Papua New Guinea v Sandline International

• Jurisdiction: Queensland
• Court: Supreme Court of Queensland (Australia)
• Judgment Date: 30 March 1999
• Date: 30 March 1999

Australia, Supreme Court of Queensland.

(Ambrose J)

In the Matter of the Commercial Arbitration Act 1990 and In the Matter of an Application pursuant to Section 38 thereof by the Independent State of Papua New Guinea

and

Sandline International Inc.1

Arbitration International arbitration Appeal from arbitration tribunal to courts of seat of arbitration Limits on appellate jurisdiction Appeal for manifest error of law Whether extending to appeal based upon alleged error in applying foreign law or international law

Relationship of international law and municipal law International law as part of municipal law Whether the same in all States Whether differences in the rules of international law which form part of the laws of different States Whether those rules given effect in different ways The law of Queensland

Summary: The facts:On 9 October 1998 an arbitration tribunal constituted under the UNCITRAL Rules and having its seat in Cairns, Queensland (although meeting in London) rendered an interim award in favour of Sandline International Inc. (Sandline) (p. 552 above). Papua New Guinea (PNG) applied to the Supreme Court of Queensland for leave to appeal, under Section 38 of the Commercial Arbitration Act 1990,2 on a number of questions of law and to have the Interim Award set aside or varied.3 PNG contended that the Interim Award contained a manifest error of law in that the arbitration tribunal had applied as part of English law, the proper law of the contract, certain principles said to form part of international law and in so doing had erred both in its decision as to the content of international law and in its statement of the relationship between international law and English law. Sandline applied to have the question whether the term manifest error of law in Section 38(5) was confined to errors in respect of the law of Queensland determined as a preliminary issue.

Held:The application for leave to appeal against the Interim Award was dismissed.

(1) The term manifest error of law in Section 38(5) of the Commercial Arbitration Act referred to errors of Queensland law and not errors of foreign law. Since foreign law was a question of fact, any error which the arbitration tribunal might have made in relation to the law of England or the law of PNG was an error of fact which did not fall within the jurisdiction of the Queensland courts. It was irrelevant that the content of English law had not been proved by expert evidence before the tribunal but had, by consent, been treated as a matter of argument (pp. 57587).

(2) PNG's argument that international law was a law of general application and was precisely the same in England as in Queensland had to be rejected. It had not been demonstrated that the domestic laws of foreign countries would be construed by the courts of those countries in such a way that they always included precisely the same rules of international law or that those rules would be given effect in precisely the same way. In particular, the extent to which English courts would give effect to rules of international law depended upon the compatibility of those rules with the statutes of the United Kingdom (pp. 5878, 590).

The following is the text of the judgment of the Court:

1. This is an application by Sandline International Inc. (Sandline) for an order pursuant to RSC O. 39 r. 12 that

2. It is unnecessary to refer to other relief sought relating to costs.

3. On 9 October 1998 an arbitral tribunal adjudged that the Independent State of Papua New Guinea (PNG) was obliged to pay Sandline US $18 million plus interest under an agreement they made in PNG on 31 January 1997.

4. RSC O. 39 r. 12 provides inter alia

5. On 22 December 1998, an order was made upon Sandline's application that PNG provide security for costs of its application pending before the court for leave to appeal against the interim arbitral award of 9 October 1998 pursuant to s. 38(1) of the Commercial Arbitration Act. The history of the events that led to that application by PNG to this Court are sufficiently set forth in the reasons for that order and I will not re-state them.

6. It suffices to say upon this application that on 31 January 1997, PNG entered a written agreement with Sandline whereunder Sandline was required to provide military services, advisers and equipment in PNG; the military advisers to be provided by Sandline were to be sworn in as Special Constables of PNG and provide services under the joint supervision of an officer of Sandline and the Commander of the general Armed Forces in PNG. The military services were to be used in an effort to overcome rebel/guerilla forces operating in the Bouganville area.

7. In the course of the performance of the agreement there was a change of policy in PNG and a repudiation of that partly performed agreement. Moneys then due from PNG under the terms of the agreement were not paid to Sandline which took its claim for payment to arbitration pursuant to cl. 6 of its agreement with PNG.

8. Clause 6 provides

Applicable law

9. It appears from the material that initially PNG sought to defend Sandline's claim on the ground that the performance of the contract had been frustrated rather than repudiated by PNG.

10. The site for the arbitration at the suggestion of PNG was agreed to be Cairns in the State of Queensland. Cairns is a relatively short distance by flight from PNG.

11. When the hearing of the arbitration commenced, PNG abandoned its defence based upon frustration and sought and was granted leave to deliver a new defence alleging that the agreement was unenforceable because it was illegalhaving regard to the terms of the Constitution of PNG and various other pieces of domestic legislation of that independent State.

12. On 10 June 1998 the further hearing of the arbitration was adjourned to London to permit Sandline to meet this new defence. In fact the whole of the argument upon the issue of illegality was conducted in London over a period of 3 days on 6, 7 and 8 July 1998. Argument on the question of illegality which involved detailed analysis of English legal authorities, textbooks and PNG statutes etc. canvassed by both sides is recorded in 230 pages of transcript. The tribunal reserved its decision which eventually was delivered at Cairns, the city selected as the site of the arbitration, on 9 October 1998. By agreement of the parties that decision was in the form of an interim award.

13. Each of the arbitrators was a distinguished retired appellate judgeone from England, one from Australia and one from New Zealand. As such, undoubtedly the parties had confidence in the familiarity each had with the laws of England and with Public International Law.

14. Perhaps that explains why no evidence whatever was called before them as to the content of the laws of England or Public International Law as part of those laws, relevant to the determination of the defence raised by PNG that the agreement was unenforceable for illegality.

15. The award which PNG challenges, deals at significant length with its defence of illegality which the Tribunal rejected. It is clear from the record that the structure of the PNG defence of illegality rested on two foundations

1. That the agreement was illegal under the laws of Papua New Guinea because it contravened not merely the Constitution of that Independent State but also certain other domestic statutory laws.

2. That international law applied as part of the laws of England in a case such as that before the Tribunal, treated as illegal the agreement between Sandline and PNG and therefore unenforceable according to the laws of England.

16. Both matters were strenuously argued by each of the parties to the arbitration and those arguments are fully recorded in Ex. HW 18 to the affidavit of Harold Werksman sworn 11 March 1999.

17. It appears that there is room for argument whether or not in fact the agreement was illegal according to the laws of PNG as a Sovereign State. The Tribunal however declined to rule on that matter in the following terms

18. Under cl. 9 of the award (English law), the Tribunal dealt at length with the contentions of PNG on the second foundation upon which its defence of illegality was supportedthat if the agreement was illegal under the laws of PNG English law would not treat it as a valid agreement and would not enforce it. The Tribunal observed

The reference to statute law in this passage is obviously a reference to English statute law and in the present case, could not embrace the statute law of PNG.

19. The award continues

20. 10 International Law

I read the reference to a private party to mean a person not a resident or citizen of the State with which that party contracts. The Tribunal then referred to a large number of authorities and concluded

The arbitral award continues

21. I will refrain from citing further long passages from the award which touch also upon the fact that PNG had indeed affirmed the contract after the policy change in PNG had resulted in Sandline not being permitted to provide the services it had agreed to provide; it had alleged initially by way of a defence that the performance of the contract had been frustrated and indeed on this contention had counter-claimed a return of moneys previously paid by it to Sandline. The Tribunal observed towards the end of its consideration of the question of illegality

Should leave to appeal be granted, obviously Sandline would rely upon this part of the award.

22. In paragraph 12 of its award, headed Conclusion, the Tribunal held

23. I have stated sufficiently I think the background of the matter and relevant parts of the award involving the questions of law in respect of which PNG seeks leave to appeal.

24. PNG has indicated that if it is given leave to appeal under s. 38(4)(b) it proposes to appeal on the following questions of law under s. 38(2) and to seek the following relief (in the alternative):

AND TAKE FURTHER NOTICE that the questions of law to be determined in this appeal are:

25. The...