PNG draft Arbitration Bill 2019 – what is proposed?

In brief 5 min read

Following Papua New Guinea's accession to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (read our Insight on PNG's accession to the New York Convention here), the PNG Arbitration Technical Working Committee, formed under the auspices of the PNG Judiciary, has now issued the form of the draft Arbitration Bill 2019 for public comment.

Key amongst the proposed changes is the potential ease with which an arbitration agreement may be referred for determination and the ease with which arbitral award may be made and enforced by foreign investors against PNG companies or individuals (and vice versa). Foreign investors in Papua New Guinea should be aware of the proposed changes to arbitration legislation and consider any existing contractual arrangements that may be subject to the provisions of the Draft Bill or which may possibly be affected by transitional arrangements under the Draft Bill.

Key takeaways

• The Independent State of Papua New Guinea (PNG) acceded to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) on 17 July 2019, which came into force in PNG on 15 October 2019.
• The PNG Arbitration Technical Working Committee has released a draft Arbitration Bill 2019 (Draft Bill) for public comment
• The Draft Bill repeals and replaces the Arbitration Act Ch 46, and will apply to every arbitration agreement, including every arbitration under such an agreement, whether made before or after the commencement of the Draft Bill.
• The Draft Bill recognizes, and will give effect to, agreements of contracting parties in international commercial agreements and other agreements to resolve their disputes by arbitration.
• The PNG courts can refuse recognition and enforcement of any arbitration award if it is in conflict with, or is contrary to, public policy.
• The PNG Arbitration Technical Working Committee will be holding public consultations on the Draft Bill, the first of which will be held in Port Moresby on 8 November 2019, and comments on the Draft Bill must be received by the Committee in writing before Friday 22 November 2019.

The Draft Arbitration Bill

The Draft Bill was released for comment shortly after the New York Convention came into force in PNG on 15 October 2019. When it comes into force, the Draft Bill will repeal and replace, in its entirety, PNG's current Arbitration Act Ch 46 and will apply to every arbitration to which the current Arbitration Act applies, whether made before or after the commencement of the Draft Bill.

Under the Draft Bill, PNG has adopted certain aspects of the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Arbitration. This includes, among others, provisions on the Scope of Application, Composition and Powers of the Arbitral Tribunal, Interim Measures and Preliminary Orders, and Recognition and Enforcement of Awards.

PNG has not qualified its accession to the New York Convention by declaring in the Draft Bill that it recognises and will give effect to awards made in the territory of another contracting state, and that it will only apply the Convention to legal relationships whether contractual or not, which are considered commercial under PNG law.

Among other things, the Draft Bill defines agreements between parties which may be submitted to international arbitration or domestic arbitration, and:

• modifies the manner of giving notice to the State under the Claims by and Against the State Act 1995;
• provides for the functions to be performed by the National Courts and stipulates that unless expressly provided in the Draft Bill, the National Court or any other court shall not intervene in any matters governed by the Draft Bill;
• stipulates that all arbitrations must be commenced within the time bars for commencing legal proceedings under the Frauds and Limitations Act 1988; and
• specifies the form of an arbitration agreement, which may even include an exchange of statements of claim and defence where the existence of an arbitration agreement is alleged by one party and not denied by the other.

The Draft Bill provides that arbitration shall not be discharged by death, bankruptcy, winding up or decision of an arbitral tribunal or court that a contract is null and void. Furthermore, termination of a contract containing an arbitration agreement will not be a bar to the jurisdiction of an arbitral tribunal. These provisions make it possible for parties to bypass (if applicable) the requirements of legislation such as the Investment Promotion Act 1992 and the National Procurement Commission Act 2018, which set out circumstances in which agreements subject to those Acts may be declared null and void.

This may raise the possibility of action against directors and shareholders of a party to an arbitration where that party has been wound up.

The Draft Bill also provides that the costs and expenses of an arbitration will be as fixed and allocated by the arbitral tribunal in its arbitral award. This may raise the possibility of action against directors and shareholders of a party to an arbitration where that party has been wound up.

The Draft Bill grants the PNG courts the right to refuse recognition and enforcement of any arbitration award, including an interim measure, if it conflicts with, or is contrary to, public policy. According to the Draft Bill, an interim measure or arbitral award conflicts with, or is contrary to, public policy of PNG if:

• it was induced or affected by fraud or corruption; or
• it is repugnant to the general principles of humanity.

What will no doubt raise some further discussions will be the application of the latter criteria, as the reference to 'repugnant to the general principles of humanity' has its roots deeply entrenched in PNG's customary law and cultural context.

What's next?

The PNG Arbitration Technical Working Committee will commence its nationwide public consultation on specific dates and location in November 2019, and comments on the Draft Bill must be received in writing before Friday, 22 November 2019.

We will keep track of the progress of a new or updated Act, and keep you up to date with any significant developments.

In the meantime, if you'd like to discuss this development, please contact any of the people below.