Independent State of Papua New Guinea v Independent Timbers & Stevedoring Limited (2018) N7700

• Jurisdiction: Papua New Guinea
• Judge: Hartshorn J
• Judgment Date: 19 October 2018
• Court: National Court
• Citation: (2018) N7700
• Docket Number: OS (COMM) 824 of 2015
• Year: 2018
• Judgement Number: N7700

Full Title: OS (COMM) 824 of 2015; Independent State of Papua New Guinea v Independent Timbers & Stevedoring Limited (2018) N7700

National Court: Hartshorn J

Judgment Delivered: 19 October 2018

N7700

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

OS (COMM) 824 of 2015

BETWEEN:

INDEPENDENT STATE OF

PAPUA NEW GUINEA

Plaintiff

AND:

INDEPENDENT TIMBERS &

STEVEDORING LIMITED

Defendant

Waigani: Hartshorn J.

2017: 10th May

2018: 19th October

TRIAL

Cases Cited:

Papua New Guinea Cases

Jixing Industries Ltd v. Aitape Metropolitan Forest Investment Ltd (2013) SC1294

Kumul Consolidated Holdings v. Kurkuramb Estates Ltd (2017) N7429

Niugini Civil and Petroleum Ltd v. West New Britain Development Corporation Ltd (2005) N2909

Shell Papua New Guinea Ltd v. Speko Investment Ltd (2004) SC767

Overseas Cases

Aitken v. Batchelor (1893) 68 LT Rep N.S. 530

Cape Distribution Ltd v. Cape Intermediate Holdings Plc [2016] EWHC 119

Excomm Ltd v. Ahmed Abdul–Qawi Bamaodah (The “St. Raphael”) [1985] 1 Lloyd’s Rep 403

Masters v. Cameron (1954) HCA 72

RTS Flexible Systems Ltd v. Molkerei Alois Muller GmbH & Co KG [2010] UKSC 14

Reveille Independent Llc v. Anotech International (UK) [2016] EWCA Civ at 443

Counsel:

Mr. E.G. Andersen and Ms. S. Kirriwom, for the Plaintiff

Mr. D.H. Katter and Mr. P.A. Lowing, for the Defendant

19th October, 2018

1. HARTSHORN, J: The plaintiff (State), the defendant (ITSL) and others entered into a Project Agreement for a proposed development project called the Trans-Papua Highway (Project Agreement).

2. In August 2014, ITSL purportedly issued a notice of arbitration claiming amongst others that the State did not meet its obligations under the Project Agreement and that this had resulted in ITSL suffering damages exceeding USD$400 million at that time and USD$1.4 billion in total. The State denies the allegations of default or breach of the Project Agreement. The State commenced this proceeding seeking declaratory relief to the effect that the Project Agreement is inoperative and unenforceable and that ITSL is not entitled to commence and prosecute arbitration proceedings against the State under the Project Agreement. Consequential orders are also sought.

3. The State submits that the relief that it seeks should be granted as:

a) the State disputes that ITSL has any basis upon which to have commenced arbitration proceedings and have the Appointing Authority and Sole Arbitrator appointed;

b) a necessary party, the Fly River Provincial Government (FRPG), has not executed the Project Agreement or become bound by it and in the absence of that party there is no intention to create legal relations and the Project Agreement has not come into legal effect as between the parties who have signed;

c) the clause in the Project Agreement whereby the State submitted certain disputes to a specific form of arbitration does not encompass the form of arbitration commenced by ITSL and therefore the State has not submitted to the arbitration commenced by ITSL;

d) the arbitration clause in the Project Agreement contains the extent to which the State agreed to submit certain disputes to arbitration;

e) this obligation to arbitrate disputes is expressly conditional upon certain conditions precedent being fulfilled. Those conditions precedent have not been fulfilled. Therefore the arbitration clause has not been enlivened, and there can be no submission to arbitration by the State;

f) on the face of the Project Agreement, the FRPG is a necessary party and in the absence of FRPG’s execution, the Project Agreement has not come into effect and is inoperative and unenforceable.

4. ITSL submits that the relief sought by the State should not be granted as amongst others:

a) the Project Agreement is enforceable notwithstanding that it was not executed by the FRPG;

b) the claims of the State fall within the definition of “Dispute” in the Project Agreement and this Court does not have jurisdiction in respect of those claims;

c) the originating summons seeks declarations without reference to any basis in statute or pursuant to the National Court Rules;

d) the arbitration dispute clause in the Project Agreement is sufficiently broad in its terms to resolve any uncertainty, and by referring to the UNCITRAL arbitration rules as to arbitration, and the procedural rules therein, the parties wanted to ensure that the arbitration would be operable and took into account circumstances such as the discontinuance of the PNGCDC;

e) it is not appropriate to seek the relief that the State seeks, by declaration;

f) there is no public policy in Papua New Guinea that overrides a decision of parties, in this instance, the State, to arbitrate.

Failure of FRPG to execute the Project Agreement

5. The State submits that FRPG is an essential party to the developments canvassed by the Project Agreement as all the activities contemplated by it are to take place in its province. The activities are subject to FRPG jurisdiction in all relevant areas and particularly in forestry and agro-forestry; renewable and non-renewable natural resources; agriculture; community, urban and rural development; and transportation and facilities. In the absence of execution and accession by a necessary party who was intended by the other parties to be bound by the Project Agreement, the Project Agreement has not yet come into force and is inoperative and unenforceable.

6. ITSL submits amongst others that:

a) the Supreme Court has held that signing a formal agreement is not necessary to bind the parties to a contract. The parties conduct establishes that the FRPG was a party to the Project Agreement, whether or not it signed the Project Agreement;

b) the Deputy Governor of FRPG attended the signing ceremony for the Project Agreement on 23rd May 2011 and no objection was taken by the FRPG to the signing of the Project Agreement;

c) the State agreed to several recitals in the Project Agreement reflecting that the FRPG was in agreement with the project and was a party to the Project Agreement;

d) the State has recognised and acknowledged since the Project Agreement was signed that it is valid and binding;

e) the State has issued authorisations and approvals, including the FCA Roadline Permit, environmental permits, approvals of road and bridge design and the Department of Agriculture and Livestock has approved the Agriculture plan for Agriculture and Reforestation. This reflects the State’s understanding that the Project Agreement is a binding and enforceable contract;

f) the State’s actions, after filing the originating summons, in requiring ITSL to maintain a performance bond for the FCA Roadline Permit and complaining about an alleged failure by ITSL to begin construction on the subject highway, reflects the State’s understanding that the Project Agreement is binding and enforceable;

g) State officials by stating that the State is in breach of the Project Agreement, have demonstrated that the State believes that the Project Agreement is valid and binding.

Consideration

7. The law concerning whether a contract is binding was considered in Shell Papua New Guinea Ltd v. Speko Investment Ltd (2004) SC767. The Supreme Court stated that:

“Notwithstanding the absence of a formal written agreement, it is possible for a binding contract to be entered into either in writing, or oral, or by conduct, or a mixture of those methods. The question is whether it can be said that a binding contract was entered into in the circumstances of this case.

In determining this issue, the intention of the parties to enter into an enforceable contract is critical. The Court will have to infer from the conduct as would (sic) a reasonable person would do. The test is an objective one.”

8. The Court then reproduced a passage from the Australian High Court case of Masters v. Cameron (1954) HCA 72 [9]-[12]. That passage detailed three classes of agreement and the principles to be considered in determining whether they are binding. I refer also to the Supreme Court case of Jixing Industries Ltd v. Aitape Metropolitan Forest Investment Ltd (2013) SC1294. After referring to Rushton (Qld) Pty Ltd & Ors v. Rushton (NSW) Pty Ltd & Ors [2003] QSC 8, the Supreme Court at [18] said:

“… the existence of an agreement may be inferred from subsequent conduct of the parties. (That is a possible 4th category to the three identified in Masters v. Cameron)”

9. In the English and Wales Supreme Court case of RTS Flexible Systems Ltd v. Molkerei Alois Muller GmbH & Co KG [2010] UKSC 14, Lord Clarke at [45] stated:

“Whether there is a binding contract between the parties and, if so, upon what terms depends on what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations.”

10. Then in the English and Wales Court of Appeal case of Reveille Independent Llc v. Anotech International (UK) [2016] EWCA Civ at 443...