Heralding in a new era – PNG's arbitration regime

PNG shows its commitment to arbitration 9 min read

The Papua New Guinea National Parliament recently passed legislation that offers a revamped and modern legal framework to entities seeking to resolve their domestic and/or international commercial disputes through arbitration, and that demonstrates the country's commitment to establishing itself as an arbitration-friendly jurisdiction.

The true impact of this reform remains to be seen; however, it has the potential to free up the courts and establish Papua New Guinea as a commercial arbitration hub in the Pacific.

In this Insight, we examine some of the more notable provisions and their effects.

Key takeaways

• The Arbitration (International) Act 2024 (the AIA) implements Papua New Guinea's obligations under the New York Convention.
• The new framework is based on the UNCITRAL Model Law on International Commercial Arbitration (the Model Law), with some departures.
• Both the AIA and the Arbitration (Domestic) Act 2024 (the ADA) bind the state, and expressly consider the Claims By and Against the State Act 1996 (the CBAS Act).
• The National Court may now refer certain disputes that have originated in the National Court to arbitration on its own motion or with the consent of the parties.
• Unlike the Model Law, both the AIA and ADA expressly provide for confidentiality obligations and time bars for commencing arbitration.

Background

On 20 February 2024, the National Parliament passed the ADA and the AIA, which are yet to commence. The final step in the implementation process is the publication of a notice of commencement by the Head of State in the National Gazette.

What is arbitration?

Arbitration is an alternate dispute resolution process where the parties present arguments and evidence to an independent third party, the arbitrator, who makes a determination. Unlike mediation or conciliation, which are resolution methods of compromise, arbitration (like litigation) is a method of decision. It adopts a much more formal and structured process, and, at the end of the process, the arbitrator makes a binding determination supported by reasons.

It is particularly useful where the subject matter is highly technical, or where the parties seek greater confidentiality than in an open court.

Arbitration may be voluntary, ordered by the court, or required as part of a contract.

Implementation of the New York Convention

While Papua New Guinea has been a signatory to the New York Convention since 17 July 2019, the Constitution requires the passage of an Act of Parliament to give sources of international law domestic effect.

On commencement, the AIA will give the New York Convention domestic effect.

What happens to the old regime?

On its commencement, the ADA repeals the Arbitration Act 1951 (Chapter 46) and provides that:

• any reference to the repealed Act in a domestic arbitration agreement is deemed to be a reference to the ADA; and
• any reference to the repealed Act in a domestic arbitration agreement and all domestic arbitral proceedings commenced or awards made under the repealed Act are deemed to have been commenced or made under the ADA.

Unlike the ADA, the AIA has no application to international arbitral proceedings commenced or awards made before the AIA commences. The AIA applies to all arbitral proceedings commenced or awards made after its commencement date.

AIA or ADA — which Act applies and when?

The AIA applies to international arbitration, which is defined as arbitration where:

• at least one of the parties to the arbitration agreement has its place of business outside Papua New Guinea;
• the seat of the arbitration as provided for in the arbitration agreement is in a place outside the counties in which the parties have their places of business;
• the place where a substantial part of the commercial obligations is to be performed or the subject matter of the dispute is most closely connected is a place outside the counties in which the parties have their places of business; or
• the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country.

The ADA applies to all domestic arbitration. Domestic arbitration is defined as arbitration that does not fall under the AIA.

Territorial scope of the new regime

In general, the provisions of both the AIA and ADA apply only if the seat of the arbitration is in Papua New Guinea. Important exceptions apply to provisions dealing with the recognition of arbitral agreements and the recognition and enforcement of arbitral awards and interim measures ordered by arbitral tribunals. These provisions apply irrespective of whether the seat of arbitration is in Papua New Guinea.

Does the new regime apply to the state?

Yes. Both the AIA and ADA bind the state.

The AIA expressly provides that section 5 of the CBAS Act does not apply to international commercial arbitrations where the state is a party.

Contrary to the AIA, the ADA's default position is that Section 5 of the CBAS Act shall apply to all domestic arbitrations where the state is a party, although the legislature has also provided scope for parties to contract out of the default position. The default position in the ADA is contrary to the recent Supreme Court rulings in which it was held that a notice under section 5 of the CBAS Act is not required to commence arbitration proceedings.¹

The National Court may now refer matters to arbitration

Subject to some limited exceptions, the ADA provides the National Court with the power to refer any matter that has been brought before it for resolution by arbitration. This power can be exercised on its own motion or with consent of the parties.

Matters that cannot be referred for arbitration include:

• cases warranting immediate declaratory relief or where a court sanction or order is statutorily required;
• matters that raise legal issues that have not previously been determined by the courts;
• where it is not in the interest of national security to refer the matter to arbitration;
• where the matter relates to a question of constitutional law; and
• matters involving a history of violence, criminal cases, and matters relating to public health, safety and good order.

The ADA provides that referred matters will be arbitrated under the UNCITRAL Arbitration Rules in force at the date of referral (unless otherwise approved by the court).

Arbitration agreements and court proceedings

Both the AIA and the ADA provide that where a party brings an action to the National Court in a matter that is the subject of an arbitration agreement, the court may:

• on its own motion; or
• on the request of a party,

stay or dismiss the action and refer the parties to arbitration (unless it finds that the arbitration agreement is null and void, inoperative or incapable of being performed).

The ability for the National Court to refer a matter to arbitration 'on its own motion' is a departure from the existing provisions of the Model Law (which only allows referral on request of a party). It refers to the court's inherent jurisdiction to control and manage the proceedings before it without formal prompting from the parties.²

Important procedural features

Confidentiality

Confidentiality is often touted as one of the advantages of arbitration over litigation. However, the Model Law does not expressly deal with confidentiality and Australian readers will be familiar with the landmark decision of Esso Australia Resources Ltd v Plowman, in which the High Court concluded that confidentiality was 'not an essential attribute' of arbitration.³

In contrast, the new regime expressly deals with confidentiality. Both the AIA and ADA provide (subject to limited exceptions) that all documents and matters relating to any domestic or international arbitration are confidential, and no party can publish, disclose, or communicate any information relating to:

• an arbitration proceeding; or
• any arbitral awards in an arbitration.

The appointment of arbitrators

Under both the AIA and ADA, the parties are free to agree on a procedure to appoint and to determine the number of arbitrators. Further, the new regime expressly states that no person can be precluded from acting as an arbitrator by reason of their nationality (unless otherwise agreed by the parties).

Where the parties fail to agree on the appointment of the arbitrator(s), the new regime provides that a suitably qualified body is to be established by the responsible Minister to resolve the matter. Until that body is established, the Chair of the Alternative Dispute Resolution Committee of the Court is to resolve the matter.

Both the AIA and ADA also provide that the Judges of the National Court (in consultation with the responsible Minister) may, from time to time, establish arbitrator standards, codes of ethics and a process for the credentialing of arbitrators.

The role of lawyers

Lawyers may be appointed to perform the function of arbitrator or to represent a party in arbitral proceedings.

A party does not have to be represented by a lawyer (both the AIA and ADA expressly provide that a party can self-represent); however, where a party elects to be represented by a lawyer:

• The ADA restricts parties to representation by lawyers who are qualified to practise in Papua New Guinea.

By contrast, there is no restriction under the AIA – in international arbitration, a party may be represented by a lawyer qualified in any legal jurisdiction of that party's choice.

Rules of an arbitral procedure

Both the AIA and ADA provide that, subject to the provisions of the relevant Act, the parties are free to agree on the procedure to be followed by their arbitral tribunal in conducting the proceedings.

Example rules that may be applied include the UNCITRAL Arbitration Rules, the ICC Arbitration Rules or the LCIA Arbitration Rules. If adopted, these rules would apply to a proceeding, except to the extent that any of the rules are in conflict with a provision of the relevant Act.

Where the parties fail to agree, the arbitral tribunal may, subject to the provisions of the relevant Act, conduct the arbitration in such manner as it considers fair, reasonable, and appropriate.

Time bars for commencing arbitration

Both the AIA and ADA require that arbitration is commenced within the time bars provided for under the Frauds and Limitations Act 1988 or any other applicable laws (eg within six years for disputes that are founded on simple contracts or on tort).

The inclusion of time bars for commencing arbitration is a departure from the existing provisions of the Model Law. Whether the courts will interpret these provisions as being procedural (rather than substantive) in nature remains to be seen.

Interim measures

Interim measures are an important tool in arbitration, seeking to protect the parties' interests pending the resolution of their dispute.

Both the AIA and ADA allow an arbitral tribunal to grant interim measures (unless otherwise agreed by the parties). Interim measures include an order to:

• maintain or restore the status quo;
• preserve evidence;
• preserve assets out of which a subsequent award may be satisfied; or

take action to prevent or refrain from taking action that is likely to cause current or imminent harm or prejudice to the arbitral process itself.

Recourse against arbitral awards

A primary comparative benefit of litigation over arbitration is that a court decision can be challenged in an appellate review. In arbitration, the decision is generally binding, and the parties have little recourse to challenge a judgment.

Both the AIA and the ADA provide for limited grounds on which an aggrieved party may have recourse to the National Court to set aside (in whole or in part) an arbitral award. Those grounds include where the aggrieved party can prove:

• the award conflicts with the public policy of Papua New Guinea;
• the award contains a decision on matters that fall beyond the scope of the submission to arbitration;
• the subject of the matter of the dispute is not capable of settlement by arbitration under the laws of Papua New Guinea; or

the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties.

Recognition and enforcement of arbitral awards

Under both the AIA and the ADA, unless certain limited grounds exist for refusing to recognise or enforce the award, an arbitral award (irrespective of the country in which it was made) will be recognised as binding and, upon application in writing to the National Court, enforceable in Papua New Guinea.

The limited grounds on which the National Court may refuse to recognise or enforce an arbitral award, include where:

• a party to the arbitration agreement was under some incapacity;
• the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties;
• the award deals with a dispute not contemplated by or does not fall within the terms of the submission to arbitration;
• the arbitration agreement is not valid under the law of the country where the arbitral award was made;
• the subject matter of the dispute is not capable of settlement by arbitration under the laws of Papua New Guinea; or

the recognition or enforcement of the arbitral award would be contrary to the public policy of the state (eg the award was induced or affected by fraud or corruption or is repugnant to the general principles of humanity).

Eight things to consider when preparing an arbitration clause / agreement

1. What is the governing law of the agreement?
2. What matter(s) should be referred to arbitration?
3. What is the seat of the arbitration?
4. What arbitral rules should be applied to the proceedings?
5. What language will apply to the arbitration?
6. How many arbitrators will make up the arbitral tribunal (eg one, three)?
7. How are the arbitrators to be selected (ie do you need to agree an appointment procedure)?
8. Do the arbitrators need to possess any special characterises or expertise (eg specific industry-sector experience may be desirable)?

What's next?

If you wish to discuss the matters raised in this Insight, please contact any of the people below.