SC1001

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCA 147 of 2008

LAVONGAI EQUITIES LIMITED
Appellant

V

CLUB 21 LTD
Respondent

Waigani: Mogish J, Yagi J, Ellis J
2009: 25 November, 4 December

JUDGMENT

APPEALS – arguments raised for the first time on appeal

ARBITRATION – allegation of misconduct – objectives of arbitration 

COSTS – conduct warranting order for costs on solicitor-client basis

Cases cited:

Fly River Provincial Government v Pioneer Health Services Ltd (2003) SC705
Chief Collector of Taxes v Bougainville Copper Limited [2007] PGSC 1; SC853
Brem Maju (PNG) Limited v Bee Constructions Limited [2006] PGSC 17; SC852

Counsel:

Mr J Parina, for the Appellant
Mr F Waleilia, for the Respondent

4 December, 2009

1. BY THE COURT: This appeal challenges a decision of the National Court delivered on 20 November 2008 which resulted in an arbitrator's determination being treated as a judgment of that court with associated orders in relation to the arbitrator's fees, interest and costs. The appellant was the plaintiff in those proceedings.

2 In order to understand the issues raised, it is necessary to set out the sequence of events relevant to the proceedings.
 
Date	Description	
		
03 May 96	Appellant leased premises to Respondent	
Jan 03	Respondent began to question electricity charges	
24 Mar 04	Electricity disconnected	
18 May 04	Respondent vacated premises	
20 Oct 04	Writ of summons filed	
		
20 Dec 04	Amended Defence & Cross Claim filed	
08 Jul 05	Consent orders for referral to arbitration	
23 Feb 06	Letter from Respondent's lawyer to arbitrator setting out ten proposed issues for determination	
10 Mar 06	Lawyers met with arbitrator	
		
15 Dec 06	Respondent's initial submissions sent to arbitrator	
31 Dec 06	Sequoia Limited and nine other companies amalgamated as Lavongai Equities Limited	
09 Mar 07	Respondent's amended submissions submitted	
23 Apr 07	Arbitrator's issued initial determination	
		
16 Jul 07	Appellant purported to reject determination	
16 Jul 07	Arbitrator proposed meeting on 24 Jul 07	
24 Jul 07	Respondent's lawyer attended that meeting
but Appellant's lawyer failed to attend	
21 Aug 07	Arbitrator's issued revised determination	

15 Jul 08	Respondent's notice of motion filed	
18 Jul 08	Appellant's notice of motion filed	
09 Oct 08	Hearing in National Court	
20 Nov 08	Judgment of National Court	
30 Dec 08	Notice of Appeal filed	

3. The appellant alleged in the statement of claim that the respondent defaulted in paying rent from 19 March to 17 May in 2004, defaulted in paying outgoings, notably electricity, from 20 January to 6 April in 2004 and owed a balance of K80,781.58.

4. In its amended defence and amended cross claim, the respondent claimed it was wrongfully forced out of the premises in March 2004 when the appellant's real estate agent caused the electricity supply to be disconnected and was locked out of the premises in May 2004. In the amended cross claim it was alleged that the respondent was overcharged for electricity, that the disconnection of the electricity supply amounted to constructive eviction and that the appellant retained various assets of the respondent.

5 Three affidavits were filed in support of the respondent's case. In his affidavit sworn 26 July 2006, Karo Veu explained how electricity metering works at the premises. Anthony Temo, the respondent's sole shareholder, swore two affidavits. In the first, sworn 7 April 2006, Mr Temo annexed a copy of the lease and indicated that from November 2003 to March 2004 he began to reduce rent payments to set off the overcharging for electricity. The lease contained an arbitration clause in the following form:

 "12 Disputes

In any dispute or proceeding between the parties, both parties shall act reasonably and without delay and make all admissions necessary to enable the real issue to be decided by the person specified in Item 16 of the Schedule to whom the subject matter of the dispute shall be referred who shall act as an Arbitrator and failing a decision by the Arbitrator, it should be pursued in the appropriate Courts in Papua New Guinea."

6 Item 16 in the schedule in the Lease nominated a particular person to be the arbitrator. Mr Temo's second affidavit, sworn 1 February 2008, set out the history of the litigation.

7 The appellant also filed three affidavits. Vagi Jack, a legal clerk employed by the appellant's lawyers, swore an affidavit on 18 July 2008 which suggested that the National Court file in relation to the proceedings instituted by the appellant did not contain any correspondence from the arbitrator to the Registrar. Secondly, Mr Parina swore an affidavit the same day to which he annexed the initial determination of the arbitrator and the 16 July 2007 letter of complaint from the appellant's lawyer but failed to disclose either the same day reply from the arbitrator proposing a meeting with the legal representatives of the parties to deal with the issues raised or the failure of the appellant's lawyers to attend that meeting. The third affidavit is quite extraordinary. It is an affidavit of the managing director of the appellant's real estate agent, Monica Salter, sworn 9 April 2008 which sets out a partial history of the arbitration and then expresses the inadmissible opinion that the initial determination of the arbitrator "greatly prejudices" the appellant's claim in the National Court proceedings.

8 On 29 July 2008 the arbitrator filed an affidavit sworn the previous day. In that affidavit, the arbitrator set out the history of his involvement in this matter and the relevant events have been included in the chronology set out earlier.

9 Although the Notice of Appeal listed 11 grounds of appeal, at the hearing those grounds were distilled by the appellant's lawyer to three main issues: 

(1) Whether the National Court erred in failing to find that section 14(2) of the Arbitration Act (the Act) does not apply to awards made under Part II of the Act.

(2) Whether the National Court erred in failing to find that Order 8 rule 41(2)(b) of the National Court Rules does not allow the arbitrator's determination to be treated as a verdict of that court.

(3) Whether the National Court erred in failing to find that there was misconduct on the part of the arbitrator within the meaning of section 11(2) of the Act.

10 The transcript of the hearing in the National Court suggests an additional challenge based on the failure of the arbitrator to send a copy of his determination or award to the Registrar within 7 days which was said to be contrary to Order 14 rule 68 of the National Court Rules. It is sufficient to note that Order 14 rule 68 appears within Division 8 of Order 14 and Order 14 rule 61 provides that Division 8 only applies when an order is made under section 13 of the Act which is not the case here.

Section 14(2) of the Arbitration Act

11 It is not uncommon for parties to agree that any dispute which arises between them will be resolved by arbitration. In such cases, the written agreement includes a clause giving effect to that agreement, commonly referred to as an arbitration clause. Another way for parties to agree to have their dispute determined by arbitration is for them to agree to that course after a dispute arises instead of beforehand. Either way, the parties are said to have made a submission in that they have agreed to submit their present or future dispute(s) to arbitration.

12 There are three ways a matter can be referred to arbitration. First, the parties may proceed with that course, without any court proceedings being commenced. Secondly, one of the parties may commence court proceedings. In such a case, the other party is entitled to have those proceedings stayed and the matter referred to arbitration in order to give effect to the agreement of the parties embodied in the arbitration clause. Part II of the Act, which includes sections 2 to 12, covers such situations, which are commonly called submissions. Thirdly, court proceedings may be commenced and the court may, with or without the consent of the parties, refer the matter to arbitration. Such a situation, commonly called a reference, is covered by Part III of the Act, which covers sections 13 to 15.

13 The appellant argued that since the Consent Order made on 8 July 2005 was expressed to have been made pursuant to section 4 of the Act then the subject arbitration was a submission governed by Part II and not a reference governed by Part III with the result that the National Court erred in ordering that the 21 August 2007 determination of the arbitrator be treated as a verdict of the court pursuant to section 14(2) of the Act.

14 Given that section 12(1) provides the court with a discretion to permit an award on a submission to be enforced in the same manner as a judgment of the court to the same effect, the appellant's argument had, at best, nothing more than technical merit since if the court did err in making an order pursuant to section 14(2) of the Act then such an order could have been made under section 12(1) of the same Act. Moreover, the fact that the parties consented to arbitration does not necessarily mean it was a submission because, under section 13 of the Act, a reference can be made when both parties consent.

15 As a result, this court's time was taken up because either the 8 July 2005 Consent Order should have referred to section 13 instead of section 4 or because the orders made when judgment was delivered on 20 November 2008 should have referred to section 12(1) instead of section 14(2). 

16 This ground of appeal should not be upheld since this question was not raised in the court below. A consideration of the transcript of the 9 October 2008 hearing in the National Court reveals that to be the case. Since the reference to section 14(2) in the orders made in the court below derives from that which appeared in paragraph 2 of the respondent's 15 July 2008 motion, the appellant was on notice well prior to the hearing that the respondent was relying on a statutory provision which the appellant now asserts involved an error. The claim that section 14(2) was inappropriate to the point that it involved an error of law could and should have been made in the National Court. It is well established that arguments should not be raised for the first time on appeal: Fly River Provincial Government v Pioneer Health Services Ltd (2003) SC705; Chief Collector of Taxes v Bougainville Copper Limited [2007] PGSC 1; SC853 (2 February 2007). 

17 There is no injustice to either party in letting the record in the National Court stand since that court had the power to make the order challenged, albeit under a different section of the same statute.

Order 8 rule 41(2)(b) of the National Court Rules

18 In its 15 July 2008 motion, in addition to relying on section 14(2) of the Act, the respondent referred to Order 8 rule 41(2)(b) of the National Court Rules when requesting that the arbitrator's determination be treated as a verdict and judgment of that court in relation to the respondent's cross claim.

19 On behalf of the appellant, it was submitted that Order 8 rule 41(2)(b) did not support the orders obtained "under paragraphs 3, 4, 5 and 6 of the Notice of Motion". In fact, Order 8 rule 41(2)(b) was only referred to in paragraph 2 of the respondent's motion. Within Order 8, Division 3 deals with cross-claims and rule 41(2)(b) was only referred to in paragraph 2 of the respondent's motion. 

20 Within Order 8, Division 3 deals with cross-claims. Within Division 3, rule 41 deals with directions. Within rule 41, sub-rule 41(2) permits a party to move the court for directions in relation to a cross claim. Within sub-rule 41(2), paragraph (b) provides the court with the power to "order that any claim, question or issue in or arising on the cross-claim be tried in such manner as the Court may direct". Paragraph (g) provides the court with the power to "direct the entry of such judgment as the nature of the case may require".

21 Thus, even if it could be said that the court did err in making an order pursuant to Order 8 rule 41(2)(b) of the National Court Rules then such an order could have been made under Order 8 rule 41(2)(g) of those Rules. Thus, the effect of the appellant's case under this heading amounts to no more than a claim that the orders should have referred to Order 8 rule 41(2)(g) instead of Order 8 rule 41(2)(b).

22 Again, since the reference to Order 8 rule 41(2)(b) in the orders made in the court below derives from that which appeared in paragraph 2 of the respondent's 15 July 2008 motion, the appellant was on notice well prior to the hearing that the respondent was relying on a statutory provision which the appellant now asserts involved an error. The claim that Order 8 rule 41(2)(b) was inappropriate to the point that it involved an error of law could and should have been made in the National Court. 

23 There is no injustice to either party in letting the record in the National Court stand since that court had the power to make the order challenged, albeit under a different paragraph of the same sub-rule. 

Allegation of misconduct

24 It should be noted that the use of the word "misconduct" in relation to an arbitrator commonly denotes, as it does in this case, an error and not impropriety.

25 In the course of oral argument it was made clear that the appellant's case on misconduct rested solely on the claim that the arbitrator did not address each of the ten questions that were referred to him. In his initial determination, dated 23 April 2007, the arbitrator did set out his findings and those findings were such as to indicate his views on the ten questions posed for him. When, by letter dated 16 July 2007, the appellant's lawyer purported to reject that determination, the arbitrator sensibly nominated a date of 24 July 2007 for the parties to meet with him to discuss his initial determination. Following the failure of the appellant's lawyer to extend the arbitrator the courtesy of attending that meeting, a final determination, dated 21 August 2007, was issued. A reading of that document reveals that it did adequately answer each of the ten questions posed for consideration by the arbitrator and, for that reason alone, this basis of the appeal must be rejected.

26 The appellant's attack was directed towards the initial determination of the arbitrator, dated 23 April 2007. In its written submissions, the appellant referred to that determination and the 16 July 2007 letter of complaint sent by the appellant's lawyer but did not make any mention of (1) the arbitrator's same day reply which provided an opportunity for the parties' lawyers to meet with the arbitrator to discuss that determination, (2) the failure of the appellant's lawyer to attend that meeting, or (3) the revised determination. 

27 There is a second reason why the allegation of misconduct pursuant to section 11(2) of the Act should be rejected, namely that the appellant did not make the arbitrator a party to the proceedings or take other steps in order to afford him the opportunity to be heard, as required by the decision of this court in Brem Maju (PNG) Limited v Bee Constructions Limited [2006] PGSC 17; SC852 (1 September 2006) at paragraph 12 and, even in the absence of that decision, by the principles of natural justice. Indeed, the transcript of the hearing on 9 October 2008 reveals that the appellant's lawyer submitted to the National Court that the 28 July 2008 affidavit of the arbitrator was inadmissible! 

Motions in the National Court

28 During the hearing of the appeal, the appellant's lawyer suggested that only the respondent's 15 July 2008 motion had been dealt with and that the appellant's 18 July 2008 motion was yet to be determined. It was suggested that the matter should be remitted to the National Court for the hearing of the appellant's motion. That submission is rejected. 

29 The respondent's 15 July 2008 motion sought to have the court adopt the arbitrator's 21 August 2007 determination and finalise the National Court proceedings while the appellant's 18 July 2008 motion sought to have that determination set aside, the stay order lifted so as to allow the National Court proceedings to continue. The orders sought in those competing motions were so diametrically opposed that grating the orders sought in the 15 July 2008 motion necessarily involved a rejection of the orders sought in the 18 July 2008 motion. 

30 While it may have been desirable for both motions to be heard together, a consideration of the transcript of the 9 October 2008 hearing in the National Court and the orders made on 20 November 2008 in relation to the 15 July 2008 motion make it clear that the orders sought in the appellant's 18 July 2008 motion were implicitly rejected and should not be permitted to be further ventilated, either in this court or in the National Court.

Conduct of the Appellant

31 There are a number of aspects of the conduct of the appellant and/or its lawyer which warrant mention by way of disapproval:

(1) The appellant overcharged the respondent for electricity.

(2) Instead of admitting that error, time was wasted and costs incurred.

(3) There was a failure to participate in the process of finalising the issues for determination.

(4) The attitude to the discovery of documents was uncooperative.

(5) There was a failure to lodge written submissions.

(6) There was a failure to attend a meeting set by the arbitrator.

(7) There has been a failure to pay the fees of the arbitrator.

(8) There was a failure to accord the arbitrator natural justice when an allegation of misconduct was made in the National Court.

(9) This appeal was instituted and pursued on technical grounds.

(10) The appellant's lawyer was not present at 9.48am for a 9.30am hearing in the National Court on 9 October 2008 and the court adjourned until 10am in order for him to arrive.

(11) The appellant's lawyer did not arrive at the hearing of the appeal on 25 November 2009 in the Supreme Court, which was listed to commence at 1.30pm, until 1.55pm.

32 The failure of a lawyer to attend both the National Court and the Supreme Court on time reflects not only a lack of respect for those courts but also a failure to adequately protect the interests of the client of that lawyer.

33 It should also be observed that the clause 12 of the lease agreement between the appellant and the respondent obliged the appellant (and the respondent, of course) to "act reasonably and without delay and make all admissions necessary to enable the real issue to be decided by [the arbitrator]". That obligation rested not only on the appellant but also on its servants and agents, notably its lawyer.

Arbitration

34 It is important for lawyers to realise that arbitration is a form of alternative dispute resolution which has the objectives of being quick, streamlined and less expensive by comparison with litigation through the courts and of producing an outcome which is less susceptible to challenge on appeal. The failure of a lawyer or the client of that lawyer to cooperate in the arbitral process cannot be condoned and the courts should not allow pettifoggers to hamper trade and commerce by preventing the achievement of the objectives of arbitration. 

Costs

35 It is to be noted that the orders made by the National Court included an order that the appellant pay the costs of the respondent on a solicitor-client basis. There was no challenge to that order. Having regard to that order and the eleven matters set out earlier in paragraph 31, the costs of this appeal should also be made payable on a solicitor-client basis.

Decision

36 For the reasons already indicated, the orders of the court are as follows:

1	Appeal dismissed.

2	Orders of the National Court confirmed.

3	The Appellant is to pay the costs of the Respondent on a solicitor-client basis.

Orders accordingly.
__________________
O'Briens Lawyers: Lawyer for the Appellant
Posman Kua Aisi: Lawyer for the Respondent