N2194

PAPUA NEW GUINEA

[In the National Court of Justice]

OS 36 of 2001

BETWEEN

OLYMPIC STATIONERY LIMITED
trading as PNG STATIONERY & OFFICE SUPPLIES
Plaintiff

AND

THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Defendant

Waigani	:	Sevua, J
2001		:	14th & 15thAugust

Practice and Procedure – Arbitration clause in contract – Parties not submitted to arbitration - Clause mandatory – Parties must submit to arbitration.

Practice and Procedure – Notice of intention to make claim against State – Failure to give notice – Section 5, Claims By and Against the State Act.

Held:

1.	Where a contract between parties contain an arbitration clause which stipulates that in the event of a dispute or disagreement, the parties should proceed to arbitration, the parties must, in accordance with that provision, submit to arbitration. A party cannot exercise its right to sue without exhausting that procedure.

2.	The giving of a notice pursuant to Section 5 of the Claims By and Against the State Act is a condition precedent to instituting a court proceeding against the State. That requirement is mandatory and notice must be given to the State prior to issuing legal proceedings.

Cases referred to:-
Tau Liu v. Paul Tohian, N1615, unreported, 26th September 1997.
Paul Tohian v. Tau Liu, SC566, unreported, 27th April 1998, applied.
Graham Rundle v. Motor Vehicle Insurance (PNG) Trust No. 1 [1998] PNGLR 20.

Counsel:
Mr Molloy & Mr Lightfoot for Plaintiff
Mr Henao, Mr Kua & Mr Haboic for Defendant

14th August 2001

SEVUA, J:	There are two preliminary issues that arose this morning for the Court’s determination.

The substantive relief the plaintiff seeks are declaratory in nature and they relate to a "purported" contract to supply education materials for schools in the Momase, Highlands and New Guinea Islands region. I have used the word "purported" advisedly since the substantive issues are yet to be determined.

On 28th May 2001, I set this matter for trial today following appearance by Mr Shepherd, then counsel for the plaintiff. The defendant was not represented at that call-over.

The plaintiff is ready to proceed in spite of the Court raising the issue of arbitration, which is one of two preliminary issues raised by the defendant. I reiterate what was said in Court this morning when this issue was raised. And that is, when Mr Shepherd sought a hearing date at call-over on 28th May 2001, he did not inform the Court that there is an arbitration clause in the contract, the subject of this dispute. It was only this morning that the Court became aware after reading the file, that the contract contained an arbitration clause, Clause 33.

When the Court initially raised this issue, Mr Molloy of counsel for the plaintiff, submitted that the defendant had waived its right to arbitration by taking steps in this proceedings. He maintained that contention in his address following the defendant’s submissions.

Mr Henao, counsel for the defendant, said the defendant has not waived its right to arbitration. He produced a letter dated 9th August 2001, to the plaintiff’s lawyers in which the Solicitor General had referred to Clause 33, which provides for dispute to be referred to arbitration, and which course has not yet occurred. He also said that this issue would be raised at the hearing date.

Mr Molloy also produced a letter from his client dated 7th November 2000 to the Chairman of the Central Supply & Tenders Board, in which, he raised a number of matters including arbitration. Counsel said no response had been received to that letter. However, the Court notes that the letter was directed to Central Supply & Tenders Board, not the Solicitor General and there is no evidence that that letter was referred to the Solicitor General or to Henaos lawyers.

The pertinent point in both letters, in my view, is that, both parties had referred to arbitration. As I alluded to, Clause 33 relates to arbitration. In particular, sub-clause (2) provides:

"All differences or disputes, which have not been settled in accordance with the preceding sub-clause shall be finally settled by Arbitration in Papua New Guinea under the provision of the Arbitration Act of 1951 of Papua New Guinea."
(my emphasis)

Mr Molloy referred to s.4(1) of the Arbitration Act and submitted that the defendant had taken a number of steps in this proceedings that its right to arbitration has been waived and it cannot now ask for a stay of the proceedings. With respect, that is not how I understood Mr Henao’s submissions. In fact, I understood Mr Henao to be saying that his client had not waived its right to arbitration. To my mind, that is not the same thing as making an application to stay proceedings as implied by s.4(1). Mr Henao did not apply for a stay therefore I consider that Mr Molloy’s submission in that regard is misconceived.

I consider that Clause 33(2) is in mandatory terms. It follows therefore that parties must go to arbitration. I do not accept that any meaningful dialogue had been pursued to reach arbitration. Even if I accept that the Department of Education had refused to go to arbitration, it cannot in my view, come to Court through the State, to seek the Court’s determination without having first exhausted the arbitration procedure stipulated by Clause 33.

I am of the view that the parties must submit to the jurisdiction of an arbitrator, and I do not see how this matter can progress any further, if it ever does, without first submitting to arbitration.

It was apparent this morning that the defendant has not waived its right to arbitration therefore that procedure is still available. I hold that, where a contract between parties contain an arbitration clause which stipulates that in the event of a dispute or disagreement, the parties must go to arbitration, the parties must, in accordance with that provision submit to arbitration. A party cannot exercise its right to sue without exhausting that procedure. I therefore rule that the parties must submit to arbitration to resolve this dispute and failing that, the plaintiff may exercise its right to sue.

The second issue relate to s.5 of Claims By and Against the State Act, which deals with notice. The law in this area is clear and I do not intend to spend much time on this issue.

I have in several cases in the National Court, held that the giving of a notice of intention to make a claim against the State is a condition precedent to instituting a legal action against the State.

Mr Molloy referred to the decision of Woods, J in Tau Liu v. Paul Tohian, N1615, unreported, 26th September 1997, however as I said this morning, that case is not the law. In fact in Paul Tohian v. Tau Liu, SC566, unreported, 27th April 1998, the Supreme Court on 27th August 1998, overruled the decision of Justice Woods in Tau Liu v. Paul Tohian.

The circumstances in the present case, from counsel’s submissions and the documents handed up in Court are that the s.5 notice by the plaintiff was served together with the originating summons.

There is no dispute that the notice is dated 8th February 2001. The originating summons was sealed and issued on 27th January 2001. There is no affidavit of service, however even if I accept counsel’s evidence from the bar table that the s.5 notice was served with the originating summons, that fact does not bring the giving of notice within the meaning of s.5 of the Claims By and Against the State Act.

Contrary to Mr Molloy’s submissions, it is trite law that the s.5 notice, being a condition precedent to the issue of proceedings, must be given first before the actual filing of the originating process. While I accept that notice must be given within 6 months from the date of occurrence of the act giving rise to the court proceeding, it is now settled that the s.5 notice must be given before a writ is issued. In the present case, the originating summons was issued on 21st January 2001, while the notice was dated 8th February 2001. It is obvious that he plaintiff has not strictly complied with the requirements of s.5 of the Claims By and Against the State Act.

The Supreme Court in Paul Tohian’s case considered that s.5 is similar to s.54 of the Motor Vehicle (Third Party Insurance) Act and followed the Supreme Courts decision in Rundle v. MVIT [1988] PNGLR 20.

In relation to the original National Court proceedings before Woods, J, the Supreme Court in the appeal said at page 2 of its judgment:

"In our view the trial Judge was correct in holding that the provision under consideration is similar to s.54 of the MVIT Act. However, he fell into error when he did not follow the reasoning in Rundle v. MVIT. The purpose of the requirement to give notice remains the same whether or not the notice is required to be given within 6 months or within such period as may be granted by the Principal Legal Advisor or the Court. It is clear to us that the notice of intention to make a claim is a condition precedent to issuing a writ of summons in all circumstances."
(my emphasis.)

It is the judgment of this Court therefore that the plaintiff has not complied with the requirement of s.5 of the Claims By and Against the State Act. Consequently, I will allow the application by the defendant, and strike out the plaintiff’s originating summons.

While I acknowledge that the plaintiff was not served with the defendant’s notice of motion and affidavit of John Kumura, both filed on 21st March 2001 until this morning, it is my view that, even if service had been properly effected, the result will not be any different.

For these reasons, the proceedings are dismissed with costs to the defendant.
____________________________________________________________________
Lawyer for the Plaintiff	:	Pacific Legal Group
Lawyer for the Defendant	:	Henaos Lawyers and Solicitor General