Kwa v Naces Ltd (1-73581) [2024] PGSC 95; SC2627 (6 September 2024)

SC2627

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCA NO. 158 OF 2022 (IECMS)

BETWEEN:
DR ERIC KWA, PhD – Attorney General and Secretary for Justice
First Appellant

AND
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Second Appellant

NACES LIMITED (1-73581)
First respondent

AND
FELIX KANGE
Second Respondent

Waigani: Polume-Kiele, Numapo & Wood JJ
2024: 27^th June, 6^th September

SUPREME COURT – Appeal against dismissal of National Court proceeding – National Court proceeding dismissed on basis that the construction contract contained an arbitration clause – the arbitration clause could be invoked if one party gave the other party a notice of intention to commence arbitration – no notice given by either party – the pleadings between the parties, including the Defence and Cross Claim, did not refer to or seek any relief in relation to an arbitration – the respective Notices of Motion that were before the primary Judge did not seek any relief regarding the arbitration clause

Held:
Two grounds of the Notice of Appeal are upheld, National Court proceeding WS No. 262 of 2021 (including the Cross Claim), is reinstated and the proceeding shall continue before another Judge. The respondents shall pay the appellants’ costs of and incidental of the Notice of Appeal on a party and party basis, to be taxed if not agreed

Cases Cited:
Bluewater International Limited v Roy Mumu, Secretary Department of Transport v The State [2019] SC1798
Curtain Bros (PNG) Ltd and Curtain Bros (QLD) v University of Papua New Guinea (2005) SC788

Legislation
Arbitration Act

Counsel
Mr G Akia, for the Appellants
Mr B Lai, for the Respondents

6^th September 2024

1. BY THE COURT: The matters before the Court on 27 June 2024 were the hearing of the Notice of Objection to Competency filed on 23 February 2023 (the Objection to Competency) and the Notice of Appeal filed on 6 October 2022 (the Notice of Appeal). At the outset of the hearing, the respondents’ lawyer, Mr Lai, stated that his clients would not be pursuing the Objection to Competency. On that basis, the respondents were granted leave to withdraw the Objection to Competency. The Court then proceeded to hear the Notice of Appeal.
   
2. The Notice of Appeal seeks to appeal the Judgment delivered on 31 August 2022, which dismissed National Court proceeding WS No. 262 of 2021 – Dr Eric Kwa Phd – Attorney General and Secretary for Justice & Anor v Naces Limited (1-73581) & Anor (the National Court proceeding).
   

Background

3. The circumstances giving rise to the Notice of Appeal are as follows. The second appellant entered into an agreement on or about 14 June 2013 with the first respondent for construction by the first respondent of a new Medical Store in Kiunga, Western Province, in the amount of K1,304,284.73. The first respondent commenced the construction work in July 2019. There were various delays in the construction work, and due to certain factors, the first respondent left the work site in June 2015. The appellants claim that the first respondent abandoned the work site and that it did not complete the ‘works’. At the time the first respondent left the work site, the appellants claim it had paid the first respondent the amount of K1,029,847.50.
   
4. There was various correspondence between the parties following the first respondent’s departure from the work site, however, the issues in dispute between the parties were not resolved, which led to the commencement of the National Court proceeding on 2 June 2021 when the appellants filed a Writ of Summons and Statement of Claim, and later an Amended Writ of Summons and Amended Statement of Claim on 2 September 2021.

5. The respondents (then known as the defendants), filed a Defence and Cross Claim on 8 November 2021. The Cross Claim sought certain relief, including that the appellants pay the respondents the amount of K247,437.23, plus interest.
   
6. On 5 June 2022, the respondents filed a Notice of Motion, which sought orders to dismiss the National Court proceeding on the basis that the proceeding was statute barred, or in the alternative that it was frivolous, vexatious or an abuse of process. The respondents’ Notice of Motion also sought default judgment on the Cross Claim.

7. On 22 June 2022, the appellants (then known as the plaintiffs) in the National Court proceeding filed a Notice of Motion, which sought the dismissal of the respondents’ Cross Claim.

8. The two above Notices of Motion were heard on 30 August 2022, following which the primary Judge delivered her written Judgement on 31 August 2022. The trial Judge dismissed the National Court proceeding on the basis that clause 4.14.1 of the Minor Works Contract – Conditions of Contract (the Minor Works Contract), which formed part of the contract, provided for the adjudication and arbitration of any disputes regarding the works. Her Honour held that pursuant to clause 4.14 of the Minor Works Contract, the parties should have resorted to the matters in dispute being adjudicated, and if adjudication fails, the parties were to refer the matter to arbitration. In other words, Her Honour held that, ‘Nowhere in the agreement did the parties agree they will run to Court to resolve their issues.' Her Honour then proceeded to dismiss the National Court proceeding, including the Cross Claim.

9. In relation to the above matters, clause 4.14 of the Minor Works Contract states as follows:

‘4.14- ADJUDICATION AND ARBITRATION

4.14.1 Adjudication

If a dispute or difference concerning the Contract shall arise between the Agency or the Contract Manager and the Contractor, it shall in the first instance be referred to and settled by the person named in the SCC, who shall within twenty eight (28) days given written notice of his decision to the Agency and the Contractor.

If the Agency or the Contractor is dissatisfied with any such decision then the Agency or the Contractor may, within a reasonable time period, but not later than fifty six (56) days after the due date of such decision require that the matter or matters in dispute be referred in writing to Arbitration.

Any dispute or difference in respect of which a notice of intention to commence arbitration has been given in accordance with this Clause shall be finally settled by Arbitration.

4.14.2 Arbitration

Arbitration may be commenced prior to or during the performance of the Works, and proceedings shall be conducted in accordance with the rules of procedure as specific below:

1. A Contract with a Foreign Contractor

Any dispute, controversy or claim arising out of or relating to this Contract, or breach, termination or invalidity, therefore, shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules as shown at Website:

www.uncitral .org/pdf/english/texts/arbitration/arb-rules.pdf or:

2. A Contract with a National Contractor

Any dispute, controversy or claim arising out of or relating to this Contract, or breach, termination or invalidity, thereof, shall be settled by arbitration in accordance with the provisions of the Arbitration Act of 1951 of Papua New Guinea.

During the period that Arbitration is underway the parties shall continue to perform their respective obligations under the Contract, unless they otherwise agree, and the Agency shall pay the Contractor any monies due to the Contractor’.

10. Of note, the above mentioned Amended Statement of Claim, the Defence nor the Cross Claim made any reference to the arbitration clause or sought the referral of the National Court proceeding to arbitration.

Submissions for the appellants

11. The Notice of Appeal contains seven grounds of appeal, however, they can be grouped into two different categories as detailed below.

12. The first category of grounds is effectively that the trial Judge erred in the exercise of her discretion to dismiss the National Court proceeding, because nothing in the arbitration clause provided for an automatic dismissal of the National Court proceeding in the event that the parties failed to exhaust the arbitration clause.

13. The second category of grounds is effectively that nothing under the Arbitration Act 1951 empowers the Court to dismiss a proceeding on account of a party’s failure to exhaust the arbitration process under an agreement, and for this reason, the appellants argue that it was an improper exercise of the Judge’s discretion to dismiss the proceeding, whereas it was open to the Judge to stay the proceeding, pending the outcome of an arbitration.

14. In support of the second category of grounds, the appellants also submitted that the respondent’s lawyer had requested that the proceeding be stayed and had asked that the parties be referred to arbitration. On this argument, the appellants relied on the Judgment in Curtain Bros (PNG) Ltd and Curtain Bros (QLD) v University of Papua New Guinea (2005) SC788, where the Supreme Court held at page 9 as follows:

‘The grant of summary judgment under O 9 r 15(1)(b) for failure to give discovery is discretionary. The appellate Court will not interfere with a discretionary judgment on a procedural matter within its jurisdiction, except where the exercise of that discretion is clearly wrong. A discretionary judgment may be set aside if an identifiable error occurred in the exercise of discretion. Alternatively, it may be set aside where there is no identifiable error, but the resulting judgment or order is "unreasonable or plainly unjust" and such that an error can be inferred.’

Submissions for the respondents

15. The respondents oppose the grounds detailed in the Notice of Appeal and made various submissions in reply, which submissions can be summarised as follows:
    
    1. the appellants failed to show how the exercise of the primary Judge’s discretion was wrong or that the primary Judge acted on the wrong principle or was guided by extraneous or irrelevant matters or mistook the law or failed to take into account some material consideration. In support of these submissions, the respondents relied on the decision of Bluewater International Ltd v Mumu [2019] SC1798, which they submit was binding on the primary Judge;
       
    2. there was no application before the National Court to stay the proceeding, including that it was submitted that a stay may be granted only after a matter has already been referred to arbitration;
       
    100. the parties had agreed when entering into the contract that all disputes would be settled through arbitration and there was ‘.... no agreement that the dispute would be taken to court to resolve’;
         

Analysis of the issues

16. As stated above, there was various correspondence between the parties following the first respondent’s departure from the work site, however, the issues in dispute between the parties were not resolved, which led to the commencement of the National Court proceeding. While the respondents submit that the parties had agreed that all disputes would be referred to arbitration, that submission requires careful analysis, which we consider below.

17. We note in the Bluewater case (supra), per Kandakasi DCJ, Pitpit and Dingake JJ, that the Court made a number of orders, including that the National Court proceeding (which was the subject of an appeal) was stayed pending the exhaustion of the ‘Disputes and Arbitration’ clause. The Supreme Court in the Bluewater case also stated at paragraph 25 as follows:

‘At the highest, this Court comprising of Mogish, Yagi & Ellis JJ in Lavongai Equities Ltd v. Club 21 Ltd (2009) SC1001, pointed out three ways in which a dispute could be referred to arbitration in Papua New Guinea. In its own words the Court said:

“There are three ways a matter can be referred to arbitration. First, the parties may proceed with that course, without any court proceedings being commenced. Secondly, one of the parties may commence court proceedings. In such a case, the other party is entitled to have those proceedings stayed and the matter referred to arbitration in order to give effect to the agreement of the parties embodied in the arbitration clause. Part II of the Act, which includes sections 2 to 12, covers such situations, which are commonly called submissions. Thirdly, court proceedings may be commenced and the court may, with or without the consent of the parties, refer the matter to arbitration. Such a situation, commonly called a reference, is covered by Part III of the Act, which covers sections 13 to 15”.’

18. In the Bluewater case, the Court went on to state the following at paragraph 34:

‘Though these observations and decisions were in the context of a focus on mediation, they equally apply to arbitration as a form of ADR and other forms of ADR such as early neutral evaluation, expert case appraisal and so on. Indeed, the Judiciary has decided to turn to modernising arbitration in PNG since last year, 2018, which culminated in the successful hosting and conclusion of PNG’s first ever conference on mediation and arbitration from 25^th – 29^th March 2019. The same underlying reasons for promoting mediation equally apply to the modernising arbitration as a form of ADR. It follows therefore, in the light of all these developments that, the Courts should readily uphold the parties’ choice of choosing to have their disputes resolved by arbitration unless they by their own conduct waive that choice, or arbitration is prohibited by statutory law or the parties did not agree to submit to arbitration.’

19. While we agree with the general principles that are detailed in the Bluewater case (supra) regarding mediation and arbitration, including there should be an increased use of alternative dispute resolution in resolving disputes, it is important to note that the facts in the Bluewater case are different to the current set of facts in the matter before us.

20. Clause 4.14 of the Minor Works Contract contained an arbitration clause, clause 4.14.1 (which is extracted in paragraph 6 above), provided the following procedure, namely:
    
    1. If a dispute or difference concerning the Contract shall arise between the Agency or the Contract Manager and the Contractor, it shall in the first instance be referred to and settled by the person named in the Specific Conditions of Contract (otherwise referred to as the ‘SCC’), who shall within 28 days given written notice of his decision to the Agency and the Contractor. While the parties included some of their letters regarding the dispute in the Appeal Book, it is important to note that none of the letters demonstrate that any issues in dispute were referred to and settled by the designated person referred to in the SCC. Moreover, this issue was queried with the lawyers for the appellants and the respondents, who both agreed that no such process had taken place.

2. If the Agency or the Contractor is dissatisfied with any such decision then the Agency or the Contractor may, within a reasonable time period, but not later than 56 days after the due date of such decision require that the matter or matters in dispute be referred in writing to Arbitration. In this regard, we note there was no evidence in the Appeal Book of any matter being referred to arbitration. Again, this issue was queried with the lawyers for the appellants and the respondents, who both agreed that no such process had taken place.
   

100. The third requirement of clause 4.14.1 was that any dispute or difference in respect of which a notice of intention to commence arbitration has been given in accordance with this Clause shall be finally settled by arbitration. In this regard, there was no evidence in the Appeal Book of any notice of intention to commence arbitration being given. When queried by this Court, the lawyers for the appellants and the respondents also agreed that no notice of intention to commence arbitration had been given.
     

21. It follows that the parties did not follow the procedure in clause 4.14.1. In other words, a dispute regarding the works could be settled by arbitration, however, neither party to the contract elected to follow the procedure in clause 4.14.1, including that neither party gave the other party a notice of intention to commence arbitration.

22. The fact that neither party to the contract gave a notice of intention to commence arbitration is also reinforced by the issue that none of the parties in the National Court proceeding pleaded reliance on the arbitration clause in the Amended Statement of Claim, the Defence or the Cross Claim.

23. In addition, the above-mentioned Notices of Motion filed on 5 June 2022 and 22 June 2022 (and the affidavits in support) did not seek any relief in relation to an arbitration or a stay of the National Court proceeding.

24. It is evident from our reading of the transcript regarding the hearing of the two Notices of Motion on 30 August 2022, that it was the primary Judge who raised the issue with the plaintiff’s lawyer as to whether any attempt had been made to have the dispute referred to arbitration, at which time the plaintiff’s lawyers agreed that no such attempt had been made. Of note, the defendants’ lawyer was also in attendance in Court on 30 August 2022, however, the primary Judge did not raise the issue with the defendants’ lawyer about arbitration, nor did the defendants’ lawyer make any submissions on the issue of arbitration.
    
25. It is also evident from the hearing on 30 August 2022 that there were no submissions made by the parties about the requirements of the three stage process in clause 4.14.1 of the arbitration clause, nor did her Honour invite any submissions on clause 4.14.1 at that hearing.

26. In the primary Judge’s written Judgement that was delivered on 31 August 2022, her Honour made reference to the arbitration clause in the contract, however, we consider it clear that her Honour erroneously concluded that in the event of any dispute, all matters must be referred to arbitration. While her Honour briefly considered the decision in the Bluewater case, we consider, with respect, that she did not consider all relevant issues, including that the parties did not invoke the arbitration clause in clause 4.14.1 of the Minor Works Contract, nor did the parties in the National Court proceeding plead reliance on the arbitration clause in the Amended Statement of Claim, the Defence or the Cross Claim. Moreover, the above-mentioned Notices of Motion filed on 5 June 2022 and 22 June 2022 (and the affidavits in support) did not seek any relief in relation to an arbitration or a stay of the National Court proceeding.

27. We also repeat the above cited extract in paragraph 16 of this judgment from the Bluewater case, in which the Supreme Court stated, in part, at paragraph 34 of its decision that ‘... the Courts should readily uphold the parties’ choice of choosing to have their disputes resolved by arbitration unless they by their own conduct waive that choice.’

28. In other words, and for the reasons stated above in our analysis of the issues, it is our opinion that all the parties clearly waived their right to proceed to arbitration.
    

Conclusion

29. For the reasons stated above, we consider the primary Judge was clearly wrong in her reasons. Furthermore, we consider her judgment in the National Court decision was unreasonable and plainly unjust, relating to her determination that the parties should resort to the dispute being ‘adjudicated’, and where adjudication fails, the dispute should be referred to arbitration. We also consider her Honour was clearly wrong to summarily dismiss the National Court proceeding.
    

Orders

30. In the circumstances we make the following orders:
    
    1. The respondents are granted leave to withdraw the Notice of Objection filed on 23 February 2024.

2. Grounds 3.3 and 3.7 of the Notice of Appeal filed on 19 July 2023 are upheld, whereby the judgment and orders of the primary Judge made on
   31 August 2022 in National Court proceeding WS No. 262 of 2021 – Dr Eric Kwa Phd – Attorney General and Secretary for Justice & Anor v Naces Limited (1-73581) & Anor, are quashed.

3. National Court proceeding WS No. 262 of 2021, including the Cross Claim, is reinstated and the proceeding shall continue before another Judge.

4. The respondents shall pay the appellants’ costs of and incidental of the Notice of Appeal filed on 19 July 2023 on a party and party basis, to be taxed if not agreed.

5. The terms of these Orders are abridged, to the date of settlement by the Court, which shall take place forthwith.
   

Akia & Associate Lawyers: Lawyers for the Appellants
BS Lai Lawyers: Lawyers for the Respondents