Brem Maju (PNG) Limited v Bee Constructions Limited [2006] PGSC 17; SC852 (1 September 2006)

SC852

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCA. NO. 32 OF 2004

BETWEEN:

BREM MAJU (PNG) LIMITED
- Appellant -

AND:

BEE CONSTRUCTIONS LIMITED
- Respondent -

Waigani: Injia DCJ, Jalina & Gavara-Nanu JJ
2005: 1 November, 2006:1 September

CIVIL - PRACTICE AND PROCEDURE - Application to set aside arbitration award made under s. 11 (2) of Arbitration Act (Ch. No. 46) - Arbitration conducted pursuant to order of National Court made under s.4 - No rules of Court made by the Chief Justice under s. 19 - National Court Rules applicable - Application made by Notice of Motion in existing WS proceedings - Whether abuse of process - whether application may be made by Notice of Motion in existing WS proceedings or by fresh originating process - Arbitration Act, (Ch. No. 46), s.4, s.11 (2),and s.19, National Court Rules, Orders 4.

Cases cited:
W.N. Johns (N.G.) Pty Ltd - v - Administration of the Territory of Papua New Guinea [1967-68] PNGLR 88.

Counsel:
T. Anis, for the Appellant
T. Elemi, for the Respondent

1 September, 2006

1. BY THE COURT: This is an appeal from the decision of the National Court made on 15 March 2004, dismissing an application made by the appellant under s.11 (2) of the Arbitration Act (Ch. No. 46) ("the Act"). There are five grounds of appeal which challenged the trial judge’s exercise of discretion in dismissing the appellant’s application to set aside an arbitration award and making orders to enforce the award.

2. The dispute between the parties arise from a building contract. On 10 October 2000, the appellant entered into a building contract with the respondent to construct a chemical store at the Mt. Eriama Water Supply Station in the National Capital District. The Mr. Eriama plant is owned by Eda Ranu Ltd. Eda Ranu Ltd engaged the respondent to carry out upgrading work on the water treatment plant. The respondent sub-contracted the appellants. The sub-contract price was K681,000. The sub-contract contained the standard arbitration clause. During the performance of the contract, the contract was "determined" by the respondent on 13 March 2001. Dispute arose as to payments for progress work performed. The appellant claimed K211, 885.65.

3. On 25 October 2002, the appellant filed a Writ of Summons ("WS proceedings") in the National Court claiming damages for breach of contract. The appellant moved for default judgment. The respondent made an application to stay the proceedings under s.4 of the Act. On 25 October 2002, the National Court permanently stayed the proceedings and referred the dispute to arbitration. The dispute was submitted to arbitration. Two arbitrations were appointed by consent of the parties, namely Paul Constable and David Gole. They arbitrated the dispute. On 4 December 2003, the arbitrators decided to award the respondent K95,046.87 which took into account re-imbursement to the appellant the sum of K15,000 for joinery work. They also awarded interest at the rate of 8 percent per annum from 13 April 2001 to 13 September 2003 on the principal sum of K110, 046.78 plus costs of 50 percent at K30,000.

4. The appellant was aggrieved by this decision. On 23 December 2003, the appellant filed Originating Summons ("OS proceedings") in the National Court seeking to set aside the arbitration award. The application was filed under s.11 of the Act on the grounds that the arbitration misconducted themselves and erred in law and in fact in their findings. The respondent filed a motion to dismiss the application under O.12 r. 40 of the National Court Rules on the grounds that the proceedings were an abuse of process.

5. The arguments before the trial judge centered around the issue of whether the OS proceedings were an abuse of process in that the WS proceedings were pending.

6. On 15 March 2004, the National Court granted the respondent’s application and made orders which are the subject of this appeal. The orders are:-

1. The proceeding is dismissed pursuant to O.12 r.40 of the National Court Rules.

2. Leave is granted to the Defendant to enforce the Award against the Plaintiff in the sum of K146,68.83 pursuant to s.12 of the Arbitration Act (Ch. No. 46) with interest to continue to accrue at the rate of 8% until the Award is fully satisfied; and

3. Costs.

The trial judge gave a short ex tempore judgment in the following terms:

"I will grant the application by the defendant. I grant order that the proceedings be dismissed because I consider it as an abuse of the whole process. WS 966 of 2002 between the parties is still on foot. It has not been dismissed. So what parties should do is go back to those proceedings, have that order of 25 October 2002 dissolved and any necessary applications to be made should come under those proceedings. That is where the principal reliefs are claimed. It is an abuse of the process to file proceedings after proceedings when the original proceedings are still on foot. There is no problem and there is no harm in dissolving that order of 25 October 2002. There is no reason why the plaintiff in this OS 778 of 2003 cannot make its application under the substantive proceedings. That is why I consider it an abuse of the process and it should be dismissed.

The court has the authority to protect its process being abused by litigants. I will grant the orders in terms of paragraphs 1, 2 and 3."

7. The appellant has identified two main issues which arise from the grounds of appeal. The first issue is whether the cause of action in the WS proceedings was completed or determined by the arbitration award made on 4 December 2003. If so, the OS proceedings would be separate proceedings and therefore not amount to abuse of process. The second issue is whether the trial judge contradicted his own judgment when he ordered at the end that leave be granted to the Respondent to enforce the award.

8. The first issue raises a procedural issue on the appropriate procedure for challenging an arbitration award made under the Act. Sections 1, 4, 11, 12 and 19 are relevant.

9. In Section 1 of the Act, a "submission" is defined as "a written agreement to submit, present or future difference to arbitration, whether or not an arbitrator is named in the submission."

Section 4 states:

"4. Power to stay proceedings where there is submission.

(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 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."

Section 11 provides:

"11. Power to set aside award.

(1) Where an arbitrator or umpire has misconducted himself, the Court may remove him.

(2) Where an arbitrator or umpire has misconducted himself, or an arbitration or award has been improperly procured, the Court may set the award aside."

Section 12 states:

"12. Enforcing award.

(1) By leave of the Court, an award on a submission may be enforced in the same manner as a judgment or order to the same effect.

(2) No writ of attachment shall be issued to enforce payment of any money, costs or expenses under any such award, but writs of fieri facias or capias ad satisfaciendum, and such other writs as are necessary, shall be issued by order of the Court, and such an order has the force and effect of a judgment of the Court."

10. Section 11 does not prescribe the procedure for an application under that provision. Section 19 of the Act provides the "Chief Justice may, from time to time make general rules and orders for carrying out the purposes of this Act into effect". To date there are no rules made there under. (However, see O.14 Division 8 of the National Court Rules which provides rules in respect of references under Court order in civil proceedings under Part III of the Act).

11. It is normal to expect parties in major commercial contracts to include an arbitration clause to settle disputes arising under the Contract. In the present case, it appears that the Building Contract contained an arbitration clause. The Building Contract is not contained in the Appeal Book and we are unable to ascertain the working of the arbitration clause. We would assume it would be in the standard form where the parties agreed to oust the jurisdiction of the Courts and submit any dispute arising under the contract to arbitration. It appears the WS proceedings instituted by the appellant was in breach of the arbitration clause hence the reason for the Court Order made on 25 October 2002 under s.4 of the Act.

12. There is no question on the appointment of the arbitrators and the arbitration conducted and concluded. There is no dispute on the effect of the arbitration award - it is "final and binding on the parties" (Schedule 1.8); it is "equivalent to the verdict of the Court" (s.14 (2)) and it is enforceable as a judgment or order of the Court (s.12). The question is whether the award constitutes a final "verdict", "judgment" or "order" of the Court for purpose of the WS proceedings the subject of a stay order issued under s.4. The appellant contends it is. Mr. Anis for the appellant submits the WS proceedings were determined when the award was made. Therefore the appellant was entitled to commence fresh OS proceedings under s.12 (2). The respondent contends the WS proceedings were still on foot in that the award was returnable before the Court for enforcement. An application to set aside the award should be made in the existing WS proceedings.

13. In our view, the WS proceedings were determined when the award was made. The award became the final "judgment", "order" or "verdict" of the Court in the WS proceedings. Sections 12, 14 (2) and Schedule 1.8 make this abundantly clear. The award was enforceable on its own terms. There were no further substantive issues to be determined in the WS proceedings. Therefore, it was open for the appellant to institute fresh proceedings by OS or WS proceedings under s.11 (2).

14. In arriving at this view, we have considered the nature of an application under s. 11 (2). The application seeks substantive orders which if granted would invalidate the award on prescribed grounds. The arbitrator’s conduct of the arbitration is disputed and he must be made a party to the proceedings in order to afford him an opportunity to be heard. The grounds relied upon must be spelt out in the application. Evidence must be brought to support the grounds. There must be a full hearing involving all interested parties - the contracting parties and the arbitrator. The hearing must result in a determination of the substantive application. In our view, the kind of proceeding contemplated here is a separate and distinct proceeding from the existing WS or OS proceedings in which a stay order is issued under s.4. An application made by Notice of Motion in the existing OS or WS proceedings is more of an interlocutory or incidental nature because the substantive relief and grounds in support are not normally pleaded in a Notice of Motion. Therefore, it is preferable to institute separate proceedings by fresh originating process in order to facilitate a full hearing and substantive determination of the grounds relied upon. In the absence of any rules of the procedure made under s. 19, the National Court Rules apply. The two common modes of originating process prescribed under Order 4 of the National Court Rules is by Originating Summons or Writ of Summons. Leave of the Court is not required to institute OS or WS proceedings under s. 11 (2).

15. Having said this, however, an application under s. 11 (2) could equally be made by Notice of Motion in the existing WS proceedings in which a stay order is made under s.4. It is open to a party to the arbitration to institute an application under s. 11 (2) by way of Notice of Motion under the existing WS or OS proceeding under which a s.4 order is made so long as the grounds are clearly and sufficiently pleaded, the arbitrators are made parties to the proceedings and a substantive determination is made on the application.

16. It could be said that since the arbitration was conducted pursuant to the Court Order of 25 October 2002, the Court still retained supervisory control over the arbitration proceedings in that the award could be returnable before the court for enforcement, if necessary. Then this would open up the door for a host of other applications. The respondent could respond by seeking leave to enforce the award under s.12, by way of Notice of Motion. The appellant could respond by making an application under s. 11 (2) by Notice of Motion. Even if the appellant had not filed a Notice of Motion under s. 11 (2), the appellant could challenge the validity of the award under the grounds specified in s.11 (2), in the course of defending an application for leave under s. 12. The form of the application under s. 11 (2) is not as important as the substantive issue to be tried. There are no hard and fast rules. The Court has wide power to determine the validity of an award even if the issue of validity is not raised by separate application: see W. N. Johns (N.G.) Pty. Ltd. - v - The Administration of the Territory of Papua New Guinea [1967-68] PNGLR 88. In the absence of any rules of procedure made under s. 19, we would not impose strict application of the rules of procedure contained in the National Court Rules including O. 12 r. 40.

17. The respondent contends that in the absence of any rules of procedure made under s. 19, the English procedure set out in Halshury’s Laws of England, 4th Edition, Volume 2 at par. 399 - 691 should be adopted. That is, the application should be made by "Notice of Motion" in the existing WS proceeding, supported by affidavit. The Notice of Motion should set out the grounds of the application.

18. The appellant relies on the same passage from Halshury’s Laws of England but submits the English practice is that the application is by way of an appeal and it is by "Originating Motion" seeking leave to appeal. By analogy in the absence of similar rules in our jurisdiction, the proper procedure is to institute separate originating process by OS or WS proceeding.

19. We accept the appellant’s submission. The respondent’s counsel seems to misunderstand the English procedure under Order 73 of the Supreme Court Rules 1965 as amended by the Supreme Court Rules (Amendment, 1996) The Arbitration Act 1950 and Arbitration Act 1979 set out different types of applications which can be made under those statutes. Rule 24 of the Supreme Court Rules (Amendment, 1996) prescribes the procedure for such applications as follows:

(1) "Every application to the Court -

(a) to remit an award under section 22 of the Arbitration Act 1950;

(b) to remove an arbitrator or umpire under section 23 (1) of the Act;

(c) to set aside an award under section 23 (2) of that Act or

(d) to determine, under section 2 (1) of the Arbitration Act 1979, any question of law arising in the course of a reference;

Must be made by originating motion to a single judge in Court.

(2) Any appeal to the High Court under section 1 (2) of the Arbitration Act 1979 shall be made by originating motion to a single judge in court ..." (Our emphasis)

20. It is clear from Rule 24 that the English practice is that an application to set aside an arbitration award is commenced separately by fresh originating process, namely by "Originating Motion". Likewise, an appeal under s. 1 (2) of the Arbitration Act 1979 is also commenced by Originating Motion. By analogy, an "Originating Motion" under Rule 24 is similar to an appeal instituted by "Notice of Motion", under our own Supreme Court Rules, Order 10. A Notice of Motion referred to in Halshury’s Laws of England could mean the "Originating Motion". Such Notice of Motion could not refer to one filed under an existing WS or OS proceeding.

21. The respondent has raised a number of other issues in this appeal such as (1) the appellants failure to apply to the arbitrators to state a case for opinion on a question of law under s. 18; (2) lack of substantive relief sought in the OS proceedings apart from merely seeking orders to set aside the award, (3) lack of affidavit in support of the Originating Summons and (4) the appellant’s failure "to appeal by way of a motion in WS No. 966 of 2002 to dissolve the stay orders and or its grievance against the arbitrator’s decision to be determined by the Court:" see par 4.7 of the respondent’s written submissions. These issues were raised by the respondent in the Court below. The trial judge addressed these issues under the broad category of abuse of process. We have read the transcript of proceedings which contains exchanges between His Honour and the appellant’s counsel. We are satisfied that His Honour misapprehended the proper procedure on review of arbitration award. His Honour’s misapprehension of the procedure is apparent from His Honour’s remarks, as follows:

"Yes, but the arbitration has been completed. Why is it that the WS is permanently stayed? The arbitration has been completed. Your client either appeals with it or agrees with it, and he has not done that and filed this OS. That is an abuse. That is what I am trying to tell you. All these applications can be made under the WS. There is no reason for anybody to bring another OS proceeding".

22. In our view, the trial judge erred in introducing the notion of "appeal" from an arbitration award. An appeal against the stay order issued on 25 March 2002 was not in question. Both parties had accepted the stay order and submitted the dispute to arbitration. An appeal against the arbitration award was also not in question because there is no provision in the Act for appeal against an arbitration award. The only provision under the Act to challenge an arbitration awards is by way of an application under s.11 (2).

23. In the present case, the Originating Summons set out the grounds relied upon to set aside the award. The grounds are clearly and sufficiently pleaded. Any other relief that maybe sought are consequential and those are covered under par. 3 of (such further or other orders) of the Originating Summons. The Originating Summons was not accompanied by affidavit. The National Court Rules do not require affidavit accompanying the OS. That is a matter of evidence. These are matters which should be addressed and determined at the hearing of the OS proceedings.

24. In our view, a party aggrieved by an arbitration award should not be shut out from challenging an arbitration award under s. 11 (2) simply because he has chosen to employ an alternative mode of instituting an application under s.11 (2). It is not an abuse of process where a party aggrieved by an arbitration award chooses between two equally available alternative modes of instituting an application under s. 11 (2) of the Arbitration Act. In the absence of any rules of Court made under s.19, parties to arbitration should be given greater flexibility in choosing the most appropriate mode of instituting an application under s.11 (2), in order to facilitate a full and proper hearing and determination of the application. The appropriate mode of instituting an application under s.11 (2) is either by Notice of Motion under the existing WS or OS proceedings or by way of fresh OS or WS proceedings are made in accordance with the National Court Rules. In our view, the trial judge erred in law in holding that the appellant abused the Court process by instituting separate OS proceedings.

25. For these reasons, we are of the view that the trial judge erred in excising his discretion. We allow the appeal, quash the judgment of the trial judge and remit the appellant’s applicant to the National Court for rehearing. The respondent shall pay the appellant’s cost of the appeal to be agreed, if not, to be taxed.

______________________
Blake Dawson Waldron: Lawyer for the Appellant
Rageau, Manua & Kikira Lawyers: Lawyer for the Respondents