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Illius v Bias [2018] PGNC 514; N7618 (6 December 2018)


N7618


[PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]


WS. NO. 1007 of 2016


BETWEEN


JOHN ILLIUS AND NIAMI ILLIUS
Plaintiffs


AND

CHRIS BIAS, CHIEF EXECUTIVE OFFICER, PNG POWER LIMITED

First Defendant


PNG POWER LIMITED

Second Defendant


Waigani: Kandakasi, J.

2018: 16th April

06th December


CONTRACTS – Mediated agreement – Provided all the essential elements of a legally enforceable contract exists, mediated agreements are legally enforceable contracts - Obligation of parties claiming no mediated agreement or seeking to opt out of a mediated agreement – Need to demonstrate absence of an essential element of a legally binding contract – Failure to do so – Contract enforceable.


MEDIATION – Bad faith at mediation by defendants – Failure to take required steps to promptly conclude mediation process and take steps in accordance with the terms of a mediated agreement and later unilaterally deciding to opt out of a mediated agreement – No satisfactory and or reasonable explanation offered – No issue warranting resolution by trial presented by the defendants - No case made out for a set aside of mediated agreement – Agreement valid for enforcement.


Cases Cited:
Papua New Guinea Cases


Abel Constructions Ltd v. W.R. Carpenter (PNG) Ltd (2014) N5636
Alex Awesa& Anor v. PNG Power Limited (2014) N5708
Aloysius Eviaisa v. Sir MekereMorauta (2001) N2144
Bank of PNG v. Derick SakateaNiso (2004) N2664
David Wakias v. PatiliasGamato (2017) N6687
Fly River Provincial Government v. Pioneer Health Services Ltd (2003) SC705
Hargy Oil Palm Ltd v. Ewase Landowners Association (2013) N5441
Koitaki Plantations Ltd v. Charlton Ltd trading as Kookabura Meats & Stuart Fancy (2014) N5656
Kelly Yawip v. Commissioner of Police & The State [1995] PNGLR 93
Niggints v. Tokam [1993] PNGLR 66
Nick Darku v. The Cocoa Board of Papua New Guinea (2003) N2401
Pius Sankin v. Papua New Guinea Electricity Commission (2002) N2257
Papua New Guinea Forest Authority v. Concord Pacific Ltd (No 2) (2003) N2465
Rabtrad Niugini Pty Ltd v. ABCO Pty Ltd [1990] PNGLR 155
Tian Chen Limited v. The Tower Limited (2003) N2319
Wellington Geroro v. Coffee Industry Corporation (1999) N1896
Wantok Gaming Systems Ltd v. National Gaming Control Board (2014) N5809


Overseas Cases


Hall v. Westpac Banking Corporation (1987) 4 BPR 9578


Counsel:


A. Rake, for the Plaintiffs
D. Dusava, for the Defendants


06th December, 2018


1. KANDAKASI J: After some delay, this matter finally returned to the Court from mediation with a “bad faith” certificate issued against the Defendants (PNG Power). Under Rule 10 (7) of the ADR Rules, the Court must decide what consequences should follow against PNG Power, against whom the bad faith certificate has been issued.


Parties Arguments


2. PNG Power argues for the matter to be referred back to mediation for a resolution. In the alternative, they argue for the matter to return to the Court where they will apply for judgment against the Plaintiffs (the Illiuses) on their cross-claim against the Illiuses. On the other hand, the Illiuses argue for judgment in their favour with the reliefs they seek granted or there be an order in terms of an agreement reached at mediation which PNG Power failed to honour and fully perform.


Relevant Issues


3. The issues for determination by this Court are thus:


(1) What is the appropriate remedy for PNG Power’s bad faith at mediation?


(2) Did the parties arrive at a legally binding and enforceable agreement at mediation?


(3) If the answer to the second question is in the affirmative, has PNG Power made out a case for having it set aside or for it to opt out of?


(4) Subject to a determination of questions (2) and (3), can the Court make orders in terms of the parties mediated agreement as an appropriate remedy for PNG Power’s “bad faith” at mediation and for breach of contract?


4. I am of the view that questions (2) and (3) will have to be determined first before the first and the fourth ones can be answered. This is necessary because the first and fourth questions’ answers will be dependent on answers to these questions.


Relevant Facts


5. The relevant facts giving rise to the questions presented and the whole case are not in dispute. The parties were in an employment relationship where PNG Power was Mr. John Illius’ employer and he was its employee then as the team leader of property maintenance. In 2015, PNG Power decided to dispose of certain of its real estate properties. Included in the list of properties to be disposed off by sale, was a property described as Section 50, Allotments 11 and 12 (consolidated), Nabasa Crescent, Madang Town, Madang Province. The Illiuses communicated their expression of interest to purchase the property at a price of K300,000.00 by letter dated 30th September 2015. PNG Power offered a sale of the property to the Illiuses at K270,000.00 and required them to pay K27, 000.00, being for 10% deposit on the purchase price. That was by letter dated 09th November 2015. The Illiuses paid the required 10% where upon PNG Power drew up a contract of sale. The parties eventually executed the contract of sale. Based on the contract of sale, all the necessary requirements under the relevant legislation were met and the property was transferred to the Illiuses.


6. In the meantime, PNG Power’s other employees occupied the property. Following the completion of the sale and purchase, PNG Power failed to give the Illiuses vacant possession. Whilst in the possession of PNG Power’s employees, the property was damaged and the Illiuses were kept out of rentals they could have collected from confirmed potential tenants. PNG Power also took issue with the sale saying, it was a mistake because the intention was to sell only allotment 12 and not both allotments 11 and 12. PNG Power offered no satisfactory explanation as to by whom the mistake was made, when, where and how it was made. An internal investigation was carried out by PNG Power, which failed to bring home to the Illiuses fraud or any misconduct or illegal action taken by them. Attempts to settlement the matters in issue between the parties failed, where upon the Illiuses took out Court proceedings. Pursuant to their Court proceedings, they successfully sought and obtained orders for vacant possession and for eviction of PNG Power’s employees who were in occupation. The eviction orders were issued on 17th November 2016, which orders PNG Power failed to ensure compliance by its employees. The substantive reliefs the Illiuses seek in this proceeding is for peaceful occupation or possession and enjoyment of the property and damages. In full appreciation of the background to this case and the Court being convinced of no question of the type identified by the decision in Able Construction Ltd v. W.R. Carpenter (PNG) Ltd,[1] at paragraph 18, being presented in this case, decided to refer the matter for resolution by mediation.


7. The Court ordered mediation, commenced on 24th April 2017and concluded with the filing of the mediator’s certificate on 16th August 2017. In attendance for PNG Power at the mediation were, the manager legal, general manager, corporate services (under whom comes lands and other properties) and the managers for land and properties as well as the lawyers then representing PNG Power in these proceedings, Denton Lawyers. For the Illiuses were themselves and their lawyer.


8. Before the issuance of the bad faith certificate, the parties through the mediation process, reached agreement in the following terms:


(a) Parties to remain committed and see to a completion of the sale and purchase of the property to be completed at an additional price of K315,000.00


(b) PNG Power to lease back the property from the Illiuses at the prevailing commercial rental rates for similar properties in Madang;


(c) The Lease back would be for 2 years subject to extension of that period at the rate of K4,000.00 per month for 4 x 2 bedroom flats;


(d) Other normal terms of commercial lease to apply;


(e) Special terms


(i) If the Illiuses do not meet all outgoings, PNG Power will deduct from rentals due to them; and

(ii) If PNG Power pays K75,000.00 within 2 years, PNG Power will have possession without rent.


9. These terms of the agreement were indeed what PNG Power offered the Illiuses in their own direct negotiations, prior to the issuance of this proceeding. Paragraph 5 of Philip Poriei’s affidavit sworn and filed on 16th August 2017 deposes to that fact.


10. A draft lease agreement was drawn up with a suggestion of rentals at K4,000.00 per month for 4 two-bedroom units bring the total to K16,000.00 with the PNG Power retaining K11,500.00 per month toward the payment of the additional agreed purchase price of K315,000.00. However, PNG Power took issue on the rental rate. Upon the issue being raised in Court, the Court directed the parties to get the prevailing market value of the kinds of property in this case and have the issue resolved based on such information. Also, the Court ordered that, failing any resolution, the matter will return to the Court for the Court to receive the parties’ submissions consider them and issue a binding opinion on the applicable commercial rental rate. The parties failed to reach agreement on the applicable commercial rental rate. Consequently, by consent of the parties, the Court received submissions on the issue and decided that the applicable commercial rental rate was K2,700.00 per month.


11. Once the Court determined the applicable commercial rental rate, the parties were expected to complete a draft lease agreement. Unfortunately, PNG Power delayed completing the lease agreement and its execution for no apparent or good reason. Also, PNG Power failed to instruct its lawyers appropriately and in a timely manner. That resulted in the lawyers ceasing to act. Thereafter, PNG Power’s in-house lawyers took over the carriage and conduct of this matter for PNG Power. PNG Power’s in-house lawyers returned to PNG Power’s original position of it having made a mistake in selling allotments 11 and 12 together instead of only allotment 12. It went on to take the position that, the Illiuses unjustly enriched themselves because no valuable consideration passed between the parties. Proceeding on that basis, PNG Power decided unilaterally to opt out of the mediated agreement. This was notwithstanding the fact that it was PNG Power who drafted the contract of sale and facilitated the sale and transfer of the property to the Illiuses by reason of which, the common law doctrine of contra proferentem might apply. It was also against the agreement reached at mediation and the terms were essentially what PNG Power had earlier put to the Illiuses.


12. The mediators “bad faith” certificate reads:


“I certify that I did conduct mediation on 24thApril, 2017, at the ADR Centre Conference room and issues were resolved with formal agreement to be drafted and settled by lawyers by 1st May 2017. The Defendants later disputed the rental rate of K4,000.00 per month but that was negotiated and settled with the assistance of the Judge. Final drafts of the Lease Agreement and the mediated agreement were finalised by the Defendants’ then lawyers (Denton Lawyers) and forwarded to them but to date they have yet to provide their comments on that, let alone forwarding the same to the Plaintiffs to review and finalize for signing by both parties. This is where the matter is at now.


A number of reminders and deadlines were given by me, through emails, to have them respond to my queries regarding the delay and whether or not certain steps were taken that have interfered with the process of mediation but to date no response is forthcoming from their end. A number of extensions to the deadlines were given to the Defendants’ In-House Lawyers to respond to all those queries but to no avail, hence my decision to declare this mediation as having failed by reasons of the Defendants’ omission, failure and inaction.”


Issues (2) and (3) – Whether the Parties Arrived at a Mediated Agreement and If Yes, has PNG Power Made Out a Case for a Set Aside?


13. From the various affidavits including that of Philip Poriei, sworn on 16th and filed on 20th October 2017, and other materials filed, I find there can be no issue as a matter of fact that the parties did participate in the Court ordered mediation processes. It was facilitated by a mediator whose appointment by the Court was with the consent of the parties. After a few mediation sessions, the parties arrived at an agreement. The terms of the agreement are as set out in paragraph 8 above.


14. Notwithstanding the evidence strongly suggesting the existence of a mediated agreement, PNG Power’s submissions, which are somewhat confusing, or contradictory, says on the one hand that no agreement was reached. At the same time, the submissions suggest the agreement was subject to the approval of the board of directors of PNG Power, which approval was not given, and, in any event, the terms negotiated were “unfair and unreasonable”. Additionally, PNG Power argues that, there was no passing of valuable consideration between the parties because the agreement gives nothing of value to PNG Power. Instead, the agreement gives only the Illiuses something of value in terms of the purchase price being secured through PNG Power leasing the property back from the Illiuses. This, so submits PNG Power, means it was a vendor financed purchase. Finally, PNG Power argues that, this case warrants resolution by a judicial determination to set a precedent or clarify precedent on avoiding contracts based on mistake of fact.


(a) Agreement reached at mediation


15. PNG Power’s argument of there being no agreement is without merit. This is firstly because the evidence as I already noted discloses the parties having reached an agreement in the terms summarised and noted at paragraph 8 of this judgment. Secondly, the rest of PNG Power’s submissions proceeds on the basis that an agreement was reached which they are seeking to opt out on grounds of:


(a) unfairness and reasonableness of the terms of the agreement;


(b) no valuable consideration passing from the Illiuses to PNG Power; and


(c) the agreement reached at mediation was subject to the approval of the board of directors of PNG Power and which approval was not given.


(b) Arguments against validity of Agreement


16. Hence, the only matters that required further consideration are PNG Power’s arguments against the validity of the mediated agreement. To determine the issues thus raised by PNG Power requires a close examination of the parties’ conduct prior to, during and post mediation. This is necessitated by the fact that PNG Power goes back in its submissions to the original contract of sale between the parties. A holistic consideration of the issue of fairness and reasonableness and the other issues raised by PNG Power is necessary to give proper context to the arguments and their eventual resolution.


17. As noted, PNG Power is the one who handled all the legal documentation, from its letter of offer dated 9th November 2015, to drafting of the contract of sale and purchase, the transfer instrument and ensuring their execution by the parties, and their lodgement and ensure a transfer of the title from them to the Illiuses. Apart only from offering to purchase the property, signing the relevant documents as prepared and given to them by PNG Power and paying the agreed contract price for the property, the Illiuses played no other significant part in drafting and completing all of the necessary documentation for the sale and purchase of the property. These facts attract an application of the common law doctrine of contra proferentem.


18. This doctrine, in simple terms says, when it comes to interpreting and enforcing a contract, an interpretation that does not favour the party which drafted or drew up the contract is to be preferred. The doctrine as been referred to and applied in our jurisdiction in a few cases. One such case is the decision in Wellington Geroro v. Coffee Industry Corporation.[2] That was in the context of an employment contract. There, the Court noted the doctrine in the following terms:


“...the doctrine of contra proferentem which literally means that where a clause has more than one meaning, it will be interpreted against the interests of the person who proffered or put forward the clause. The general assumption is that the employer is usually the party who drafts the contract language. Thus, if a clause does not say what you meant, or it has two or more possible meaning, the meaning most favourable to the employee will usually be adopted by the Court:[3]...”


19. Earlier, in Rabtrad Niugini Pty Ltd v. ABCO Pty Ltd,[4] the Court noted that the doctrine applies in the context of contracts imposing strict liability. In its own words, the Court said about the application of the doctrine:


“A contract imposing terms of strict liability is construed against the party relying on it. The ‘contra proferentem rule’ as it is called in Halsbury's Laws of England (4th ed.), Vol 9, par 370 citing Burton v English [1883] UKLawRpKQB 197; (1883) 12 QBD 218, has been applied to parties seeking to rely on a standard contract.”


20. Much later in Nick Darku v. The Cocoa Board of Papua New Guinea,[5] the National Court noted the existence of the principle in the following terms in the context of a contract of employment:


“The learned writer W.T. Major suggests that the contract should be construed most strongly against the party who drew the contract up. Where for instance, there is an ambiguity in a contract so that the words will have two different meanings.”


21. Then as I noted in Bank of PNG v. Derick SakateaNiso,[6] there is only one known setting or context in which the doctrine does not apply. That is in the case of “all money” clause usually found in mortgage documents as securities for bank loans. It has its origin again in the common law. One of the cases often cited for this exception is the decision in Hall v. Westpac Banking Corporation.[7]Justification for this exception is in the fact that:


(a) A bank mortgage is traditionally drawn to cover a multitude of possible situations and intended to secure the bank as effectively as possible. The usual question is, whether the situation falls within the contemplation of the clause as written;


(b) Notions of fairness, justice or reasonableness are matters relevant to questions which might arise under the Contracts Review Act, or in equity where unconscionability is suggested but are notions that are relevant to the question of construction;


(c) An all money clause is to be construed having regard to the context in which the mortgage came to be executed and by reference to the commercial purpose it was intended to serve. But otherwise the intention of the parties is to be ascertained from the language which they have used.”


22. The present case concerns a sale and transfer of land. Hence, it does not fall under the exception to cases in which the doctrine of contra preferentem applies. Instead, this is a case in which the doctrine applies. PNG Power was entirely responsible for the drafting of the contract of sale and transfer instruments. Hence, the doctrine of contra preferentem applies as against PNG Power. PNG Power appears to claim that it made a mistake in the drafting of the contract and all the relevant communication about the contract of sale from its initial draft to the final execution and its completion or performance. That mistake resulted in the contract of sale and the relevant transfer instruments and all other documentation speaking of both allotments 11 and 12 being sold to the Illiuses when their intention was to sell only allotment 11. The most pertinent questions then are:


(a) When was the alleged mistake made?


(b) Who made the mistake?


(c) How was the mistake made, especially when more than one document had to be prepared and executed? and


(d) Where was the mistake made?


23. PNG Power has neither produced any evidence, nor has it provided any explanation in its submissions as to when, where, how and who made the alleged mistake. Clearly, the property consisted of two allotments in one section under one title. It should reasonably follow therefore that, if indeed the intention was for the sale of only one of the allotments, there had to be a specific discussion and eventual agreement of the parties for a subdivision of the land and the issuance of separate titles for each of the blocks before there could even be a sale. There is neither something in the evidence adduced by PNG Power, nor is there any mention in its pleadings or its submissions on this point. If indeed it was the intention of the parties to enter into a contract of sale and purchase only for one of the allotments in the one title, no contract for the sale and purchase of the property could have been entered into unless and until the property has been subdivided and separate titles issued or the contract could have been made subject to such a subdivision with separate titles issued and registered in the parties respective names. In the absence of any evidence, pleading or submission addressing the need for a subdivision of the property, I find that the parties could not have and did not, enter into an agreement for the sale and purchase of only one of the allotments. As the relevant and overwhelming authorities such as the decisions in Papua New Guinea Forest Authority v Concord Pacific Ltd (No 2);[8]Tian Chen Limited v. The Tower Limited[9]and Fly River Provincial Government v. Pioneer Health Services Ltd,[10] point out:


“...the duty of the Court is to uphold the agreement of the parties regardless of whatever difficulties there might be in the construction of their contract. In the exercise of that duty, the Courts must endeavour to uphold the agreement of the parties, particularly in commercial arrangements. This is because the Courts are not there to destroy the agreement of parties but to uphold them. This should readily be the case where the parties have not only agreed but have gone further into implementing their agreement resulting in expenses being incurred by either or both of the parties...”[11]


24. Thus, from the evidence adduced by all parties and are before the Court, their respective pleadings and their submissions, I ask the question, what was the agreement of the parties? All evidence and other material before the Court points to only one contract between the parties. That contract was for the sale and purchase of the property in dispute as captured or specified in the relevant and only title there was and is for the property. PNG Power being the party that is claiming the parties agreed to a sale and purchase of only one of the allotments but due to a mistake both allotments were included in the contract, had and does have the burden to demonstrate by appropriate evidence and by clear and convincing arguments, the exact terms of the parties agreement on the sale and purchase of the property, how the mistake was made, by whom, when and where. As already noted, appreciating the lack of clear answers to these questions in PNG Power’s defence and cross claim or any evidence, submission or representations made to the Court during directions hearing, the Court referred the matter for resolution by mediation.


25. Through the mediation process, the parties have arrived at an agreement by which they effectively agreed to revise their contract for sale and purchase of the property in the terms set out in paragraph 8 above. A consideration of the terms of the settlement or agreement reached at mediation, makes it clear that, the parties arrived at an outcome which is a win win for all the parties. This is obvious from the fact that, the Illiuses get to keep the property but at an additional price (costs) of K315,000.00 which sees PNG Power now get more value for its former property. The mediated agreement also allows for PNG Power to meet its staff accommodation needs through a 2 years renewable lease agreement while the Illiuses get to generate rental incomes which would enable them to meet the burdens imposed on them by the agreement for them to pay to PNG Power the additional K315,000.00. Further, the mediated agreement also allows PNG Power to have possession of the property free of charge if it pays K75,000.00 within 2 years. Most of these terms were terms PNG Power itself had proposed to the Illisues in their own earlier direct negotiations. Finally, for PNG Power, the mediated agreement allows them to avoid the risk of getting to trial and the Court deciding to enforce the sale and purchase agreement with costs following that event. These are clear and valuable considerations passing between the Illiuses to PNG Power and vice versa. Given these, I fail to see how the terms of the mediated agreement could be said to be unfair and unreasonable in the terms PNG Power is now arguing for. Similarly, I fail see how there is a failure to give valuable consideration by the Illiuses as is argued for by PNG Power. For these reasons, I dismiss each of PNG Powers claims of unfairness, unreasonableness and a failure by the Illiuses to give valuable consideration for the mediated agreement.


(c) Lack of approval of the Agreement by the Second Defendant’s board


26. This leaves PNG Power’s argument of the mediated agreement being subject to its board’s approval and no such approval being given. This issue requires a close examination and consideration of the duties and obligations of corporate parties attending mediation.


27. I published several judgments on the question of “bad faith” at mediation and consequences that should flow from bad faith. The judgments include those in Hargy Oil Palm Ltd v. Ewase Landowners Association;[12]Abel Constructions Ltd v. W.R. Carpenter (PNG) Ltd (supra); Koitaki Plantations Ltd v. Charlton Ltd trading as Kookabura Meats & Stuart Fancy;[13]Alex Awesa & Anor v. PNG Power Limited;[14] and Wantok Gaming Systems Ltd v. National Gaming Control Board[15](Wantok Gaming Systems Decision No 1). In these judgments, I went to some length in discussing the development, promotion and use of ADR and, mediation. Also, in those judgments, I highlighted the reasons why the formal courts and governments worldwide are promoting and encouraging the use of mediation. Further, in those judgments, I discussed in some detail the duties and responsibilities of parties and their lawyers in mediation. Having done that, I went on to provide an answer to the important question of what amounts to “bad faith”. I wish not to repeat myself here safe only to refer to those judgements.


28. I will however use my decision in the Wantok Gaming Systems Ltd Decision No.1 to quote from for the purposes of the judgment in this matter. The answer to the question of what amounts to “bad faith” is in paragraph 24 of that judgment which quotes from an earlier decision and it reads:


“...a proper understanding of these duties and responsibilities by the parties would enable them to “participate in good faith” at mediations. That would in turn enable possible resolutions of the disputes. But a failure in these duties and responsibilities and in particular an absence of any of the following list of behaviours would lead to a finding of a party acting in “bad faith” resulting in no final settlement:

‘(1) Complying with the various legislative provisions and other rules, standing orders or practice directions’ or provisions that govern mediation;

(2) Complying with orders referring a matter to mediation;

(3) Personally attending (excluding attendance by telephone) at the mediation by all persons who are fully authorized to settle the dispute,

(4) Preparing for mediation by the parties and their representatives, which includes the exchange of any documents requested or as set forth in a rule, order or request of the mediator;

(5) Participating in meaningful discussions with the mediator and all other participants during the mediation;

(6) Acting in accordance with all contractual terms regarding mediation, the parties may have agreed to;

(7) Following rules set out by the mediator during the introductory phase of the process;

(9) Remaining in the mediation process until the mediator determines that the process is at an end or excuses the parties;

(10) Engaging in direct communication and discussions between the parties to the dispute, as facilitated by the mediator;

(11) Engaging in accurate and honest representations to the other parties or the mediator during and for the purpose of the mediation; and

(12) Refraining from filing any new motions until the conclusion of the mediation, in pending lawsuits.’”


29. Then specifically for a case in which incorporated entities are involved, I made specific reference to their duties and said the servants and agents of corporations should:


“(1) seek and secure the relevant governing bodies or authorities’ full and unrestricted authority or instructions to negotiate in good faith and find a solution;

(2) seek and secure their legal advices and if need be secure appropriate legal services for and during the mediation process;

(3) consult and get the inputs of other important and critical people where that is needed;

(4) have readily available persons they will need to consult or seek their approval during the course of mediation to promptly provide the required inputs or instructions;

(5) gather and put together all documentary and other evidence which they may require or wish to table at the mediation;

(6) carry out investigations and researches as may be considered relevant and necessary with results ready for use during the mediation process if need be;

(7) allow for quality undivided time and attention to the mediation process; and

(8) prepare and make full disclosure of information critical to arriving at a fair, just and a reasonable agreement.”


30. Turning to any breach of the kinds of duties and responsibilities vested in the parties, I considered the provisions of r.10 (7) of the ADR Rules on the kinds of penalties the Court could impose against a party that is guilty of “bad faith”. I then said:


“The Court has a wide discretion or power to make such orders as it may think appropriate in the proceedings once a case of “bad faith” is made out against a party. I note this is not a vesting of a new power that the Court does not already have. Instead, as it has been repeatedly and abundantly made clear by this and the Supreme Courts under the first and third factors outlined above, r.10 (7) merely restates and reinforces a power the Court already has. It would follow therefore that, a case of “bad faith” could be met by any one or more of the following orders depending on the seriousness of the conduct and whether the conduct is deliberate or inadvertent:


(a) dismissal of the claim;

(b) permanent stay of the claim; or

(c) a stay of the claim pending a meeting of certain conditions; or

(d) a strike out of a defence and entry of judgment; and or

(e) order costs.


... Sanctions under (a) - (c) could be imposed in appropriate cases, if the defaulting party is the plaintiff or a cross-claimant. Obviously, the sanction under (d) could be imposed against a defendant or a cross-defendant. Sanctions under (a) and (d) could be considered drastic. However, if the circumstances leading to a finding of “bad faith” is serious, such sanctions might very well be called for and warranted, when considered in the light of the kind of sanctions that could be and are being imposed for contempt of court or for breach of court orders. The final possible sanction of costs could be either on a solicitor/client or party/party basis. Such a sanction could be in addition to any of the sanctions under (a) - (d). If possible, the court could at the time of the order, fix the actual amount of costs payable or allow for taxation.”


31. Applying the principles outlined above, I found in both the Koitaki Plantations v. Charlton (supra) and the Awesa v. PNG Power (supra) cases, the respective plaintiff and defendant failed fully comply with their respective duties and responsibilities. I found those failures as:


“...serious impediments to the Court ordered mediation from proceeding. That left the other parties and this Court in the dark as to what were the real, serious and meritorious issues that were presented in the case and how they required only a judicial consideration and determination as well as how and where it might be on the list of cases or issues inappropriate for mediation. Further, I found that, if indeed the cases presented the kind of issues in question, that should have been made known and clearly presented to the Court prior to the order referring the matter to mediation. Furthermore, I found that, if indeed there was an issue of the kind in question, Koitaki Plantations and PNG Power (the parties acting in “bad faith”), should not have consented to the matter being referred to mediation and instead argue against that for such a reason.”


32. Then in respect of the last point, I made this observation, which I consider is very important:


“It should be noted that, once a Court makes an order for mediation, it effectively means there is no serious and meritorious issue which falls into the list of cases or questions inappropriate for mediation. This immediately obligates the parties to use their best efforts and endeavours to resolve their dispute through the mediation process. If they faithfully discharged their respective duties and responsibilities in the way outlined above, settlement would be inevitable. The only exception to that would be cases in which the parties are able to agree that there is a serious impediment to settlement which was not clear as at the time of the order for mediation.”


33. Applying these principles, I found in both cases several failures on Koitaki Plantations’ and PNG Powers’ parts. These were that:


(a) they failed to demonstrate to the Court’s satisfaction that there existed in their respective cases, the kind of impediment and or type of issue discussed above;


(b) they conducted in a way that was contemptuous of the orders for mediation;


(c) their conducts ran against the grain of the various legislative, judicial and learned publications, encouraging and supporting the use of mediation to resolve human conflicts;


(d) their respective conducts forced the other parties, the Court and the mediator to waste their time, energy and effort in arriving at the decision to have the matter referred to mediation and setting aside time and generally preparing for it; and


(e) save only to point out that their decisions were not to settle the matter and hence not to give mediation a fair chance, they both failed to provide any good reason for taking that position.


34. In those circumstances, I decided in the Koitaki Plantations v. Charlton (supra) case that the most appropriate sanction would be an order for a dismissal of the case. Accordingly, I ordered a dismissal of Koitaki Plantations’ claim and ordered a strike out of its defence with judgment entered against it on a cross claim by the defendants. In making the second part of the order, I noted that, the case concerned a simple supply of goods contract. The goods were live animals, which the plaintiff claimed were not paid for. In its defence, the defendant claimed that, it overpaid for them and the animals were not delivered. Proceeding on that basis, the defendant made a cross-claim. I was of the view that, this presented no meritorious issue that was beyond the reach of mediation and resolution by the parties through negotiation. All that the parties had to do was to, sit down with the facilitation of a mediator at mediation and settle the claim, if they were not able to do that themselves, through their direct negotiations. At mediation, they would have gone through the various and relevant purchase orders, delivery dockets, invoices, payment slips and evidence of payments and settle the claim after establishing the correct records of what happened in the various transactions.


35. In the Alex Awesa case, I arrived at a similar decision for the same reasons but against PNG Power which was guilty of “bad faith”. I ordered judgment for the Plaintiff with damages to be assessed as they were not liquidated. I then ordered the damages to be settled through mediation. Costs were ordered against PNG Power.


36. In Wantok Gaming Systems Ltd Decision No.1, I came to a similar decision to the ones in the earlier cases. I noted there that, the instance of “bad faith” was like the earlier cases and repeated what I said in the earlier cases as to what bad faith means by reference to what the parties could have achieved had they acted in good faith. Accordingly, I considered that, making an order for the parties to comply with the earlier orders for mediation with appropriate modifications was warranted. Then given the National Gaming Control Board’s bad faith, I ordered it to provide the lead in complying with the orders for mediation and to fully bear all the costs on an indemnity basis. The National Gaming Control Board was placed on notice that, should it act in “bad faith” again, there will be judgment for each of the Plaintiffs in the amounts each of them claimed.


37. Finally, turning specifically to the question of a party seeking to opt out of a mediated agreement, I note the only case on point is my decision in Hargy Oil Palm Ltd v. Ewase Landowners Association (supra). There, I found for the parties arriving at a mediated agreement based on the mediators’ notes on the possible terms of the agreement. Hargy Oil Palm Limited tried to opt out of parts of the agreement. After going through all the foregoing discussions on the development on the law relating to ADR and mediation, I said of all agreements reached at mediation:


“All agreements arrived at mediations are legally binding and enforceable, provided the essential elements of a valid contract are present. What then are the essential elements of a valid contract? A quick perusal of the relevant authorities...reaffirms and brings out clearly the following as the essential elements of a legally binding and enforceable contract:


(1) a clear offer and acceptance;

(2) an intention to create a legally binding contract;

(3) passage of valuable consideration each way; and

(4) Each of the parties has the legal capacity to negotiate and enter into a contract.”


38. I went on to say:


“Generally, an agreement of the parties that meets these essential elements would qualify to be a legally binding and enforceable contract. In certain cases, however, even where these essential elements are present, some contracts can be invalidated or nullified in certain known circumstances. Various authorities on contract law specify the following circumstances in which a contract could be nullified or invalidated:

(a) there is a failure to meet statutory requirements in cases where the contracts are regulated by statute;

(b) the agreement is to commit a crime or commit an act that is illegal such as an agreement to carry out a bank robbery;

(c) there has been fraudulent misrepresentation in some material respect at the negotiations which eventually leads to an agreement;

(d) the terms of the contract are unreasonable and unfair; and

(e) there has been use of force and or duress to obtain or secure the contract.”


39. I then concluded:


“It should clearly follow therefore that, unless a party is able to make out a case under anyone or more of these known grounds, they would be bound by the terms of their agreement. Hence, any action taken by any party against the clear terms of an agreement would no doubt, amount to a breach of contract. That would of course entitle the other innocent party to go for an appropriate enforcement of the contract.


...The above general position equally applies to an incorporated entity, including State or public entities, attending mediation either voluntarily or by order of the Court or both. It should follow therefore that, unless the governing body or higher authority of a corporate entity is able to identify and establish any of the known grounds for voiding a contract and that it did not contribute to the existence of such a ground, it will remain bound by the terms of an agreement arrived at mediation. If for instance, a corporate entity is claiming lack of capacity in its representative, as in this case, it would not be a valid ground to seek to void the contract. This is because as we noted already, a corporate entity is duty bound to ensure that its representative at mediation has the necessary power and authority to represent it, explore in “good faith” all possible options, negotiate and help arrive at an agreement at mediation, unless there is a serious legal or other impediment beyond its control. A breach of that duty as already noted would amount to “bad faith” on the part of the corporate entity by reason of which certain adverse consequences could follow against it.”


Application of the law to the facts in the present case


40. Applying the foregoing discussions and the statement of the law to the facts in this case, I am of the view that, the mediator correctly decided to issue his “bad faith” certificate against PNG Power. The Mediators certificate sufficiently states the various instances of bad faith conduct by PNG Power. Of them all, I am of the view that, two aspects of PNG Power’s conduct are far more serious. Firstly, the mediation order included an order in term 9 in the following terms:


“During the mediation process, the parties must be represented by a person with full capacity and authority to settle the proceeding who must come prepared with the relevant and necessary instructions and material required at the mediation and negotiate in ‘good faith’.”


41. That order, obligated all the parties to the proceeding to ensure that, only persons with full capacity, authority and instructions to make binding decisions during the mediation process attended and make the decisions required of them. The persons who attended for PNG Power were senior managers and the kind of officers or persons who would usually have the ostensible authority to represent and make decisions binding PNG Power. Instead, of confirming they had the necessary instructions and authority of the board to represent and make the necessary decisions in the mediation process, they announced that any agreement reached at mediation would be subject to the approval of the board. This is the first most critical and significant display of “bad faith” and breach of term 9 of the mediation orders. Clearly, by virtue of their announcement, those who represented PNG Power failed to come with the Court order’s expressed requirement for them to come with authority to settle. This conduct is not only in breach of the Court order which amounts to contempt of court but also, the current legal position both domestically and internationally on how an incorporate party attending mediation should participate. This could not have occurred, if PNG Power with the assistance of its in-house and external lawyers, took all the necessary steps to prepare for and participate at the mediation in good faith. Part of that would have been an appropriate consideration of the case and clear instructions to the management by the board on how to negotiate and settled the claim at mediation, including its preferred settlement options and having the board on standby to address any other issue that might arise in the course of the mediation process, rather than making a deliberate decision to subject any mediated agreement to board’s approval.


42. None of the affidavits filed for PNG Power provide any evidence of steps taken by PNG Power’s lawyers and the relevant officers to seek and secure the required authority and instructions from the board in due compliance of the relevant Court order. If such steps were taken and the board failed to give the required instructions and authority, there should be evidence of that fact. However, there is no such evidence placed before the Court. If the board did consider the relevant matters and gave the required instructions with the required authority, there must be evidence explaining why those who represented PNG Power chose to subject any mediated agreement to the board’s approval and why the board’s approval was required. Again, there is no such evidence.


43. The second most serious display of “bad faith” by the board of PNG Power is its failure to approve the mediated agreement. The evidence does not show when after the mediated agreement had been arrived at, the PNG Power’s board was briefed by those who attended on behalf PNG Power of the mediation outcome and the terms of the mediated agreement. Indeed, there is no evidence of what advice, or recommendation was put to PNG Power’s board. Further, there is no evidence of when the board came to a decision on whether to approve or disapprove the mediated agreement and the basis for its decision. All we have are references to the board’s concerns per the affidavit of Philip Poriei, sworn and filed on 16th August 2017. These references are however, without any real evidence of the board’s actual decision on the matter and its reasons for not approving the mediated agreement.


44. It is well accepted that, a decision maker is duty bound to give reasons for his or her decision unless it a matter within the decision maker’s absolute and unfettered discretion, where such a discretion exists. The problem of providing no reasons for decisions has been the subject of judicial consideration in several cases. This has been the case in the public sector. That has attracted judicial consideration and pronouncement of the law, which I am of the view, they equally apply to all cases in which a decision is made, unless the law says otherwise. One of the earlier judicial pronouncements I find is the decision of Amet J (as he then was) in Niggints v. Tokam.[16] There His Honour said:


“The statement of principle I now enunciate is that the departmental head who decides in the exercise of his discretion, on proper consideration of the Public Service Commission's recommendation, not to accept it should state the reasons for not so accepting the recommendation. It is not sufficient to dismiss the recommendation in the way the first respondent did:

‘Recommendations from the Public Service Commission are only recommendations. I do not accept the Public Service Commission recommendations and therefore, you remain dismissed.’


If no reasons are stated other than this kind of statement, it leaves the court no option than to conclude that there were no good reasons at all.”


45. That principle was cited with approval, accepted and applied by Injia, J., (as he then was) in Kelly Yawip v. Commissioner of Police & The State.[17] I did the same in Aloysius Eviaisa v. Sir Mekere Morauta.[18] There in the context of recommendations for positions in the public sector and a decision maker making decision against such recommendation without giving reasons, I relevantly said:


“It is an accepted principle of law that, where a recommendation is required and is made, the person who is required to act on the recommendation must make a decision as to whether or not to accept the recommendation and act on it or reject it. If he decides to reject it, he must give reasons for that decision.”


46. In several other decisions as in Pius Sankin v. Papua New Guinea Electricity Commission,[19]I held that, the lack of reasons for decisions means, there is no good reason for the decision. Proceeding on that basis, such a decision cannot be allowed to stand or be acted upon. Makail, J., took a similar view in David Wakias v. Patilias Gamato.[20]


47. In the present case, the Court ordered the issues presented in this case to be resolved by mediation after forming the view that no issue worthy of judicial time and consideration was presented. The Court ordered mediation did take place and an agreement was arrived at. If the agreement was presented by PNG Power’s management to the board for approval, the board was duty bound to give reasons for its disapproval, if indeed the board came to such a decision. The reasons had to be one of the grounds for invalidating or voiding a contract as outlined in paragraph 41 and 42 above.


48. Going by the decision in the case of Alex Awesa & Anor v. PNG Power Limited (supra), PNG Power is not new to the principles discussed above and as applied in that and a few earlier cases. Notwithstanding that experience, PNG Power conducted itself in the way it did as if it has no prior experience with mediation and the law and its practice. The views I have already arrived at in respect of PNG Power’s arguments against the mediated agreement are relevant here. I need not repeat them, safe to say if the issues PNG Power raised against the mediated agreement were the basis on which its board decided not to approve the mediated agreement, these cannot be sustained for the reasons I have earlier given.


49. Based on the foregoing discussions and decisions on the issues earlier addressed, I find that the board of PNG Power was not properly advised on the reasonableness of the terms of the mediated agreement with a recommendation for the board to approve the agreement. Consequently, the board did not come to a decision on whether to approve the mediated agreement. If, however the opposite was the case, I find the board of PNG Power did not have any good legal or factual reason to disapprove the mediated agreement.


Issues 1 and 4 – What is the Appropriate Remedy Against PNG Power for its Bad Faith conducts


50. The outcome of the foregoing discussions and findings is obvious. The mediated agreement remains valid for all intents and purposes. As noted, Rule 10 (7) of the ADR Rules provides for the kinds of orders the Court could make on account of a party’s “bad faith” conduct at mediation. The “bad faith” in this case, goes into the heart of PNG Power’s failure to give effect to the mediated agreement. I found that the bad faith conducts of PNG Power are serious. I also found that, PNG Power has not provided any good reason for such conduct. Further, I found there is no serious defect affecting the mediated agreement and there being no serious impediment to its enforcement. Hence, the mediated agreement remains valid and enforceable. In these circumstances, the most important question is what is an appropriate remedy for PNG Power’s “bad faith” conducts? I consider a most appropriate remedy in the circumstances of this case is to order PNG Power to take all steps necessary to have the mediated agreement fully implemented rather than ordering judgment for the Illiuses. If, however, PNG Power fails to comply with any such orders, its defence and cross-claim could then be struck out and judgment entered with the reliefs sought by the Illiuses or such other reliefs the Court considers appropriate, granted. All these will have to be at PNG Power’s costs since they have been unnecessarily forced upon the parties by its “bad faith” conduct. Accordingly, I make the following orders:


(1) The Defendant shall within 14 days from today, take all steps necessary to have the mediated agreement in this proceeded implemented.


(2) A failure to comply with term 1 of these orders will result in the Defendants’ defence and cross-claim being struck out and judgment entered for the Plaintiff with the reliefs sought or such other reliefs the Court considers appropriate granted.


(3) Costs of the mediation and the process leading to this judgement orders are ordered against the Defendant to be taxed, if not agreed.
______________________________________________________________
Lomai & Lomai Attorneys: Lawyers for the Plaintiff
In-House Lawyers: Lawyers for the Defendant

[1] (2014) N5636
[2] (1999) N1896.
[3] Adopted from Employment Contracts:An Employer’s Guide by Brenda J. Bowlby, Paul & Jarvis and Ellen E. Mole, Butterworths.
[4] [1990] PNGLR 155.
[5] (2003) N2401.
[6] (2004) N2664.
[7] (1987) 4 BPR 9578.
[8] (2003) N2465.
[9] (2003) N2319.
[10] (2003) SC705.
[11] From Tian Chen Limited v. The Tower Limited (supra)
[12] (2013) N5441.
[13] (2014) N5656.
[14] (2014) N5708.
[15] (2014) N5809.
[16] [1993] PNGLR 66 at page 71.
[17] [1995] PNGLR 93 at page 99.
[18] (2001) N2144.
[19] (2002) N2257.
[20] (2017) N6687

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