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Able Construction Ltd v W R Carpenter (PNG) Ltd [2014] PGNC 87; N5636 (18 June 2014)

N5636

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS. NO. 314 of 2014

BETWEEN

ABLE CONSTRUCTION LTD
Plaintiff

AND

W.R. CARPENTER (PNG) LTD
Defendant

Waigani: Kandakasi, J.
2014: 15th May
2014: 18th June

CONTRACT LAW – Written construction contract - Dispute resolution process incorporated - First part failing for lack of practical provisions - Second part arbitration - An effective arbitration clause and essential elements considered - Essential elements not met - Arbitration by "Alternative Dispute Resolution Track of the National and Supreme Court of Papua New Guinea" - National Courts ADR Track providing for and supporting mediation only - Arbitration clause ineffective.

DISPUTE RESOLUTION - Parties expressing a desire to resolve their dispute by arbitration - Process not adequately provided for and supported by "Alternative Dispute Resolution Track of the National and Supreme Court of Papua New Guinea" - Query - Parties could have meant process provided for and support by the Court - Court cannot impose such a term in the parties contract - Parties have a choice to have their dispute resolved by mediation or litigated if issues inappropriate for mediation arise - Cases inappropriate for mediation outlined - Parties need to demonstrate such a case.

Papua New Guinea Cases cited:

Vitus Kais v. Sali Tagau; Tropic Timbers Ltd v. Vitus Kais (2012) N4810

NCDC v. Yama Security Services Pty Ltd (2003) SC707
Mathias Goma v. Protect Security & Communication Ltd (2013) SC1300.
POSF Board v. Sailas Imanakuan (2001) SC 677
Civil & Petroleum Ltd v. West New Britain Development Corporation Ltd (2006) N4152
Paul Pilimbo Pora v. Larry Hull (2009) N3729
Hargy Oil Palm Ltd v. Ewasse Landowners Association Inc (2013) N5441

Counsel:

G Egan & W.Bige, for the Plaintiff
M Goodwin, for the Defendant

18th June 2014

1. KANDAKASI J: The parties by a written construction agreement having a value of over several millions of Kina, included a two step dispute resolution clause to resolve any dispute between them. An issue has now arisen in relation to the second of the two steps, which is this. Whether a reference to arbitration under the "Alternative Dispute Resolution Track of the National and Supreme Court of Papua New Guinea" is effective and can be enforced?

Background Facts

2. The background to the issue presented is this. By a written contract, executed in November 2012, W.R. Carpenter (PNG) Ltd contracted Able Constructions Ltd for certain construction work. On 31st October 2013, Able completed the work required of it and issued a notice of practical completion with a final claim for payment. W.R. Carpenter took issue with a number work undertaken by Able and took the position that it was not liable to pay. By 18th December 2013, the parties were not able to resolve their dispute. Hence, Able sought legal advice and assistance. Through its solicitors in Brisbane, Australia, Able sought to have the dispute resolved. W.R. Carpenter did not respond until 13th February 2014 raising claims of defects in the various works done by Able and set up a counter claim. By this time, it was clear the parties were not able to have their dispute resolved through their direct negotiations. That led the parties to clause 11 of their own contract.

3. Clause 11 of the parties contract reads:

"11.1 If a dispute or difference concerning this Contract shall arise between the Employer or the Superintendent and the Contractor, it shall in the first place be referred to and settled by a person named in the Appendix, who shall within twenty (28) days given [sic] written notice of his decision to the Employer and the Contractor. If the Employer or the Contractor may, within a reasonable but time but [sic] not later than fifty-six (56) days after the due date of such decision require that the matter or matters be determined be referred to arbitration as herein provided.

11.2 All disputes or differences, which have not been settled in accordance with Clause 11.1, may be brought before the Alternative Dispute Resolution Track of the National and Supreme Court of Papua New Guinea for arbitration by a [sic] expert well versed in the building and construction trade. "

4. The Appendix to the Contract did not name any person for the purposes of clause 11.1. Hence, both parties accepted that, this provision failed for that reason. They however, took different views about clause 11.2. Able took the view that, arbitration was possible under the Alternative Dispute Resolution Track of the National and Supreme Court of Papua New Guinea. Able's argument is based on what it submits as the combined effect of the provisions of s. 7A, the heading to s. 7B of the National Court Act[1] as amended; r.3(2) of the Rules Relating to the Accreditation, Regulation, and Conduct of Mediators promulgated on 30th March 2010 under s. 7E of the Act (the ADR Rules) and s.5 of the Arbitration Act.[2]

5. On the other hand, W.R. Carpenter took the view that, the Court's ADR program did not have the necessary rules, facilities and accredited or approved arbitrators to support and provide arbitration services. Consequently, it took and maintains the view that this provision also fails in the same way as does clause 11.1. At the same time, W.R. Carpenter, took the view that, the Court's ADR program does have the necessary provisions, in terms of rules, facilities and appropriately trained, experienced and accredited mediators to which the parties should submit their disputes for resolution.

6. Following lack of agreement on arbitration or mediation, Able issued this proceeding on 7th May 2014. Differentiated only by reference to relevant legislative provisions, Able seeks in three alternative relieves, an order appointing John Griffin QC or alternatively David Gole as an arbitrator or referee or umpire for the resolution of the dispute or difference between the parties. Then by notice of motion Able seeks exactly the same relieves as per the Originating Summons. Of course, W.R. Carpenter is opposed to the relieves sought and instead asks for an order for mediation in accordance with the ADR Rules.

Consideration and reasons for decision

7. Before anything else I note that Able has breached established practice and procedure in relation to the kinds of relieves that can be sought by motion. It is settled law that, no substantive relief can be sought and granted on motion. Motions are mainly for interim and interlocutory matters. As my brother Cannings J observed in His Honour's decision in Vitus Kais v. Sali Tagau; Tropic Timbers Ltd v. Vitus Kais,[3] this is:

"a basic rule of practice and procedure which has been well entrenched since the decision of Kapi DCJ in John Momis v. Attorney-General [2000] PNGLR 109. It has been endorsed by the Supreme Court in cases such as NCDC v Yama Security Services (2003) SC707 and Yer v Yama (2009) SC996. The rule is now expressly stated in Rule 9 of the Motions Rules the National Court Rules, Order 4, Rule 49(9)) which states that except as otherwise expressly provided by the Rules:

'motions shall be for relief on interlocutory matters only and not for the substantive relief claimed in the originating process.'"

8. This means, Able's application is not properly before me.

9. I now turn to the substantive aspects of the application. This in essence concerns what kinds of ADR processes the current National and Supreme Courts ADR Track is providing. When one talks about the Courts' ADR Track, one needs to understand first up that, only the National Court has an ADR Track presently focused only on mediation with the support of the Supreme Court through its decisions such as the one in NCDC v. Yama Security Services Pty Ltd.[4]

10. The statutory foundation of ADR in the National Court is sections 7A - 7E of the National Court Act (chp.38) as amended and the ADR Rules. These legislative provisions are not alone but are two out of many others which provide support for and or are calling for the use of mediation. At the highest for instance is ss. 333 - 336 of the Constitution and ss. 42, 44 and 118 of the Organic Law on Provincial Governments and Local-level Governments as amended.[5] These provisions attempt to give meaning and effect to the call by the PNG National Constitution for the use of "consensus as a means of solving our ... problems."[6]

11. Only a few of these provisions provide a practical and workable definition for what is meant by "mediation" and "alternative dispute resolution" or ADR. Section 10 (2) of the Y2K Fairness in Litigation Act 1999, tries to define mediation in these terms:

"'mediation' means a process in which the parties to a year 2000 claim or year 2000 civil action attempt to reach a settlement of their claim or action with the assistance of a neutral respected third party. "

12. This is helpful only to point out that mediation is a process that can be used to attempt settlement of disputes covered by the Act with the assistance of a respected neutral third party. More clarity is in that attempted definition is found in r.3(2) of the ADR Rules, in its definition of the terms "mediation" and "mediator" in these terms respectively:

"'mediation' means the process a mediator uses to help the parties in a dispute to identify their disputed issues, develop and evaluate options, and enable them to make their own decisions about how to forward and or enhance their communication in a way that addresses their mutual needs with respect to their individual interests with future actions and outcomes and enable them to reach their own agreement or make a decision based on the principle of self determination and includes blended processes and customary forms of mediation."

"'mediator' means:

(1) a neutral third party who helps and facilitates parties in a dispute to communicate with each other and help them to, identify, clarify and explore issues, develop and evaluate options, consider alternative process for bringing their dispute or conflict to a conclusion and enable them to reach an agreement or make their own decisions about how to forward and or enhance their communication in a way that addresses their mutual needs with respect to their individual interests with future actions and outcomes and enable them to reach their own agreement or make a decision based on the principle of self determination; and

(2) a neutral third party who has the necessary expertise and may with the consent of the parties use a blended process and

(3) includes a provider of other forms of ADR;

who is accredited as such under these Rules".

13. I note that in order for a process to be mediation, it must be a process that must be facilitated by a mediator who is a:

(a) is a respected neutral third party who has the;

(b) necessary expertise and accredited as such to help facilitate in the process for parties in dispute to;

(c) communicate with each other to;

(d) identify, clarify and explore issues;

(e) develop and evaluate options;

(f) consider alternative process for bringing their dispute or conflict to a conclusion;

(g) enable them to reach an agreement or make their own decisions;

(h) about how to forward and or enhance their communication in a way that addresses their mutual needs with respect to their individual interests with future actions and outcomes;

(i) and enable them to reach their own agreement or make a decision based on the principle of self determination.

14. On the other hand alternative dispute resolution is defined broadly to include mediation and other forms of dispute resolution apart from the formal court process. The following definition in s.10(1) of the Y2K Act makes that position clear in these terms:

"'alternative dispute resolution' means any peaceful method of reaching a settlement or attempting to reach a settlement of a year 2000 claim or year 2000 civil action other than in the Courts and includes negotiation, conciliation, mediation, neutral evaluation and arbitration and any combination of these and any other peaceful method of reaching a settlement or attempting to reach a settlement in respect of any such claim or action."

15. The ADR Rules emphasis this by its own definition of the abbreviation "ADR" in these terms:

"'ADR' means alternative dispute resolution which includes mediation, arbitration, conciliation, expert case appraisal, early neutral evaluation, any combination of them and such other forms of dispute resolution that are different from the formal court process and includes any process undertaken to avoid or otherwise minimise prolonged disputes in the future".

16. A careful reading of the whole of the provisions of ss. 7A - 7E of the National Court Act and the ADR Rules should undoubtedly cause a diligent and fair minded reader to ascertain what process they are providing for and supporting. Such a reader can readily come to the conclusion that these provisions focus on providing, a system and structure for mediation from rules, to training, accreditation and discipline of mediators, penalties for parties impeding mediation and the enforcement of mediated agreements. I accept that, whilst there is reference to other forms of ADR, there is a clear lack of provisions similar to those provided for mediation to enable a meaningful referral and resolution of disputes by a processes other than mediation such as arbitration. This is consistent with and reflects the PNG Judiciary's deliberate decision to focus solely on mediation first until court annexed mediation has taken a firm footing and is able to function efficiently and effectively.

17. The PNG Judiciary is not alone in its focus on court annexed mediation. Similar steps have been and continue to be taken worldwide. I noted that in my paper "Courts and ADR: Many Ways, One Destination and an Imperative to Work Together" in these terms: [7]

"On 23rd May 2012, Secretary General of the United Nations, Ban Ki-moon issued a circular asking member states to embrace and use mediation as a preferred form of conflict resolution.[8] Earlier, on 13th June 2008, the European Union issued a directive in similar terms.[9] Following the EU directive, Italy enacted legislation for compulsory mediation before litigation. Canada allows filing before mediation but requires mediation before trial.[10] Recently, in 2011, Australia past its Civil Procedure Act 2011, requiring litigants to attempt to resolve their disputes through mediation first before litigation. I understand there is a very active ADR practice with some emphasis on mediation here in New Zealand."

18. This worldwide focus on mediation is not surprising as mediation is suitable for all cases. The only exception to this would be cases in which mediation is inappropriate because:

• a real possibility of setting a legal precedent through a judicial determine which would clarify the law or inform public policy is presented;

• any settlement out of court is not in the public interest;

• protective orders such as injunctions are required immediately;

• there is a clear case warranting summary judgment;[11]

• a genuine dispute requiring the Court to give a declaratory relief is presented;

• family disputes especially involving child abuse, domestic violence, etc, is presented;

• the parties are in a severely disturbed emotional or psychological state, such that they cannot negotiate for themselves or others; [12]

• a genuine dispute requiring interpretation of a constitutional or other statutory provision is presented;

• there is a genuine dispute over the meaning and application of a particular provision in a contract or an instrument, a determination of which will help finally determine the dispute;

• a preliminary issue such as questions on jurisdiction, condition precedents,[13] statutory time bar and the disclosure of valid cause of action requires determine before anything else; or

• a public sanction as in a criminal case is needed for public health, safety and good order.

19. Whilst arbitration is a form of ADR in that it is an alternative to the formal court process, it is in all respects similar to a formal court process. It is also costly like the formal courts because arbitrators charge more fees compared to mediators fees. The only difference between the formal court process and arbitration is in the areas of the parties choosing, the venue, dates and times for the arbitration, which law applies and more importantly pay for their judges and dictate when the hearing must commence and conclude with a decision. This is apparent and confirmed by the definition of arbitration in the ADR Rules in these terms:

"'arbitration' means a process which is similar to a court process in which the parties to a dispute appoint a neutral third party dispute resolution practitioner (the arbitrator) to whom the parties present their evidence and arguments and the arbitrator makes a decision for them which is binding and can be enforced as a court order subject to meeting certain procedural requirements".

20. As far as I am aware, there is no court annexed arbitration system worldwide. If there is any, it will be an exception. Some parties are still using arbitration despite the developments favoring mediation. This is not out of well informed and considered choice from a list or menu of appropriate processes for the effective resolution of their disputes but much has to do with early use of arbitration and history and a lack of knowledge and appreciation of the benefits of other processes like mediation, which are only beginning to come through now.

21. In appreciation of the parties choices in accordance with contract law, Courts worldwide have and continue to uphold arbitration clauses. This they do if such clauses meet all of the relevant and necessary requirements for a valid arbitration clause. This is usually done by reference to local legislation regarding arbitration and where necessary by reference to international best practices in accordance with public and private international law as well as the agreement of the parties as to which law applies to their case.

22. In PNG, the Arbitration Act provides as to the circumstances in which the Court can recognize and uphold arbitration clauses. The key provision in the Act is s.2 which reads:

"2. Effect of submission.

Unless a contrary intention is expressed in the submission, a submission is irrevocable, except by leave of the Court, and has the same effect in all respects as if it had been made an order of the Court."

23. Section 1 of the Act defines a "submission" in terms of:

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

24. A quick survey of sample arbitration clauses vary from shorter versions to longer and detailed ones. Whatever version parties choose to have, it is clear that in order for their agreement to submit to arbitration to be effective, the relevant arbitration clause must contain the following essential elements:

1. specifically provide that any dispute arising out of or relating to their contract will be resolved by arbitration;

2. name the arbitration administering entity or body;

3. name the arbitrator (s);

4. place of arbitration;

5. applicable law and rules;

6. payment of the arbitrators fees;

7. process of appointing the arbitrator (s); and

8. specify all relevant time frames for appointment of mediators to final awards.[14]

25. A quick perusal of the case authorities in PNG, clearly demonstrates that, the Courts are willing and ready to uphold arbitration clause which at least cover the essential elements, 1 - 5 and 7. Recent examples of that readiness of the Courts come from decisions like that of Canning J. in Niugini Civil & Petroleum Ltd v. West New Britain Development Corporation Ltd[15] and David J.'s decision in Paul Pilimbo Pora v. Larry Hull.[16]

26. If we view the arbitration clause in this case, clause 11.2 (reproduced at paragraph 3 of this decision) against the essential elements for an effective arbitration clause, two problems are revealed. Firstly, a careful reading of this clause demonstrates a meeting of only two (2) of the 8 elements. Additionally, although not expressly so submitted for Able, I note that, the lack of the third element could be cured by s.3 of the Arbitration Act which reads:

"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."

27. A close examination of the Schedule makes it clear that, if the parties fail to provide any other mode of reference, the reference is to a single arbitrator.[17] The rest of the provisions in the Schedule concern reference to two arbitrators[18] which is not the case here, the timing for the arbitrators making their award and any extension thereof[19] and the rest is about conduct of the arbitration and the parties costs of arbitration.[20] These are matters that come into operation once the path way to enabling an arbitration to occur as been appropriately provided for in unambiguous terms[21] and they come into operation.

28. The second problem with clause 11.2 is what I already highlight in earlier part of this decision at paragraphs 9 - 18. In summary, the focus in the National Courts ADR Track or program now is on mediation only and not arbitration for the reasons given above. Additionally, there has been a number of ADR and more so, mediation awareness workshops and talks conducted by the ADR Committee. One of this included a breakfast talk with the Chamber of Commerce in Port Moresby. There has also been a number talks, lectures and papers presented at various international forums abroad, especially in Australia, New Zealand and Malaysia. Some of these are referred to on the international information super highway, the internet.[22]

29. Given the above, one way to look at the parties agreement in clause 11.2 in this case would be this. The parties knew that the "National Court and the Supreme Courts ADR Track" at this stage provides for and supports only court annexed mediation. It should follow therefore that, the parties chose to utilize the National Court's mediation process for a resolution of their dispute. Indeed, that is W.R. Carpenter's argument in effect, on the basis of which it submits that the Court should order the parties to use the National Court's mediation process. That process should be facilitated by an accredited mediator who is knowledgeable and or experience in the building and construction trade. The parties could agree on the precise terms of an order for mediation and failing which, the Court can fix them to allow for a meaningful facilitation of a mediation. The mediation could then take place at the earliest convenient date for the parties, their lawyers and the mediator.

30. The other way to look at the problem is this. If mediation is not what the parties intended, clause 11.2 should fail in much the same way as its preceding clause, 11.1. As we noted earlier in this decision, that clause fails according to both parties as no person has been named in the appendix. In clause, 11.2 the parties agreed to submit to a process not in fact provided for under the Court's ADR Track. This would leave the parties to have their dispute resolved in the normal way, which is their own direct negotiations and failing any resolution, mediation as is suggested by a good body of judgments of the National and Supreme Court[23] unless the parties are able to bring their dispute under one or more of the exceptions outlined in paragraph 18 above.

31. Up to this point, it is clear that the parties have not been able to settle their dispute through their own direct negotiations. It is also clear that, arbitration is not possible for the reasons given above. Consequentially, mediation facilitated by a mediator who is duly accredited as such by the National Court and who is knowledgeable and or experienced in the building and construction trade is inevitable. But this cannot be forced on the parties except as they may agree. At the same time, there is the possibility that, if the parties are able to demonstrate to the satisfaction of the Court that, their dispute falls into one or more of category of cases that are inappropriate for mediation as outlined in paragraph 18 above, they will be at liberty to litigate their dispute. The parties will have to make the necessary choice and determine which option to take and return to the Court either with a draft consent order for mediation or an appropriate application to have their dispute properly litigated.

32. Based on the foregoing, reasons, I make the following orders:

(1) The application by the Plaintiff is dismissed.

(2) Cost of the application will follow the event.

(3) Tuesday 8th July 2014 at 9:30am is fixed for a return of this matter.

(4) Upon return of the matter:

(a) the parties shall hand up a consent order for mediation in the pro forma presently being used if they agree to submit to mediation; or

(b) come with an appropriate application to proceed to litigation.

(5) Time is abridged for the entry of these orders which shall take place forthwith upon the sign of the same.

___________________________________________________________
Henaos Lawyers: Lawyers for the Plaintiff
O'Brian Lawyers: Lawyer for the Defendants.

^[1] (Chp.38).
^[2] (Chp.46).
^[3] (2012) N4810.
^[4] (2003) SC707; For others on point see: Mathias Goma v. Protect Security & Communication Ltd (2013) SC1300 and POSF Board v. Sailas Imanakuan (2001) SC 677.
^[5] For almost a completed list of other legislation providing for the support and or use of mediation and other forms of ADR see: ss.10 and 11 of the Adultery and Enticement Act 1988, ss. 22B -22D of the District Court (Chp.40) as amended; s.7 of the Fairness of Transactions Act 1993; s.11 of the Family Protection Act 2013, s.51 Industrial Relations Act (Chp.174) as amended; s.15 of the Inter-group Fighting Act (Chp.344) as amended; ss. 9 - 73 of the Land Disputes Settlement Act (Chp.45) as amended; s.5(5) of the Lukautim Pikinini (Child) Act 2009; ss.140(4), 143(4), 151(3)(d) of the National Information and Communications Technology Act 2009; s.121 of the Oil and Gas Act 1998, s.29 of the Public Services Conciliation and Arbitration Act (chp.69) as amended; ss.29 (c), 31 (2)(a)(iv), 32(2)(a)(i) of the Security (Protection) Industry Act 2004; s 95 (a) of the Superannuation (General Provisions) Act 2000; ss. 52 - 54 Village Courts Act 1989 and s. 4 of the Village Courts Regulations (Chp. 44) and finally, ss. 10 - 13 of the Y2K Fairness in Litigation Act 1999.
^[6] Asserted in the Preamble to the Constitution of PNG.
^[7] delivered at the Pacific Judicial Conference in Auckland, New Zealand 9-12 March 2014.
^[8] "Saying an 'An Ounce of Prevention is Worth a Pound of Remedy', Secretary General" UN General Assembly GA/11242 (found at http:www.un.org/News/Press/docs/2012/ga11242.doc.htm
^[9] EU Directive 2008/52/EC on certain aspects on civil and administrative matters (reference in http:www.kennedys-law.com/article/mediationineurope.
^[10] "'Mandatory' Mediation: LC Paper No. CB(2)1574/01-02(01).
^[11]These and the above from UK Civil Court Mediation Manuel at p.7 and can be located at: www.judiciary.gov.uk/.../civil_court_mediation_service_manual_v3_ma...; For similar statements see also www.fedcourt.gov.au/case-management-services/ADR/mediation for the Australia Federal Court's position and for an Indian Courts and others' position go to http://highcourtofuttarakhand.gov.in/pages/display/212-concept-of-mediation; http://keralamediation.gov.in/Mediation%20Proceedings.html; http://www.mediationforresults.org/content/view/13/38/#notsuitable.
^[12] These and the one above from the Hong Kong Judiciary's website covering amongst others ADR, found at http://mediation.judiciary.gov.hk/en/mediation_faq.html#05
^[13] This could include question for instance over the compliance or non compliance of provisions like s.54(6) of the Motor Vehicle (Third Party Insurance) Act or s.5 of the Claims by and Against the State Act in PNG
^[14]For more on this and some samples see: shttp://www.huschblackwell.com/~/media/Files/BusinessInsights/BusinessInsights/2012/04/Envisioning%20the%20Future%20of%20Healthcare/Files/Sample%20Arbitration%20Clause%20Language/FileAttachment/Healthcare%20SAMPLE%20ARBITRATION%20CLAUSE%20LANGUAGE.pdf; http://www.iccwbo.org/products-and-services/arbitration-and-adr/arbitration/standard-icc-arbitration-clauses; http://www.nolo.com/legal-encyclopedia/arbitration-clauses-contracts-32644.html andhttp://www.lcia.org/Dispute_Resolution_Services/LCIA_Recommended_Clauses.aspx
^[15] (2006) N4152 .
^[16] (2009) N3729.
^[17] Schedule 1.1.
^[18] Schedule 1.2
^[19] Schedule 1.3 - 1.5
^[20] Schedule 1.6 -1.9.
^[21] See Niugini Civil & Petroleum Ltd v. West New Britain Development Corporation Ltd (2006) N4152 and David J., in Paul Pilimbo Pora v. Larry Hull (2009) N3729.
^[22] For examples go to: http://ifcext.ifc.org/IFCExt/pressroom/IFCPressRoom.nsf/0/7DDE18BEC114872A852578D90011523F?OpenDocumenthttp://pjc2014.org.nz/assets/Uploads/6._Justice_Ambeng_Kandakasi_powerpoint.pdf; https://www.wbginvestmentclimate.org/advisory-services/regulatory-simplification/debt-resolution-and-business-exit/png.cfm;
^[23] For an almost complete coverage and discussion on this see the decision of the National Court in Hargy Oil Palm Ltd v. Ewasse Landowners Association Inc (2013) N5441.