by guarantee. 16 Failing that, the owner will be the Directors. This should be less favoured because of the regular change of owners that it entails. 14 See for example, art 20 of the Tuvalu Trust Fund Treaty.
15 Tuvalu Trust Fund (Finance and Information) Act 1987.
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separation of the national property from the trust property. The trust must not be government money. This statutory segregation ensures that the trust funds are not available to creditors of the state. 1 Composition of the Board An important matter to determine is the number of persons on the Board, and the size of the management or decision-making team. Because of the need for a good range of input, the number of Board members should not be less than three and if not three, five or seven. If the number is larger than this, there is the likelihood of redundancy and inefficiency. Also, if the Board has a large membership, there will be difficulties for convening and establishment of a quorum. The members of the Board should be appointed by the supporting countries and preferably with one member having international investment expertise. Donors of a significant sum could be entitled to have a member on the Board.17 The term of a Board member's appointment is less critical, though some change perhaps at least every three to four years may be desirable to maintain a flow of ideas into the management. Trustees should be able to be removed in accordance with common conditions such as bankruptcy, or mental or physical incapacity. Except for those conditions, trustees should remain in office until replacements have been appointed. The Chair of the Board should preferably be a full Board member.18 As a full member, the Chair would have a deliberative vote, and a casting vote only in the event of division of views. A Secretariat is essential to maintain the records, deal with correspondence and convene meetings. The number of meetings depends on the size of the Fund and its policy objectives. In larger funds an investment sub-committee chaired by a Board member and serviced by the Secretariat is desirable to undertake the detailed management of the fund and make recommendations to the Board on investment. The Board should appoint an Investment Consultant to advise the sub-committee and the Board. The liability of the members of the Board or of trustees is a question that often arises. One answer is that the trust should carry insurance to cover the liability of the trustees or the directors. A better system, given the purpose of the trust, is that each trustee is personally responsible and therefore could take his or her own insurance
17 See for example, art 6(2)(c) in the Tuvalu Trust Fund Treaty and para 7(4) in the Nauru Trust Fund MOU.
18 The Chair of the Falekaupule Trust is not a trustee and has no voting rights (see cl 5 of the Falekaupule Trust Fund Deed); the Chair of the Tokelau Trust Fund is a trustee and has voting rights (see cl 3 of the Tokelau Trust Fund Deed). 120 (2016) 22 NZACL INTERGENERATIONAL FUNDS IN THE PACIFIC 121 separation of the national property from the trust property. The trust must not be or, if the person is a political appointee, the appointing body could provide any government money. This statutory segregation ensures that the trust funds are not insurance that is deemed necessary. available to creditors of the state. 2 Powers of the Board 1 Composition of the Board The Board should have the ability to deal with all management issues. In the An important matter to determine is the number of persons on the Board, and the absence of consensus, a simple majority should be able to provide all operational size of the management or decision-making team. Because of the need for a good decisions. range of input, the number of Board members should not be less than three and if not Finances are a more complicated matter. Issues can arise in respect to the three, five or seven. If the number is larger than this, there is the likelihood of investment policy, the nature and conditions of distribution, and the costs involved redundancy and inefficiency. Also, if the Board has a large membership, there will in the operation of the trust. The Board should delegate day-to-day investment be difficulties for convening and establishment of a quorum. The members of the decisions to appointed fund managers under the oversight of the investment sub- Board should be appointed by the supporting countries and preferably with one committee working to a statement of investment objectives and policy approved by member having international investment expertise. Donors of a significant sum the Board. could be entitled to have a member on the Board.17 The term of a Board member's appointment is less critical, though some change perhaps at least every three to four 3 Resources years may be desirable to maintain a flow of ideas into the management. Trustees The resources for the trust fund may come in the form of gifts,19 of soft-loans,20 should be able to be removed in accordance with common conditions such as the diversion of aid (often additional to gifts or soft-loans, or instead of them), or as bankruptcy, or mental or physical incapacity. Except for those conditions, trustees a result of a debt-swap arrangement.21 The beneficiary government or philanthropists should remain in office until replacements have been appointed. may also provide money for the fund. The donors are usually states but international The Chair of the Board should preferably be a full Board member.18 As a full agencies such as the United Nations Development Programme (UNDP) or the Asian member, the Chair would have a deliberative vote, and a casting vote only in the Development Bank (ADB) are often involved. Frequently, external donors and event of division of views. national governments, as in the case of Tuvalu, provide funding on a dollar-for-dollar basis. A Secretariat is essential to maintain the records, deal with correspondence and convene meetings. The number of meetings depends on the size of the Fund and its 4 Investment policy policy objectives. The investment policy set out in the founding documents may restrict the type of In larger funds an investment sub-committee chaired by a Board member and investment or investment decisions may be left to the Board. In the case of a limited serviced by the Secretariat is desirable to undertake the detailed management of the policy, there may be instructions as to the placing of money, for instance, as term fund and make recommendations to the Board on investment. The Board should deposits with banks and/or in international investment funds. There could be appoint an Investment Consultant to advise the sub-committee and the Board. indications on the currency of investments, on the markets or the nature of investment and stocks, or in physical stocks such as land. The typical pattern is to The liability of the members of the Board or of trustees is a question that often have balanced investments in bank deposits, bonds and equities. The particular arises. One answer is that the trust should carry insurance to cover the liability of the nature of the investment will depend on the policy goals of the trust: whether to build trustees or the directors. A better system, given the purpose of the trust, is that each trustee is personally responsible and therefore could take his or her own insurance 19 See for example, Tuvalu Trust Fund Treaty's Annex.
20 See for example, the Preamble to the Falekaupule Trust Fund Deed and s 5 of the Tupe Fakana A Falekaupule 17 See for example, art 6(2)(c) in the Tuvalu Trust Fund Treaty and para 7(4) in the Nauru Trust Fund MOU. Act 1999.
18 The Chair of the Falekaupule Trust is not a trustee and has no voting rights (see cl 5 of the Falekaupule Trust 21 See below Part IV(B) regarding the Seychelles' Conservation and Climate Adaptation Trust. Fund Deed); the Chair of the Tokelau Trust Fund is a trustee and has voting rights (see cl 3 of the Tokelau Trust Fund Deed).
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up assets over an extended period of time, to provide early income support, or to provide a regular income flow. 5 Distribution policy The Board may make decisions on the distribution from the Fund. Distribution can be immediate when a return has been achieved or there may be a stand-down period during which the capital of the trust will increase but after which distribution will proceed on a regular basis. In the case of any immediate distribution, the first requirement is often that the investment be inflation proofed against a cost-price index. Typically, this will be the cost-price index of the beneficiary country but in the instance of a very small country it may well be the cost-price index of the country of major investment. In some instances, the maintenance of real value also may be related to population.22 If the population of the beneficiary country is increasing, the per capita value of the investments would need to be considered in order to maintain that real value over time. Distributions may be compulsory. That is to say when there is income achieved after the maintenance of real value and recovery of the costs of the operation, the income must be distributed. In this case, the beneficiary may wish to take the distribution, have the distribution sum reinvested in the capital sum, or have the trust fund hold the distribution or portion of the distribution in a buffer account in order to ensure a balanced flow of income to the beneficiary over the years.23 In some cases, beneficiaries may take the money but then place it under the management of the trust board so that interest is earned at the rate of the trust fund investment. Such money is not trust money and remains at the call of the beneficiary to withdraw or invest at any time. 6 Operational costs The costs of the operation are the costs of a Secretariat, the costs of advisors, the costs associated with calling and running meetings, the costs of audit and the costs of annual reports. None of these in itself needs be substantial. Given the basically charitable nature of intergenerational trusts, the parties usually arrange to absorb these costs so that they are not a charge on the trust fund. If investment managers and monitors are involved, then the costs of their input are a charge on the return which they generate. Where the costs are absorbed by various parties or donors, the trust would be left simply covering its own costs. Otherwise, as for a business entity, it would pay all
22 See for example, the Niue International Trust Fund Deed, cl 12.
23 This is the practice in respect to the Tuvalu Trust Fund. 122 (2016) 22 NZACL INTERGENERATIONAL FUNDS IN THE PACIFIC 123 up assets over an extended period of time, to provide early income support, or to the charges of its business at market rates. These could be significant if, for instance, provide a regular income flow. the meetings of directors are in a distant place. There will be airfares and 5 Distribution policy accommodation, and in some case the fees of professionals, Board members and the consultants involved. Where such outgoings are part of the system, a current bank The Board may make decisions on the distribution from the Fund. Distribution account may be needed. can be immediate when a return has been achieved or there may be a stand-down D Taxation period during which the capital of the trust will increase but after which distribution will proceed on a regular basis. In the case of any immediate distribution, the first Taxation is a significant matter. For instance, in the case of Tuvalu, specific requirement is often that the investment be inflation proofed against a cost-price provision is made in the treaty for it. New Zealand as a treaty party legislated to index. Typically, this will be the cost-price index of the beneficiary country but in provide for tax exemptions.24 In Australia there is an administrative decision which the instance of a very small country it may well be the cost-price index of the country gives a taxation benefit. In the case of the Tokelau Trust Fund, there are rules in of major investment. In some instances, the maintenance of real value also may be Tokelau dealing with the tax exemption and in New Zealand there is specific related to population.22 If the population of the beneficiary country is increasing, the provision in the Income Tax Act 2007.25 per capita value of the investments would need to be considered in order to maintain E Reporting Duties that real value over time. Reporting is a necessary feature of any good trust fund. This provides for Distributions may be compulsory. That is to say when there is income achieved transparency of management and better accountability. There will be investment after the maintenance of real value and recovery of the costs of the operation, the reports, annual reports and (as part of the annual reports), an auditor's statement. For income must be distributed. In this case, the beneficiary may wish to take the the beneficiaries of the trust, it is expected that the reports and the data will be distribution, have the distribution sum reinvested in the capital sum, or have the trust presented to the local legislative body and thus present the possibility for public fund hold the distribution or portion of the distribution in a buffer account in order knowledge of the operation of the trust. to ensure a balanced flow of income to the beneficiary over the years.23 In some cases, beneficiaries may take the money but then place it under the management of F Termination the trust board so that interest is earned at the rate of the trust fund investment. Such The termination of a trust needs to be provided for. Some trusts, are indicated to money is not trust money and remains at the call of the beneficiary to withdraw or be perpetual. Others have a designated life either in terms of a minimum number of invest at any time. years before the trust may be wound up or, in the case of private deeds in countries 6 Operational costs where the perpetuity rule applies, the maximum time will be set to be within the perpetuity period. The costs of the operation are the costs of a Secretariat, the costs of advisors, the costs associated with calling and running meetings, the costs of audit and the costs At termination whether on request or otherwise, there needs to be clear direction of annual reports. None of these in itself needs be substantial. Given the basically as to how it will operate and whether the money should be returned to the donors or charitable nature of intergenerational trusts, the parties usually arrange to absorb given to the beneficiary, or whether some other provision should be made.26 these costs so that they are not a charge on the trust fund. If investment managers and monitors are involved, then the costs of their input are a charge on the return which they generate. Where the costs are absorbed by various parties or donors, the trust would be left 24 Diplomatic Privileges (Tuvalu Trust Fund) Order 1987 (SR 1987/168). simply covering its own costs. Otherwise, as for a business entity, it would pay all 25 The Income Tax Act 2007 (NZ), s CW 59B. 26 See for example the Tokelau International Trust Deed, cl 19 (the assets go to the beneficiaries), and the Nauru Trust Fund MOU, para 19 (includes distribution to contributors). 22 See for example, the Niue International Trust Fund Deed, cl 12.
23 This is the practice in respect to the Tuvalu Trust Fund.
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Some disincentive in relation to winding-up will be necessary if the intergenerational goal is to be respected. An arbitrary winding-up will defeat the trust purpose. G Dispute Settlement Disputes are always likely and litigation is a possibility even if a remote one. Litigation is undesirable given the goals of these trusts; ideally, alternative dispute resolution methods will be chosen. Such methods assist with securing the ongoing cooperation of all parties involved in the trust and may represent a less costly option for resolving any dispute. In the alternative dispute resolution process, there should first be consultation, then mediation if necessary, and finally arbitration. In respect of arbitration a set of rules must be provided in the establishment document or alternatively the document should designate an existing set of rules such as the arbitration laws of a given state.27 As a contrasting example, the Nauru Trust Fund does not allow for any external dispute resolution. Any dispute between Australia and Nauru must first be referred to the Fund's Committee (which comprises representatives from the contributors) for resolution. If the Committee fails to resolve the dispute, it can be resolved only by way of consultation between the two governments.28 IV ALTERNATIVES TO THE TUVALU TRUST FUND MODEL The Tuvalu Trust Fund has done well and continues to do well and to inspire other countries in the Pacific. Those considering the establishment of an intergenerational fund should however give thought to alternatives to the Tuvalu Trust Fund model. Countries contemplating great new natural resource wealth (for example, from harvesting manganese nodules from the ocean floor) speak first of the Norwegian Government Pension Fund. Also to consider are the recent Seychelles debt swap agreement and the Nauru Trust Fund. This Part looks at each of those three funds. A Norwegian Government Pension Fund Because it is a large producer of oil and gas,29 Norway established a sovereign wealth fund under the Government Petroleum Fund Act to manage profits from its
27 See for example the Falekaupule Trust Fund Deed, s 12 (refers to the Arbitration Act 1991 of Tuvalu).
28 Paragraph 20 of the Nauru Trust Fund MOU. It may be questioned whether such a contractual exclusion of a court's jurisdiction would be enforceable.
29 "Oil and Gas" Norwegian Government
Some disincentive in relation to winding-up will be necessary if the petroleum production.30 In 2005, the fund underwent a major reform to intergenerational goal is to be respected. An arbitrary winding-up will defeat the trust accommodate the country's long term development purposes and its name was purpose. changed to the Government Pension Fund.31 It is now the largest and the most G Dispute Settlement successful sovereign wealth fund in the world with the value estimated at NOK 8,020 billion (approximately USD 1,000 billion) as of 30 June 2017.32 Disputes are always likely and litigation is a possibility even if a remote one. 1 Organisation and governance structure Litigation is undesirable given the goals of these trusts; ideally, alternative dispute resolution methods will be chosen. Such methods assist with securing the ongoing The Government Pension Fund comprises two separate sovereign wealth funds – cooperation of all parties involved in the trust and may represent a less costly option the Government Pension Fund – Global (GPFG) and the Government Pension Fund for resolving any dispute. In the alternative dispute resolution process, there should – Norway (GPFN)33 – distinguished by their sources of incomes and scale of first be consultation, then mediation if necessary, and finally arbitration. In respect investment. The GPFG receives the annual net cash flow from petroleum activities; of arbitration a set of rules must be provided in the establishment document or the GPFN holds all the assets and liabilities of the National Insurance Scheme.34 The alternatively the document should designate an existing set of rules such as the GPFG is to invest globally; the GPFN's investment is limited to Norway and other arbitration laws of a given state.27 Nordic countries.35 As a contrasting example, the Nauru Trust Fund does not allow for any external The GPFG is a wholly government controlled intergenerational fund. The dispute resolution. Any dispute between Australia and Nauru must first be referred Ministry of Finance holds it on behalf of the Norwegian people36 and has the power to the Fund's Committee (which comprises representatives from the contributors) for to issue regulations on its organisation and operation.37 In particular, the GPFG is resolution. If the Committee fails to resolve the dispute, it can be resolved only by deposited in a Norwegian krone account with the Norges Bank (Norway's Central way of consultation between the two governments.28 IV ALTERNATIVES TO THE TUVALU TRUST FUND MODEL
The Tuvalu Trust Fund has done well and continues to do well and to inspire 30 Benjamin J Richardson "Sovereign Wealth Funds and the Quest for Sustainability: Insights from Norway and other countries in the Pacific. Those considering the establishment of an New Zealand" (2011) 2 Nordic Journal of Commercial Law 1 at 5. intergenerational fund should however give thought to alternatives to the Tuvalu 31 At 5. Trust Fund model. Countries contemplating great new natural resource wealth (for 32 Norges Bank Investment Management Government Pension Fund Global Quarterly Report Q2/2017 (22 example, from harvesting manganese nodules from the ocean floor) speak first of the August 2017) at 4. Norwegian Government Pension Fund. Also to consider are the recent Seychelles 33 The Government Pension Fund Act 2005 (Norway) (English translation), s 2. debt swap agreement and the Nauru Trust Fund. This Part looks at each of those 34 However, the GPFN has received no payments since the 1970s. See Gordon L Clark, Adam D Dixon and Ashby three funds. H B Monk Sovereign Wealth Funds Legitimacy, Governance, and Global Power (Princeton University Press, New Jersey, 2013) at 94 and Fact Sheet – Government Pension Fund of Norway (2 September 2014) Legislative A Norwegian Government Pension Fund Council of the Hong Kong Special Administrative Region of the Peoples' Republic of China 29
36 The Government Pension Fund Act, s 2; also see Norges Bank Investment Management Government Pension Fund Global Annual Report 2016 (28 February 2017) at 22 and "Profile: Government Pension Fund Global (Norway)" (July 2012) The Fletcher School – Tufts University
29 "Oil and Gas" Norwegian Government
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Bank) and its day-to-day business is managed by the Investment Management division of the Norges Bank (NBIM).38 GPFG Management Structure
Stortinget (Norwegian Parliament) • Goverment Pension Fund Act
Ministry of Finance • Management mandate for the GPFG • Guidelines for observation and exclusion
Norges Bank • Executive Board principles • Investment mandate • Job description for CEO of NBIM
Norges Bank Investment Management (NBIM) • Day-to-day business management
Despite being globally commended for its transparency,39 the GPFG does not have an independent board of trustees nor does it employ a chief executive officer or other employees. Staff who work for the GPFG are employees of the Norges Bank and are bound by the Bank's code of conduct and other policies.40 Notwithstanding its close ties to the government, the GPFG maintains a separate governance and management structure. It also has extensive reporting and disclosure duties in order to maintain "the greatest possible transparency about the management within the limits, defined by responsible execution of the management assignment".41 Accordingly, Norges Bank has to publish annual and quarterly reports on the Fund's
38 The Government Pension Fund Act, s 2 and the Management Mandate for the Government Pension Fund Global (8 November 2010, as amended) (English translation), s 1-1.
39 "4th Quarter 2016 LMTI Ratings" Sovereign Wealth Fund Institute
41 Management Mandate for the GPFG, s 1-1. 126 (2016) 22 NZACL INTERGENERATIONAL FUNDS IN THE PACIFIC 127
Bank) and its day-to-day business is managed by the Investment Management accounts and portfolio.42 The Ministry of Finance has to report annually to the division of the Norges Bank (NBIM).38 Parliament on the details of the Fund's investment strategy, income and compliance 43 44 GPFG Management Structure with ethical standards. Fund returns are published monthly. In addition, reports and recommendations made by external parties are publicly available.45 2 Investment and distribution Stortinget (Norwegian Parliament) • Goverment Pension Fund Act The ultimate purpose of the Fund's investment strategy is to achieve the highest possible returns within the scope of criteria set by the Ministry of Finance. 46 Subject to conditions prescribed in the legislation, NBIM is entitled to make decisions on Ministry of Finance investment activities and exercise ownership rights over its assets, independently of • Management mandate for the GPFG the Ministry of Finance.47 While its investment strategy has evolved over the time, • Guidelines for observation and exclusion one crucial feature of the investment strategy remains that its assets are not designated or restricted to any purpose or any person.48 At the end of 2016, the GPFG maintained an investment portfolio of 60% in equities, 35-40% in fixed incomes and Norges Bank up to 5% in real estate.49 To ensure the diversity and robustness of its investment • Executive Board principles activities, the GPFG's capital is spread across nearly 9,000 companies in 77 • Investment mandate 50 • Job description for CEO of NBIM countries. Withdrawals from the GPFG are strictly controlled. Any withdrawal from the GPFG must be first approved by the Parliament and then transferred directly to the 51 Norges Bank Investment Management (NBIM) State budget. The specific amount of the withdrawal is decided based on budget • Day-to-day business management
39 Despite being globally commended for its transparency, the GPFG does not have an independent board of trustees nor does it employ a chief executive officer or 42 Khalid A Alsweilem, Angela Cummine, Malan Rietveld and Katherine Tweedie "Comparative Study of other employees. Staff who work for the GPFG are employees of the Norges Bank Sovereign Investor Models: Sovereign Fund Profiles" (April 2015) Projects at Harvard and are bound by the Bank's code of conduct and other policies.40 Notwithstanding
47 Section 1-2(3).
48 Chambers et al, above n 43, at 69.
38 The Government Pension Fund Act, s 2 and the Management Mandate for the Government Pension Fund Global 49 Norges Bank Investment Management Government Pension Fund Global Annual Report 2016 (28 February (8 November 2010, as amended) (English translation), s 1-1. 2017) at 23. From 2017, the unlisted real estate portfolio may reach 7% of the GPFG's investment portfolio.
39 "4th Quarter 2016 LMTI Ratings" Sovereign Wealth Fund Institute
41 Management Mandate for the GPFG, s 1-1.
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planning following prescribed fiscal policies.52 As at 2017, annual withdrawal from the Fund is capped at approximately 4% of the Fund.53 Flows to and from the GPFG54
Returns on fund investments All revenues
Petroleum revenues FUND STATE BUDGET
Transfer to finance non-oil budget deficit
Fiscal policy guideline Annual withdrawal capped at approximately 4% of the Fund
Despite its name, the GPFG is not accountable for pension payments or for any other liabilities.55 This absence of specific and future liabilities, in addition to a predetermined limitation on withdrawals from the Fund, ensures that the GPFG is truly a long-term financial reserve for future generations.56 It acts as a saving tool and a safeguard for the Norwegian economy even when the oil prices plummet or the petroleum reservoirs have been depleted. 57 The GPFG's capital has increased over time due to revenues from petroleum activities and returns from its
52 Chambers et al, above n 43, at 69.
53 At 69.
54 At 69.
55 As explained by Clark et al, above n 34, at 87, notwithstanding s1 of Government Pension Fund Act, GFPG is not considered as a pension fund because it does not have any characteristics of a pension fund. It does not have designated beneficiaries, nor is it subject to fiduciary duties or a timeline to discharge its obligations.
56 Clark et al, above n 34, at 87.
57 Alsweilem et al, above n 42, at 74. In particular, s 8 of Government Pension Fund Act provides that the GPFG is "an instrument for ensuring that a reasonable portion of the country's petroleum wealth benefits future generations". 128 (2016) 22 NZACL INTERGENERATIONAL FUNDS IN THE PACIFIC 129 planning following prescribed fiscal policies.52 As at 2017, annual withdrawal from investments.58 Incomes from petroleum activities however are highly susceptible to the Fund is capped at approximately 4% of the Fund.53 the market price and may cause negative impacts on the whole economy. The GPFG Flows to and from the GPFG54 prevents that risk by being the sole receiver of the petroleum revenues and allowing a predictable and stable amount to be paid into the State budget annually. Moreover, the GPFG may be used in the future to alleviate the financial pressure arising from All revenues Returns on fund investments an aging population.59 3 Applicability of the GPFG model to the Pacific The success of the GPFG undoubtedly makes it an attractive model for any plan Petroleum to establish and develop an intergenerational fund. However, it remains a significant revenues FUND STATE BUDGET challenge to replicate distinctive features of the GPFG, especially within the context of the Pacific.60 Even before the oil discovery, Norway's economy, politics and 61 Transfer to society structure were well-developed. This allowed the Norwegian government to finance non-oil institute a transparent and accountable organisation and management of its sovereign 62 budget deficit wealth fund. Therefore, despite being solely government controlled, the GPFG not only maintains its internal corporate governance efficiently but also ensures external supervision by public agencies and the public.63 Without government settings similar Fiscal policy guideline to those in Norway, this model inherently exposes an intergenerational fund to great risks because of the powers that the government has over the fund. Annual withdrawal capped at approximately 4% of the Fund B Seychelles' Debt-for-Maritime-Conservation Swap Despite its name, the GPFG is not accountable for pension payments or for any Seychelles' geographic and economic conditions are similar to those of many other liabilities.55 This absence of specific and future liabilities, in addition to a Pacific countries. It is a developing country with 99% of its territory (including its predetermined limitation on withdrawals from the Fund, ensures that the GPFG is exclusive economic zone) covered in ocean.64 As its economy is substantially truly a long-term financial reserve for future generations.56 It acts as a saving tool dependent on fishing and tourism, the country is highly vulnerable to any change to and a safeguard for the Norwegian economy even when the oil prices plummet or the marine ecosystem. However, as a heavily indebted country, Seychelles faces the petroleum reservoirs have been depleted. 57 The GPFG's capital has increased significant challenges to maintain sufficient financial resources to reduce its over time due to revenues from petroleum activities and returns from its
58 At 74.
59 Clark et al, above n 34, at 94.
52 Chambers et al, above n 43, at 69. 60 "How to not spend it" The Economist (United Kingdom, 24 September 2016) and Alsweilem et al, above n 42, 53 At 69. at 77.
54 At 69. 61 At 73.
55 As explained by Clark et al, above n 34, at 87, notwithstanding s1 of Government Pension Fund Act, GFPG is 62 At 73. not considered as a pension fund because it does not have any characteristics of a pension fund. It does not have 63 At 77. designated beneficiaries, nor is it subject to fiduciary duties or a timeline to discharge its obligations. 64 Rob Weary "Rising Tides: Debt-for-Nature Swaps Let Impact Investors Finance Climate Resilience" Impact 56 Clark et al, above n 34, at 87. Alpha (16 June 2016)
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vulnerability and maintain its ecosystem. After a debt crisis in 2008, the total national debt was up to 150% of GDP.65 The external public debt component reached 95% of GDP (approximately USD 808 million) most of which was owed to Paris Club creditors.66 1 Implementation of debt-for-maritime conservation swap (a) Negotiation and execution of the debt swap The idea of a debt-for-maritime conservation swap was discussed first between The Nature Conservancy (TNC)67 and Belize; it however did not result in an agreement. From 2011, the TNC, through its impact investment unit NatureVest, initiated negotiation with Seychelles on the design and structure of a debt conversion programme.68 Further, the Nature Vest and Seychelles negotiated with creditors from the Paris Club to identify those who were willing to participate in the debt conversion arrangement. An agreement on the debt conversion programme between Seychelles and the Nature Vest was finalised on 25 February 2015.69 After that, the NatureVest raised USD 20.2 million to facilitate Seychelles' purchase of its debts.70 Those funds were paid to the Seychelles Conservation and Climate Adaptation Trust (SeyCCAT).
65 Hajira Amla "Seychelles Buys Back $21 Million in Debt from Paris Club" Seychelles News Agency (9 March 2016)
66 Amla, above n 65. 67 The TNC is a global not-for-profit organisation which aims to protect ecologically important land and water and to ensure the sustainable development. It has acted as an intermediary for debt-for-nature conversion arrangements in Belize, Bolivia, Brazil, Colombia, Costa Rica, Dominican Republic, Guatemala, Indonesia, Jamaica, Panama and Peru. Most of their debt-for-nature conversion arrangements focus on forestry protection. For further information about the TNC, see The Nature Conservatory "About Us"
68 "Case Study Seychelles Debt Conversion for Marine Conservation and Climate Adaptation" Convergence (March 2017)
69 Ministry of Finance, Trade and Economic Planning, Republic of Seychelles "Government of Seychelles Debt Management Strategy: For the Years 2016 – 2018" Collaborative Africa Budget Reform Initiative (CABRI) (December 2015)
68 "Case Study Seychelles Debt Conversion for Marine Conservation and Climate Adaptation" Convergence 71 Above n 68, at 2. (March 2017)
69 Ministry of Finance, Trade and Economic Planning, Republic of Seychelles "Government of Seychelles Debt 74 At 3. Management Strategy: For the Years 2016 – 2018" Collaborative Africa Budget Reform Initiative (CABRI) (December 2015)
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Seychelles' Debt Conversion Programme77
2 Seychelles' commitment to maritime conservation To receive the SeyCCAT's funding for conservation activities, the Seychelles government is required to comply with various requirements for maritime conservation and climate adaptation. Firstly, Seychelles commits to reserve 30% of its exclusive economic zone (approximately 400,000 square kilometres) as a Marine Protected Area (MPA) by the end of 2020.78 The most biodiverse half of the MPA constitutes Zone 1, where fishing and other industrial activities such as drilling,
77 At 4. 78 Ginger Strand "Sea Change" Nature Conservancy Magazine (December 2016/January 2017)
Seychelles' Debt Conversion Programme77 mining and extraction are prohibited.79 Such activities can be conducted but under strict regulation and supervision in Zone 2, comprising the other half of the MPA. 80 The remaining 70% of Seychelles' exclusive economic zone is left open to other economic exploitation activities.81 In addition, Seychelles must restore coral reef and mangrove forests, maintain sustainable tourism and fisheries, improve social resilience to climate change and ensure economic diversification.82 3 Conservation and Climate Adaptation Trust of Seychelles Act 2015 (a) Organisation and management of the SeyCCAT The SeyCCAT is established as a corporate body under the Conservation and Climate Adaptation Trust of Seychelles Act 2015 (the SeyCCAT Act), which was enacted on 19 November 2015. It is a significant piece of legislation in the intergenerational trusts context as it is the domestic implementation of an international debt-swap arrangement. The structure of the SeyCCAT is a replication of a Common Law trust within a civil law context. The SeyCCAT, though denominated a trust, is not a trust in the Common Law sense because the law of Seychelles, with its French Civil Code private law base, does not know the trust as an institution. However, many benefits of the trust system are retained in the SeyCCAT Act by way of the statutory incorporation of the trust as a body corporate with the Board acting as the trustee of the SeyCCAT. The fiduciary responsibilities of directors to the body corporate are present and statutorily imposed by s 16 of the SeyCCAT Act. The SeyCCAT is managed and administered by the Board which comprises nine directors.83 The primary control of the Board is with two ex officio directors nominated by the TNC and the Government of Seychelles. They have the power to 84 decide the institutions from which the rest of directors must be appointed. While 2 Seychelles' commitment to maritime conservation To receive the SeyCCAT's funding for conservation activities, the Seychelles 79 Strand, above n 78. government is required to comply with various requirements for maritime 80 Strand, above n 78. conservation and climate adaptation. Firstly, Seychelles commits to reserve 30% of 81 Strand, above n 78. its exclusive economic zone (approximately 400,000 square kilometres) as a Marine 82 Rebecca Pozzi Taubert "Seychelles Swaps Millions of Dollars in Debt in Exchange for Conserving its Ocean" Protected Area (MPA) by the end of 2020.78 The most biodiverse half of the MPA Life Gate (8 April 2016)
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the tenure of other directors is three years, the tenure of an ex officio director could be unlimited.85 A Board's meeting requires a quorum constituted by both ex officio Directors and five other directors.86 The Board makes decisions based on the "special majority votes" rule which is satisfied by the affirmative votes of both ex officio directors and at least two-third of other directors. That means any decision of the SeyCCAT must be consented to by at least seven directors, including both ex officio directors. The directors are volunteers in the sense that they are unremunerated.87 The main power of the Board is to adopt, amend and repeal the SeyCCAT's agreements related to debt swap transactions, investment guidelines and operational manual.88 In addition, the SeyCCAT can be dissolved by a Board resolution in the event of (i) the bankruptcy of the SeyCCAT, (ii) the revocation of tax exemption in a foreign jurisdiction, or (iii) the infeasibility to achieve the SeyCCAT's objectives.89 (b) Finances and account management of the SeyCCAT The SeyCCAT is required, for each year of the receipt of debt-swap incomes,90 to reserve at least 35% of the annual income for the Endowment Fund.91 This fund will be invested by an internationally recognised investment manager which is selected through a tender process but subject to the special majority vote of the Board.92 There is to be no drawing from the Endowment Fund within at least a 20 year period from 19 November 2015.93 The remaining up to 75% of the annual income will be deposited in another account in accordance with the by-law or used in accordance with the rules provided in the SeyCCAT Act.94 Unless otherwise permitted under regulations, the SeyCCAT has a ceiling on costs of 5% per annum of revenue.95
85 SeyCCAT Act, s 9(1).
86 Section 11(5).
87 Section 20. Nevertheless, there is provision for the payment of reasonable expenses of the directors.
88 Section 15(2).
89 Section 29(1).
90 According to the SeyCCAT Act, s 2, the debt swap incomes is not limited to the USD 21.6 million debt swap but also includes incomes from other debt swaps which may be conducted within the first 20 years of the SeyCCAT.
91 SeyCCAT Act, s 21(1).
92 Section 24(1).
93 Section 21(3). 94 Section 21(4).
95 Section 6(3). 134 (2016) 22 NZACL INTERGENERATIONAL FUNDS IN THE PACIFIC 135 the tenure of other directors is three years, the tenure of an ex officio director could In all circumstances, the SeyCCAT's assets are segregated from the government's be unlimited.85 A Board's meeting requires a quorum constituted by both ex officio balance sheet.96 Nevertheless, the SeyCCAT is, to a certain extent, subject to the Directors and five other directors.86 The Board makes decisions based on the "special supervision and monitoring of the Seychelles government. In particular, the Board majority votes" rule which is satisfied by the affirmative votes of both ex officio must establish and submit an annual work plan to the Minister of Finance so that it directors and at least two-third of other directors. That means any decision of the will be presented to the National Assembly.97 Moreover, the SeyCCAT's account SeyCCAT must be consented to by at least seven directors, including both ex officio must be audited and reported on by Auditor-General to the National Assembly under directors. The directors are volunteers in the sense that they are unremunerated.87 art 158 of the Constitution of Seychelles.98 While the SeyCCAT has the power to lend, donate and borrow, such power is subject to the approval of the Minister of The main power of the Board is to adopt, amend and repeal the SeyCCAT's Finance.99 On the one hand, this mechanism may impose a stringent statutory agreements related to debt swap transactions, investment guidelines and operational governance and reporting duty on the SeyCCAT and give more publicity to its manual.88 In addition, the SeyCCAT can be dissolved by a Board resolution in the activities and accounts. On the other hand, it may leave room for the Seychelles event of (i) the bankruptcy of the SeyCCAT, (ii) the revocation of tax exemption in government to intervene in the SeyCCAT's operations. a foreign jurisdiction, or (iii) the infeasibility to achieve the SeyCCAT's objectives.89 In case the SeyCCAT is dissolved, all assets, other than those of the Endowment (b) Finances and account management of the SeyCCAT Fund, are to be distributed to non-government agencies whose purposes are similar The SeyCCAT is required, for each year of the receipt of debt-swap incomes,90 to the objectives of the SeyCCAT.100 There is no provision in the SeyCCAT Act for to reserve at least 35% of the annual income for the Endowment Fund.91 This fund the winding-up of the Endowment Fund. will be invested by an internationally recognised investment manager which is 4 Applicability of Seychelles' debt-swap model to the Pacific selected through a tender process but subject to the special majority vote of the Board.92 There is to be no drawing from the Endowment Fund within at least a 20 The debt swap arrangement in Seychelles evolves away from the funding models year period from 19 November 2015.93 The remaining up to 75% of the annual that have been used in the Pacific, and now stands as an alternative model of interest. income will be deposited in another account in accordance with the by-law or used It has ameliorated Seychelles' situation in respect of offshore loans and its in accordance with the rules provided in the SeyCCAT Act.94 Unless otherwise vulnerability to climate change. At the same time, it reduces Seychelles' exposure to permitted under regulations, the SeyCCAT has a ceiling on costs of 5% per annum foreign currency risk from foreign borrowing.101 It is estimated that Seychelles' debt of revenue.95 service (including principal payments and scheduled interest) is reduced by USD 2
85 SeyCCAT Act, s 9(1).
86 Section 11(5). 96 Section 21(6) 87 Section 20. Nevertheless, there is provision for the payment of reasonable expenses of the directors. 97 Section 25(1). 88 Section 15(2). 98 Section 27(2). Article 158 of the Seychelles' Constitution provides that the Auditor-General will audit all 89 Section 29(1). accounts of any statutory corporation (such as the SeyCCAT) and report the audit result to the National 90 According to the SeyCCAT Act, s 2, the debt swap incomes is not limited to the USD 21.6 million debt swap Assembly within 12 months from the end of the financial year. The report may identify any irregularity in the but also includes incomes from other debt swaps which may be conducted within the first 20 years of the audited accounts if the Auditor-General deems necessary. Further, the President or the National Assembly has SeyCCAT. the right to request the Auditor-General to audit the SeyCCAT's accounts at any time for the purpose of public interest. 91 SeyCCAT Act, s 21(1). 99 Section 6(1). 92 Section 24(1). 100 Section 29(2). 93 Section 21(3). 101 Ministry of Finance, Trade and Economic Planning, Republic of Seychelles, above n 69, at 15. 94 Section 21(4).
95 Section 6(3).
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million per year.102 The rest of the original offshore loan is circulated domestically for the protection of Seychelles' own environment. As determined by the UNDP, the success of a debt-swap for the environment depends on whether, among other things, (i) the creditor country has foreign aid policies in favour of environmental protection; and (ii) the debtor country has a good diplomatic relationship with the creditor country.103 These conditions are similar to those required for a successful trust creation by treaty such as in Tuvalu case. Although the debt swap arrangement in Seychelles helped to relieve the country's debt burden, the relief value is relatively small.104 The negotiation process tends to be lengthy, costly and complicated. It took Seychelles approximately three years to secure the debt swap agreement and the final value was significantly lower than the originally proposed value of USD 30 million.105 Notwithstanding such tremendous financial and personal effort, there is no certainty of reaching an agreement to swap debts. Belize spent several years negotiating a debt-swap of USD 100 million with the TNC and failed to obtain an agreement.106 Belize now is trying again to start negotiation on a debt-swap agreement. C Nauru Trust Fund 1 Establishment of the Nauru Trust Fund The Nauru Trust Fund was established under the Memorandum of Understanding between the Government of Australia and the Republic of Nauru (Nauru Trust Fund MOU).107 It had been preceded by much discussion which had resulted in the Nauru Trust Fund Act 2012. The Act identifies the fund as a body corporate in Nauru. It was followed, to fulfil the needs of the MOU, by the International Organisations (Privileges and Immunities – Nauru Trust Fund) Regulation 2015 of the Commonwealth of Australia on 10 December 2015. With the enactment of the Regulation, the Nauru Trust Fund was declared, for Australian domestic law purposes, to be a body corporate with perpetual succession and substantial legal
102 United Nations Development Programme (UNDP) "Debt for Nature" (17 January 2017)
103 At 3.
104 At 4. The small value of debt relief seems to be a generic feature of debt for nature agreements in other countries.
105 Vibeka Mair "Innovative Sovereign Debt Deal Put Together to Help Seychelles' Marine Conservation" (5 March 2015) NatureVest
106 "Belize Now Needs Proposal It Passed Up" (30 November 2016) Breaking Belize News
107 The Nauru Trust Fund MOU, para 2(1). It was signed in Canberra on 6 November 2015, and came into force on 30 April 2016. 136 (2016) 22 NZACL INTERGENERATIONAL FUNDS IN THE PACIFIC 137 million per year.102 The rest of the original offshore loan is circulated domestically capacity.108 In Australia, the Fund is exempt from currency and exchange restrictions for the protection of Seychelles' own environment. and from income tax.109 As determined by the UNDP, the success of a debt-swap for the environment The trust document, which is obviously something less than a treaty, is variously depends on whether, among other things, (i) the creditor country has foreign aid described in the Nauru Trust Fund MOU itself, as an "arrangement" reached between policies in favour of environmental protection; and (ii) the debtor country has a good the two governments or as "undertakings" of the two governments. The word diplomatic relationship with the creditor country.103 These conditions are similar to 'agreement' is not used and para 7 states that "[t]he MOU does not create legally those required for a successful trust creation by treaty such as in Tuvalu case. binding obligations between the government of the Republic of Nauru and the government of Australia".110 Any obligations that arise in respect of the Nauru Trust Although the debt swap arrangement in Seychelles helped to relieve the country's Fund MOU are obligations of the Fund and not of the government of Nauru or of debt burden, the relief value is relatively small.104 The negotiation process tends to Australia.111 be lengthy, costly and complicated. It took Seychelles approximately three years to secure the debt swap agreement and the final value was significantly lower than the The MOU is an arrangement entered into between solely Nauru and Australia. originally proposed value of USD 30 million.105 Notwithstanding such tremendous There is provision in the MOU for other parties to be involved as original parties to financial and personal effort, there is no certainty of reaching an agreement to swap the Fund but that is expressed to be a matter for Nauru and that other party.112 debts. Belize spent several years negotiating a debt-swap of USD 100 million with Subsequent contributors to the Fund must be approved by the governing body of the the TNC and failed to obtain an agreement.106 Belize now is trying again to start Fund. negotiation on a debt-swap agreement. The Nauru Trust Fund's purpose is "to provide a source of revenue to the Republic C Nauru Trust Fund of Nauru post-2033, or at a time sooner as determined by the Committee, for 1 Establishment of the Nauru Trust Fund investment in education, health, environment, and infrastructure" to "smooth out windfall income streams" and "replace all or part of supplement of questionable The Nauru Trust Fund was established under the Memorandum of Understanding future revenue".113 between the Government of Australia and the Republic of Nauru (Nauru Trust Fund No choice of law is provided in the document. It may be assumed, though not MOU).107 It had been preceded by much discussion which had resulted in the Nauru with a great deal of certainty, that it will be governed by Australian federal law given Trust Fund Act 2012. The Act identifies the fund as a body corporate in Nauru. It the presence of Australia as a party and the fact that the document is in English and was followed, to fulfil the needs of the MOU, by the International Organisations signed in Canberra. Even if not relevant to the governments of Nauru and Australia, (Privileges and Immunities – Nauru Trust Fund) Regulation 2015 of the the identification of the governing law is of significance. The Committee members Commonwealth of Australia on 10 December 2015. With the enactment of the Regulation, the Nauru Trust Fund was declared, for Australian domestic law purposes, to be a body corporate with perpetual succession and substantial legal 108 International Organisations (Privileges and Immunities – Nauru Trust Fund) Regulation 2015, reg 6. 109 Regulation 7. 102 United Nations Development Programme (UNDP) "Debt for Nature" (17 January 2017)
106 "Belize Now Needs Proposal It Passed Up" (30 November 2016) Breaking Belize News 113 The Nauru Trust Fund MOU, para 5(1). It footnotes the fact that at 2015 it was envisaged that this point would
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have fiduciary duties in respect of the Fund. Equally, the custodian bank for the Fund established by contract with the Committee also fulfils its contractual duties as a fiduciary. Breach of those duties ultimately would be determined by the governing law. 2 Organisation and governance The Nauru Trust Fund will be operated by the Committee made up of one member of each of the original parties (Nauru and Australia) and any party who has entered into an agreement with Nauru to become an original party to the Fund.114 Members of the Committee will determine among themselves who will be the Chair of the Committee.115 The quorum rule requires the presence of all members and the Committee's decisions are made by consensus.116 Paragraph 21 states that disputes between Australia and Nauru must be resolved first by the Committee and then by consultation among themselves. No dispute will be referred "to an individual, to a national court, to an international tribunal, or to any other person or entity for settlement".117 However, it is unclear whether this dispute settlement framework applies to resolve disputes amongst the Committee members. 3 Finance and investment Money is transferred to the Fund by the governments of Nauru and Australia. The capital and income of which would not be public money of Nauru. Instead, a Custodian Bank will be appointed by the Committee to hold custody of the Fund's money in accordance with the instructions of the Committee. In addition, the Custodian Bank must create sub-accounts to hold each original party's contributions and its corresponding income, revenues and expenses separately. The requirement of para 15 is that "all records and reports of the Fund returns clearly segregate and identify gross Income, management fees, and net Income". Distribution from the Fund would go into the Nauru Treasury Fund and then be dealt with in accordance with the constitutional provisions for the expenditure of Nauru money.118
114 The Nauru Trust Fund MOU, para 7(2).
115 Paragraph 7(3) and (14).
116 Paragraph 7(2).
117 These express terms are clear; whether ultimately they will be sufficient to oust the jurisdiction of an appropriate court is a separate issue.
118 The Nauru Trust Fund Act 2012, s 7 and the Constitution, art 58. 138 (2016) 22 NZACL INTERGENERATIONAL FUNDS IN THE PACIFIC 139 have fiduciary duties in respect of the Fund. Equally, the custodian bank for the Fund The government of Australia may withdraw the then present market value of its established by contract with the Committee also fulfils its contractual duties as a contributions to the Fund and any undistributed income if it determines that the fiduciary. Breach of those duties ultimately would be determined by the governing government of Nauru has "grossly failed" to use the income for the purposes of the law. Fund.119 Nevertheless, both Australia and Nauru have the right to withdraw from the 2 Organisation and governance Fund by giving 90 days notice to the other party. V DEPARTURES FROM THE TREATY-BASED TRUST FUND The Nauru Trust Fund will be operated by the Committee made up of one member MODEL IN THE PACIFIC of each of the original parties (Nauru and Australia) and any party who has entered into an agreement with Nauru to become an original party to the Fund.114 Members Since the establishment of the Tuvalu Trust Fund by treaty in 1986, a large of the Committee will determine among themselves who will be the Chair of the number of intergenerational trust funds have been established. It is meaningful to Committee.115 The quorum rule requires the presence of all members and the trace the lineage of these funds and to observe the degree of similarity between them. Committee's decisions are made by consensus.116 They are all very similar in terms of basic structure and standard provisions. What is also striking is the number of instances where the wording of provisions is identical. Paragraph 21 states that disputes between Australia and Nauru must be resolved This would indicate the value and the continued value of the model. For instance, first by the Committee and then by consultation among themselves. No dispute will there is a very close link in the structure and wording amongst the trust funds of be referred "to an individual, to a national court, to an international tribunal, or to Tuvalu, the Republic of Marshall Islands (RMI) and Nauru. This is more than simply 117 any other person or entity for settlement". However, it is unclear whether this a consequence of the nature of the legal method. The flow of clauses, often with dispute settlement framework applies to resolve disputes amongst the Committee identical headings, is Establishment, Purpose, Powers, Limitation of Liability, members. through to Amendments, Arbitration, Depositary, and Final Provisions. The Tuvalu 3 Finance and investment Trust Fund's treaty has 29 clauses and covers 13 pages; the RMI and Nauru's documents have 25 and 22 clauses respectively and cover about 24 pages. The Money is transferred to the Fund by the governments of Nauru and Australia. The difference in length is accounted for primarily by added detail on management and capital and income of which would not be public money of Nauru. Instead, a investment. That detail itself is reminiscent of the management and investment Custodian Bank will be appointed by the Committee to hold custody of the Fund's protocols of the Tuvalu Trust Fund. In other words, the Tuvalu Trust Fund provides money in accordance with the instructions of the Committee. In addition, the a broad template. Examples of this can be seen below: Custodian Bank must create sub-accounts to hold each original party's contributions and its corresponding income, revenues and expenses separately. The requirement of para 15 is that "all records and reports of the Fund returns clearly segregate and identify gross Income, management fees, and net Income". Distribution from the Fund would go into the Nauru Treasury Fund and then be dealt with in accordance with the constitutional provisions for the expenditure of Nauru money.118
114 The Nauru Trust Fund MOU, para 7(2).
115 Paragraph 7(3) and (14). 116 Paragraph 7(2). 117 These express terms are clear; whether ultimately they will be sufficient to oust the jurisdiction of an appropriate 119 The Nauru Trust Fund MOU, para 18(1). court is a separate issue.
118 The Nauru Trust Fund Act 2012, s 7 and the Constitution, art 58.
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TUVALU MARSHALL ISLANDS NAURU
Article 3 Article 4 Paragraph 6 The Fund shall have all powers The Fund shall have all powers The Fund will have all powers Power of the necessary for the fulfilment and necessary, consistent with this necessary, consistent with this Fund achievement of its purpose. Agreement, to fulfil its purpose. MOU, to fulfil its purpose.
Article 5 Article 6 Paragraph 8 1. To enable the Fund to carry 1. To enable the Fund to carry 1. To enable the Fund to carry out its purpose, each Party shall out its purpose, each Party shall out its purpose, any Original accord to the Fund, in its territory, accord to the Fund in its territory, Partner that is a government will the legal status, privileges and the legal status, privileges and accord to the Fund in its territory, immunities set out in this Article. immunities set out in this Article. the legal status, privileges and immunities set out in this Paragraph.
2. The Fund shall possess juridical 2. The Fund shall possess juridical 2. The Fund will possess juridical personality and, in particular, personality and in particular personality and in particular capacity to: capacity to: capacity to:
(a) contract; (a) contract; (a) enter into contracts; (b) acquire and dispose of (b) acquire and dispose of (b) acquire and dispose of Legal Status, immovable and movable immovable and movable immovable and movable Privileges property; and property; property; and (c) institute legal proceedings. (c) institute legal proceedings; (c) institute legal proceedings; Immunities and and (d) take other action to protect (d) take other action to protect the Fund. the Fund assets.
3. The Fund shall be exempt 3. The Fund shall be exempt 3. The Fund will be exempt from from any exchange control from any exchange control any exchange control regulations, regulations, restrictions or regulations, restrictions or restrictions or moratoria. moratoria. moratoria.
4. Within the scope of its official 4. In accordance with section 4. The Fund, its property, and its activities, the Fund, its property 216 of the Compact, as amended, assets will be exempt from and assets shall be exempt from within the scope of its official income taxation. all direct taxation. activities, the Fund, its property, and its assets shall be exempt from taxation.
Article 8 Article 9 Paragraph 9 1. The resources of the Fund The resources of the Fund shall 1. The resources of the Fund will shall consist of: consist of all contributions to the consist of all contributions to the Fund, from whatever sources, and Fund, from whatever sources, and (a) initial contributions under all Income. all Income. Article 9; Resources (b) additional contributions under Article 10; and (c) returns derived from the operations of or sums otherwise accruing to the Fund. 140 (2016) 22 NZACL INTERGENERATIONAL FUNDS IN THE PACIFIC 141
TUVALU MARSHALL ISLANDS NAURU TUVALU MARSHALL ISLANDS NAURU
Article 3 Article 4 Paragraph 6 2. The resources of the Fund 2. The resources of the Fund 2. The resources of the Fund will The Fund shall have all powers The Fund shall have all powers The Fund will have all powers shall be held in trust and shall be held in trust and be administered by the Committee Power of the necessary for the fulfilment and necessary, consistent with this necessary, consistent with this administered by the Board and administered by the Trust Fund and used only in accordance with Fund achievement of its purpose. Agreement, to fulfil its purpose. MOU, to fulfil its purpose. used only for the purpose of, and Committee and used only for the this MOU, including the in accordance with, this purpose of, and in accordance Investment Policy. Agreement. with, this Agreement.
Article 5 Article 6 Paragraph 8 1. To enable the Fund to carry 1. To enable the Fund to carry 1. To enable the Fund to carry The variations are made to meet the particular needs of each fund.120 A significant out its purpose, each Party shall out its purpose, each Party shall out its purpose, any Original accord to the Fund, in its territory, accord to the Fund in its territory, Partner that is a government will shift from the Tuvalu Trust Fund is displayed in the provisions on withdrawal, the legal status, privileges and the legal status, privileges and accord to the Fund in its territory, trustees and management in the RMI Trust Fund and the Nauru Trust Fund. There is immunities set out in this Article. immunities set out in this Article. the legal status, privileges and immunities set out in this a high correspondence between the RMI's and Nauru's models. This can be seen for Paragraph. instance in relation to the trustee (cl 11 in both documents), withdrawal (cls 21 and
2. The Fund shall possess juridical 2. The Fund shall possess juridical 2. The Fund will possess juridical 18 in the RMI's and Nauru's documents respectively) and termination (cls 22 and 19 personality and, in particular, personality and in particular personality and in particular in the RMI's and Nauru's documents respectively). capacity to: capacity to: capacity to:
(a) contract; (a) contract; (a) enter into contracts; For Pacific islands, the interest of the models utilised in Norway and Seychelles (b) acquire and dispose of (b) acquire and dispose of (b) acquire and dispose of is not merely whether these models might be replicable or appropriate for use in the Legal Status, immovable and movable immovable and movable immovable and movable Privileges property; and property; property; Pacific. In practical terms, Norway's GPFG and the Seychelles' debt swap and (c) institute legal proceedings. (c) institute legal proceedings; (c) institute legal proceedings; programme bring to light matters which any proposed intergenerational fund needs Immunities and and (d) take other action to protect (d) take other action to protect to acknowledge and account for when departing from the treaty-based trust fund the Fund. the Fund assets. model. Despite the treaty-based trust fund best suiting a fund with intergenerational 3. The Fund shall be exempt 3. The Fund shall be exempt 3. The Fund will be exempt from from any exchange control from any exchange control any exchange control regulations, purposes, funds in the Pacific and elsewhere frequently have not followed that regulations, restrictions or regulations, restrictions or restrictions or moratoria. moratoria. moratoria. model. Many of the reasons for this trend stem from the practical context in which these funds operate. For example, because a treaty requires the agreement between 4. Within the scope of its official 4. In accordance with section 4. The Fund, its property, and its at least two sovereign nations, the treaty mechanism is unavailable if a willing activities, the Fund, its property 216 of the Compact, as amended, assets will be exempt from 121 and assets shall be exempt from within the scope of its official income taxation. partner cannot be found or the government lacks capacity to enter into a treaty. all direct taxation. activities, the Fund, its property, This obstacle does not arise for the sovereign wealth fund. As a governmental fund, and its assets shall be exempt from taxation. its establishment and funding does not depend on an external third party. Conversely, adoption of the treaty-based trust fund model may be made more difficult by the Article 8 Article 9 Paragraph 9 122 1. The resources of the Fund The resources of the Fund shall 1. The resources of the Fund will requirement of a foreign government partner. Further, the scrutiny that treaty shall consist of: consist of all contributions to the consist of all contributions to the Fund, from whatever sources, and Fund, from whatever sources, and (a) initial contributions under all Income. all Income. Article 9; 120 Equally, Tuvalu itself, in the case of the Falekaupule Trust Fund, adapted the treaty model to the deed system. Resources (b) additional contributions More recently Tuvalu has further adapted the model in Regulations empowered by a local statute. Successive under Article 10; and documents appear to have been informed by the practical experience of those that have preceded them. Sources (c) returns derived from the of capital, future funding possibilities, the size of the initial capital, and the main purpose also have required operations of or sums changes in the detail of the operation of the funds. otherwise accruing to the Fund. 121 Angelo et al, above n 1. 122 The Standing Order of the House of Representatives 2014 (NZ), so 397.
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arrangements receive in some countries may leave governments reluctant to utilise such a model. Notwithstanding this infrequent use of the treaty form, when an intergenerational trust fund is being contemplated, priority is often given to the possibility of establishing a fund by a treaty. For instance, the Tokelau International Trust Fund was initially prepared on the basis of a treaty arrangement which would have been between two states with the government of Tokelau as the beneficiary. For political reasons, the trust was established as a deed arrangement between the government of Tokelau and the government of New Zealand. The aspiration for a treaty, however, was not lost. In particular, cl 18 of the Tokelau trust deed provides for the continuation of the deed as a treaty when the political environment is appropriate for that purpose. Further, Tokelau may, when Tokelau will have the international capacity in its own right to enter into a treaty, request that the government of New Zealand enter into a treaty to take over the trust fund's operation. In 2004, these conditions would have been inserted with the change of status of Tokelau in mind. 123 Were Tokelau's colonial status to change to either that of a state in free association or of an independent state, it is likely that the Tokelau International Trust Fund would be governed by a treaty. Clause 18 also indicates that the treaty would be expected to have the same terms as those in the deed. Advantages from the intergenerational point of view of moving to the treaty would be that the trust fund could continue in perpetuity,124 and that the treaty would incorporate the trust as a legal person. The arrangements would thus have enhanced formal status. Similar considerations were contemplated at the establishment of the Niue International Trust Fund. There were several possibilities as to treaty partners: Niue, Australia, and New Zealand. In the end the political environment was not suitable, and as in the case of Tokelau, the trust fund was established by deed executed by the government of Niue on the one hand and the government of New Zealand on the other. There is provision in the Niue Trust Deed for conversion to a treaty system. More recently, in respect of the Nauru trust arrangements, the intention, supported by the ADB, was that the trust fund be established by treaty. The necessary Nauru domestic law was drafted on the basis of complementing a treaty arrangement. In the course of negotiation, the Bill was changed to provide both for the possibility
123 In 2006 and 2007, there were acts of self-determination; neither changed the status of Tokelau as a colony of New Zealand.
124 Instead of terminating at the latest on 1 January 2080 because of New Zealand perpetuity laws. 142 (2016) 22 NZACL INTERGENERATIONAL FUNDS IN THE PACIFIC 143 arrangements receive in some countries may leave governments reluctant to utilise of a treaty-based trust and for one established by deed. The language in the Nauru such a model. Trust Fund Act is sufficiently broad to cover either eventuality.125 Notwithstanding this infrequent use of the treaty form, when an intergenerational The long-term stability promised by a treaty-based trust fund can be a double- trust fund is being contemplated, priority is often given to the possibility of edged sword. The stability offered by a treaty also means rigidity in the face of establishing a fund by a treaty. For instance, the Tokelau International Trust Fund changing circumstances.126 Many of the existing treaty-based trusts address only was initially prepared on the basis of a treaty arrangement which would have been questions of disestablishment and not the processes for renegotiation. This means between two states with the government of Tokelau as the beneficiary. For political that, taking the Tuvalu model as an example, it is assumed that there will be reasons, the trust was established as a deed arrangement between the government of continuing goodwill, unchanging political objectives and unchanging economic Tokelau and the government of New Zealand. The aspiration for a treaty, however, conditions. Should circumstances change in ways unrecognised by the treaty drafters was not lost. In particular, cl 18 of the Tokelau trust deed provides for the at the time of negotiation, the Tuvalu Trust Fund's operation could be hindered by continuation of the deed as a treaty when the political environment is appropriate for its more inflexible provisions. that purpose. Further, Tokelau may, when Tokelau will have the international By comparison, it remains open, on legal principles, for the government of capacity in its own right to enter into a treaty, request that the government of New Norway to alter the foundational conditions of the Norwegian sovereign wealth Zealand enter into a treaty to take over the trust fund's operation. In 2004, these funds in response to a change in circumstances. That would be simply a matter of conditions would have been inserted with the change of status of Tokelau in mind. 123 internal law - the GPFG was created by an Act of the Parliament, so too can it be Were Tokelau's colonial status to change to either that of a state in free association terminated or its fundamental structure shifted. This is a similar position to that of or of an independent state, it is likely that the Tokelau International Trust Fund would trust funds established using internal legislation or deed. Such funds can be altered be governed by a treaty. Clause 18 also indicates that the treaty would be expected by new legislation or amendment of the deed. to have the same terms as those in the deed. Advantages from the intergenerational point of view of moving to the treaty would be that the trust fund could continue in In addition to the concern about flexibility, there is concern about the influence perpetuity,124 and that the treaty would incorporate the trust as a legal person. The that such a treaty-based trust fund can afford to a third party. A treaty partner should arrangements would thus have enhanced formal status. be capable of supporting the trust fund and meeting its obligations as trustee should it have such a role. There is however scope for a treaty partner to impose conditions Similar considerations were contemplated at the establishment of the Niue beyond those designed to ensure intergenerational wealth preservation and macro- International Trust Fund. There were several possibilities as to treaty partners: Niue, stabilisation. While the conditions imposed by a potential treaty partner can benefit Australia, and New Zealand. In the end the political environment was not suitable, a fund's development purposes, they also can involve achievement of other political and as in the case of Tokelau, the trust fund was established by deed executed by the objectives important to the settlor such as environmental protection, defence and government of Niue on the one hand and the government of New Zealand on the security. other. There is provision in the Niue Trust Deed for conversion to a treaty system. The RMI Trust Fund provides a hypothetical example of how including political More recently, in respect of the Nauru trust arrangements, the intention, objectives in a trust fund treaty may jeopardise the achievement of the trust fund's supported by the ADB, was that the trust fund be established by treaty. The necessary ultimate purpose. The RMI's macro-stabilisation fund was established pursuant to Nauru domestic law was drafted on the basis of complementing a treaty arrangement. the Compact of Free Association between the United States of America (USA) and In the course of negotiation, the Bill was changed to provide both for the possibility the Republic of the Marshall Islands which entered into force in 1986 (the Compact).
125 Section 4(1) of the Nauru Trust Fund Act 2012 provides that the Nauru Trust Fund establishing document is the agreement under which the Fund is established. 123 In 2006 and 2007, there were acts of self-determination; neither changed the status of Tokelau as a colony of 126 Drew, above n 3, at 37. New Zealand.
124 Instead of terminating at the latest on 1 January 2080 because of New Zealand perpetuity laws.
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The RMI Trust Fund's specific terms are set down in a separate agreement between those two states. Notably, the governance structure favours control by the USA. The Fund is administered by a Trust Fund Committee which consists of at least three voting members appointed by USA and two voting members appointed by RMI. Reflecting its origins in the Compact, the Fund's agreement reinforces the political obligations that RMI owes to the USA. It provides: 1. The Government of the United States may withdraw the Present Market Value of its contributions to the Fund, and any undistributed Income therefrom: … (b) should the Government of the Marshall Islands:
(1) fail to fulfill its obligations under the separate agreement regarding mutual security concluded pursuant to sections 321 and 323 of the Compact, as amended; or,
(2) take any action which the Government of the United States determines, after appropriate consultation with the Government of the Republic of the Marshall Islands, to be incompatible with the Government of the United States' responsibility for security and defense matters in or relating to the Republic of the Marshall Islands, as set forth in such agreement(s). This obligation secures more than the RMI Trust Fund's macro-stabilisation purpose. It secures the USA's political interests in the RMI. There is no guarantee that the Fund will be able to serve its macro-stabilisation purposes in return. The Fund is scheduled to make its first distribution in 2024, but poor Fund performance may mean that distribution will be less than expected or will not eventuate.127 The Fund brings with it political obligation, possibly without real benefit. This can be contrasted with the sovereign wealth fund model where controls and influence are all internal to the state operating the fund. The effects that a clause such as the one in the RMI Trust Fund agreement could have can be demonstrated hypothetically by reference to the United Nation's Treaty on Nuclear Arms. The RMI in 2017 followed the USA and refused to sign this
127 Giff Johnson "Compact 2024: What's ahead for Marshall Islands and FSM?" (2 December 2013) Pacific Institute of Public Policy
The RMI Trust Fund's specific terms are set down in a separate agreement between treaty.128 According to the RMI's President, the Compact of Free Association with those two states. Notably, the governance structure favours control by the USA. The the USA, and the USA's rights to use Kwajalein arising from that Compact, were Fund is administered by a Trust Fund Committee which consists of at least three key considerations in the RMI's decision. If the RMI had signed the Treaty, it would voting members appointed by USA and two voting members appointed by RMI. have been open to the USA to treat that as an action incompatible with the USA's Reflecting its origins in the Compact, the Fund's agreement reinforces the political responsibility for security in defence. The USA then could have withdrawn its obligations that RMI owes to the USA. It provides: contributions from the Fund. Thus, the clause which makes the USA's contributions contingent on the RMI meeting particular political obligations means that the RMI 1. The Government of the United States may withdraw the Present Market Value Trust Fund could be significantly subject to the policy requirements of the USA of its contributions to the Fund, and any undistributed Income therefrom: government of the day. … Interestingly, as noted above, there are many similarities between the RMI (b) should the Government of the Marshall Islands: agreement and the Nauru Trust Fund MOU. The similarities are such that the MOU (1) fail to fulfill its obligations under the separate agreement regarding appears closely modelled on the RMI agreement. The Nauru Trust Fund MOU does mutual security concluded pursuant to sections 321 and 323 of the not oblige Nauru to act in accordance with Australian interests, but it does echo 129 Compact, as amended; or, another aspect of the RMI Fund. Paragraph 18(1) provides:
(2) take any action which the Government of the United States determines, The Government of Australia may withdraw the Present Market Value of its after appropriate consultation with the Government of the Republic of contributions to the Fund, and any undistributed Income in the event the Government the Marshall Islands, to be incompatible with the Government of the of Australia determines, after consultation with the Government of the Republic of United States' responsibility for security and defense matters in or Nauru, that the Government of the Republic of Nauru grossly failed to use the Income relating to the Republic of the Marshall Islands, as set forth in such for the purposes described in Paragraph 5 of this MOU. agreement(s). There are two points that can be made about the near identical fund documents This obligation secures more than the RMI Trust Fund's macro-stabilisation for the RMI and Nauru funds. The first is that the inclusion of external policy purpose. It secures the USA's political interests in the RMI. There is no guarantee objectives is not a feature unique to treaty-based trust funds. In the Seychelles debt- that the Fund will be able to serve its macro-stabilisation purposes in return. The swap situation, the proceeds of the funding arrangements go to the preservation of Fund is scheduled to make its first distribution in 2024, but poor Fund performance the conservation area. In return for the debt swap's benefits, the Seychelles may mean that distribution will be less than expected or will not eventuate.127 The government has accepted an obligation to improve its environmental protection and Fund brings with it political obligation, possibly without real benefit. This can be climate change adaptation. This arrangement shows that donor influence over the contrasted with the sovereign wealth fund model where controls and influence are political objectives of the fund arise not from the legal structure, but rather from the all internal to the state operating the fund. source of the capital. In the case of RMI, the involvement of an ally, the USA, led to the imposition of diplomatic obligations. In the case of Seychelles, the involvement The effects that a clause such as the one in the RMI Trust Fund agreement could of a conservation agency resulted in the imposition of conservation objectives. The have can be demonstrated hypothetically by reference to the United Nation's Treaty influence of the donors should not overshadow, therefore, the stability that comes on Nuclear Arms. The RMI in 2017 followed the USA and refused to sign this
128 "Marshalls Still to Decide on UN Nuke Ban Treaty" (18 September 2017) RadioNZ
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from treaty-based trust funds. Such influence is not wholly attributable to the form of Fund's model. The second point arising from the RMI and Nauru funds is that the funds arrangements highlight the importance of fund developers being attuned to the legal principles behind the active fund models. Any departure from the most legally secure model – the treaty-based trust fund – must acknowledge how that departure alters the fund's operation in law. The withdrawal clauses in the RMI and Nauru funds treat the trust fund model as insufficient to guarantee the proper use of the funds. However, the inclusion of such a clause risks losing the attachment of traditional trust law obligations and principles. By including such a clause, the agreement raises questions about whether it is, in fact, a trust fund. Essentially, the RMI and the Nauru trust funds are conditional. In principle, a settlor divests its interests in property once the property enters the trust. Yet, it remains open to the USA to regain property interests in the funds. The transfer of legal title to the trustees is undone. If the RMI and Nauru funds are not trust funds, those funds lose the benefit of the fiduciary duties that attach to such trusts by operation of law. Perhaps to compensate for this, the founding documents of both funds expressly set out the duties that do apply to those involved in the operation of the funds. Overall, while legal principle has some influence on a fund's form, the practical circumstances of a government and the contributors to a fund is of more significance. Therefore, while trust funds based on models other than the treaty one can be successful, the developers of any fund with an intergenerational purpose must be attuned not only to local circumstances and needs but also to the effects – both legal and practical - of any departure from the treaty-based trust fund model. VI CONCLUSION From the point of view of legal principle, the intergenerational fund model offered by the Tuvalu Trust Fund represents the most stable and secure option. It preserves the interests towards which the Fund's purpose is directed. However, experience shows that what is politically necessary and viable does not always fit with this model. The emerging and alternative models presented by the funds in Norway, Seychelles and Nauru represent further options for Pacific funds. Although the most appropriate model will always depend on the nations and interests involved, care must be taken to ensure that the protections offered by the Tuvalu Trust Fund are not inadvertently lost when pursuing an alternative model.
146 (2016) 22 NZACL INTERGENERATIONAL FUNDS IN THE PACIFIC 147 from treaty-based trust funds. Such influence is not wholly attributable to the form of Fund's model.
The second point arising from the RMI and Nauru funds is that the funds arrangements highlight the importance of fund developers being attuned to the legal principles behind the active fund models. Any departure from the most legally secure model – the treaty-based trust fund – must acknowledge how that departure alters the fund's operation in law. The withdrawal clauses in the RMI and Nauru funds treat the trust fund model as insufficient to guarantee the proper use of the funds. However, the inclusion of such a clause risks losing the attachment of traditional trust law obligations and principles. By including such a clause, the agreement raises questions about whether it is, in fact, a trust fund. Essentially, the RMI and the Nauru trust funds are conditional. In principle, a settlor divests its interests in property once the property enters the trust. Yet, it remains open to the USA to regain property interests in the funds. The transfer of legal title to the trustees is undone. If the RMI and Nauru funds are not trust funds, those funds lose the benefit of the fiduciary duties that attach to such trusts by operation of law. Perhaps to compensate for this, the founding documents of both funds expressly set out the duties that do apply to those involved in the operation of the funds. Overall, while legal principle has some influence on a fund's form, the practical circumstances of a government and the contributors to a fund is of more significance. Therefore, while trust funds based on models other than the treaty one can be successful, the developers of any fund with an intergenerational purpose must be attuned not only to local circumstances and needs but also to the effects – both legal and practical - of any departure from the treaty-based trust fund model. VI CONCLUSION From the point of view of legal principle, the intergenerational fund model offered by the Tuvalu Trust Fund represents the most stable and secure option. It preserves the interests towards which the Fund's purpose is directed. However, experience shows that what is politically necessary and viable does not always fit with this model. The emerging and alternative models presented by the funds in Norway, Seychelles and Nauru represent further options for Pacific funds. Although the most appropriate model will always depend on the nations and interests involved, care must be taken to ensure that the protections offered by the Tuvalu Trust Fund are not inadvertently lost when pursuing an alternative model.
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APPENDIX
TABULATION OF THE KEY LAW FEATURES OF SELECTED INTERGENERATIONAL FUNDS
Kiribati Phoenix Kiribati Tuvalu Tokelau Niue Tuvalu Trust Tuvalu Survival Islands RMI Trust Nauru Trust Revenue Falekaupule International International SEYCCAT Norway GPFG Fund Fund Protected Area Fund Fund Equalization Trust Fund Trust Fund Trust Fund Conservation Reserve Fund Trust
Trust fund Statutory trust Trust fund Trust fund Trust fund Statutory trust Trust fund [Trust fund] Statutory trust Sovereign Sovereign Type fund fund fund wealth fund wealth fund
Treaty between Climate Change Deed among Deed between Deed among Phoenix Islands Agreement MOU between SeyCCAT Act Government Public Finance Tuvalu, New and Disaster Tuvalu’s New Zealand New Zealand, Protected Area between the Nauru and 2015 Petroleum Fund (Control and Zealand, Survival Fund government and and Tokelau Australia and Conservation RMI and the Australia Act 1990, which Audit) Australia and Act 2015, 8 Falekaupule (2004)a, Niue (2006)b, Trust Act 2009 USA (2003), (2015), was repealed by Ordinance, United supported by (1999), supported by supported by implementing ss supported by Government supported by (2016) 22NZACL Establishment Kingdom Climate Change supported by Tokelau Trust Niue Trust Fund 216 and 217 of Nauru Trust Pension Fund the Public /Governing (1987), and Disaster Tupe Fakanaa a Fund Rules Act 2004 the Compact Fund Act 2012 Act 2012, Finance Document supported by Survival Fund Falekaupule Act 2003 supported by (Revenue Trust Fund Regulations 1999 (as the Equalisation (Finance and 2017 amended in Management Reserve Fund) Information) 2008) Mandate for the Rules 1983c Act 1987 GPFG
Provide long- Provide Support the Provide long- Provide long- Conservation of Economic Investment in Biodiversity Resource Resource term financial immediate vital development of term financial term financial the Phoenix advancement education, conservation replacement (s replacement viability and services and island viability and viability and Islands and long-term health, and climate 1) budget support respond to communities budget support budget support Protected Area budgetary self- environment change Purposes (art 2) future climate (Preamble; s 3) (cl 2) (cl 2) (s 5) reliance of the and adaptation (s 5) change impacts RMI (art 3) infrastructure (s 7; reg 2) (para 5)
International Tuvalu law Tuvalu law New Zealand New Zealand Kiribati law (s Appropriate N/A Seychelles law Norway law Kiribati law law law (cl 25) law (cl 27) 27) United States law (art 2) Governing Law
Tuvalu, Tuvalu (s 12) 8 Falekaupule, Tokelau and New Zealand, Kiribati and The USA and Australia, Debt swap All revenues Tax revenue Australia, New Tuvalu’s New and Australia Conservation the RMI (art Nauru, Taiwan arrangement (s from petroleum and royalties Zealand, and the government, Zealand (cl 1) International 10) and ADB 21) production (s 3) from phosphate United (with support mining (until Principal Kingdom (art 9 from an ADB 1979) and Contributors and Annex) loan) fishing licences (Preamble; s 5) revenues and fiscal surplus (from 1979)
AUD 27.1 AUD 5 millione AUD 9.6f NZD 7 milliong NZD 5 million USD 5 millioni USD 32 millionj AUD 30.9 USD 8.6 million USD 400 AUD 556,000m Initial milliond and AUD 4 millionk million (1996)l Contribution millionh
AUD 173 AUD 7 million AUD 32.5 NZD 87 million NZD 61 million USD 13.5 USD 320 (April AUD 40 million N/A USD 1 trillion USD 694 Current million (30 September million (30 June (30 June 2017)q (2017)r million 2017)t (15 January (2017)v million (31 May Contribution / (September 2017)o 2017)p (projected at 2016)u 2017)w Value 2017)n 2014)s
Government of People of 8 Kaupule (r Government of Government of Government of People of the Government of Government of People of Government of Beneficiaries Tuvalu (art 2) Tuvalu (s 7) 10) Tokelau (cl 2) Niue (cl 2) Kiribati RMI (art 12) Nauru (para 5) Seychelles Norway (s 1) Kiribati
The Fund (art The Board (reg Trustees (r 1; s Board of The Fund (s 3) The Fund (s 4) Trustees The Fund (para The Board (s Norges Bank on Government of 5) 11) 6) Trustees (cl 3) appointed by 8) 16) behalf of Kiribati Trustee / the Trust Fund Government of Owner Committee (art Norway (s 2) 12)
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Kiribati Phoenix Kiribati Tuvalu Tokelau Niue Tuvalu Trust Tuvalu Survival Islands RMI Trust Nauru Trust Revenue Falekaupule International International SEYCCAT Norway GPFG Fund Fund Protected Area Fund Fund Equalization Trust Fund Trust Fund Trust Fund Conservation Reserve Fund Trust
Board of Board includes Trustees are Board of Board of Board of Trust Fund Committee Board of 9 NBIM – a Reserve Fund Directors (s 8-9; reg 6): appointed by the Trustees (cl 3): Trustees Directors (from Committee comprises Director department in Investment includes (art 6): 8 Falekaupule in includes (cl 3): 3 to 9 members) includes (art 7): representatives includes (s 7): the Norges Committee 1) The Minister such manner as 1) 1 Trustee includes (s 10): from Original Bank (s 1-2 of includes (r 3): 1) A Director for Finance and they think fit (rr appointed by 1) 1 Trustee 1) 3 voting Partners (para 1) 2 ex officio the appointed by Economic 2-4). New Zealand appointed by 1) 3 Directors members 7). Directors from Management 1) Minister of Tuvalu’s Development and Tokelau Niue appointed by appointed by TNC and Mandate). Finance government (Chairperson); The Trust (Chairperson); (Chairperson); the founding the USA, The Chair of Seychelles’ (Chairperson); (Chairperson); President is the members; including the Committee is Government) 2) General 2) 1 Trustee 2) 1 Trustee 2) Secretary to Minister Chairman; elected by the 2) A Director Secretary of appointed by appointed by 2) 7 other the Cabinet; responsible for 2) Other Committee appointed by Tuvalu Red New Zealand; New Zealand; Directors from island Directors 2) 2 voting members (para Management original parties; Cross; and and institutions 3) Secretary and development (r appointed by members 7). Board and 3) 1 Trustee special majority appointed by selected by ex Deputy 3) Permanent 5). 3) 1 Trustee appointed by Secretary for vote of the the RMI; and officio Composition 3) A Director Secretary for appointed by Australia; and Finance; (2016) 22NZACL The Trust’s Board. Directors. appointed by Ministry of Tokelau. 3) Other voting documents will other Home Affairs. 4) Trustees or non-voting 4) Chief be signed by the The majority contributors. appointed by members Accountant; Trust President, of the Board other appointed by the Trust must be from 5) no more than contributors. other Secretary the non- two others contributors (if Treasurer, and governmental appointed by (s 10) approved). one Trustee sector . the Minister. nominated by The USA the Trustees for maintains the this purpose (r majority vote in 9). the Committee (art 7).
Directors serve The Board serve Trustees serve Trustees serve Trustees serve N/A The Trust Fund N/A N/A NBIM’s staff The allowances without without without without without Committee are employees of a Committee Management payment of remuneration or remuneration (r remuneration remuneration serves without of Norges Bank. member who is Board remuneration or other reward 4). from the Fund from the Fund salaries or not a public expenses (art (reg 6). (cl 3). (cl 3). expenses from officer are Remuneration 6). the Fund (art 7). determined by the Minister (r 7).
Management Two-thirds of 3 trustees (reg 6 trustees (r 7) N/A All Trustees (cl N/A All voting All Committee Both ex officio N/A 4 members (r 3) Board Directors (art 6). 3). members (art members (para and 5 other 6). 7). 7). Directors (s 7). Quorum
Unless Unanimous At least 6 A majority of A majority of Unless provided A majority of Consensus A special NBIM makes A majority of provided (reg 6). votes (r 7); or votes of the votes by the otherwise, a votes by all between majority vote, decisions on votes by the otherwise, a Trustees (cl 3) Trustees (cl 3). special majority voting members Committee by both ex investment presenting majority of The Consensus in vote (which (art 7). members (para officio Directors independently members (r 3). votes by the Chairperson has the case of the The Chairman includes the 7). and at least 5 of the Ministry Directors a deliberative Deed’s has deliberative unanimous other Directors of Finance (s 1- Chairperson Management attending and vote but no amendment or and casting vote votes of all (s 7). 2 of the has deliberative Board voting at the casting vote termination (r (cl 3). Directors Management and casting vote (reg 6). 7). (r 3). Decision meeting (art 6). appointed by the Mandate). founding making The President Policy The Chairman members) (ss does not have requires prior has deliberative 15, 19). vote and casting deliberative nor decision of the vote (art 6). casting vote (r Minister based 5). on advice of Cabinet (r 3).
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Kiribati Phoenix Kiribati Tuvalu Tokelau Niue Tuvalu Trust Tuvalu Survival Islands RMI Trust Nauru Trust Revenue Falekaupule International International SEYCCAT Norway GPFG Fund Fund Protected Area Fund Fund Equalization Trust Fund Trust Fund Trust Fund Conservation Reserve Fund Trust
An Advisory The Minister The trustees The Board The Board The Board Trust Fund The Finance NBIM appoints The Investment Committee appoints the appoint a Trust establish a Fund establish a Fund may appoint the Committee may Committee will Committee various Committee may advises Tuvalu Committee (ss Secretariat Secretariat Secretariat Executive appoint contract (comprising at committees and request the Fund’s 10-11; reg 8): which includes which includes which includes Director, Investment Custodian Bank least 4 members advisory board person(s) to effects (art 7). (r 9): a Secretary / a Secretary / advisory Adviser, and to hold the who are Board for specialist attend any 1) Secretary to Treasurer and Treasurer and committee(s), Money Manager Fund’s assets Treasurer, 2 advices and risk Committee’s Fund Government 1) Secretary other officers (cl other officers (cl Investment (art 14). (para 11). Board Directors, management.z meeting to Manager(s) may (Chairperson); Treasurer; 4). 4). Manager(s) and and 1 non- advise or assist be responsible The 2) 7 designated 2) Advisor; Auditor (ss 13- SeyCCAT the Committee for the day-to- The Board The Board Committee will r 3) public officers; 15). specialist) ( . day 3) Other may appoint an may appoint an appoint recommend administration 3) National members as the Advisory Advisory The Investment investment and of the Fund (art Council of Trustees think Committee to Committee to Executive Advisors, Fund finance to the 12). Women. fit. advise Tokelau advise Niue the Director is an ex Manager, Board.x
the Fund’s Fund’s effects. officio member Accountant, (2016) 22NZACL Quorum: 6 The Trustees effects. The The Committee of the Board but Executive Grant members (reg 8) will appoint Committee members are does not have Administrator, Committee Fund members are appointed by the voting rights (s Independent (comprising Advisory Decision Manager(s) and appointed by the unanimous 13). Evaluator and Directors Structure making: a Fund Monitor. unanimous Board’s Auditor (para specialised in majority vote Board’s decision (cl 5). 12). environmental Composition (reg 8) . decision (cl 5). conservation) If the Board advises on Chairperson If the Board invests the has a conservation invests the Fund’s strategy and deliberative and Fund’s resources other casting vote programmes to resources other than in term y (reg 8) be funded. . than in term deposits in New deposits in New Zealand The Board may The Board decide and hire appoints a Fund Zealand registered banks Investment Secretary (reg registered banks or New Zealand Management 7) and may or New Zealand Government Consultant, appoint an Government bonds, it must Investment investment sub- bonds, it must appoint Fund Managers, and committee, fund appoint Fund Manager(s) and Custodian and manager(s) and Manager(s) and Fund Monitor(s) (cl 11) other specialists. investment Fund Monitor(s) . (cl 11) consultants (reg . 12)
Remuneration Committee N/A Expenses for the Costs of the N/A Service fees are Service fees are Expenses for Expenses for N/A for the Advisory members serve Advisory Secretariat are approved by the approved by the these services these services Committee without Committee, the paid by Niue’s Trust Fund Committee and will be borne by will be borne by members and remuneration Fund government (cl Committee and paid from the SeyCCAT. GPFG. the Fund (reg 8). Manager(s) and 4) paid from the Fund’s Account Manager(s) are the Fund Fund’s account ‘A’ (para 12). Advisory approved by the Expenses for Monitor(s) are Expenses for (art 14). Structure Board and paid the investment paid from the the Advisory sub-committee, Committee, the Remuneration from the Fund Fund (cls 5, 11). (arts 7, 12). fund manager(s) Fund and investment Manager(s) and consultants are the Fund paid from the Monitor are Fund (reg 12). paid from the Fund (cls 5, 11).
The Fund in The Fund The Fund N/A N/A N/A The Fund The Fund At least 35% Fund’s assets The Fund’s practice consists consists of one consists of 1 consists of 3 consists of 2 of annual debt are deposited in assets are part of 2 accounts: aa account at the account at the accounts (art accounts (para swap incomes is a separate krone of the State National Bank National Bank 16): 14): deposited in account at budget. ‘A’ Account of Tuvalu (s of Tuvalu (r Endowment Norges Bank (s 1) ‘A’ Account 1) ‘A’ Account holds 12). 10). Fund, which is 1-1 of the contributions holds all holds all used for Management and income All Trust’s contributions, contributions, investment (s Mandate). from expenditures are income and investment 21). investments; debited from surplus from value, profits, and that account (r ‘B’ and ‘C’ increase in the Remaining 10). Accounts. No Fund’s market income is ‘B’ Account withdrawal is value and deposited in (Consolidated allowed, except surplus from another account Investment for service fees, ‘B’ Account. and used for Account) acts as withdrawal or No withdrawal conservation a buffer termination of is allowed, activities and account. the Fund. except for payment of costs service fees, (s 21). CIF $27.9 2) ‘B’ Account Fund withdrawal million at Structure (from 2022) from, or September 2017 holds all income termination of in 2023 for the Fund. disbursement in 2024 and all 2) ‘B’ Account income from is used for investment in distribution the ‘A’ Account which is based (from 2024). on the distribution 3) ‘C’ Account formula under (until 2022) the MOU. Any holds income balance in ‘B’ above 6% but Account after not more than 3 annual times of the distribution is monetary grant transferred to by the USA to ‘A’ Account. the RMI in 153 2023.
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Kiribati Phoenix Kiribati Tuvalu Tokelau Niue Tuvalu Trust Tuvalu Survival Islands RMI Trust Nauru Trust Revenue Falekaupule International International SEYCCAT Norway GPFG Fund Fund Protected Area Fund Fund Equalization Trust Fund Trust Fund Trust Fund Conservation Reserve Fund Trust
The Fund All The Trustees The Board The Board The Fund’s Fund assets Fund assets Trust assets are Fund assets Monies paid out may receive investments are cannot borrow cannot borrow, cannot borrow, assets are cannot be cannot be separate from are separate of the Fund interest free made from the or lend money mortgage, mortgage, private funds encumbered (art encumbered Government’s from the shall be paid loans or interest account at (r 3). charge or charge or and not subject 10). (para 10). accounts (s 21). Government’s only into the free suspensory National Bank. pledge any of pledge any of to local law accounts. Consolidated term loans. All returns are the Fund’s the Fund’s governing The Fund The Fund Fund (r 5). paid into that assets (cl 10). assets (cl 10). public or cannot issue cannot issue The GPFG It cannot issue account (s 12). government instruments instruments has no right or obligations funds (s 23). evidencing evidencing obligation in evidencing The Fund’s indebtedness for indebtedness for relation to indebtedness for money will not The may contributions contributions private-sector Fund Asset such loans (art revert to the transfer the (art 10). (para 10). entities or Protection 10). general account Fund’s assets in public (s 12). and out of The Fund’s authorities and The Fund assets are not Kiribati and may not (2016) 22NZACL may borrow The Board maintain foreign public money of institute legal with a loan term cannot borrow currency Nauru and not proceedings or not exceeding 6 or mortgage, accounts (s 23). under the be subjected to months and may charge or pledge control of the legal charge part or any of the Nauru proceedings (s all of the Fund’s Fund’s asset (s government (s 6). property as 12). 6). security (art 17).
The Board Based on advice The Trustees The Board The Board The Board must The The Committee Board of Fund Investment can establishes from investment establish establishes must establish adopt Committee must must establish Directors management be made only investment the sub- investment investment investment investment establish an an investment approves mandate is through (r 6): guidelines for committee, the guidelines for guidelines for guidelines for guidelines (s investment policy, based on investment provided by the the Fund Board establish the Fund the Fund the Fund 15). policy (art 15). the advice of policies (s 15). Ministry of 1) a member of Manager and a Statement of Manager which Managers (cl Managers (cl investment Finance (s 7). a stock investment Investment require the 11). 11). The Fund advisors (para Preferred asset exchange policy to ensure Objectives and Trust’s assets to invests in 13). allocation: NBIM must approved by the that the capital Policy (reg 12; be invested in a Reinvestment Reinvestment qualified equities (50%), not invest in Minister; or ensures that the ensures that the instruments and fix income companies is invested in a Schedule 3 of balanced 3) a recognised opening balance opening balance other (40%), listed in the balanced the Regulation). portfolio (r 13). investment or of the Fund’s of the Fund’s instruments alternative Guidelines for portfolio (art business The Trustees capital in each capital in each approved by the investment observation and 12). manager must balance year is the real year is the real Committee (art (10%) and cash exclusion from appointed by Reinvestment the provision of value of the value of the 15). and equivalents the GPFG (s 1-3 the Minister. ensures the revenue for initial capital of initial capital of (0.5%). of the Investment opening balance immediate the Fund as the Fund as Management of the Fund’s distribution increased by the increased by the Mandate). capital in each against the need real value of real value of year is the real to maintain the additional additional Current value of the real value of the contributions (cl contributions (cl existing initial capital of Trust, so far as 12). 12). portfolio: the Fund as possible (r 18). equities (60%), increased by the After 30 June After 30 June fixed incomes real value of 2009, the Board 2011, the Board (35-40%) and additional may, by may, by real estate (up to contributions unanimous vote, unanimous vote, 5%). (art 15). invest the invest the Fund’s Fund’s resources other resources other than defensively than defensively (cl 10). (cl 10).
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Kiribati Phoenix Kiribati Tuvalu Tokelau Niue Tuvalu Trust Tuvalu Survival Islands RMI Trust Nauru Trust Revenue Falekaupule International International SEYCCAT Norway GPFG Fund Fund Protected Area Fund Fund Equalization Trust Fund Trust Fund Trust Fund Conservation Reserve Fund Trust
The Board Distribution is Distribution is The Board The Board The Fund and The Trust No No Distribution Distribution is distributes to based on the made in must establish a must establish a the Government Fund distribution to distribution from must be made as Tuvalu’s submission of a proportion to distribution distribution will enter into a Committee must Nauru before the Endowment approved first authorised by government the “Request for each policy (cl 12). policy (cl 13). Conservation establish a 2033, unless for at least 20 by the law, and into the amount of Assistance” by a Falekaupule’s Contract which distribution approved years (s 21). Parliament and Consolidated return available Tuvalu citizen contribution, Distribution Distribution provides the policy and fiscal otherwise by the directly Fund (r 5). for distribution affected by including the before 30 June before 30 June terms of procedures (art Committee After that, transferred into or such less climate change incentive 2013 is 2013 is performance 15). (para 14). disbursement the State budget amount as or natural contribution restricted (cl restricted (cl and payments may be up to 5% (s 5). requested by disaster (ss 11- provided by 13). 13). for the No The of the previous 5 Tuvalu’s 13; regs 13-15): Tuvalu’s management distribution to Committee must years average The annual government. government (r and the RMI before establish a monthly distribution The time and The Request 19). conservation of 1 October 2023 distribution portfolio value value is decided amount of the must be first Phoenix Island (art 16). policy (para (minus gifts) (s based on the
(2016) 22NZACL distribution is as approved by the The Trustees Protected Area. 13). 21). budget planning Distribution is agreed between relevant distribute to Those payments but generally made from the The Nauru the Board and Kaupule. Kaupule the are limited to capped at 4% of ‘B’ Account government the government amount the availability the Fund’s The with supplement must submit a Distribution (art 15). available for of the Fund (s value. Committee from the ‘C’ distribution plan distribution or 26). If returns in a assesses the such less Account, if and budget for financial year Request and amount as necessary (art the Committee’s are insufficient, recommends for specified by the 16). approval (para the Board may the Board’s Trustees (r 18). 14). use other funds approval. Distribution is to make If not from the Fund distribution in approve, the to Nauru’s accordance with Board refers the Treasury Fund the investment decision to the (s 7). and distribution Committee for a (art policies second 16). appraisal. The Board’s decision on the second appraisal is final.
Periodic Periodic The Trust Periodic Periodically Annual audit Until 2023, Annual audit The Board NBIM Fund’s value review of the review of the Secretariat review of the review of the (s 25). the Fund is (para 16). submit annual publish annual is evaluated effectiveness of effectiveness of annually effectiveness of effectiveness of audited at workplan and and quarterly quarterly and the Fund (art the Fund (reg submits to the the Fund (cl 22). the Fund (cl 24). Auditor’s appropriate Evaluated budget to reports (s 6-2 of the evaluation 19) 16). Trustees a reports are intervals. After every 8 years, Minister of the report is financial report Annual audit Annual audit published (s 2023, it is report of Finance for Management submitted to Annual audit Annual audit and a budget (cl 16). (cl 17). 25). audited annually Evaluator to be presentation to Mandate). Cabinet (r 8). (art 22). (s 15). published. proposal (rr 16- (art 19). the National The Board The Board Ministry of The estimate 17; ss 10-11). Assembly (s The Board The Board report annually report annually The The Finance reports of revenue and (cl 17) (cl 18) 251). publish annually annually submit Annual audit : : Committee to Committee to Parliament expenditure is (art 23): a financial report annually (r 16; s 10). 1) The Fund’s 1) The Fund’s annually Annual audit annually. submitted to report to the (para 17): 1) The Fund’s submits (art (s 27). Maneaba ni Cabinet (s 9). Annual report activities; activities; External 20): 1) The Fund’s Maungatabu (r activities; the Parliament reports and 2) Audited 2) Audited 8): Audit and The regarding (rr 1) The Fund’s activities; other Fund Reporting 2) Audited Committee financial financial accounts; 16-17; ss 10- statements; statements; activities; 2) Audited policies are 1) Statements of Duties annually submit the Fund’s 11): account report; published. 3) Auditor’s a financial 3) Auditor’s 3) Auditor’s 2) Audited affairs; report. report to the 1) The Trust’s report. report. account report; 3) Auditor’s activities; 2) List of National 3) Auditor’s report. Accounts and Advisory The Fund’s The Fund’s Fund’s report. reports are Council on 2) Audited financial financial Nauru’s investments; account; presented to Climate statements and statements and Minister of and Parliament (art Change, the reports to be reports to be Finance report 3) Auditor’s 3) Valuation of 20). Natural Disaster presented to the presented to the annually to the report; the Fund. Committee and General Fono Legislative Parliament with the Cabinet (s 4) Secretariat’s (cl 14). Assembly (cl the Committee’s 11). report. 15). report, annual accounts and the Auditor’s report (s 9).
Any dispute Any dispute Any dispute Any dispute Any dispute N/A Any dispute Any dispute N/A N/A N/A between the involving the among the between New between New between the between Fund and a Fund, the parties to the Zealand and Zealand, USA and the Australia and party or among Board, the Deed or Tokelau related Australia and RMI is resolved Nauru must be the parties Committee or between a third to the Fund Tokelau related by them (art resolved by the which cannot be other parties party which cannot be to the Fund 24). Committee. If resolved which cannot be contributor and resolved which cannot be the Committee through resolved the Trustees through resolved Disputes fails to do so, consultation through which cannot be consultation through between the the dispute is may be referred consultation resolved may be referred consultation USA and/or the resolved by to an arbitrator may be referred through to an arbitrator may be referred RMI and other consultation Dispute contributors will Resolution appointed by to arbitration in consultation appointed by to an arbitrator between the two parties or by the accordance with may be referred New Zealand appointed by be handled as governments President of the the Arbitration to arbitration in and Tokelau or the parties or by agreed by the (para 21). International Act 1991 (reg accordance with by the Chief the Chief USA and/or the Court of Justice, 27). the Arbitration Justice of New Justice of New RMI and other Dispute if applicable Act 1991 (r 21; Zealand, if Zealand, if contributors (art settlement by (art 27). s 12). applicable (cl applicable (cl 24). any other 24). 26). individual, national court or arbitration is excluded (para 157 21).
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Kiribati Phoenix Kiribati Tuvalu Tokelau Niue Tuvalu Trust Tuvalu Survival Islands RMI Trust Nauru Trust Revenue Falekaupule International International SEYCCAT Norway GPFG Fund Fund Protected Area Fund Fund Equalization Trust Fund Trust Fund Trust Fund Conservation Reserve Fund Trust
Party other than N/A N/A N/A N/A N/A The USA may Australia may N/A N/A N/A Tuvalu may withdraw if the withdraw withdraw from RMI fails to (art contributions if the Fund by 21): Nauru grossly depositing an fails to use the instrument of 1) Comply with Fund’s incomes withdrawal with Fund’s for the Fund’s the Depository purposes; purposes (para (art 24) . 2) Fulfil its 18). obligations for Either mutual security Australia or under ss 321 Nauru may and 323 of the withdraw its Compact; or contributions by (2016) 22NZACL Withdrawal 3) Act 90-day prior compatibly with notice (para the USA’s 18). responsibility Non- for security and governmental defence relating contributors to the RMI. may not Any party withdraw from may withdraw the Fund (para by depositing an 18). instrument of withdrawal with the Depository (art 21).
The Fund may By The Trust may The Deed The Deed The Board The Fund can The Fund can SeyCCAT can N/A N/A be terminated Parliamentary be terminated may be may be may request the be terminated be terminated be dissolved by by (art 25): action. by a unanimous converted to converted to Maneaba ni by mutual by mutual a special decision of the treaty form at treaty form by Maungatabu to consent between consent between majority vote of 1) A Trustees, with Tokelau’s agreement dissolve the the USA and the Australia and the Board in the termination agreement of request when among the Fund in the case RMI at any time Nauru at any case of (s 29): notice of Tuvalu’s Tokelau has the parties (cl 20). of (s 29): (art 22). time (para 19). Tuvalu; or government capacity to enter 1) Bankruptcy; The Fund can 1) Bankruptcy; 2) A Board expressed by a into treaties (cl 2) Tax exception be terminated decision taken resolution of 18). 2) Tax revocation; or Termination (r by agreement by a majority Parliament exception The Fund can among New including votes 20). 3) Failure to be terminated Zealand, revocation; of two-thirds of achieve the by agreement Australia and trust’s the Directors 3) Non- between New Niue at any time appointed by feasibility of objectives. Zealand and (cl 21). the original the Fund’s Tokelau at any parties. objectives; or time (cl 19). 4) A special majority vote of the Board.
After the N/A The net assets Unless the Unless the The Fund’s After discharge After discharge No provision N/A N/A discharge of all of the Trust will Deed is Deed is assets are used of all liabilities of all liabilities on dissolution of liabilities (art be distributed terminated for terminated for in the following each (para 19): Endowment 25): according to the the Fund to be the Fund to be priorities (s 29): government will Fund. standard governed by governed by receive the 1) A 1) The real distribution treaty, after the treaty, after the 1) To discharge present market withdrawing Other assets value of formula (rr 19, discharge of all discharge of all all outstanding value of the party or each are distributed to Tuvalu’s 20). liabilities, the liabilities, the liabilities; Funds’ assets terminating non- contributions government governmental Fund’s assets Fund’s assets 2) To return to attributable to are returned to party receives organisations are distributed are distributed Kiribati’s their Tuvalu; and the present whose to Tokelau’s to Niue’s government its contributions Distribution market value of objectives are 2) Remaining government (cl government (cl contributions; (art 22). after the Funds’ similar to Fund’s assets 19). 21). and Withdrawal assets SeyCCAT (s are distributed or If the Deed is If the Deed is attributable to 29). to Tuvalu 3) To donate to Termination terminated for terminated for their (unless the organisations the Fund to be the Fund to be contributions. Board by a two- with charitable governed by governed by third majority purposes similar 2) The present treaty, the treaty, the to the Fund, as decides Fund’s assets Fund’s assets market value of otherwise). decided by the the Fund’s are vested in the are vested in the Board. assets new Fund under new Fund under attributable to a the treaty (cl the treaty (cl non-government 18). 20). party is paid to Nauru’s government.
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Kiribati Phoenix Kiribati Tuvalu Tokelau Niue Tuvalu Trust Tuvalu Survival Islands RMI Trust Nauru Trust Revenue Falekaupule International International SEYCCAT Norway GPFG Fund Fund Protected Area Fund Fund Equalization Trust Fund Trust Fund Trust Fund Conservation Reserve Fund Trust
By agreement By By consensus of By deed By deed By Maneaba ni By mutual By mutual By National By the By a resolution among the Parliamentary the Trustees and executed by executed by the Maungatabu consent between consent between Assembly Parliamentary of Maneaba ni parties (art 26). resolution. the Parliament’s New Zealand parties resolution, the USA and the Nauru and resolution. resolution. Maungatabu. resolution (r 7). and Tokelau (cl represented by provided that RMI (art 23). Australia (para The 23). the Trustees (cl the Board has (s 20). Depository, at 25). 30): the Board’s request, 1) Received circulates notice at least proposed 60 days before the submission Amendment amendments to all parties. The of the Bill; and amendments 2) Delivered a take effect when report of its all parties (2016) 22NZACL view on the Bill deposit an and that report instrument of is tabled in the acceptance (art Maneaba before 26). any consideration of the Bill.
N/A N/A N/A Until 1 January Until 1 January N/A N/A 40 years from 6 N/A N/A N/A 2080 (cl 20). 2080 (cl 22). November 2015, with automatic extension every Duration 5 years, until Australia or Nauru notifies to terminate (para 22).
a The Tokelau International Trust Fund was originally established in 2000 by an agreement between New Zealand and Tokelau. The Deed can be found in Niue Legislation Supplement 2005 – 2006, at 418. b The Niue International Trust Fund was originally established in 2004 by New Zealand. c The Kiribati Revenue Equalization Reserve Fund was originally established in 1956 during the United Kingdom’s colonial administration. d AusAID, PISF "Country Reports on Actual Leadership Practice against the Forum Principles of Good Leadership Report – Baseline Survey for the Year 2008 – Tuvalu"
i "$5 Million Investment Gives Vital Boost to Pacific Islands World Heritage Site in Kiribati" (24 September 2013) Conservation International
162 (2016) 22 NZACL