The Independent State of Papua New Guinea v Barclay Bros (PNG) Ltd (2004) N2507

• Jurisdiction: Papua New Guinea
• Judge: Kapi CJ
• Judgment Date: 02 April 2004
• Citation: (2004) N2507
• Court: National Court
• Year: 2004
• Judgement Number: N2507

Full Title: The Independent State of Papua New Guinea v Barclay Bros (PNG) Ltd (2004) N2507

National Court: Kapi CJ

Judgment Delivered: 2 April 2004

1 Injunction—Application to restrain an arbitration before the International Chamber of Commerce International Court of Arbitration.

2 Meaning and effect of observation by the Court on matters not before it.

3 The Independent State of Papua New Guinea v Barclay Brothers (PNG) Ltd (2001) N2090, The Independent State of Papua New Guinea v Barclay Brothers (PNG) Ltd (1992) (Unreported and Unnumbered Supreme Court judgment delivered on 31 December 2002) referred to

___________________________

N2507

PAPUA NEW GUINEA

[In the National Court of Justice at Waigani]

OS 298 of 2000

OS 520 of 2003

BETWEEN:

THE INDEPENDENT STATE

OF PAPUA NEW GUINEA

Plaintiff

AND:

BARCLAY BROS (PNG) LTD

Defendant

Waigani : KAPI, CJ

2003 : 11, 12 November

2004 : 2 April

R. J. Webb QC with W. Kasou for the Plaintiff

J. Griffin QC with M. Varitimos for the Defendant

Injunction – Application to restrain an arbitration before the International Chamber of Commerce International Court of Arbitration.

Meaning and effect of observation by the Court on matters not before it.

2nd April 2004

Kapi CJ: The State (Plaintiff) in an Originating Summons (OS 520 of 2003) filed on 18th September 2003 claims:

1. A declaration that the Defendant (as claimant) is not and has not at any time been entitled to continue, prosecute or pursue any arbitration proceedings against the Plaintiff (as respondent) for the claim contained in its amended statement of claimant’s case pursuant to or under clause 67 of the FIDIC conditions of contract which are exhibit KKI to the affidavit of Kerenga Kua sworn on 15 September 2003 and filed in these proceedings or the claim identified in the letter from Clayton Utz to the arbitral Tribunal dated 5 September 2003.

2, An order that the defendant by itself, its servants or agents or otherwise howsoever, be restrained from taking any further step in or for the purposes of an arbitration commenced by the Defendant (as claimant) against the Plaintiff (as respondent) on or about 20 April 2000 in the International Chamber of Commerce International Court of Arbitration at Paris (the “arbitration”).

3. An order that the Defendant withdraw from and discontinue the arbitration as against the Plaintiff.

4. Such further or other orders as to this honourable Court shall seem fit.

5. Cost.

These orders are similar to the orders sought by the Plaintiff in an earlier originating summons (OS 298 of 2000) in paragraphs 4-6:

4, “A declaration that the defendant (as claimant) is not and has not at any time been entitled to commence, prosecute or pursue any arbitration proceedings against the plaintiff (as respondent) pursuant to or under clause 67 of the FIDIC Conditions of Contract forming part of the Construction Contract.

5. Except as otherwise ordered by the Court, an order that the defendant by itself its servants or agents or otherwise howsoever, be restrained from taking any further step in or for the purposes of an arbitration commenced by the defendant (as claimant) against the plaintiff (as respondent) on or about 20 April 2000 in the International Chamber of Commerce International Court of Arbitration at Paris (“the Arbitration”).

6. An order that the defendant withdraw from and discontinue the Arbitration as against the plaintiff.”

Both counsel sought to have these two matters heard together.

It is necessary to set out the background to these two matters.

OS 298 of 2000

This Summons was filed on 1st June 2000. It came before me for determination on 26th March 2001. I delivered judgment on 6th June 2001 (see Independent State of Papua New Guinea v Barclay Brothers (PNG) Ltd (Unreported Judgment of the National Court dated 6th June 2001, N2090).

For the present purposes, it is important to clarify the issues that were determined. Of the orders sought in the Originating Summons, I made two declarations:

“1, That SHGHL acted as the agent of the State in entering into the construction contract with BB on 9th April 1999 (with respect to Phase I and II and Stages 2A and 2B of the of the proposed Southern Highlands Gulf Road Link) and therefore the State is bound by its terms.

2. That the contract breached the tender requirement under s 40 (1) of PFM Act and is therefore void.”

I did not discuss nor did I make any orders in respect of orders in paragraph 4 to 6 of the Summons.

Both parties appealed against the decision. The Defendant appealed against the second declaration (SCA 60 of 2001). The Plaintiff appealed against the first declaration (SCA 62 of 2001). Both appeals were dismissed by the Supreme Court (see Independent State of Papua New Guinea v Barclay Brothers (PNG) Ltd (SCA 62 and 63 of 2001) (Unreported Judgment of the Supreme Court dated 31st December 2002).

So far as OS 298 of 2000 is concerned, the issues raised in paragraphs 1 to 3 have been determined conclusively by the Supreme Court on appeal. In the result my decision was confirmed.

It is significant to note that neither of the appeals raised any issue in relation to the lack of any discussion or orders in relation to paragraphs 4 to 6 of the Originating Summons. Consequently, no arguments were put before the Supreme Court. It is not surprising that the Supreme Court did not discuss the issue in its decision. I will return to the consequential orders later in my judgment.

However, the Supreme Court proceeded further and expressed an opinion on the principles of restitution. It is necessary to set out the relevant passages:

“But that does not mean that a party pleading illegality may do so without any consequence. While it is the law that no cause of action can be founded on an illegal contract, e.g. for specific performance or damages for breach of an illegal contract; such does not exclude the law of restitution. The principles of restitution lie outside of contract because the obligation to make restitution is not based contractual agreement to be bound or a promise to pay, but on justice and equity. They have historically been referred to as rights in quasi contract or claims for quantum meruit. They recognise that notwithstanding a contract may be illegal, where it is inequitable that a party retain monies paid or default on obligations for benefits or services supplied by another the Courts may order recovery. Not to enforce a void or unenforceable contract but because justice and equity demands it.

Restitution will however not be available to a party which has knowingly or cinically entered an illegal or statute barred contract and then seeks to recover by claiming reimbursement for such services rendered or moneys expended before the illegality was brought to light. Where a Court finds willing participation in an illegal contract there will be no recovery. Just as creation of an estoppel cannot be used to avoid statutory obligations, pleading a claim in restitution will not suffice to obtain redress in an illegal contract. While a party may not be able to establish total innocence of illegality it must show at least threat it is not responsible for or not an equal participant in illegality.

Integral to the Courts conclusion that restitution is appropriate, is a finding that the parties to the illegal contract are not in pari delictu that is that they have not been equally in breach of the law. Barclay Bros need to show that they are not equally at fault in breaching the PFM Act. On the evidence before the National Court and this Court they are clearly are not seeking to enforce the performance of the Contract. They have not instituted proceedings in PNG for that purpose. In the international arbitration they seek compensation for work done under the voided contract. The State by OS 298/99 has sought to prevent that.

The evidence accepted by the National Court in these proceedings is that Barclay Bros seeks to recover moneys certified under the agreement as due for work done prior to and up to the termination of the contract. It is accepted too that the contract was executed with the State’ s agent, an incorporated company rather than directly with the State itself. That is some evidence that Barclay Bros can maintain that all the needed to be done by its contracting party to enter a valid agreement appeared to have been done. Sections 19 and 20 of the Companies Act supports that position.

For the State’ s part it can be seen that it certainly had the obligation to follow the PFM Act provisions and did not. For whatever reason it did not do that, no evidence has been offered as to why, when becoming aware of its breach it failed to seek the exemptions under the Act as it was always empowered to do. Nor why, knowing that work...