Independent State of Papua New Guinea v Independent Timbers & Stevedoring Ltd [2016] PGNC 412; N6832 (14 January 2016)

N6832

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS (COMM) No. 824 of 2015

BETWEEN:
INDEPENDENT STATE OF
PAPUA NEW GUINEA
Plaintiff

AND:
INDEPENDENT TIMBERS &
STEVEDORING LIMITED
Defendant

Waigani: Hartshorn J
2016: 13^th January
: 14^th January

Application for interlocutory injunctive orders

Cases Cited:
Papua New Guinea Cases

Craftworks Nuigini Pty Ltd v.Allan Mott (1997) SC525
State v. Barclay Bros (PNG) Ltd [2004] N2507
Chief Collector of Taxes v. Bougainville Copper Ltd (2007) SC853
Ramu Nico Management (MCC) Ltd v. Tasie [2010] SC1075

Overseas Cases

American Cyanamid Company v. Ethicon Limited [1975] UKHL 1; (1975) AC 396

Counsel:

Mr. E.G. Andersen and Ms. M. Tusais, for the Plaintiff
Mr. P. Kuman, for the Defendant

14^th January, 2016

1. HARTSHORN J: This is a decision on an application for an interlocutory injunction. The injunction is sought to restrain the defendant, Independent Timbers and Stevedoring Limited (ITSL) from continuing an arbitration purportedly commenced by it against the plaintiff, the Independent State of Papua New Guinea (State). ITSL opposes the application.

Background

Project Agreement

2. On or about 23^rd May 2011, the State executed a Project Agreement with ITSL and various other named entities for a proposed development project called the Trans-Papua Highway (Project Agreement).

3. Under clause 27 of the Project Agreement the parties to the Project Agreement agreed to submit any Dispute (as defined under the Project Agreement in clause 27.1) between them to the Papua New Guinea Commercial Dispute Center (PNGCDC) for settlement by arbitration by the PNGCDC.

4. Clause 27.2 of the Project Agreement, states:

27.2 “...... the Parties irrevocably consent to submit any Dispute between the State and the Company to the PNGCDC for settlement by arbitration pursuant to the UNCITRAL arbitration rules administered by the PNGCDC”

Notice of Arbitration

5. On 27^th August 2014, ITSL purportedly issued a Notice of Arbitration to the State, and to the Singapore International Arbitration Center (SIAC), thereby purportedly commencing arbitration between ITSL, the State and the Fly River Provincial Government (Purported Arbitration). The State understands that ITSL’s position is that it is not an SIAC arbitration but an ad-hoc arbitration with limited assistance from the SIAC.

6. In the Notice of Arbitration, ITSL claims that:

a) The State and FRPG did not meet their obligations under the Project Agreement due to failure to issue ITSL with a Forest Clearing Authority Agriculture Permit; and

b) This has resulted in ITSL suffering damages exceeding US$400,000,000 to date, and US$1.4 billion in total.

7. The State agrees that a form of permit described in the Notice of Arbitration as a Forest Clearing Authority Agriculture Permit has not been issued by the PNG Forest Authority for the purposes of Clause 3.3(a) of the Project Agreement.

8. Pursuant to Clause 3.2 of the Project Agreement, the issuing of such a form of permit by the PNG Forest Authority is a condition precedent to all of the State’s obligations under the Project Agreement.

9. The State does not otherwise accept the allegations made by ITSL in the Notice of Arbitration.

10. The State strongly denies the allegations of default or breach of the Project Agreement by it. It also denies that ITSL has complied with its own obligations, and that ITSL has suffered loss and damage as claimed, or at all.

Papua New Guinea Commercial Dispute Center

11. The PNGCDC referred to in the arbitration clause of the Project Agreement is not currently in operation and has not operated for a number of years. To that extent, the State agrees with ITSL’s statement at paragraph 4.4.2 of the Notice of Arbitration that: “The PNGCDC, however, apparently does not exist or function anymore”.

12. The State’s position is that it has submitted in Clause 27 of the Project Agreement to the arbitral jurisdiction of solely the PNGCDC and no other body.

13. The State understands that ITSL’s position is that the submission is to an arbitration conducted in accordance with the UNCITRAL Rules if the PNGCDC does not exist.

Purported appointment of Sole Arbitrator

14. On or about 13^th November 2014, ITSL’s lawyer, wrote to the Permanent Court of Arbitration (PCA) providing information concerning the non-existence of PNGCDC.

15. On or about 11^th December 2014, the Secretary-General of the Permanent Court of Arbitration purportedly designated Mr Cavinder Bull SC in his capacity as Vice-President of the Court of Arbitration of the SIAC as Appointing Authority for the Purported Arbitration (Appointing Authority).

16. On or about 9^th February 2015, the purported Appointing Authority is alleged by ITSL to have appointed Albert Jan Van Den Berg, as Sole Arbitrator of the Arbitration under Article 8(2) of the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules (Sole Arbitrator).

17. The State has not submitted to the jurisdiction of the Sole Arbitrator purportedly appointed to hear the Purported Arbitration.

Proposed hearing of the Purported Arbitration

18. Notwithstanding the non-submission by the State to the Purported Arbitration, ITSL and the Sole Arbitrator intend to proceed to a hearing of the Purported Arbitration in Port Moresby on 1^st and 2^nd March 2016.

This application

19. The State submits that the interlocutory injunctive relief sought should be granted as:

a) It has serious questions to be tried and real prospects of success in obtaining the declarations and orders sought in its originating summons, including that the arbitration clause in the Project Agreement does not amount to a submission to the arbitration commenced by ITSL. This is because:

i) The State has not properly submitted to the jurisdiction of the purported arbitration; and

ii) Any submission to any arbitration under Section 27(2) Project Agreement is subject to the conditions precedent provision in clause 3.2 Project Agreement, and the conditions precedent to enlivening the State’s obligation to submit to arbitration have not been fulfilled.

b) Damages would not be an adequate remedy for the State if the interlocutory relief was not granted given the risk of an award being made against the State in the Purported Arbitration and the substantial costs and resources that would be required to be dedicated to defending the Purported Arbitration, which are unable to be quantified;

c) The balance of convenience lies in favour of granting the interlocutory relief to the State as any prejudice that ITSL suggests it may suffer would not be comparable to the risks and costs to the State should the interlocutory relief be refused;

d) The undertaking as to damages provides adequate protection to ITSL from the consequences of the injunction sought if the State fails at trail.

20. ITSL submits that the interlocutory injunctive relief sought should not be granted as:

a) The State has not established that it has an arguable case as amongst others:

i) The substantive cause of action in the originating summons is very limited. No issues are raised in regard to the entered Project Agreement, but only in regard to clause 27;

ii) The PCA has already determined that it has jurisdiction;

iii) The State has had notice of the application to the PCA but did not oppose it;

iv) The State is able to raise the question of jurisdiction before the tribunal at the scheduled hearing in Port Moresby and so it is not necessary for the Court to determine that issue;

v) There is no urgency or necessity for the Court to intervene and the State has wasted about one and half years to make objection to the arbitration.

b) The undertaking as to damages is not adequate as it is doubtful the Solicitor General is the proper person to give such an undertaking for the State;

c) Damages would be an adequate remedy as the submissions and evidence as to quantum is speculative and without foundation;

d) The balance of convenience does not favour the interlocutory relief sought being granted as the State will not be prejudiced if the injunctive relief is not granted. The State is guilty of delay in raising the jurisdictional issue which can be raised at the tribunal.

The Law

21. The State initially relies upon the National Court case of State v. Barclay Bros (PNG) Ltd [2004] N2507. In that case the Court made orders restraining Barclay Bros from taking further steps in an arbitration proceeding that they had commenced against the State.

22. The National Court found that the contract between the parties in that case was void for non-compliance with the provisions of the Public Finance (Management) Act. Having regard to the invalidity of the contract between the parties, there was no effective submission to arbitration and the Court restrained the arbitration.

23. The State submits that the circumstances of the parties in this proceeding are similar to those of the parties in Barclay Bros (supra) in that there is no effective submission to the arbitration commenced by the claimants in both instances.

Interlocutory injunctive relief

24. The principles upon which the court can grant an interlocutory injunction are well settled. The leading authority is a decision of the House of Lords in American Cyanamid Company v. Ethicon Limited [1975] UKHL 1; (1975) AC 396. This case has been followed on many occasions in this jurisdiction and cited with approval by the Supreme Court in Craftworks Nuigini Pty Ltd v.Allan Mott (1997) SC525. These principles have been reaffirmed by the Supreme Court in Chief Collector of Taxes v. Bougainville Copper Ltd (2007) SC853.

25. In Chief Collector of Taxes v. Bougainville Copper Limited (supra), the Supreme Court said at 31:

“In our jurisdiction the principles relevant to injunctive reliefs (sic) are well settled. In Golobadana No. 35 v. Bank of South Pacific, Kandakasi J, ...concluded as follows:

“A reading of these authorities shows consistency or agreement in all of the authorities that the grant of an injunctive relief is an equitable remedy and it is a discretionary matter. The authorities also agree that before there can be a grant of such a relief, the Court must be satisfied that there is a serious question to be determined on the substantive proceedings. This is to ensure that such a relief is granted only in cases where the Court is satisfied that there is a serious question of law or fact raised in the substantive claim. The authorities also agree that the balance of convenience must favour a grant or continuity of such relief to maintain the status quo. Further, the authorities agree that, if damages could adequately compensate the applicant then an injunctive order should not granted.””

Consideration

26. A preliminary point is that in the State’s notice of motion, the only reference to the court’s jurisdiction is in paragraph 1, which is not being pursed. There is no reference to the court’s jurisdiction in the remainder of the notice of motion, contrary to Order 4 Rule 49(8) National Court Rules. However, the point was not taken by counsel for ITSL and so I shall not consider it further.

Undertaking as to damages

27. A further issue is the adequacy of the undertaking as to damages that has been given. It is submitted that it is a requirement that one should be given. ITSL takes issue with the undertaking as to damages given by the State, as it is signed by the Solicitor General. It submits that it is doubtful that the Solicitor General is the proper person that has authority to give the undertaking on behalf of the State. Further, there is no evidence of the authority of the Solicitor General to give such an undertaking.

28. Counsel for ITSL did not refer to any statute or case authority in support of these submissions. The Court has a discretion in respect to the requirement and adequacy of an undertaking as to damages: Chief Collector of Taxes v Bougainville Copper Limited (supra). In the absence of authority to support ITSL’s submission, I am satisfied that the undertaking as to damages given is appropriate in the circumstances. I refer to Ramu Nico Management (MCC) Ltd v. Tasie [2010] SC1075 at [90] in this regard.

29. The next consideration is whether the State has established that it has a serious question or questions to be tried.

30. A serious question to be tried has been interpreted to mean:

“What the plaintiff must prove is that he has a serious, not a speculative case which has a real possibility of ultimate success......”: Robinson v. National Airlines Commission [1983] PNGLR 478 and “..... a strong case which, on the evidence presented would support a permanent injunction” : Markscal Ltd v. MRDC [1996] PNGLR 419.

31. The parties have filed affidavits in support of their respective positions. As to the court’s consideration of that evidence at this stage, I am mindful of the words of Lord Diplock in American Cyanamid (supra):

“It is not part of the court’s function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations.”

32. ITSL submits that the State has not established that it if has an arguable case as its originating summons is very limited and the PCA has already determined that it has jurisdiction to conduct an arbitration in this matter.

33. As to the originating summons being very limited with no issues being taken with the entire Project Agreement, the claim of the State concerns the issue of submission to arbitration. I am satisfied that the interim relief sought is incidental and related to the substantive relief sought.

34. As to the PCA already determining that it has jurisdiction, that in my view does not preclude this court from considering the matter, especially in the context of the State’s contention that from the wording of clause 27 of the Project Agreement and by its conduct, the State has not consented to submit to the PCA’s jurisdiction.

35. From a perusal of clause 27.2, 27.3 and 27.4 of the Project Agreement, it is arguable that the State, by entering into the Project Agreement did not consent to submit to arbitration of disputes between the State and ITSL other than by the PNGCDC. That such a dispute was to be submitted pursuant to the UNICTRAL arbitration rules administered by the PNGCDC can be argued to be merely that. It can be argued that it does not then lead on to the conclusion that the State submits to some other arbitration by some other entity, that is arranged pursuant to the UNCITRAL arbitration rules.

36. Further, from a perusal of clause 3.2 of the Project Agreement, it can be argued that the words: “All obligations of the State under this Agreement”, include any submission by the State under clause 27.2. As a condition precedent, the issuance of a Timber Authority permit has not eventuated and is relied upon as such by ITSL, the arbitration clause has not been enlivened it can be argued, and so there is no submission to arbitration by the State.

37. From the above, I am satisfied that the State has established that it has serious questions to be tried. Given this, it is not necessary to consider the other submissions of counsel on this aspect.

38. Having formed the view that the State has established that it has serious questions to be tried, the next consideration is whether damages are an adequate remedy.

39. ITSL submits that damages would be an adequate remedy as the submissions and evidence as to the amount of the liability of the State is speculative and without foundation. Further, what the State is impliedly suggesting is that the arbitration will be one sided, in favour of ITSL.

40. It is the case however, that if the arbitration were to proceed, and there was an adverse ruling against the State, the State may have awarded against it by the Sole Arbitrator a sum exceeding, or substantively larger than USD$400 million and possibly USD$ 1.41 billion. That is specified in the notice of motion of ITSL. The State is entitled to rely on the figures contained therein in its submission as to damages. It was submitted that the amount that may be awarded against the State could be as much as US$3 billion, but there is no evidence of that before me.

41. The possibility of such an award being made, it is submitted could have dire consequences for the State. Attempts to enforce such an award by the attempted seizure of assets could have a serious destabilizing effect that would not be compensable by way of damages. Further, there would be substantial costs and resouces required to be dedicated by way of lawyers and various government departments expending a significant amount of time in defending the proposed arbitration. Such costs are unable to be quantified. In the circumstances, given the possible amounts involved, the consequences that may arise and that the damages and costs are unable to be quantified, I am of the view that damages would not be an adequate remedy.

Balance of convenience

42. As to where the balance of convenience lies, ITSL submits that it lies in not granting the relief sought as the State is guilty of delay and the State will not be prejudiced if the interim relief is not granted as it can raise the jurisdictional issue before the tribunal.

43. As to the question of delay, it is a factor to be considered in regard to the conduct of the State, but to my mind is not directly relevant to where the balance of convenience currently lies. As to the State not being prejudiced as the jurisdictional issue can be raised before the tribunal; the State not only takes issue with the purported tribunal, but also that the arbitration clause in the Project Agreement has not been enlivened. In such circumstances, why should the State have to appear and to prepare? In my view, after considering the evidence before the Court, any prejudice that may be suffered by ITSL is overshadowed by the prejudice to the State by virtue of the risks to which it would be exposed, if the interim relief sought was not granted. The only prejudice that may be suffered by ITSL, is the deferral of the purported Arbitration. If the interim relief is not granted however, the State will be required to dedicate significant costs and resouces in defending the purported arbitration, the jurisdiction of which it disputes. The State also risks a very substantial award being made against it that may be enforced.

44. In the circumstances, to my mind, the balance of convenience lies with the relief sought being granted, for the reasons submitted on behalf of the State. For the foregoing reasons the relief sought should be granted.

Orders

45. The relief sought in paragraphs 2, 3, 4 and 5 of the plaintiff’s notice of motion filed 22^nd December 2015 is granted.
_______________________________________________________________
Gadens Lawyers: Lawyers for the Plaintiff
Kuman Lawyers: Lawyers for the Defendant