SC1022

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCA NO 99 0F 2009

BETWEEN:

OIL SEARCH LIMITED
Appellant

AND:

MINERAL RESOURCES
DEVELOPMENT CORPORATION LIMITED
First Respondent

AND:

MINERAL RESOURCES ENGA LIMITED
Second Respondent

Waigani: Injia CJ, Cannings J, Makail J
2010: 27, 30 April

LIMITATIONS OF ACTIONS – Frauds and Limitations Act, Section 16 – whether an action was founded on simple contract or was an action upon a speciality

PRACTICE AND PROCEDURE – whether appropriate for questions as to dismissal of proceedings on ground that they are time-barred to be determined in interlocutory proceedings

The respondents commenced proceedings against the appellant in the National Court claiming a tax credit under a share sales agreement and a deed of assumption and release. The appellant applied by motion in the National Court for dismissal of the proceedings on the ground that they were time-barred under Section 16(1) of the Frauds and Limitations Act 1988, in that the respondents' cause of action was "founded on simple contract" and the respondents did not commence the proceedings until more than six years after the cause of action accrued. The National Court dismissed the motion on the ground that the respondents' proceedings were "an action upon a specialty", in which case there was a 12-year limitation period under Section 16(3) of the Frauds and Limitations Act and the proceedings had been commenced within that period. The appellant appealed against the dismissal of the motion.

Held:

(1)	A proper determination of whether an action involving alleged breach of contractual obligations is time-barred entails a finding on three matters:

(a)	identification of the cause of action;

(b)	identification of the date on which the cause of action accrued;

(c)	categorisation of the cause of action according to whether it is "founded on a simple contract" or "an action upon a speciality".

(2)	Here, the primary judge erred as there was no identification of the cause of action or the date on which it accrued and there was insufficient material and argument before the National Court to enable it to decide that it was an action upon a speciality.

(3)	The appeal was allowed, the primary judge's order set aside and the matter remitted to the National Court.

(4)	Remarks: on the efficacy of determining, in interlocutory proceedings, the question of whether proceedings should be dismissed on the ground that they are time-barred.

Cases cited

Papua New Guinea Cases

The following cases are cited in the judgment:

Bank of South Pacific v Leahy (2002) N2263

Overseas Cases:

Aiken v Stewart Wrightson Members' Agency Ltd [1995] 3 All ER 449
R v Williams [1942] 2 All ER 95
Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514

APPEAL

This was an appeal against the refusal of the National Court to dismiss proceedings on the ground that they were time-barred.

Counsel

W Neill & K Wamp, for the appellant
I Molloy, H Leahy & G Geroro, for the respondents

30 April, 2010 

1. BY THE COURT: Oil Search Ltd (the appellant) appeals against the refusal by the National Court to dismiss proceedings brought against it by Mineral Resources Development Corporation Ltd and Mineral Resources Enga Ltd (the respondents).

2. The respondents had commenced proceedings against the appellant in the National Court claiming a tax credit under a share sales agreement and a deed of assumption and release. The appellant applied by motion for dismissal of the proceedings on the ground that they were time-barred under Section 16(1) of the Frauds and Limitations Act 1988, in that the respondents' cause of action was "founded on simple contract" and the respondents did not commence the proceedings until more than six years after the cause of action accrued. The National Court (Hartshorn J) dismissed the motion on the ground that the respondents' proceedings were "an action upon a specialty", in which case there was a 12-year limitation period under Section 16(3) of the Frauds and Limitations Act and the proceedings had been commenced within that period.

SECTION 16, FRAUDS AND LIMITATIONS ACT

3. There are two parts of Section 16 at the centre of this appeal:

4. Section 16(1)(a) states:

An action … that is founded on simple contract … shall not be brought after the expiration of six years commencing on the date on which the cause of action accrued.

5. Section 16(3) states:

An action upon a specialty shall not be brought after the expiration of twelve years commencing on the date when the cause of action accrued.

THE APPELLANT'S POSITION

6. The appellant argues that the primary Judge erred by finding that the cause of action was founded on a clause in the deed and not merely the share sales agreement and also by finding that the deed is a "speciality".

7. Mr Neill, for the appellant, compiled an extensive submission aimed at demonstrating that the deed was simply a condition precedent to the share sales agreement and that its terms were fulfilled prior to completion and therefore it ceased to be of consequence and was at an end. He also provided a detailed historical analysis of the meaning of the term "speciality" in Section 16(3). Calling a document a deed does not make it a speciality, he submitted, relying on the decision of the Privy Council in R v Williams [1942] 2 All ER 95.

THE RESPONDENTS' POSITION

8. The respondents assert that the primary Judge was correct when ruling:

I am of the view that a cause of action concerning the transfer or otherwise of an asset of MRP [Mineral Resources Porgera Ltd – the company the shares in which were the subject of the share sales agreement and which was determined in 2001 by the Internal Revenue Commission to have a tax credit of K5.2 million] in this transaction is founded on amongst other things a clause in the deed and not merely the share sales agreement. That is the case with the tax credit claims. As the deed is a speciality, the time in which an action must be brought pursuant to s 16(3) of the Frauds and Limitations Act is 12 years.

Consequently the tax credit claims are not statute-barred and I find accordingly.

9. Mr Molloy, for the respondents, submitted that it was wrong to assert, as the appellant does, that the deed was no longer of any consequence. It contained a 'no merger' clause, which means that the rights and obligations of the parties to the deed do not merge on the completion of any transaction contemplated by the deed or the share sales agreement. He emphasised that the respondents were basing their claims upon the deed as well as on the share sales agreement. Mr Molloy challenged the appellant's reliance on the Privy Council decision in R v Williams, and suggested that its definition of what is a speciality is now largely discredited, as evidenced, for example, by the Queen's Bench decision of Potter J in Aiken v Stewart Wrightson Members' Agency Ltd [1995] 3 All ER 449.

DID THE NATIONAL COURT ERR?

10. In addressing this question we wish to emphasise at the outset that the material and argument put before us was much more extensive than what was put before the National Court. We have had the benefit of detailed and carefully researched written submissions that were not available to the primary Judge. However, having considered the circumstances in which the motion for dismissal was argued before his Honour, we consider that he was led into error and made findings on questions of law that he was not, given the limited material before the National Court, in a proper position to make.

11. A determination of whether an action involving an alleged breach of contractual obligations is time-barred under Sections 16(1) or 16(3) of the Frauds and Limitations Act necessarily entails a finding on three matters:

(a)	What is the "cause of action" (that being the term used in both sub-sections)?

(b)	What is "the date on which the cause of action accrued" (that term also being used in both sub-sections)?

(c)	Is the action "founded on a special contract" (in which case the six-year limitation period in Section 16(1) will apply) or is it "an action upon a speciality" (in which case Section 16(3) applies and the limitation period is 12 years)?

12. We consider, with respect, that the learned primary Judge did not address any of these issues in sufficient detail.

(a)	Cause of action

13. His Honour to some extent addressed the issue of identification of the cause of action by finding that it was "founded on amongst others a clause in the deed and not merely the share sales agreement".

14. However, we consider that what was required was a clearer description of the cause of action, e.g. by a finding that the cause of action was breach of contract, particularised by reference to the express or implied terms of the share sales agreement and/or the deed. It was necessary to make such a finding as only then would the court be in a position to identify the date on which the cause of action accrued.

(b)	Date on which cause of action accrued

15. Only when a precise date is identified would the court be in a position to make any calculation of the limitation period of six years or 12 years under Sections 16(1) or 16(3), as the case may be.

16. Here, the primary Judge noted that the appellant, Oil Search Ltd, had submitted that the cause of action accrued either on the date of completion of the share sales agreement – 26 May 1999 – or the date that the Internal Revenue Commission notified Mineral Resources Porgera Ltd that it had a tax credit – 13 March 2001. However, his Honour did not say which date was propounded by the respondents and did not himself make any finding on this issue. He seems to have tacitly formed the view that the date was irrelevant in view of his finding that the cause of action was founded on the deed and not merely the share sales agreement. His Honour concluded that the limitation period was 12 years, so even if the date on which the cause of action accrued was in 1999 or 2001, the respondents were within time as the proceedings were commenced in 2007.

17. We follow that reasoning but nevertheless consider that to properly determine the question of whether proceedings should be dismissed for being time-barred it is essential that the court make a clear finding on the date on which the cause of action accrued.

(c)	Simple contract or speciality?

18. The primary Judge made a clear finding on this issue but in view of the extensive argument put before us which, we reiterate, was not available to the primary Judge, we have come to the view that his Honour was not in a position to come to the firm conclusion that he did.

19. The issue of whether an action is "upon a speciality" is not at all straightforward. There is no definition of "speciality" in the Frauds and Limitations Act or the Interpretation Act or any other written law. Davani J found in the National Court in Bank of South Pacific v Leahy (2002) N2263 that a guarantee was a speciality because of its nature and form, it being in the form of a deed, but that appears to be the only PNG case that has touched on the issue; and the issue was not addressed in detail and just as in the present case it is evident that the National Court did not have the benefit of extensive argument on the point.

20. It is really a question of statutory interpretation of an old term – "speciality" – but it raises a question of law that requires thorough consideration as it may have significant practical implications for claims made in a commercial law context.

Conclusion

21. We find that the primary judge erred as there was, for the purposes of determination of the motion for dismissal, no identification of the cause of action or the date on which it accrued and there was insufficient material and argument before the National Court to enable it to decide that it was an action upon a speciality. We consider, with respect, albeit with the considerable benefit of hindsight, that his Honour should have declined to hear the motion or having heard it, dismissed it simply on the ground that the appellant had failed to satisfy the court that the respondents' action was founded on simple contract.

TIMING OF APPLICATIONS TO DISMISS PROCEEDINGS FOR BEING TIME-BARRED

22. We agree with the sentiments expressed by the majority of the High Court of Australia (Mason CJ, Dawson J, Gaudron J and McHugh J) in Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 who stated, in a case involving interpretation and application of a statutory limitation period in the Trade Practices Act 1974 (Cth):

We should, however, state in the plainest of terms that we regard it as undesirable that limitation questions of the kind under consideration should be decided in interlocutory proceedings in advance of the hearing of the action, except in the clearest of cases.

23. If a claim is clearly time-barred and provided the statutory defence is pleaded in the defence, a motion for dismissal is warranted and it would be quite appropriate for the National Court to hear and determine it. Where, however, the case for dismissal is not clear-cut, the decision-making process of first, identifying the cause of action, secondly, identifying the date on which the cause of action arose and then, deciding the question of whether the cause of action is founded on a simple contract or is an action upon a speciality, can only efficaciously be carried out at a trial. That this was so in the present case is underlined by the inclusion in the share sales agreement of a 'no immunity' clause, which relevantly states:

To the extent that any of the parties has … immunity from … any legal process … with respect to its property … each of the parties irrevocably waives that immunity in respect of its obligations under this agreement.

24. This clause would appear to make it arguable that the parties had agreed to waive the limitation periods in the Frauds and Limitations Act, in which case even if the respondents' actions were categorised as being founded on simple contract and were brought outside the six-year limitation period in Section 16(1) the immunity from suit otherwise conferred on the appellant might not apply.

25. We express no opinion on this issue other than to say that it further demonstrates why applications to dismiss proceedings for being time-barred are best left, except in the clearest of cases, for thorough determination at a trial.

CONCLUSION

26. We find that the primary Judge erred in his determination of the appellant's motion but it does not follow from this that we should make the order sought in the motion (and the order sought in the notice of appeal): dismissal of the respondent's proceedings. We will instead exercise the powers of the Supreme Court under Sections 6(2) and 16 of the Supreme Court Act by remitting the matter to the National Court for further hearing. As to costs, as neither side has fully succeeded it is appropriate that the parties bear their own costs.

ORDER

27. An order will be entered in the following terms:

1	the appeal is allowed;

2	order No 1 of the National Court of 7 July 2009 is quashed;

3	the matter is remitted to the National Court;

4	the parties shall bear their own costs.

Judgment accordingly.

_________________________________________
Blake Dawson Lawyers: Lawyers for the Appellant
Peter Allan Lowing Lawyers: Lawyers for the First Respondent
H J Leahy Lawyers: Lawyers for the Second Respondent