[2000] PNGLR 213

PAPUA NEW GUINEA

[national court of justice]

MAINLAND HOLDINGS LIMITED trading as HuoN ELECTrical LIMITED

v

RD TUNA CANNERY LIMITED

lae: sakora j
14 April 1999; 17 November 2000

CONTRACT — Commercial dispute — Parties agreed to Arbitration Clause — Jurisdiction of courts.

ARBITRATION — Preferred mode of dispute resolution — Function of courts is not to write new contract for parties.

Facts

A commercial dispute arose between two contracting parties who had entered into a contract on or about 30 May 1996, whereby the plaintiff as the "contractor" agreed with the defendant the "principal" to provide electrical installation and service to its cannery project in Madang. 

The contract contains an arbitration clause, a term of the contract, whereby the parties agreed to refer their disputes to the determination of an independent arbitrator. Now, a dispute has arisen and the plaintiff wishes the court to sever and delete the clause to enable it to proceed with the legal proceedings it has already initiated by the filing of a writ of summons against the defendant on 28 September 1998.

Held

1.	It is not the function of the Court to write up new contracts for the parties, as it were. The Court’s function is only to interpret the contract, accordingly to law, to determine what was it that the parties intended and entered into, and with what legal consequences, if any. Thus, to accede to the plaintiff’s application would be to, in the first place, interfere with the parties’ contract and, secondly, write a new one for them.

2.	The parties were not at cross-purposes; the parties had or have not made a mistake on a fundamental fact concerning the contract. It cannot properly be said that there was no "meeting of the minds" here. The subject matter of the contract was and is the installation and provision of electrical services to the defendant’s cannery project.

3.	The arbitration clause remains intact, despite confusion about the identity of an arbitrator. Of course if the parties wish they can remove that clause themselves. The Court cannot do that on the wishes of one party as here.

Cases cited

[no cases cited]

Counsel

Mr Poka, for the plaintiff.
Mr Ousi for the defendant.

17 November 2000

Sakora j. I have two (2) applications before me. The first was filed on behalf of the plaintiff company, by notice of motion dated 8 March 1999, seeking the principal relief of:

"An order severing and deleting clause 47 and the related details in part "A" annexure from the contract entered between the plaintiff and defendant on 30 May 1996 in respect to the plaintiff’s provision of electrical services for the defendant’s cannery project at Madang."

The second application is that of the defendant company, filed 7 April 1999 by notice of motion dated of even date, seeking the following several orders:

1.	That the proceedings be stayed.

2.	That in the event that the proceedings are stayed:

(a)	the matter be referred to arbitration for determination pursuant to clause 47.3 of the contract between the plaintiff and the defendant dated 30 May 1996, the matter to be determined by a sole arbitrator;

(b)	the parties to jointly refer the matter to the Chairman, Papua New Guinea Commercial Disputes Inc. for the appointment of an arbitrator;

(c)	each party to be required to deposit one half of the arbitrator’s estimated fees in their respective lawyer’s trust account to be applied only in terms of arbitrator’s fees and not otherwise;

(d)	the arbitrator appointed pursuant to these orders shall have the power to determine the procedure to be adopted.

3.	The plaintiff to pay the defendant’s costs of this notice of motion.

4.	Such further or other orders that the Court deems fit.

5.	That the time for entry of these orders (sic) be abridged to the date of settlement which shall take place forthwith.

Each applicant relied upon the affidavit sworn and filed in support of each, these being, firstly, that of Harry Robertson sworn 8th and filed 18 March 1999 in support of the plaintiff, and that sworn by Philip Ross Payne 1 April 1999 and filed 8 April in support of the defendant.

The factual circumstances surrounding the bringing of these applications are deposed to in the affidavit of Harry Robertson, the General Manager of the plaintiff company.

A commercial dispute had arisen between the parties who had entered into a contract on or about 30 May 1996, whereby the plaintiff as the "contractor" agreed with the defendant, the "principal" to provide electrical installation and service to its cannery project in Madang. This contract is annexed to the affidavit of Harry Robertson (supra) and marked with the letter "A".

The contract contains an arbitration clause, a term of the contract, whereby the parties agreed to refer their disputes to the determination of an independent arbitrator. Now, a dispute has arisen and the plaintiff wishes the court to sever and delete the clause to enable it to proceed with the legal proceedings it has already initiated by the filing of a Writ of Summons against the defendant on 28 September 1998. Its argument is that a person nominated by the parties to arbitrate their disputes having declined to act, there cannot be any arbitration as intended. Thus the parties must go to the normal civil litigation in the Courts.

This argument of the plaintiff comes from the assertion of Harry Robertson in his affidavit (supra) that, as General Manager, when "he endorsed" the contract on behalf of the plaintiff company, signing at the bottom of each page of the contract, his clear understanding was that:

The Governor of Madang Province, more specifically Mr. Peter Barter, would act as an arbitrator if such a need arose. I believed that situation was clearly clarified by the referred point 3 in annexure B which was a final addition to the Contract.

The contract itself contains annexures that provide further terms and conditions. At the top of the annexure designated Part A, the following statement appears:

This Annexure shall be completed and issued as part of the tender documents and subject to any amendments to be incorporated into the Contract, is to be attached to these General Conditions of Contract and shall be read as part of the Contract.

The arbitration clause is headed: 47 DISPUTE RESOLUTION. After setting down procedures for dispute resolution, such as giving notices within specified time limits, arbitration as the preferred device of the parties for resolving their disputes is adopted as follows:

47.3	Arbitration

Arbitration shall be effected by an arbitrator, who shall be nominated by the person named in Annexure Part A, or if no person is named, by the Chairperson for the time being of the Chapter of The Institute of Arbitrators Australia in the State of Territory stated in Annexure Part A item applicable to Clause 1.

In the view of the defendant company, Mr. Barter’s role was one of nominating an arbitrator rather than acting as an arbitrator. In that respect the defendant’s lawyers wrote to the plaintiff’s lawyers on 28 October 1998 putting forward the names of the three (3) lawyers for the plaintiff’s agreement to be forwarded to Mr. Barter to nominate (Annexure "B" to the affidavit of Harry Robertson, supra). As Mr. Robertson deposes (paragraph 9, supra), in order to resolve the matters of confusion the lawyers sent a joint letter dated 13 January 1999 to Mr. Barter (Annexure "C" to the Robertson affidavit, supra). After highlighting their differing views, and, therefore, confusion, the lawyers sought Mr. Barter’s advice as to whether he would act as the arbitrator in their dispute or prefer to nominate one from a list agreed upon and submitted by the parties themselves.

Mr. Barter responded by letter dated 27 January 1999, declining to act as an arbitrator himself but would be prepared to assist by nominating one from a list of names. After that the plaintiff filed an application (supra) to have the Court order the severance of the arbitration clause from the contract.

The defendant refers to and relies upon the affidavit of Philip Ross Payne (supra). A very brief affidavit, he deposes to the fact that there recently was established in this country the "Papua New Guinea Commercial Disputes Centre Inc". The object of the Centre is said to be "to provided a service within Papua New Guinea whereby commercial disputes such as the present matter can be referred to arbitration within Papua New Guinea or alternatively the dispute can be resolved through mediation means." The deponent says that his instructions are that the defendant is ready, willing and able to have the dispute determined by arbitration pursuant to Clause 47 of the Contract, with the arbitrator to be appointed by the Chairman of the PNG Commercial Dispute Centre Inc.

It would appear that because of the plaintiff’s reluctance to submit the dispute to arbitration, demonstrated by the filing of an application (following the taking out of a writ of summons against the defendant) for an order to sever the arbitration clause from the contract, the defendant has had to come to this Court pursuant to s 4 of the Arbitration Act (Ch. 46). Section 4 is in the following terms:

4.	Power to stay proceedings where there is submission.

(1)	If a party to a submission, claiming through or under him, commences legal proceedings in any court against another party to the submission, or a person claiming through or under him, in respect of a matter agreed to be referred, any party to the proceedings may, at any time after appearance and before delivering any pleadings to taking any other steps in the proceedings, apply to that court to stay the proceedings.

(2)	If the court to which application is made under subsection (1) is satisfied that there is no sufficient reason why the matter should not be referred in accordance with the submission, and that the applicant was, at the time when the proceedings were commenced and still remains, ready and willing to do all things necessary for the conduct of the arbitration, it may make an order staying the proceedings.

Now as to the identity of the arbitrator, it is said that there is some inconsistency in the contract.

In both the commencing schedule and the Part A annexure to the contract it is specified that the person to nominate an arbitrator is "Peter Barter (Governor of Madang)". However it is said that in the Part B annexure to the contract, it is stated "Governor of Madang Province to act as Arbitrator".

The first point that has to be made is that the dispute resolution part of the contract under Clause 47 which adopts arbitration as the preferred and agreed mode of resolving their disputes, is an express term of their contract. Part A annexure to the contract (at page 56, paragraph 53) mentions the person to nominate an arbitrator as: Governor Madang Province Peter Barter. And the Managing Director of the plaintiff, Mr. Robertson, was the signatory to this contract, his signature appearing at the bottom of that page (as with all other pages of the contract). Thus, in my view, Mr. Robertson’s "clear understanding" that Mr. Peter Barter was to be the arbitrator (reference his affidavit, supra) cannot be correct. Annexure to Part B, as referred to in the affidavits does not appear to be part of the main body of the contract. It is headed "Annexure to the General Conditions Contract" and contains three (3) paragraphs of additions and amendments, where in the third and last paragraph the following appears:

3.	The following Clauses (sic) have been added to those of Clause 47.3 Page 49, Arbitration Nominated in Annexure A. Governor of Madang Province to act as Arbitrator.

It will be noted that Annexure A does not nominate any arbitrator. It merely says that Governor of Madang Province, Peter Barter, is the person to nominate an arbitrator. In any case, Mr. Barter, upon being approached by a joint letter from the lawyers (supra) to assist in resolving the confusion, advised his preference to act only as the person to nominate an arbitrator rather than act as one.

The second point to make is that contract containing the Arbitration Clause (supra) is an agreement, a mutual agreement at that, between the parties. It is, therefore, no function of the court to write up new contracts for the parties, as it were. The Court’s function is only to interpret the contract, accordingly to law, to determine what was it that the parties intended and entered into, and with what legal consequences, if any. Thus, to accede to the plaintiff’s application would be to, in the first place interfere with the parties contract and, secondly, write a new one for them.

The plaintiff argued that because of the inconsistency and the resultant confusion, there was at outset a "mutual mistake". It is my view that there was no mutual mistake here. The parties were not at cross-purposes; the parties had or have not made a mistake on a fundamental fact concerning the contract. It cannot properly be said that there was no "meeting of the minds" here. The subject matter of the contract was and is the installation and provision of electrical services to the defendant’s cannery project. What is said to be "confusion" as to the nomination of an arbitrator does not, in my view, affect the subject matter of the contract.

The third point to make is that the so-called confusion does not, in my view, affect the agreed mode of resolving commercial disputes out of this contract. The arbitration clause remains intact, despite confusion about the identity of an arbitrator. Of course if the parties wish they can remove that clause themselves. The Court cannot do that on the wishes of one party as here.

Arbitration as a preferred mode of dispute resolution under the contract, it is my firm view that the parties should avail themselves of this in the manner suggested by the plaintiff. And before that can be done, the plaintiff’s proceedings before this Court must be stayed as sought pursuant to Arbitration Act Ch 46; and the plaintiff’s application must be dismissed.

The Court, therefore, makes the following orders:

1.	The plaintiff’s application to "sever and delete" Clause 47 of the Contract is hereby dismissed.

2.	The defendant’s application to "stay" the plaintiff’s legal proceedings before this Court is hereby granted.

3.	The present dispute between the parties be referred to arbitration for determination pursuant to clause 47.3 of the Contract.

4.	The parties to jointly refer the matter to the Chairman, Papua New Guinea Commercial disputes Centre Inc. for the appointment of an arbitrator.

5.	Each party to be required to deposit one half of the arbitrator’s estimated fees in their respective lawyer’s trust account to be applied only in terms of arbitrator’s fees and not otherwise.

6.	The arbitrator appointed pursuant to these orders shall have the power to determine the procedure to be adopted.

7.	The plaintiff to pay the defendant’s costs of this notice of motion

8.	The time for entry of these orders be abridged to the date of settlement which shall take place forthwith.

Lawyer for the plaintiff: Milner & Associates.
Lawyer for the defendant: Blake Dawson Waldron Lawyers.