Evaluation Consult (New Zealand) Ltd v Independent State of Papua New Guinea [2016] PGNC 50; N6219 (16 March 2016)

N6219

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS. NO. 220 of 2015

BETWEEN

EVALUATION CONSULT (NEW ZEALAND) LIMITED
Plaintiff

AND

THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Defendant

Waigani: Kandakasi, J.
2014: 29th September
8th & 16th October
2016: 16th March

ARBITARTION – True nature of arbitration – A privately appointed and funded court – Unlike a court of law, arbitration is limited in its jurisdiction – It does not have the same powers as a court of law – Arbitrator empowered only to function within the powers and functions specifically provided for in the parties' agreement or submission or any relevant legislation – Section 166 (1) of the Constitution – Arbitration Act (Chp.46) – Judicial Proceedings (Debts and Damages) Act (Chp.52).

DAMAGES – Breach of part performed illegal contract – Application of principle of quantum meruit – Appropriateness of principle queried - Prevalence of breaches of relevant and applicable legislation by public and private contracting parties – Time has arrived to render the principle inapplicable to State or public contracts.

INTEREST – Award of Interest on debts and damages in arbitration – Whether arbitrator has power to award interest on an award? – Nature of arbitration – Difference between court and arbitration proceedings – Court has power to award interest as provided for by the legislation – Lack of similar provision made for award of interest by an arbitrator – Position at common law – No legislation empowering an arbitrator to award interests in PNG – Arbitration Act silent on the issue – Legislative provisions deeming inclusion of certain matters in a submission to arbitration – Power to award interest not included – Application of the principle "expressio unis personae vel rei est exclusion alterius" – An arbitrator has no power to award interest unless specifically provided for in the parties agreement or is expressly authorised by law - Section 166 (1) of the Constitution – Arbitration Act (Chp.46) – Judicial Proceedings (Interest on Debts and Damages) Act (Chp. 52).

STATUTORY INTERPRETATION - Arbitration Act (Chp.46) - Relevant applicable principle - Generous and purpose approach – Exceptions - Principle of "expressio unis personae vel rei est exclusion alterius" – Expressed provisions on an arbitrators powers – Power to award interest not included – Meaning of – Arbitratot

Cases Cited:

Papua New Guinea Cases

Anton Johan Pinzger v Bougainville Copper Ltd [1985] PNGLR 160.
Peter Kop Kiniwi v. Vincent Auali & The State (1998) N1722.
The Independent State of Papua New Guinea v. Zachary Gelu (2002) N2322.
William Nakin v. Lauta Atoi (2013) N5218.
Re Application by RM and PM (2012) N4875.
John Kewa v. Brian Mangipu (2004) N2720.
Keyapaka Investments Pty Ltd v. Wamange Dat & 7 Others (1988) N1772.
Mauga Logging Company Pty Ltd v. Okura Trading Co. Ltd [1978] PNGLR 259.
Delta Constructions Pty Ltd v. The Administration of Papua & New Guinea [1965-66] PNGLR 381.
Paul Pilimbo Pora v. Larry Hull & Aarlie Hull & Dean Hull (2009) N3729.
Niugini Civil and Petroleum Ltd v. West New Britain Development Corporation Ltd (2005) N2909.
Jennifer Jean Scott v. Micheal George Scott and Mary Van Duseon (2009) N3881.
PLAR No. 1 of 1980 [1980] PNGLR 326.
SCR No. 1 of 2000; Re Morobe Provincial Government for and on behalf of the Morobe Provincial Executive Council (2002) SC693.
The State v. Downer Constructions (PNG) Limited (2009) SC979.
Fly River Provincial Government v. Pioneer Health Servicies Ltd (2003) SC705.
Paru Aihi v Peter Isoaimo (2013) SC1276.
Eremas Wartoto v. The State (2015) SC1411.
Isaac Lupari v. Sir Michael Somare & Ors (2010) SC107.

Overseas Cases

Chandris v. Isbrandtsen-Moller Co. Inc. [1951] 1 K.B. 240, C.A.
Podar Trading Co. v. Tagher [1949] 2 All E.R. 62.
Techno-Implex v. Gebr van Weelde BV [1981] 2 WLR 821
In re Exxon Valdez v. Exxon Corp., [2007] USCA9 207; 484 F.3d 1098, 1101 (9th Cir. 2007).
Emmenegger v. Bull Moose Tube Co., [2003] USCA8 225; 324 F.3d 616, 624 (8th Cir. 2003).
Waterside Ocean Nav. Co. v. Int'l Nav. Ltd. (In re Waterside Ocean Nav. Co.), [1984] USCA2 620; 737 F.2d 150, 153-54 (2d Cir. 1984).
Am. Constr. Mach. & Equip. Corp. v. Mechanised Constr. of Pakistan Ltd., 659 F. Supp. 426, 429 (S.D.N.Y. 1987).
Al-Haddad Bros. Enter., Inc. v. M/S Agapi, 635 F. Supp. 205, 210 (D. Del. 1986).
Ass'n of. Serv. Indus. Firms v. Serv. Indus. Firm, XVII Y.B. Comm. Arb. 11, 26 (US 1992).
Final Award in ICC Case No.6162; Case No.6162 of 1990, XVII Y.B. Comm. Arb. 153, 162-63 (ICC Int'l Ct. Arb. 1992).
Case No.6230 of 1990, XVII Y.B. Comm. Arb. 164, 175-76 (ICC Int'l Ct. Arb. 1992).
Case No.5485 of 1987, XIV Y.B. Comm. Arb. 156, 173 (ICC Int'l Ct. Arb. 1989).
Fertilizer Corp. of India v IDI Mgmt., Inc., 517 F. Supp. 948, 962 (S.D. Ohio 1981).
Laminoirs-Trefileries-Cableries de Lens, S.A. v Southwire Co. (In re Laminoirs-Trefileries-Cableries de Lens, S.A.), 484 F. Supp. 1063, 1069 (N.D. Ga. 1980).

Legislation cited:

Constitution of the Independent State of Papua New Guinea

Arbitration Act (Chp.46)

Judicial Proceedings (Interest on Debts and Damages) Act (Chp. 52).

Other material cited:

The Arbitrator's Companion"- Gibson, The Federation Press 2001 (SC library)
Bundesgesetz über das Internationale Privatrecht (IRPG), Federal Law on International Private Law, art.176-94 (December18, 1987) (Switz.).
Born, International Commercial Arbitration, [2009] at 2503.
M. Hunter & V. Triebel, "Awarding Interest in International Arbitration", [1989] 6 J. Int'l Arb., No.1, 12–13.
Klaus Peter Berger, General Principles of Law in International Commercial Arbitration: How to Find Them—How to Apply Them, [2011] 5 World Arbitration & Mediation Review 97, 130–136.
John Y. Gotanda, Compound Interest in International Disputes [2002–03] 34 Law & Policy in International Business 394, 399.
David J. Branson & Richard E. Wallace, Awarding Interest in International Commercial Arbitration: Establishing a Uniform Approach, [1988] 28 Va. J. Int'l L. 919, 930.
Angeline Welsh, The Law Applicable to the Award of Interest: A Roadmap Through the Maze, [2011] 5 World Arbitration & Mediation Review 23.
Branson & Wallace, Awarding Interest in International Commercial Arbitration: Establishing a Uniform Approach, [1988] at 930–31; In re Exxon Valdez v Exxon Corp.[2007] USCA9 207; , 484 F.3d 1098, 1101 (9th Cir. 2007) and Emmenegger v Bull Moose Tube Co.[2003] USCA8 225; , 324 F.3d 616, 624 (8th Cir. 2003).
John Y. Gotanda, A Study of Interest, Villanova Univ. Sch. Of Law, School of Law Working Paper Series, paper 83 (2007);
Gotanda, Compound Interest in International Disputes [2002–03] at 394.
Julian D.M. Lew, The Recognition and Enforcement of Foreign Arbitral Awards in the States of the Arab Middle East [1987] Contemporary Problems in International Arbitration 340, 348–349.

Counsel:

B. Frizzell, for the Plaintiffs
A. Nasu, for the Defendants

16th March, 2016

1. KANDAKASI J: The parties in this proceeding went to arbitration in accordance with their own agreement and an award has been arrived at, which is inclusive of interest at 8% for each item awarded. Following non-payment of the total award, the Evaluation Consult (New Zealand) Ltd ("the Company") applies to enforce the arbitration award. To the extent that the award includes interest the Independent State of Papua New Guinea ("the State") objects, claiming the arbitrator did not have the power to award interests at any rate.

Issue for Determination

2. Hence, the main issue became:

Whether the Arbitrator has authority to award interest at 8% per annum on each of the items he awarded?

Relevant Background Facts

4. The background to the issue presented and hence this case is straightforward. The Company is incorporated in New Zealand. On 6th September 2014, it was registered in PNG as a foreign enterprise under s. 387 (1) (b) and (2) of the Company's Act 1997. Prior to that, on 25th July 2014, the Company and the State entered into a written agreement for the Company to provide consultancy services to the State through the Department of National Planning and Monitoring (DNPM). The parties expressly agreed to make the contract effective from 1st May 2014 and end on 30th September 2014.

5. The Company was to provide its services to the State through the DNPM by reviewing the framework and template for an update of the State's mid-term development plan known as MTDP 2011-2015 and produce a revised MTDP 2014-2017. In return, the State agreed to pay the Company K3,450.00 per day for a total of 76 days bringing the total consideration to K262,200.00. The parties went into a performance of their contract albeit with some delay. The State paid a total of K247, 430.29 of the agreed and written contract price leaving the balance of K14, 769.71 yet to be paid as at the time of agreed end of the contract, 30th September 2014.

6. Without any formal written agreement extending the contract period and the terms of engagement, the Company continued to provide services in three areas. These were well outside the terms of the original written contract. The three areas were: (1) Strategic Management; (2) SharePoint IT solution; and (3) MTDP Integration of Monitoring and Evaluation (M& E). These services were provided upon the request of the officers within the DNPM. Following the rendering of its services, the Company issued a total of 20 invoices covering the period 21st August 2014 to May 2015 with a total value of K1, 166,583.55. At arbitration these invoices were reduced to 10 and total value reduced to K984, 613.03. That is excluding costs and expenses. From that total alleged owing, the State admitted, a sum of K14, 769.71 owing under original and written agreement. It disputed the rest on the basis that they fell outside the terms of the written contract. After hearing the parties on the matters in contention between them the arbitrator awarded a total of K934, 314.33 on the basis of quantum meritum plus interest at 8% and costs.

Parties Submissions

7. Learned counsel for the Company submits and I accept that, the only issue before me is in respect of the award of interest and nothing else. Not only that, the State has not filed any formal application contesting other aspects of the arbitration award.

8. On the issue of interest, which is properly before the Court, the plaintiff's submission is that:

"The Act [Arbitration Act (chp 46] is silent on the powers of the Arbitrator to award interest meaning that the common law position should be applied."

9. Learned Counsel for the Company argues that the rate should be 8% which is the rate derived from the Judicial Proceedings (Interest on Debts and Damages) Act (Chp. 52). In support of that argument, the Company refers to Russel on Arbitration 20th edition at pages 324 and 325 and the cases referred to there. Counsel also refers to the decision in Chandris v. Isbrandtsen-Moller Co. Inc.[1] ("Chandris") which overruled Podar Trading Co. v. Tagher [2] ("Podar") and cites the following from the head note of the decision:

"On appeal, only the question of the arbitrator's power to award interest remaining in issue.

Held that the power of an arbitrator to award interest was derived from the submission to him, which impliedly gave him power to decide "all matters in difference" according to the existing law of contract, exercising every right and discretionary remedy given to a court of law; that the Law Reform (Miscellaneous Provisions) Act, 1934, which repealed s.28 of the Civil Procedure Act, 1833, was not entitled to the interest provisionally awarded by the arbitrator: Podar Trading Co. Ld., Bombay v. Francois Tagher, Barcelona [1949] 2 K. B. 277, overruled..."

10. Also, learned Counsel for the Company drew the Court's attention to the reasoning of Tucker LJ from page 256 to 263 as being relevant regarding the common law position on interest. Counsel also points out that the decision in Podar was dealing with statutory provisions dealing specifically with arbitrators and awards of interest. Further, learned counsel made reference to the UK Arbitration Act and "The Arbitrator's Companion"- Gibson, The Federation Press 2001 (SC library) at pages 57 to 59 and make the point that, provision is made for the awarding of interest for the purposes of compensating an innocent party by the other for the loss of a possible use of their money due to late payment.

11. On the other hand, learned Counsel for the State argues that the arbitrator lacked the necessary jurisdiction to award interest for two
(2) main reasons. Firstly, the parties did not agree and did not submit for interest to be awarded. Secondly, neither the Arbitration Act, nor the Judicial Proceedings (Interest on Debts and Damages) Act provide for or otherwise allow for interest to be awarded by an arbitrator in an arbitration. In advancing these arguments the State through its learned counsel emphasises the point that, the original written agreement expired on the agreed date but the Company continued to provide it services outside the original contract both in terms of the agreed time frame, its scope and purpose and its price. At the same time there is acknowledgement by the State of having received the Company's services which have not been paid for yet. The amounts due and payable has now been determined by the arbitration award against which, the State takes no serious issue.

Consideration

12. Universally, it is well accepted that, the Courts have an inherent power to award interest on any judgment. Interests are usually allowed for all pre and post judgment for loss or damages a Court decides to award to a successful plaintiff. This is confirmed and backed up by legislative provisions like those of the Judicial Proceedings (Interest on Debts and Damages) Act[3]and many judgments on point such as the leading Supreme Court decision in Anton Johan Pinzger v. Bougainville Copper Ltd.[4]

13. The position is not the same for award of interest by arbitrators following an arbitration. In my view this is an incident of the difference between a formal Court process and an arbitration process. With the exception of Courts which have specific and limited jurisdiction, most superior courts have inherent and unlimited jurisdictions to deal with all matters that a not specifically removed and placed in other authorities. Section 166 (1) of the country's Constitution reaffirms this positon in these terms when providing for the National Court:

"Subject to this Constitution, the National Court is a court of unlimited jurisdiction."

14. Woods J., in Peter Kop Kiniwi v. Vincent Auali and The State[5] interpreted this to mean:

"The National Court is not necessarily restricted to the causes of action that are usually found in a common law system, the National Court has an unlimited jurisdiction and this jurisdiction includes many matters which originate in rights and responsibilities referred to in the Constitution. We cannot assume that because it is now over 20 years since the Constitution came into being we have set all the different possible approaches to the Court into concrete and there can be nothing new."

15. Later in The Independent State of Papua New Guinea v. Zachary Gelu,[6] I considered the combined effect of ss. 154 (4) and 166 (1) of the Constitution said:

"In my view, the National Court cannot be limited in its jurisdiction. The ultimate law of the land, the Constitution gives this Court an inherent and unlimited jurisdiction in all matters going before it, except where the Constitution specifically provides to the contrary or where an Act of Parliament vests in another Court a particular jurisdiction to deal with a matter. Also, as my brother Sheehan J. said, the Court has an inherent jurisdiction to protect itself from any abuse of its process. If that power or jurisdiction is not inherent in the Court, then in my view at least that power is given to the Court by s.155 (4) and s.166 (1) of the Constitution."

16. Similar views have been expressed by many other judges in various contexts. In William Nakin v. Lauta Atoi,[7] Makail J., in a case of an election petition presented to the National Court, relied on s.166 (1) of the Constitution to allow for summary judgment procedures to apply to election petitions.[8]

17. With the exception of a few specific areas, such as industrial disputes, arbitration on the other hand, is dependent on the agreement of parties to a dispute rather than a statutory or constitutional mandate. When entering into a contract, some parties make provision for the resolution of any dispute over the terms and conditions or the parties' duties and obligations under the contract and any alleged breach of them by arbitration. The Courts will readily enforce or uphold any agreement of the parties to submit to arbitration unless the parties by their conduct have departed from their agreement.[9]

18. Arbitration is a form of alternative dispute resolution (ADR) in that it is a process outside the formal Court or judicial system for the resolution of disputes. It could best be described as a privately funded Court in which the parties appoint their judge (arbitrator), pay his fees, determine when and where it sits and should deliver his decision which is usually called an award. However, unlike a judicial process, arbitration lacks its own process of enforcing its decision or award where that is required. Hence, all awards are subject to judicial enforcement in cases where a Court upholds and decides to have an arbitration awarded enforced. Another disadvantage with arbitrations is as already noted, it is very limited in its jurisdiction and is dependent on the parties' agreement or any specific and relevant legislation.

Position at Common law and International law

19. This is why earlier on at common law, no arbitrator had any power to award interest. Early case authorities like that of Page v. Newman (1829) B & C 378, stand for the proposition that an arbitrator had neither an inherent jurisdiction nor a statutory foundation to award interest at any rate. Later as more and more people turned to arbitration and capital cities like London fast became the seat of international trade and commerce and arbitration, English Courts by deliberate judgments as the one in Chandris and Techno-Implex v. Gebr van Weelde BV [10] tried to get around the earlier common law position. They did so by coming up with the principle that, an arbitrator derives his or her power to award interest through the submission of the parties and their implied acceptance that an arbitrator has the necessary power to decide on all issues presented before him or her in much the same way has a court would.

20. Later developments in the law, saw the enactment of legislation specifically dealing with arbitration. However, early legislative provisions did not make provision for arbitrators to award interest. The UNCITRAL Model Law, for example, contains no provisions for the awarding of interest.[11] Similarly, the US Federal Arbitration Act (FAA),[12] the Swiss Law on Private International Law,[13] or the French Code of Civil Procedure,[14] do not make any provision for the award of interest by an arbitrator. The UNCITRAL Arbitration Rules and The Rules of Arbitration of the International Chamber of Commerce (ICC Rules) are also silent on the subject.

19. On the other hand, as learned authors like Gary Born[15] notes, a number of countries which adopted the UNCITRAL Model Law have modified the law to include an express authorization for arbitrators to award interest but without specifying any standards governing such awards. The International Arbitration Rules of the International Centre for Dispute Resolution addresses the issue in general, by allowing for arbitral tribunals to "award such pre-award and post-award interest...as it considers appropriate."[16] Under the English Arbitration Act of 1950, arbitrators had authority to award only simple interest up to the date of the award.[17] They did not, have authority to award interest post their awards except only "at the same rate as a judgment debt."[18] The same restriction applied to arbitrations seated in the United Kingdom, but governed by foreign law because an award of post award interest was considered a procedural and not a substantive matter.[19]

20. The above position has now changed with the enactment and coming into operation of the English Arbitration Act of 1996. The Act provides that, unless the parties otherwise agree, an arbitrator has authority to award simple or compound interest "in respect of any period up to the date of the award" as well as "from the date of the award (or any later date) until payment."[20] The London Court of International Arbitration Rules expressly provides similar powers in an arbitral tribunal "in respect of any period which the arbitral tribunal determines to be appropriate ending not later than the date upon which the award is complied with."[21]

21. In international arbitrations, the power to award interest has long been well-established. The practice of international arbitration tribunals "to award interest goes back to the famous 'Alabama' Award" rendered in 1872.[22] The practice of awarding interests by arbitrators has become so widespread that it can be said that the liability to pay interest as part of an award of damages is an accepted international legal principle. It is also generally well-accepted that arbitrators should look to the substantive law governing the claims when deciding whether interest should be awarded, for what period of time and at what rate.[23] In most jurisdictions interest for pre-judgment period is regarded as a matter of substantive law.[24] However, there exists substantial debate over the methods used by arbitrators in awarding interest, particularly regarding the use of simple or compound interest and how the rate of interest should be determined.[25] Also, in some jurisdictions the power of an arbitrator to award interest, even if allowed under the substantive law of contract, may be limited by mandatory domestic laws.[26] Certain Middle Eastern countries have such provisions where any award of interest may be prohibited under the country's domestic law.[27]

22. Generally, most Courts will enforce an arbitrator's interest award, "even where the award is made under foreign law, and regardless of whether the applicable rates exceed those under national law." [28] These proceeds on the basis that, the arbitrators will have used the substantive law governing the contract when determining any award of interest.[29] There is one well recognised exception though. The exception is this, the courts in the enforcing jurisdiction may refuse to enforce the portion of an award granting interest where it finds the award of interest to be "penal", "usurious", or otherwise contrary to its public policy.[30] In this consideration, the mere fact that, an award of interest exceeds the domestic legal interest rates, will not do. There must be something more such as the award substantially increasing rates agreed to by the parties.[31]

23. A case on point is the decision in Laminoirs-Trefileries-Cableries de Lens, S.A. v Southwire Co. (In re Laminoirs-Trefileries-Cableries de Lens, S.A.),[32] There, the court found that applicable law was French law which has a legal interest rate of 10.5% and enforcement of an arbitral award was not a problem. The problem according to the Court was that the arbitrator had further held that the "interest rates assessed should rise 5 per cent per annum after two months from the date of the award," unless the award was paid.[33] The court reasoned that the arbitrator's imposition of the additional 5 % was penal in nature and not compensatory."[34]

24. The foregoing discussions renders the legal position on the authority of an arbitrator to award interest in an arbitral award clear as follows:

(1) Unlike a judicial officer in a judicial proceeding, an arbitrator presiding over an arbitration proceeding has limited jurisdiction;

(2) An arbitrator derives its authority from two sources: (i) the agreement of the parties to a dispute to submit their dispute for resolution by arbitration; and (ii) from any relevant and applying legislation;

(3) Given the difference between a judicial process and an arbitration process, early common law did not recognise and did not favour arbitrators having power to award interest;

(4) Later as commerce and industry increased with more people turning to arbitration, the Courts in England began to hold that arbitrators' have the power to award interest but limited only to pre award damages. They reasoned that, arbitrators have power under the substantive law of contract to award such interest;

(5) Legislative changes saw the enactment of Arbitration Acts such as the English Arbitration Act 1966, which empowered arbitrators to award simple or compound interests for pre award as well as post award until payment in breach of contract cases;

(6) Internationally, the law developed to a point where it recognises the power of arbitrators to award interests as a matter of substantive law from the view point of the parties' having a contract;

(7) It is now well accepted that the courts in the enforcing jurisdictions may refuse to enforce the portion of an award granting interest where it finds the award of interest to be "penal", "usurious", or otherwise contrary to its public policy.; and

(8) None of the cases referred to in the learned counsel's submission or any of the cases I have considered in the foregoing considerations, deal specifically with a quantum meruit case or cases in which the contracts themselves were illegal or unlawful.

Position in PNG

25. In PNG, there is no case law specifically dealing with the authority of an arbitrator to award interest. The Arbitration Act (Chp. 46), is silent on the subject. Otherwise, the Act is reasonably exhaustive. It provides for such matters as the effect of a submission to arbitration[35] and a Court's power to refer a matter for resolution by arbitration,[36] terms implied in a submission,[37] stay of proceedings pending arbitration,[38] appointment of arbitrators,[39] the powers of an arbitrator to make awards,[40] calling[41] and summonsing of witnesses[42] their expenses[43] and related issues,[44] extensions of time for making of awards,[45] setting aside and enforcement of arbitral awards,[46] referral of a legal question to the Courts for determination,[47] awarding of costs,[48]the making of rules or issuance of orders by the Chief Justice to give effect to the Act[49] and the Act binding the State.[50]

26. It is trite law that, where there is a relevant and applicable legislation, it is to the legislation we must look upon for answers to any question or issue that may arise in any given situation. Given that, it is necessary to consider what provision if any is made for the issue under consideration in this case by the Arbitration Act. This necessarily requires an interpretation and application of the relevant provisions of the Act. In this regard, I remind myself as I have done elsewhere,[51] of the principles governing statutory interpretation in PNG. The first case that comes to mind is the discussion and statement of the principles by Wilson J., in PLAR No. 1 of 1980[52] and where the following is relevant:

"... there is no place in a developing country where the courts, as well as the Law Reform Commission, are given special responsibilities in theprocess of development, for the narrow interpretation of statutes without adequate regard to the social purpose of particular legislation. Development is difficult to achieve if courts adopt too conservative an approach to the interpretation of statutes. There has been a tendency in our National Judicial System, less evident in some recent decisions of the courts but still perceptible, to over-emphasize the literal meaning of a provision at the expense of the meaning to be derived from other possible contexts; the latter including the application of the "mischief" rule, the recognition of the general legislative purpose, as well as the obligations laid down under the Constitution such as, for example, the obligation upon the courts in interpreting the law to give 'paramount consideration to the dispensation of justice'..."[53]

27. However, as I observed in my dissenting decision in the case of The State v. Downer Constructions (PNG) Limited,[54] there are two well-known exceptions to this approach. The first is in cases in which the words employed by Parliament to express its intention are so plain and clear that no art of interpretation is required. The second exception is in tax legislation, where the strict interpretation rule applies. For it is well settled law that, for the imposition of a tax or charge against a subject, Parliament must use clear and unambiguous words to express its intention. Otherwise, an interpretation favourable to taxpayers would be preferred.

28. Again as I observed in the Downer Construction case, there is a further well accepted principle of statutory interpretation. This concerns what is included and excluded in any legislation. The principle is this; where the legislature provides for inclusions or exclusions, the opposite is intended for the matters not included or excluded, as the case might be. I referred to the decision of the Supreme Court in SCR No. 1 of 2000; Re Morobe Provincial Government for and on behalf of the Morobe Provincial Executive Council[55] as an example of a case on point. This principle has its origin and grounding in the common law where one finds the principle expressed in the Latin phrase, "expressio unis personae vel rei est exclusion alterius".

29. Bearing these principles in mind, I turn to the case at hand. As observed, the relevant legislation here is the Arbitration Act. I already stated what the Act generally provides for. For the purpose of determining the issue in this case, the most relevant provisions are s. 3 and s.7 of the Act. The first deals with submissions to arbitration. As noted, it is the parties' submissions that triggers an arbitration process. A submission, as the word is used in the Act, is defined in terms of:

"a written agreement to submit present or future differences to arbitration, whether or not an arbitrator is named in the submission."

30. Section 3 then provides:

"3. Provisions implied in submission.

Unless a contrary intention is expressed in the submission, a submission shall be deemed to include the provisions in the Schedule so far as they are applicable to the references under the submission."

30. As may be apparent, this provision only provides what is "deemed" to be included in a submission. This is obviously in addition to what the parties may have provided for in their submission. To find out what is deemed to be included we need to turn to the Schedule. An examination of what is provided for in the Schedule, clearly reveals provisions being made for a number of matters. There is however, nothing on the subject of interest either expressly or by implication. Obviously therefore, the position on the question of an arbitrators power to award interest is similar to what it was in early common law. The shift in that position by later English cases as subsequently supported by legislation there has not influenced the law makers in PNG. They have instead provided for arbitration as it is in the Arbitration Act. Under this legislation, by application of the principle of "expressio unis personae vel rei est exclusion alterius" the power to award interest by an arbitrator has been excluded.

31. On the particular facts of this case, there is another relevant and important consideration. Unlike the case before me, none of the common law or English and other cases, concerned a claim based on quantum meruit. Neither counsel offered the Court any assistance specifically on this point. One of the latest decisions of the Supreme Court on quantum meruit is the decision in Fly River Provincial Government v. Pioneer Health Servicies Ltd.[56] There, the Court stated the legal positon in these terms:

"It is trite law that an innocent party to an illegal or void contract would not be left without any remedy. In Wade v. Gold Coast City Council (1971) 26 LGRA 349 at page 351, the court referred to a claim based on a quantum meruit, that is, reasonable remuneration for work done. Recent cases in the United Kingdom, of which Credit Suisse v. Allerdale BC (supra) is one, dealing with borrowing powers of local governments, have led to claims and pronouncements of the law in respect of unjust enrichment...

A bona fide contractor who has provided services of value is not left without a remedy. There is no unfairness in upholding the legislation in such circumstances and allow an innocent party to recover damages on a quantum meruit basis to avoid unjust enrichment by the other if the contract has been part performed.

Some authorities describe this principle as the right of restitution. The decision in the Barclay Brothers case discusses this at page 17 of the judgement as a right in equity to claim restitution for it lies outside the parameters of a contract. Such a right is not to enforce a contract but because justice and equity demands it. A party seeking restitution must be able to establish at the least that it is not responsible for or not an equal participant in the illegality. The converse of that is that restitution is not available to a party, which knowingly or cynically entered into an illegal contract. Thus where a Court finds willing participation in an illegal contract there will be no recovery."

32. In that case, the parties had a contract for services which did not go through the Public Finances (Management) Act 1995, for approval and execution, by reason of which it was illegal and unenforceable. The parties' part performed the contract though. That saw the Provincial Government and her people gain substantially in terms of mobile medical services. Invoices were rendered for goods and services supplied by the company and were part paid. No issue was taken on the non-compliance or otherwise of the provisions of the Public Finances (Management) Act, until it became apparent that the Provincial Government did not have the money or could not secure the necessary finance to meet the invoices in full and allow for a completion of the contract.

33. In those circumstances, the Court considered it inequitable and unfair that the company should be left with no remedy subject only to a determination of the issue of whether the company was an innocent party to the illegal contract and what steps if any, it took to ensure compliance of the requirements of the relevant Act. The Court was of the view that, leaving the company with no remedy would result in unjust enrichment by the Provincial Government in terms of goods and services it received from the company which remained to be paid. Accordingly, the Court held:

"We therefore, consider it appropriate that PHS [Pioneer Health Services] should be allowed to proceed with its claim against the FPG seeking a recovery of the costs and expenses it has incurred but only for the part performed of the illegal contract for which it has not been paid in full. This is conditional on PHS establishing by appropriate evidence that it is innocent of the breaches of the [Act] and that it did what it could to ensure compliance of the Act. In any case, it has no right to any claim in respect of the balance of the illegal contract, which is null and void"

34. The Court otherwise recognised the principle that, a party cannot seek and be permitted to gain from its own illegal activity or failure to conduct its due diligence and ensure compliance of relevant and applying legislation. These days, the instance of contracts failing to meet the requirements of the Public Finances (Management) Act and such other relevant and applying legislation are more in number, with some, if not all, of them deliberate. In my view, this is possible because, contractors and those in positions of decision making at the national and provincial levels of government and public authorities know that they can easily avoid meeting the requirements of the Public Finances (Management) Act, and other relevant and applicable legislation and still gain through the quantum meruit principle. Given that, they are readily getting into contracts committing the State or other public authorities into thousands and millions of public funds deliberately outside the requirements of the Public Finances (Management) Act. In this way the contractors and those on behalf of the State or public authorities are by passing the intent and purpose of the Act. Such conduct in my view constitutes serious statutory fraud. In accordance, with accepted law, fraud can undue everything and ensure a fraudster and those who facilitate such fraud gain nothing from their illegal conduct. I think the time has come for a critical look at the doctrine of quantum meruit with a view to rendering it inappropriate and inapplicable in PNG especially when one of the contracting party is the State or a public authority body, authority or institution or instrumentality. Until we have reached that point, I will allow myself to be guided by the law as it presently is.

35. In quantum meruit cases, where the Courts decide to award damages, interests are usually awarded almost readily pursuant to the Judicial Proceedings (Interest on Debts and Damages) Act and their inherent power under ss. 154 (4) and 166 (1) of the Constitution. No similar inherent power is vested in an arbitrator. That authorisation has to come from the parties' submission or by a particular legislative provision. Where that is lacking, an arbitrator also lacks the necessary power to award interest.

Present Case

36. In the present case, the State argues through its learnt counsel that, the company's contract failed to meet the requirements of the Public Finances (Management) Act. Additionally, the State argues that, the company was not properly registered as a foreign enterprise to conduct business in PNG under the relevant provisions of the Companies Act 1997. The Company argues and I accept that, these issues should have been first raised before the arbitrator but was not. In any case, the arbitration was under the principle of quantum meruit, which meant that the parties recognized the failure to meet the requirements of the legislation in question. Accordingly, it means the State cannot raise and this Court cannot entertain these belated arguments of the State.[57] The only issue that is properly before me is the question of whether the arbitrator had the power to award interest in the way he did, when dealing with a damages claim under the principle of quantum meruit.

Decision and orders

37. A careful consideration of the foregoing discussions renders a clear answer to the only question before me. The answer is simply that, there is no power in an arbitrator in PNG to award interest on damages. This may of course be considered, backward when the rest of the world has moved on in allowing arbitrators to award interests. Where an arbitration award is on the basis of quantum meruit, as is the case here, there is a strong argument against the award of interest by an arbitrator unless there is express grant of that power by legislation or the agreement of the parties. Hence, in this case the arbitrator lacked the power or jurisdiction to award interest. Consequently, the matter will have to be remitted to the arbitrator to adjust his award to only allow for the damages. Accordingly, the Court makes the following orders:

(1) The Arbitral Award made on 3rd July 2015, is quashed in so far as it awards interest at 8%.

(2) The matter is remitted to the Arbitrator Mr. Jeffery Leonard Shepherd to appropriately adjust his award.

(3) Costs of this proceedings is awarded to the State, which costs shall be agreed if not taxed.

38. In arriving at the above decision I am conscious of the fact that, PNG may not be on the same level has other developed countries or economies like the UK and USA and those that follow them in their legal position on arbitration generally and in particular the power of an arbitrator to award interest. I cannot see any valid reason or justification for us in PNG to maintain our current position. But it is not the Court's duty to change the law. Its duty is to follow and uphold the law as it is. It is the Parliament's duty to make the necessary and relevant legislative changes to elevate our country to the same level as those of other developed economies. Indeed, the ready availability and access to better and quality arbitration and other forms of ADR encourages more trust and confidence in a country and her economy as is the case for Singapore. I would therefore strongly urge the PNG Parliament to immediately take steps to review and introduce reforms to our Arbitration Act and other forms of ADR and place us on the same level as other developed economies for the betterment of our economy and our people.

______________________________________________________________
Warner Shand Lawyers: Lawyers for the Plaintiff
Solicitor General: Lawyers for Defendant

---

^[1] [1951] 1 K.B. 240, C.A.
^[2] [1949] 2 All E.R. 62.
^[3] See s.1(1) of the Act
^[4] [1985] PNGLR 160.
^[5] (1998) N1722.
^[6] (2002) N2322.
^[7] (2013) N5218.
^[8] Other cases noting the unlimited power of the National Court subject only to the Constitution and any specific Act of Parliament see: Re Application by RM and PM (2012) N4875; John Kewa v. Brian Mangipu (2004) N2720 & Keyapaka Investments Pty Ltd v. Wamange Dat & 7 Others (1988) N1772.
^[9] See s.2 of the Arbitration Act. See also Mauga Logging Company Pty Ltd v. Okura Trading Co. Ltd [1978] PNGLR 259; Delta Constructions Pty Ltd v. The Administration of Papua & New Guinea [1965-66] PNGLR 381; Paul Pilimbo Pora v Larry Hull and Aarlie Hull and Dean Hull (2009) N3729; Niugini Civil and Petroleum Ltd v. West New Britain Development Corporation Ltd (2005) N2909.
^[10] [1981] 2 WLR 821.
^[11] See UNCITRAL Model Law, U.N. GAOR, 40^th Sess., Supp. No.17, U.N.Doc. A/40/17, Annex 1 at 81–93 (June21,1985).
^[12] See 9 U.S.C.§1.
^[13] See Bundesgesetz über das Internationale Privatrecht (IRPG), Federal Law on International Private Law, art.176-94 (December18, 1987) (Switz.).
^[14] See Nouveau Code De Procédure Civile (N.C.P.), art.1442-1507(Fr.).
^[15] See Born, International Commercial Arbitration, [2009] at 2503.
^[16] Am. Arbitration Ass’n, Int’l Ctr. For Dispute Resolution, Rules for Non-Administered Arbitration, r.28.4, Amended and Effective January 1, 2010
^[17] Arbitration Act 1950, 14 Geo. 6, c. 27, § 20 (U.K.).
^[18] Ibid.
^[19] M. Hunter & V. Triebel, “Awarding Interest in International Arbitration”, [1989] 6 J. Int’l Arb., No.1, 12–13.
^[20] Arbitration Act 1996, c.23, § 49(3) and (4) (UK).
^[21] London Court of Int’l Arbitration Rule 26.6, Effective January 1, 1998.
^[22] See Klaus Peter Berger, General Principles of Law in International Commercial Arbitration: How to Find Them—How to Apply Them, [2011] 5 World Arbitration & Mediation Review 97, 130–136 and John Y. Gotanda, Compound Interest in International Disputes [2002–03] 34 Law & Policy in International Business 394, 399.
^[23] See David J. Branson & Richard E. Wallace, Awarding Interest in International Commercial Arbitration: Establishing a Uniform Approach, [1988] 28 Va. J. Int’l L. 919, 930 and Angeline Welsh, The Law Applicable to the Award of Interest: A Roadmap Through the Maze, [2011] 5 World Arbitration & Mediation Review 23.
^[24] See Branson & Wallace, Awarding Interest in International Commercial Arbitration: Establishing a Uniform Approach, [1988] at 930–31; In re Exxon Valdez v Exxon Corp.[2007] USCA9 207; , 484 F.3d 1098, 1101 (9th Cir. 2007) and Emmenegger v Bull Moose Tube Co.[2003] USCA8 225; , 324 F.3d 616, 624 (8th Cir. 2003).
^[25] See John Y. Gotanda, A Study of Interest, Villanova Univ. Sch. Of Law, School of Law Working Paper Series, paper 83 (2007); Gotanda, Compound Interest in International Disputes [2002–03] at 394.
^[26] See Born, International Commercial Arbitration [2009] at 2504.
^[27] See Julian D.M. Lew, The Recognition and Enforcement of Foreign Arbitral Awards in the States of the Arab Middle East [1987] Contemporary Problems in International Arbitration 340, 348–349 and Born, International Commercial Arbitration [2009] at 2506 n.467, citing cases in which the arbitrators refused to award interest, notwithstanding contractual provisions for such, because the contracts at issue were governed by Islamic law, which generally forbids payment of interest.

^[28] See Born, International Commercial Arbitration [2009] at 2507; Waterside Ocean Nav. Co. v Int’l Nav. Ltd. (In re Waterside Ocean Nav. Co.)[1984] USCA2 620; , 737 F.2d 150, 153-54 (2d Cir. 1984); Am. Constr. Mach. & Equip. Corp. v Mechanised Constr. of Pakistan Ltd., 659 F. Supp. 426, 429 (S.D.N.Y. 1987); Al-Haddad Bros. Enter., Inc. v M/S Agapi, 635 F. Supp. 205, 210 (D. Del. 1986).
^[29] See Ass’n of. Serv. Indus. Firms v Serv. Indus. Firm, XVII Y.B. Comm. Arb. 11, 26 (US 1992); Final Award in ICC Case No.6162; Case No.6162 of 1990, XVII Y.B. Comm. Arb. 153, 162-63 (ICC Int’l Ct. Arb. 1992); Case No.6230 of 1990, XVII Y.B. Comm. Arb. 164, 175-76 (ICC Int’l Ct. Arb. 1992); Case No.5485 of 1987, XIV Y.B. Comm. Arb. 156, 173 (ICC Int’l Ct. Arb. 1989); Fertilizer Corp. of India v IDI Mgmt., Inc., 517 F. Supp. 948, 962 (S.D. Ohio 1981).
^[30] Born, International Commercial Arbitration [2009] at 2507–08; Nigel Blackaby & Constantine Partasides with Alan Redfern & Martin Hunter, Redfern & Hunter On International Arbitration, at s.9.78 (Oxford: Oxford University Press, 2009).
^[31] See Case No.306221/046 of 2005, XXX Y.B. [2005] Comm. Arb. 421, 431 & 433 (Austria Oberster Gerichtshof).
^[32] 484 F. Supp. 1063, 1069 (N.D. Ga. 1980).
^[33] Laminoirs-Trefileries-Cableries de Lens, S.A., 484 F. Supp. at 1069.
^[34] Ibid.
^[35] Section 2.
^[36] Section 13.
^[37] Section 3.
^[38] Section 4.
^[39] Sections 5 & 6.
^[40] Section 7.
^[41] Section 16.
^[42] Section 8
^[43] Section 17.
^[44]Section 21.
^[45] Section 9.
^[46] Sections 11 & 12.
^[47] Section 18.
^[48] Section 20.
^[49] Section 19.
^[50] Section 22
^[51] Jennifer Jean Scott v. Micheal George Scott and Mary Van Duseon (2009) N3881
^[52] [1980] PNGLR 326.
^[53] For later endorsement and application of this principle see: SCR No. 1 of 2000; Re Morobe Provincial Government for and on behalf of the Morobe Provincial Executive Council (2002) SC693.
^[54] (2009) SC979.
^[55] See note 53.
^[56] (2003) SC705.
^[57] There are a lot of case authorities on point which support this approach but for examples Supreme Court decisions on point see the decision in Paru Aihi v Peter Isoaimo (2013) SC1276; Eremas Wartoto v. The State (2015) SC1411 and Isaac Lupari v. Sir Michael Somare & Ors (2010) SC107.