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National Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
WS NOS 1418, 1548 AND 1654 OF 2004
NIUGINI CIVIL & PETROLEUM LTD
Plaintiff
V
WEST NEW BRITAIN DEVELOPMENT CORPORATION LTD
First Defendant
MICHAEL GIBSON
Second Defendant
WEST NEW BRITAIN PROVINCIAL GOVERNMENT
Third Defendant
KIMBE: CANNINGS J
23 SEPTEMBER, 7 OCTOBER 2005
RULING ON MOTIONS
PRACTICE AND PROCEDURE – National Court – application for stay of proceedings – actions on contracts – arbitration clauses – powers of court – discretionary power – considerations relevant to exercise of discretion whether to grant a stay of proceedings and refer a dispute for arbitration – Arbitration Act, Chapter No 46, Section 4.
The plaintiff, a corporation, entered into three separate construction contracts with the first defendant, a company managed by the second defendant, an individual, and owned and controlled by the third defendant, a provincial government. Disputes arose over each contract. The plaintiff commenced proceedings against the defendants for money allegedly due under each contract. A writ of summons and statement of claim was filed in relation to each contract. There was a clause in each contract for referral of disputes to arbitration; but the clauses were not uniform. Eight to ten months after the commencement of proceedings the defendants applied for a stay of proceedings under Section 4 of the Arbitration Act and the referral of each matter to arbitration.
Held:
(1) Section 4 of the Arbitration Act allows a party against whom legal proceedings are commenced in relation to a contract, to apply to the court for a stay of proceedings if the contract provides that present or future differences are to be submitted for arbitration.
(2) A stay of proceedings is not automatic. The court has a discretion to exercise. There are a number of considerations to take into account when deciding whether to grant a stay. Some are set out in Section 4. Others are sourced in the duty of the court under Section 158(2) of the Constitution, when interpreting the law, to give paramount consideration to the dispensation of justice. In particular to ensure that persons abide by their contractual agreements. Mauga Logging Company Pty Ltd v Okura Trading Co Ltd [1978] PNGLR 259 applied.
(3) Eight considerations can be weighed in the balance; most importantly whether the application for a stay of proceedings is made promptly after the commencement of proceedings.
(4) Each arbitration clause must be interpreted on its merits to glean the intention of the parties to the contract.
(5) If an arbitration clause makes arbitration necessary, an application for a stay of proceedings can still be refused if it is not made promptly.
(6) It is reasonable to presume that if a party commences court proceedings notwithstanding the existence of an arbitration clause and the other parties do not object to that course of action within a reasonable time, that they acquiesce in the court proceedings.
(7) The arbitration clause in each contract was interpreted and applied in light of those principles, the court in each case concluding that a stay of proceedings was not warranted and that the dispute would not be referred to arbitration.
Cases cited:
The following cases are cited in the judgment:
Delta Constructions Pty Ltd v Administration of the Territory of Papua and New Guinea [1965-66] PNGLR 381
Huon Electrical Ltd v RD Tuna Cannery Ltd (2000) N2005
Mauga Logging Company Pty Ltd v Okura Trading Co Ltd [1978] PNGLR 259
Olympic Stationery Ltd v The State (2001) N2194
NOTICES OF MOTION
These were applications on notice seeking a stay of court proceedings and referral of contract disputes to arbitration.
Counsel:
G Linge for the plaintiff
T Anis for the defendants
CANNINGS J:
INTRODUCTION
This is a ruling on applications by the defendants for a stay of proceedings commenced by the plaintiff, on the ground that the plaintiff’s contracts with the first defendant require that contractual disputes be referred to an adjudicator for arbitration. There are three applications before the court, one in relation to each contract between the plaintiff and the first defendant. The defendants’ applications are made under Section 4 of the Arbitration Act Chapter No 46, which allows the National Court to stay proceedings when it is apparent that a contractual dispute should be referred for arbitration.
THE THREE CONTRACTS
The plaintiff, Niugini Civil & Petroleum Ltd, entered into three separate construction contracts with the first defendant, West New Britain Development Corporation Ltd. The second defendant, Michael Gibson, is the first defendant’s executive director. The third defendant is West New Britain Provincial Government. It owns and controls the first defendant.
Disputes arose over each contract. The plaintiff commenced separate proceedings against the defendants for money allegedly due under each contract. The details of the court proceedings and the contracts they relate to are shown in the table below.
TABLE 1 – COURT PROCEEDINGS AND CONTRACTS
| WS No | Contract date | Description of works | Amount claimed due |
| 1418/2004 | 10.01.02 | Upgrading and extension work on the outpatient department, accident and emergency wing and antenatal clinic, Kimbe General Hospital. | K267,437.66 + K200,000.00 + damages |
| 1548/2004 | 03.12.01 | Kimbe town roads. | K63,047.05 + damages |
| 1654/2004 | 30.04.02 | Kimbe-Kandrian highway, stage 1. | K171,542.85 |
THE ARBITRATION CLAUSES
There is a clause in each contract for referral of disputes to arbitration; but the clauses are not uniform.
WS 1418/2004: Kimbe General Hospital contract
Clause 13 (dispute resolution) states:
13.1 NOTICE OF DISPUTE
If any dispute or difference concerning this Agreement shall arise between the Proprietor, or the Architect on the Proprietor’s behalf, and the Builder then either party may give to the other written notice sent by certified mail.
13.2 SECURITY
In serving such notice of dispute or difference the party so serving the same shall provide evidence that the party has deposited with either the Papua New Guinea Institute of Architects or the Society of Professional Engineers the sum of K500.00 by way of security for costs.
13.3 REFERENCE OF DISPUTES
At the expiration of 5 days after serving of notice under clause 13.1, unless it shall have been otherwise settled, such dispute or difference shall be and is hereby submitted to arbitration in accordance with the procedures stated in this Section.
13.4 IDENTITY OF ARBITRATOR
The Arbitrator shall be at the option of the party who first shall serve the notice, either:
13.4.1 The nominee of the President of the Papua New Guinea Institute of Architects.
13.4.2 The nominee of the President of the Society of Professional Engineers.
13.5 FURTHER SECURITY
The Arbitrator shall have the power to make from time to time any order in regard to further security for costs of the arbitration proceedings. Such security shall be applied in accordance with the direction of the Arbitrator.
13.6 CONSOLIDATION OF DISPUTES
In any arbitration either party may raise in the proceedings by way of a further claim or by way of defence set off or counterclaim or otherwise and subject any conditions as to costs or otherwise that may be imposed by the Arbitrator any dispute or difference whatever relating to the construction of this Contract or as to any matter or thing whatsoever arising thereunder whether or not a notice of dispute in respect thereof has been given. [sic]
13.7 REPRESENTATION
Where the amount in dispute is less than K10,000 and unless otherwise agreed in writing, the parties shall appear before any arbitrator personally or, where the party is a body of persons whether corporate or unincorporated, be presented by an officer, employee or agent of the body; neither party shall be represented by a legal practitioner before the Arbitrator. [sic]
WS 1548/2004: Kimbe town roads contract
Clause 11 (disputes) states:
11. DISPUTES
11.1 If a dispute or difference concerning this Contract shall arise between the Employer or the Superintendent and the Contractor, it shall be in the first place referred to and settled by the Adjudicator named in the Contract Data, who shall, within twenty eight (28) days give written notice of his decision to the Employer and the Contractor. If the Employer or the Contractor is dissatisfied with any such decision then the Employer or the Contractor may, within a reasonable time, but not later than fifty six (56) days after the due date of such decision require that the matter or matters in dispute be referred to Arbitration as hereinafter provided. [sic]
11.2 Arbitration under PNG Arbitration Act:
All differences or disputes which have not been settled in accordance with Clause 11.1 shall be finally settled by Arbitration in Papua New Guinea under the provisions of the Arbitration Act of 1951 of Papua New Guinea.
WS 1654/2004: Kimbe-Kandrian highway stage 1 contract
Clause 11 (disputes) of this contract is the same as clause 11 of the Kimbe town roads project. The contract data is also the same.
PROCEDURAL HISTORY
Each case has a different procedural history.
WS 1418/2004: Kimbe General Hospital contract
| DATE | ACTION TAKEN |
| 20 October 2004 | plaintiff commenced proceedings. |
| 25 November 2004 | defendants filed a conditional notice of intention to defend. |
| 10 December 2004 | plaintiff filed a notice of motion, to remove the third defendant as a party – however this motion has not been moved. |
| 23 December 2004 | defendants filed a notice of motion, to strike out the proceedings – however this motion has not been moved. |
| 12 August 2005 | defendants filed an amended notice of motion to stay the proceedings and refer the dispute to arbitration pursuant to clause 13 of
the contract and Section 4 of the Arbitration Act Chapter No 46 – this is the motion now before the court. |
The defendants have not filed a defence in this case.
WS 1548/2004: Kimbe town roads contract
| DATE | ACTION TAKEN |
| 16 November 2004 | plaintiff commenced proceedings. |
| 14 December 2004 | defendants filed a notice of intention to defend. |
| 6 January 2005 | plaintiff filed a notice of discontinuance re the third defendant. |
| 11 February 2005 | defendants filed a defence. |
| 15 February 2005 | plaintiff filed a reply. |
| 12 August 2005 | defendants filed a notice of motion to stay the proceedings and refer the dispute to arbitration pursuant to clause 11 of the contract
and Section 4 of the Arbitration Act Chapter No 46 – this is the motion now before the court. |
WS 1654/2004: Kimbe-Kandrian highway stage 1 contract
| DATE | ACTION TAKEN |
| 2 December 2004 | plaintiff commenced proceedings. |
| 12 January 2005 | plaintiff filed a notice of discontinuance re the third defendant. |
| 18 January 2005 | defendants filed a conditional notice of intention to defend. |
| 14 February 2005 | defendants filed a notice of motion to strike out the proceedings – however this motion has not been moved. |
| 12 August 2005 | defendants filed an amended notice of motion to stay the proceedings and refer the dispute to arbitration pursuant to clause 11 of
the contract and Section 4 of the Arbitration Act Chapter No 46 – this is the motion now before the court. |
The defendants have not filed a defence in this case.
THE DEFENDANTS’ SUBMISSIONS
The defendants are the applicants for the purposes of these motions. Mr Anis, for the defendants, submitted that the court should give effect to the arbitration clause in each contract, which was an integral part of each contract. The courts in PNG have consistently forced parties to arbitration when this has been agreed to in a contract. Parties should not be permitted to rush to court. Arbitration is a form of alternative dispute resolution that should be encouraged by the decisions of the courts. By granting a stay of proceedings all that the court would be doing is giving effect to the contracts. In each contract there is a genuine dispute about the amount of money owed, if any, by the first defendant to the plaintiff.
THE PLAINTIFF’S SUBMISSIONS
The plaintiff is the respondent for the purposes of these motions. Mr Linge, for the plaintiff, submitted that the defendants have not acted bona fide in bringing these applications. If they genuinely believed these matters should be arbitrated, they should have raised that point a long time ago. In any event there is, in effect, no dispute worthy of going to arbitration, as the first defendant has made concessions that the work has been done. There is an argument about the amounts due but that is not something that is necessary to refer for arbitration. All the contracts have been completed or terminated, so the arbitration clauses no longer operate. They only operate when the contract is on foot.
THE LAW
The Arbitration Act
The motions or applications before the court are made by the defendants under Section 4 of the Arbitration Act (power to stay proceedings where there is submission), which states:
(1) If a party to a submission, or a person claiming through or under him, commences legal proceedings in any court against another party to the submission, or a person claiming through or under him, in respect of a matter agreed to be referred, any party to the proceedings may, at any time after appearance and before delivering any pleadings or taking any other steps in the proceedings, apply to that court to stay the proceedings.
(2) If the court to which application is made under Subsection (1) is satisfied that there is no sufficient reason why the matter should not be referred in accordance with the submission, and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary for the proper conduct of the arbitration, it may make an order staying the proceedings.
The term "submission" is defined by Section 1 of the Act to mean:
a written agreement to submit present or future differences to arbitration, whether or not an arbitrator is named in the submission.
The present case
Each of the three contracts is a written agreement containing an arbitration clause by which the parties have agreed, in certain circumstances, to submit future differences to arbitration. Each contract is therefore a "submission" for the purposes of the Arbitration Act. I am not persuaded by Mr Linge’s argument that because all the contracts have been completed or terminated the arbitration clauses can no longer apply. The parties to each of the three contracts are the plaintiff and the first defendant. The plaintiff has commenced legal proceedings against the first defendant in respect of a matter agreed to be referred. The first defendant is a party to those proceedings. Therefore it can apply to the court under Section 4(1) to stay the proceedings.
THE COURT’S DISCRETION
However, a stay of proceedings is not automatic. The court has a discretion to exercise. There are a number of considerations to take into account when deciding whether to grant a stay. Some are set out in Section 4. Others are sourced in the duty of the court under Section 158(2) of the Constitution, when interpreting the law, to give paramount consideration to the dispensation of justice. In particular to ensure that persons abide by their contractual agreements (Mauga Logging Company Pty Ltd v Okura Trading Co Ltd [1978] PNGLR 259, National Court, Kearney J).
I identify the considerations as follows:
This question arises from Section 4(1). If the answer is yes the application is properly before the court. If no, eg if the application is made after the applicant has filed a defence in the proceedings, the application would not meet the preconditions of Section 4(1).
That is the wording used in Section 4(2). Put in plainer English the question to ask is: is there good reason to refer the matter to arbitration as provided for by the contract? If yes, that is a factor supporting the application. If no, ie if the court is satisfied that there is a sufficient reason for not referring the matter to arbitration, that is a factor working against granting a stay order.
This question emerges from Section 4(2). If the answer is yes, it is a factor supporting the application. If no, it is a factor working against granting a stay order.
This question also emerges from Section 4(2). If the answer is yes, it is a factor supporting the application. If no, it is a factor working against granting a stay order.
It is necessary to ask this question so as not to lose sight of the fundamental task of the court, which is to ascertain the intention of the parties, evidenced by the agreement that they have lawfully entered into. Sakora J made the point pithily in Huon Electrical Ltd v RD Tuna Cannery Ltd (2000) N2005, when granting an application by a defendant to stay proceedings and refer a dispute to arbitration. His Honour stated:
The ... point to make is that the contract containing the arbitration clause ... is an agreement, a mutual agreement at that, between the parties. It is, therefore, no function of the Court to write up new contracts for the parties, as it were. The Court's function is only to interpret the contract, according to law, to determine what was it that the parties intended and entered into, and with what legal consequences, if any.
There is no general principle that an arbitration clause in a contract takes precedence over the right of a party to a contract to initiate court proceedings for breach of contract or monies due under a completed contract. A contract is a piece of private law and by giving effect to that law the court maintains the rule of law. The Arbitration Act does not remove that task from the court’s jurisdiction. This is clear from the final words of Section 4(2). Even if an application meets all the requirements of Section 4, the court "may make an order staying the proceedings". It is not obliged to. Getting back to the question posed – does the arbitration clause make it mandatory for disputes to be referred to arbitration? – if the answer is yes, it is a factor supporting the application. If no, it is a factor working against granting a stay order. (Olympic Stationery Ltd v The State (2001) N2194, National Court, Sevua J.)
This is similar to the first question, based on Section 4(1). If the answer is yes, it is a factor supporting the application. If no, it is a factor working against the application. This question allows the court to consider the overall conduct of the applicant. It will help avoid the spectre of a party to a contract who takes no steps to defend court proceedings until the last minute, being allowed to pull out its trump card – an arbitration clause – without notice, and use it as a reason to stay the proceedings. It is reasonable to presume that if a party commences court proceedings notwithstanding the existence of an arbitration clause and the other parties do not object to that course of action within a reasonable time, that they acquiesce in the court proceedings and are estopped from denying the jurisdiction of the court.
7 Has the applicant not waived its right to arbitration?
This requires examination of the conduct of the applicant. It may expressly or by implication waive its right to arbitration. If the answer is yes, it is a factor supporting the application. If no, it is a factor working against the application. (See the Olympic Stationery case where Sevua J rejected the argument that the defendant had waived its right to arbitration.)
If the answer is yes, it is a factor supporting the application. If no, it is a factor working against the application. This question allows the court to consider the overall conduct of the plaintiff. There is a general policy in the National Justice System of encouraging alternative dispute resolution: getting individuals and companies to seek resolution of their disputes in more informal, often speedier, forums than courts. Commercial disputes, particularly involving building or construction contracts, lend themselves to being quickly resolved by independent, technical experts. In the present case, the "adjudicator" appointed under two of the contracts is the Department of Works and Transport. The arbitrator can be appointed by the court under Section 5 of the Arbitration Act.
The above considerations have been framed so that an affirmative (yes) answer to any one will weigh in favour of granting a stay of proceedings. A negative (no) answer weight against granting a stay. A neutral answer will be a neutral factor. The more affirmative factors that are present, the more likely it is that a stay will be granted. The more negative factors present, the more likely it is that a stay will be refused. However, the court’s decision remains a discretionary process. When a factor is marked as affirmative or negative it does not mean necessarily that it is given the same weight as another affirmative or negative factor.
ONUS OF PROOF
Though the applications are made by the first defendant and the party applying for a stay of proceedings would normally bear the burden of convincing the court that it should do so, where arbitration clauses are concerned the onus of proof is, in effect, reversed.
Once an applicant has established that a dispute falls within an arbitration clause the tendency of the courts is to stay the proceedings unless the party opposing the stay can show cause to the contrary (Delta Constructions Pty Ltd v Administration of the Territory of Papua and New Guinea [1965-66] PNGLR 381, pre-Independence Supreme Court, Ollerenshaw J).
SHOULD THE PROCEEDINGS BE STAYED?
I will address this question by applying the eight considerations outlined above to each of the three legal proceedings.
WS 1418/2004: Kimbe General Hospital contract
Three of the considerations favour a stay of proceedings. Five do not. I am satisfied that the plaintiff has discharged the onus of showing cause why the proceedings should not be stayed.
WS 1548/2004: Kimbe town roads contract
Three of the considerations favour a stay of proceedings. Five do not. Though there is a strong argument to say that the plaintiff should have first agitated its grievances by going to adjudication, the first defendant has spoiled its chances of being granted a stay by filing a defence and not taking issue with the commencement of legal proceedings. In effect it has acquiesced in the proceedings. I am satisfied that the plaintiff has discharged the onus of showing cause why the proceedings should not be stayed.
WS 1654/2004: Kimbe-Kandrian highway stage 1 contract
Four of the considerations favour a stay of proceedings. Four do not. Though there is a strong argument to say that the plaintiff should have first agitated its grievances by going to adjudication, the first defendant has, as is the case with the other proceedings, spoiled its chances of being granted a stay by not promptly taking issue with the commencement of legal proceedings. In effect it has acquiesced in the proceedings. It is in WS No 1654 of 2004 that the defendants have come close to being granted a stay. However, any doubt I have about the efficacy of refusing the application is resolved by considering the similarities between the three proceedings and therefore the three stay applications. Though I have been at pains to consider the three applications separately it makes sense to have all three matters resolved by the court; rather than having two go before the court and one referred for arbitration. I am therefore satisfied that the plaintiff has discharged the onus of showing cause why the proceedings in relation to the Kimbe-Kandrian highway, stage 1, should not be stayed.
REMARKS
The three applications before the court will be refused. The common theme running through each is, first, that there is a contractual dispute that could or should have been referred for arbitration. Secondly, the defendants had the opportunity to enforce the arbitration clauses by objecting to the proceedings and seeking a stay. But they failed to act promptly. The National Court has not been reluctant to enforce arbitration clauses. It has, for good reasons, herded a number of overly litigious or trigger-happy parties away from the doors of the court. However the National Court has been seized of the present matters for many months now. It accords with sound commercial practice for these cases to be tried without further delay – unless, of course, the parties can agree to settle the matters in some other amicable fashion.
COSTS
Normally costs follow the event. I can see no reason in these cases, given that they are commercial in nature and that all parties were legally represented by competent counsel, to depart from that practice. I will as a matter of discretion award costs of these proceedings to the plaintiff.
ORDER
The order of the court in each case will be that:
____________________________________________________________
Lawyers for the plaintiff : Linge & Associates
Lawyers for the defendants : Blake Dawson Waldron
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