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Ekanda v Rimua [2015] PGNC 268; N6174 (3 December 2015)

N6174


PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]


WS 1072 OF 2008


BETWEEN:
SIMON EKANDA for himself and as a landowner representative and the other landowner representatives of Petroleum and Gas Fields known as HIDES, ANGORE, JUHA, KUTUBU, GOBE and MORAN
First Plaintiffs


AND:
HENRY AKI & JOHNSON TIA for themselves and as landowner representatives and other landowner representatives
Second Plaintiffs


AND:
RENDLE RIMUA, in his capacity as the Secretary for the Department of Petroleum & Energy
First Defendant


AND:
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Second Defendant


AND:
ESSO HIGHLANDS LIMITED, ESSO PNG JUHA LIMITED, AMPOLEX (PAPUA NEW GUINEA) LIMITED, AMPOLEX (HIGHLANDS) LIMITED, AMPOLEX (PNG PETROLEUM) INC., MERLIN PACIFIC OIL COMPANY LIMITED, OIL SEARCH LIMITED, OIL SEARCH (TUMBUDU) LIMITED, OIL SEARCH (PNG) LIMITED, MERLIN PETROLEUM COMPANY, PETROLEUM RESOURCES KUTUBU LIMITED, PETROLEUM RESOURCES GOBE LIMITED, AGL GAS DEVELOPMENTS (PNG) Pty LIMITED, SANTOS HIDES LIMITED, LAVANA LIMITED, EDA OIL LIMITED
Third to Eighteenth Defendants




Waigani: Hartshorn J.
2014: 11th December,
2015: 3rd December


Questions heard separately – Order 10 Rule 21(a) National Court Rules


Cases cited:
Papua New Guinea Cases


Re Moresby Northeast Election Petition; Patterson Lowa v. Goasa Damena [1977] PNGLR 429
Herman Gawi v. PNG Ready Concrete (1983) unnumbered, unreported
Tolom Abai v. The State (1995) N1402
Titi Christian v. Rabbie Namaliu (1996) unreported OS No. 2 of 1995, 18.7.06
Bougainville Copper Ltd v. Commissioner General of Internal Revenue and Chief Collector of Taxes (2008) N3331
Madang Timbers Ltd v. Valentine Kambori (2009) SC1000
Rural Development Bank Ltd v. Kond (2010) N5876
Kond v. National Development Bank Ltd (2015) SC1432
Safe Lavao v. State [1978] PNGLR 15


Overseas Cases


Arnold v. National Westminster Bank PLC [1991] 2 A.C. 93
Blair v. Curran [1939] HCA 23; 62 CLR 464
Hunter v. Chief Constable of the West Midlands Police [1981] UKHL 13; [1982] A.C. 529
Mills v. Cooper [1967] 2 QB 459
Project Blue Sky Inc. v. Australian Broadcasting Authority [1998] HCA 28
Reg v. Humphreys [1977] A.C. 1


Counsel:


Mr. J. Haiara, for the Plaintiffs
Mr. J. Lome, for the First and Second Defendants
Mr. R. J. Webb S.C. and Mr. A. Mana, for the Third to Eighteenth Defendants


3rd December, 2015


1. HARTSHORN J: This is a decision on certain questions that were heard separately. The court ordered that these questions be determined separately from and prior to any other issues in the proceeding, pursuant to Order 10 Rule 21(a) National Court Rules.


Background


2. It is pleaded that amongst others, the plaintiffs are landowner representatives representing clans of the areas contained in and known as Hides 1, 2, 3 and 4, Angore, South East Mananda, Moran and Juha Fields (plaintiff clan areas).


3. The State, a defendant, entered into an agreement with the third to eighteenth defendants on 22nd May 2008 (Gas Agreement) for the purpose of commercial production of natural gas in various locations in the Southern Highlands Province. Various licences were issued to the third to eighteenth defendants under the Oil and Gas Act 1998 (OG Act) in respect of the plaintiff clan areas.


4. The plaintiffs seek declarations to the effect that the Gas Agreement is void, or that parts of it are void, or that parts of it are ineffective. Pursuant to the Gas Agreement the PNG LNG Project has been developed and is now being operated by the third to eighteenth defendants.


5. The grounds upon which the plaintiffs claim that the Gas Agreement or parts of it are void, are that it was made without compliance with mandatory provisions of the OG Act and the Organic Law on Provincial and Local-level Governments (Organic Law).


6. The questions that this court ordered to be heard separately are:


6.1 Whether compliance with the requirements of s. 115 Organic Law is mandatory or directory. (Statement of Claim 25 and 26).


6.2 Whether in light of the answer to question (1) above, an agreement made by the State pursuant to s. 184 OG Act without compliance with s. 115 Organic Law is void. (Statement of Claim 25).


6.3 Whether compliance with the requirements of s. 52 (2) OG Act is mandatory or directory. (Statement of Claim 26).


6.4 Whether s. 52 (2) OG Act includes a requirement that Provincial and Local Level Governments liaise fully with affected landowners. (Statement of Claim 27).


6.5 Whether in light of the answers to questions (3) and (4) above, an agreement made by the State pursuant to s. 184 OG Act without compliance with s. 52 (2) OG Act is void or of no force or effect. (Statement of Claim 26 and 27).


6.6 Whether clause 15 of the Gas Agreement diminishes or removes the requirements of s. 47 OG Act. (Statement of Claim 28 (1)).


6.7 Whether clause 10.9 (b) of the Gas Agreement diminishes or negates s. 175 and s. 179 OG Act (Statement of Claim 28 (2)).


6.8 If the answer to either of the questions at (6) and (7) above is “yes”, is either of clause 15 or clause 10.9 (b) of the Gas Agreement illegal, a nullity and of no force or effect. (Statement of Claim 29).


6.9 Whether s. 48 OG Act requires that the National Economic and Fiscal Commission (NEFC) prepare a cost and benefit analysis in respect of each petroleum project for which a development forum is convened pursuant to s. 48 (1) prior to it being thus convened. (Statement of Claim 28 (3)).


6.10 Whether s. 179 OG Act requires that the National Gas Corporation (NGC) be involved in any agreement executed by the State pursuant to s.184 OG Act. (Statement of Claim 28 (4)).


6.11 If the answer to either of the questions at (9) and (10) above is “yes” whether the Gas Agreement is illegal, a nullity and of no force or effect (Statement of Claim 30), what orders should be made pursuant to Order 10 Rule 24.


First question


Whether compliance with the requirements of s. 115 Organic Law is mandatory or directory (Statement of Claim 25 and 26)


7. Section 115 is as follows:


“115. Control of natural resources.


(1) Where there is a proposal to develop a natural resource in a province or provinces, the appropriate National Minister designated by the National Executive Council shall consult with the Provincial Government in the province or provinces where the natural resource is situated.

(2) The National Government, and the Provincial Governments and the Local-level Governments in the province or provinces where the natural resource is situated, shall liaise fully with the landowners in relation to the development of the natural resources.

(3) In this section, unless the contrary intention appears, "natural resource" has the same meaning as it has in Section 98.”


8. The plaintiffs’ submit that compliance is mandatory and as Kandakasi J. has ruled as such, the matter is res judicata.


9. Counsel for the plaintiffs in his reply referred to p26 line 34 of the transcript in evidence where Kandakasi J. said that after he had the opportunity to look at s. 115 (2) Organic Law, that there is a specific mandatory obligation imposed on amongst others, the State. It was submitted that this is evidence that the National Court had dealt with the matter. Further, there was an unsuccessful application for leave to appeal the decision of Kandakasi J. to the Supreme Court.


10. The defendants’ submit as to the res judicata argument that from a perusal of p29 of the transcript, it is clear that Kandakasi J. is considering whether s. 115 (2) grants locus standi to the plaintiffs and not whether s. 115 is mandatory or directory.


Consideration


Res Judicata


11. As to the doctrine of res judicata, I gave consideration to it in Bougainville Copper Ltd v. Commissioner General of Internal Revenue and Chief Collector of Taxes (2008) N3331. I referred to the doctrine being recognised in Schedule 2.8 (1) Constitution, and to the Supreme Court case of Titi Christian v. Rabbie Namaliu (1996) unreported OS No. 2 of 1995, 18.7.06, and the two National Court decisions of Tolom Abai v. The State (1995) N1402 and Herman Gawi v. PNG Ready Concrete (1983) unnumbered, unreported. In Herman Gawi (supra), Bredmeyer J. reproduced the following passage from The Doctrine of Res Judicata by Spencer-Bower and Turner 1969 2nd ed p1, as in his view it stated the law clearly and succinctly:


“In English jurisprudence a res judicata, that is to say a final judicial decision pronounced by a judicial tribunal having competent jurisdiction over the cause or matter in litigation and over the parties thereto, disposes once and for all of the matters decided, so that they cannot afterwards be raised for re-litigation between the same parties or their privies. The effect of such a decision is twofold. In the first place, the judicial decision estops or precludes any party to the litigation from disputing against any other party thereto in any other litigation, the correctness of the earlier decision in law and fact. The same issue cannot be raised again between them, and this principle extends to all matters of law and fact which the judgment decree or order necessarily established as the legal foundation or justification of the conclusion reached by the Court. In the second place, by virtue of the decision the right or cause of action set up in the suit is extinguished, merging in the judgment which is pronounced. Transit in rem judicatam. The result is that no further claim may be made upon the same cause of action in any subsequent proceedings between the same parties or their privies.”


12. Bredmeyer J. goes on to consider the six probanda postulated by Turner, all of which must be established by the party setting up res judicata. For our purposes they are:


a) was the earlier decision a judicial decision?

b) was the judicial decision pronounced?

c) did the judicial tribunal have competent jurisdiction?

d) was the judicial decision final?

e) did the judicial decision involve a determination of the same question?

f) are the parties the same?


13. When the above are applied to this case, all but two appear satisfied. The fourth probanda, that the judicial decision is final, is not satisfied. The decision of Kandakasi J. was a decision concerning whether the first and second defendants should be permitted to amend their defence. It was not decisive of the suit and is therefore an interlocutory and not a final decision. In addition, the fifth probanda, whether the judicial decision involved a determination of the same question; is not satisfied. As mentioned, the decision of Kandakasi J. was concerned with whether the first and second defendants should be permitted to amend their defence. It was not a substantive determination of whether compliance with the requirements of s. 115 Organic Law is mandatory or directory. Consequently, as all of the six probanda referred to have not been established by the plaintiffs, the defendants are not precluded by virtue of the doctrine of res judicata, as alleged by the plaintiffs.


Issue estoppel


14. The plaintiffs also rely upon the principle of issue estoppel. Again in Bougainville Copper v. Commissioner General (supra), I gave consideration to the principle. I referred to the following statement concerning issue estoppel of Diplock L.J. in Mills v. Cooper [1967] 2 QB 459 at pp 468-469:


“That doctrine, so far as it affects civil proceedings, may be stated thus: a party to civil proceedings is not entitled to make, as against the other party, an assertion, whether of fact or of the legal consequences of facts, the correctness of which is an essential element in his cause of action or defence, if the same assertion was an essential element in his previous cause of action or defence in previous civil proceedings between the same parties or their predecessors in title and was found by a court of competent jurisdiction in such previous civil proceedings to be incorrect, unless further material which is relevant to the correctness or incorrectness of the assertion and could not by reasonable diligence have been adduced by that party in the previous proceedings has since become available to him.”


15. The above passage was adopted and approved by the English House of Lords in Reg v. Humphreys [1977] A.C. 1, approved and applied in Hunter v. Chief Constable of the West Midlands Police [1981] UKHL 13; [1982] A.C. 529 and Arnold v. National Westminster Bank PLC [1991] 2 A.C. 93.


16. In the High Court of Australia decision in Blair v. Curran [1939] HCA 23; 62 CLR 464 at 531-533, Dixon J said as to res judicata and issue estoppel:


“The distinction between res judicata and issue-estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order.

Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded.

.....

The difficulty in the actual application of these conceptions is to distinguish the matters fundamental or cardinal to the prior decision or judgment, decree or order or necessarily involved in it as its legal justification or foundation from matters which even though actually raised and decided as being in the circumstances of the case the determining considerations, yet are not in point of law the essential foundation or groundwork of the judgment, decree or order.”


17. Further, in Cross on Evidence, 7th Australian ed, J.D. Heydon (2004) at
par 5080, it is stated that:


“Only a decision about a matter which it was necessary to decide - a decision which is fundamental or cardinal to the judgment - can create an issue estoppel. Hence it is necessary to understand what the author of the decision was required to decide.”


18. The plaintiffs’ submit that Kandakasi J. determined that the requirements of s. 115 (2) Organic Law are mandatory. From a perusal of the transcript that is in evidence, Kandakasi J. states twice that s. 115 (2) is a mandatory obligation. I am satisfied however, that he has not made a decision, but has merely made statements to that effect. If he has made such a decision however, then using the words of Dixon J., is it a decision that was fundamental or cardinal to the decision to refuse the first and second defendants to amend their defence, or was it a decision that was necessarily involved in the decision to refuse to allow a defence amendment as its legal justification or foundation from matters which even though raised and decided as being in the circumstances of the case the determining considerations, yet are not in point of law the essential foundation or groundwork of the decision to refuse a defence amendment.


19. To put it more simply, in the words of Heydon in Cross on Evidence, what was the author of the decision required to decide? It was whether a defence should be permitted to be amended. Was the decision concerning s.115 (2), if it was a decision, a matter which it was necessary to decide in determining whether a defence should be permitted to be amended?


20. From a perusal of the transcript, Kandakasi J. made his decision to refuse the defence to be permitted to be amended because it was his view that the amendments sought should have been made earlier, and because, at line 18 p29:


“..... section 115 (2) grants the plaintiffs the locus standi to bring such proceedings. ......

So, to .... allow for the defendants to raise this issue of locus standi is going to divert attention from the main issue which is whether or not the requirements of the legislation per the Organic Law and the Oil and Gas Act have been complied with. All effort should be concentrating on finding an answer to that question rather than hanging around the issues of locus standi.”


21. Whether the requirements of s. 115 (2) Organic Law are mandatory or directory, as distinct from whether s. 115 (2) grants standing, was not considered by Kandakasi J. as being an issue that was necessary to decide in determining whether the first and second defendants should be permitted to amend their defence. I am not satisfied therefore that the plaintiffs’ submission as to issue estoppel has merit. Consequently I now consider the other submissions concerning whether the requirements of s. 115 Organic Law are mandatory or directory.


Mandatory or directory


22. The only other submissions made in respect of this question on behalf of the plaintiffs were in reply. These were that the question of whether s. 115 was mandatory or directory was possibly a question for the Supreme Court to determine. That is as far as that submission went. The other submission concerned s. 116 (2) Organic Law, before its repeal, being mandatory. There is however no pleading to that effect and it is not the subject of the questions before this court for determination.


23. The defendants submit that compliance with the requirements of s. 115 Organic Law is directory. This is because first, s. 116 Organic Law provides that the detail of the consultations referred to in s. 115 (1) Organic Law, including whether there is to be any consultation at all, is to be worked out in other legislation specific to particular natural resources. Once that is recognised, it is submitted, it is evident that s. 115 cannot be a mandatory provision and no agreement made by the State will be void in the event of non-compliance with it.


24. Section 116 (1) Organic Law is as follows:


“116. Resource development process.


(1) For the purposes of Section 115, an Act of the Parliament shall make provision for—

(a) the type or types of development to which Section 115 applies; and

(b) the consultation process; and

(c) the establishment of natural resource development forums and the procedures of the forums; and

(d) the extent to which the parties may participate in the development of the natural resources; and

(e) such other matters relating to the subject as are necessary.”


25. The defendants further submit that other considerations that support the conclusion that compliance with the requirements of s. 115 Organic Law is directory are:


a) the broad range of renewable and non renewable resources that come within the expression “natural resources”;


b) the generality of the term “proposal” which is apt to include any ideas suitable for consideration no matter how undeveloped;


c) the generality of the term “consultation” including in respect of the levels within the relevant tiers of government within which consultations would occur, the form of any consultations, and the time at which they might occur;


d) the generality of s. 115 (1) highlights that it is a statement of policy in relation to inter governmental cooperation, not an inflexible procedural requirement to be followed by them in dealings with each other.


26. The principles of statutory interpretation are settled, the defendants submit. The court construes a statute purposively, including when determining whether a provision is mandatory or merely directory. The Supreme Court cases of Independent State v. Downer Construction (2009) SC979 per Gavara Nanu J at [39] – [41], Lay J at [154] - [159]; Mathias Goma v. Protect Security & Communication (2013) SC1300 per Injia CJ at [16], Cannings J at [97]; and Madang Timbers v. Kambori & Ors (2009) SC1000 at [34] - [38] are relied upon by the defendants in this regard.


Consideration


27. In my decision of Rural Development Bank Ltd v. Kond (2010) N5876, from which an appeal was dismissed: Kond v. National Development Bank Ltd (2015) SC1432, I considered whether “shall” in s. 27 Insolvency Act is mandatory or directory and noted that the question of whether a provision should be read as mandatory or directory has been considered on numerous occasions in this jurisdiction.


28. I referred to the Supreme Court case of Re Moresby Northeast Election Petition; Patterson Lowa v. Goasa Damena [1977] PNGLR 429, in which Pritchard J. referred to two English cases on this question:


“In Liverpool Borough Bank v. Turner [1860] EngR 1276; (1861) 30 L.J. Ch. 379 at p. 380 Lord Campbell said “No universal rule can be laid down as to whether mandatory enactments shall be considered directory only or obligatory with an implied nullification for disobedience. It is the duty of the courts of justice to try to get at the real intention of the legislature by carefully attending to the whole scope of the statute to be construed. “In Pearse v. Morrice (1834) 2 A. & E. 84 at p. 96, Taunton J. said that he understood “the distinction to be, that a clause is directory where the provisions contain mere matter of direction and nothing more, but not so where they are followed by such words as ‘that anything done contrary to the provisions shall be null and void to all intents’.”


and in Safe Lavao v. State [1978] PNGLR 15 His Honour cited again the passage from Liverpool Borough Bank v. Turner (supra) and then cited a passage of Lord Penzance in Howard v. Bodington [1877] UKLawRpPro 14; (1877) 2 PD 203 at 211:


“I believe, as far as any rule is concerned, you cannot safely go further than that in each case you must look to the subject-matter; consider the importance of the provision that has been disregarded, and the relation of that provision to the general object intended to be secured by the Act; and upon a review of the case in that aspect decide whether the matter is what is called imperative or only directory.”


29. In the recent Supreme Court case of Madang Timbers Ltd v. Valentine Kambori (2009) SC1000, the Safe Lavao case (supra) was referred to. The Court said:


“Pritchard J. went on to agree with two propositions. The first was that there is no universal rule which governs the question of whether the word “shall” is mandatory or directory since each case involves the court trying to ascertain the real intention of the statute. The second proposition was that in each case it is necessary to look at the subject matter, consider the importance of what has been disregarded and the general object of the Act in order to decide the issue. In concluding that the word “shall” was mandatory in that case, reference was made to not only the words of the statute but also the legislative history.


The court was also referred to the decision of the High Court of Australia in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 390-391 where it was suggested that the question to ask was whether it was the intention of the statute that an act done in breach of the provision should be invalid and, in order to discern that intention by considering not merely language of the relevant provision but the scope and object of the whole statute.”


30. I now apply the principles enunciated in the above cases to determine whether s. 115 Organic Law is mandatory or directory.


Subject matter of the Organic Law


31. The defendants submit that as its preamble states, it is the organic law which is contemplated in Part VIA Constitution. It is concerned with the establishment of Provincial and Local-level Governments as the second and third tiers of government, their functions, their removal and their re-establishment (in the event of removal).


32. The Organic Law makes detailed provision concerning these matters dealing amongst others, with the legislative and executive structures in Parts II and III. In Part IV detailed provision is made as to their administrative structures and arrangements. Part V is headed “Constitutional Supervision, Control and Accountability.” Notwithstanding this heading, Division 3 of Part V is headed “Control of Natural Resources”. Section 115 upon which the plaintiffs rely is one of the two provisions in Division 3. Division 3 is concerned with providing collaboration between all tiers of government in respect of natural resource development.


Importance of what has been disregarded


33. What is alleged as being disregarded in this instance is pleaded in paragraphs 25 and 26 of the Amended Statement of Claim. It is that the designated Minister failed to consult with the Provincial Government and the Local-level Government in whose area natural gas is located. I note here however, that s. 115 (1) only provides that the appropriate National Minister shall consult with the relevant Provincial Government and not a Local-level Government.


34. From a perusal of s. 115, it is noteworthy that it does not require the consent of the relevant Provincial Government or relevant landowners, but merely that the relevant Minister shall consult and that the National, Provincial and Local-level Governments shall liaise fully with the landowners. So s. 115 accommodates a scenario occurring where after the appropriate consultation and liaison, a proposal to develop a natural resource and development of natural resources may proceed notwithstanding opposition from the relevant Provincial Government and landowners.


General objects of the Organic Law in deciding the issue


35. The general objects of the Organic Law in regard to the control of natural resources is to provide for collaboration between National and Provincial Governments and for there to be communication with and the imparting of information to, relevant landowners, to enable the better observation of the principles detailed in s. 1 Organic Law and more specifically ss. 1 (2) (b), (3) (a) (b), (5) and (6). These principles concern amongst others, the wise use of natural resources and the equitable distribution of wealth generated therefrom, together with the protection of the environment and recognition of traditional land rights.


36. Section 115 Organic Law is the embodiment of these objects by providing for consultation between National and Provincial Governments and liaison between all tiers of government and landowners. That s. 115 is concerned with the facilitation and observation of the principles as mentioned, as distinct from imposing essential conditions, is reflected in s. 116 Organic Law. This section provides that other legislation will prescribe whether certain types of development of natural resources will be subject to s. 115 and the consultation process amongst others. So other legislation will provide the details of what is provided for in s. 115 as s. 115 does not sufficiently provide such detail.


37. To my mind this is indicative of legislation that is directory and not mandatory and not of legislation, the breach of which it was intended that an agreement made by the State would be rendered void in the event of non-compliance with it.


38. Further indications that s. 115 Organic Law is directory and not mandatory are that:


a) As mentioned, it accommodates a scenario where after appropriate consultation and liaison has occurred, a proposal to develop a natural resource and the development of natural resources may proceed notwithstanding opposition from the relevant Provincial Government and landowners. It is not likely therefore in my view, that it was intended that an agreement made by the State would be void if s. 115 was not complied with when, an agreement could proceed if s. 115 was complied with but the relevant Provincial Government and landowners opposed the proposed development;


b) The language of s. 115 is not that of a mandatory provision. For instance, s.115 does not provide that a proposal to develop a natural resource shall not be approved until there has been consultation with the Provincial Government;


c) Considerable inconvenience will be caused to members of the public who have acted in reliance on the conduct of the National Government, if a breach of s. 115 would render any relevant agreement with the State invalid. As was stated in the High Court of Australia decision of Project Blue Sky Inc. v. Australian Broadcasting Authority [1998] HCA 28 at para 97:


“Courts have always accepted that it is unlikely that it was a purpose of the legislation that an act done in breach of a statutory provision should be invalid if public inconvenience would be a result of the invalidity of the act.”


The cases of Montréal Street Railway Co v. Normandin [1917] UKPC 2; [1917] AC 170 at 175; Clayton v. Heffron [1960] HCA 92; (1960) 105 CLR 214 at 247; TVW Enterprises Ltd v. Duffy (No 3) [1985] FCA 382; (1985) 8 FCR 93 at 104-105 were cited in support of this statement;


d) As submitted on behalf of the defendants, the generality of the wording used in s. 115 (1) is indicative of it being a statement of policy as to inter-governmental cooperation in regard to the control of natural resources, rather than an essential procedural requirement.


39. Consequently, for the above reasons, I am satisfied that compliance with the requirements of s. 115 Organic Law is directory.


Second question


Whether in light of the answer to question (1) above, an agreement made by the State pursuant to s. 184 OG Act without compliance with s. 115 Organic Law is void. (Statement of Claim 25)


40. The plaintiffs submit that the answer to this question is “yes”. The OG Act, in particular s. 184 being subordinate to an organic law, cannot curtail the operation of s. 115 Organic Law.


41. The defendants submit that the answer to the question is “no”.


Consideration


42. Given that I have found that the requirements of s. 115 Organic Law are directory, an agreement made pursuant to s. 184 OG Act without there being compliance with s. 115 Organic Law would not be void because of that non-compliance.


Third question


Whether compliance with the requirements of s. 52 (2) OG Act is mandatory or directory. (Statement of Claim 26).


43. The plaintiffs submit that compliance with s.52 (2) OG Act is mandatory as it is the import of the consultation provision in s.115 Organic Law.


44. The defendants submit that the answer to this question is “no”. Section 52 (2) is not a mandatory precondition to the making of a valid gas agreement. Section 184, has that consequence. Further, the following considerations of s. 52 (2) in its context lead to the conclusion that it is not mandatory in any event:


a) Section 52 (2) does not specify when the consultation must occur. It provides that consultation is required with each Local-level Government and Provincial Government that is ‘likely’ to be ‘affected’. This language indicates that the consultation which is required is a process related to general governmental planning in respect of the project in contemplation;


b) The section does not give Local-level and Provincial Governments the right to insist on any terms to be included in any gas agreement made by the State. Nor do they have any rights under the OG Act to control whether or not any project will be permitted to proceed;


c) The consultation required by s. 52 (2) is not directly linked to, or a prerequisite for, the grant to Local-level or Provincial Governments of benefits from any project;


d) The consultation provided for in s. 52 (2) is not the only opportunity provided within the scheme of the OG Act for Local-level and Provincial Governments to negotiate on any matters related to a project. For example, s.48 requires that a development forum be convened prior to the grant of a licence in respect of a project, one purpose of which is for the three tiers of government and landowners to enter a Development Agreement concerning, inter alia, benefits from the project including those granted by the State under Part IV of the OG Act;


e) Section 50A and s. 52A provide that a forum involving the State, landowners, Local-level Governments and Provincial Governments will occur after a gas agreement is made with a view to a “Co-ordinated Development Agreement”.


Consideration


45. Section 52 (2) OG Act is as follows:


“(2) The Minister shall, in relation to any proposed petroleum project, consult with each Local-level Government and Provincial Government which would likely be an affected Local-level Government or affected Provincial Government of the petroleum project if developed, on the terms of—


(a)any written agreement to be entered into by the State in relation to the proposed petroleum project; and

(b)any licence to be granted in respect of the proposed petroleum project.”


46. Section 184 OG Act is as follows:

“The Minister may, on behalf of the State, execute an agreement with a licensee, providing for—

(a)the definition of the extent of a particular gas project and gas operation for the gas project, for the purposes of this Act and any other law; and

(b)the transfer and assignment of a State equity interest in that gas project to MRDC; and

(c)any other matters relating to that gas project or those operations, which are agreed to by the parties to such agreement which, without limiting the generality of the foregoing, may include:

(i) the application of particular provisions of this Act to that gas project and those operations; and

(ii)where permitted by other Acts, the application of particular provisions of those other Acts to that gas project and those operations,

and such agreement will, once so executed, have effect in accordance with its terms and notwithstanding any other provision of this Act.”

47. From a perusal of s. 184 (c) (i) and the last two lines of s. 184 it is provided that an agreement made pursuant to s. 184 will be valid regardless of the terms of any other provision in the OG Act. It is established then that no other provision in the OG Act will not render the gas agreement void. Given this, it is not necessary to consider the other submissions of counsel concerning this question.

Fourth question


Whether s. 52 (2) OG Act includes a requirement that Provincial and Local Level Governments liaise fully with affected landowners. (Statement of Claim 27).

48. The plaintiffs submit that under s. 52 (2) OG Act there is no requirement for the affected Provincial Government and affected Local-level Governments to liaise fully with affected landowners. However, s. 52 (2) does not absolve a Provincial Government and a Local-level Government of their constitutional duty to liaise fully with the resource owners as imposed by s. 115 (2) Organic Law. The duty to liaise fully with the affected resource owners is imposed by the Organic Law and as such Provincial Governments and Local-level Governments are required by s.115 (2) Organic Law to liaise fully with the affected landowners under s. 52 (2) OG Act.

49. The defendants submit that the answer to this question is “no”. It follows from the answer to question three that s. 52 (2) OG Act is not mandatory, regardless of whether it includes some requirement for consultation between the second and third tiers of government on the one hand and affected landowners on the other. There is nothing in the language of s. 52 (2) which indicates that the provision requires Provincial and Local-level Governments to liaise with affected landowners. Those landowners are entitled to directly receive a grant of benefits from the State.

Consideration

50. Given the submissions of all parties and from a perusal of s. 52 (2) OG Act it is clear that there is no requirement that Provincial and Local-level Governments liaise fully with affected landowners.

Fifth question

Whether in light of the answers to questions (3) and (4) above, an agreement made by the State pursuant to s. 184 OG Act without compliance with s. 52 (2) OG Act is void or of no force or effect. (Statement of Claim 26 and 27).

51. The plaintiffs submit that the answer to this question is “yes”. Section 52 (2) requires mandatory consultations with the affected Provincial Governments and Local-level Governments by the Minister as contemplated by s. 115 (1) Organic Law and the duty to consult with the affected resource owners by the National Government, Provincial Government and Local-level Government is imposed by s. 115 (2) Organic Law. The purpose and intention of Parliament is clear it is submitted. The purpose of s. 115 (2) Organic Law is for the three tiers of government to liaise fully with the affected landowners as to how they are going to be effected by the proposed resource development project including the costs and benefit of such development.

52. The requirement for a cost and benefit analysis to be carried out by the NEFC in s. 116 (2) Organic Law in relation to the development of the natural resources indicates that all three levels of government can use the analysis in their consultation with each other and with the landowners. Without those mandatory pre-requisites for resource development being met, any such agreement entered for the State by the Minister under s. 184 OG Act is void or of no force or effect for want of compliance with the Organic Law and s. 52(2) OG Act.

53. The defendants submit that the answer to this question is “no”. A gas agreement made pursuant to s. 184 cannot be found void for non-compliance with s. 52 (2) OG Act.

Consideration

54. For the reasons stated in my consideration of the third question, I am satisfied that an agreement made by the State pursuant to s. 184 OG Act without compliance with s. 52 (2) OG Act is not void or of no force or effect.

Sixth question

Whether clause 15 of the Gas Agreement diminishes or removes the requirements of s. 47 OG Act. (Statement of Claim 28 (1))

55. The plaintiffs submit that this is a factual issue which requires evidence. Clause 15 of the Gas Agreement states that the parties acknowledge and agree that Social Mapping and landowner identification studies have been undertaken in the mapped areas. While the issues raised by the plaintiffs are that those studies have not been done. An order for specific discovery of the studies was made by the National Court on 19th January 2011 but has not been complied with by the defendants. Accordingly clause 15 seeks to waive the requirements of Social Mapping and landowner identification studies in circumstances where such studies have not been done by the licencees prior to the signing of the Gas Agreement.

56. The defendants submit that the answer to this question is “no”. In the event that clause 15 did diminish or remove the requirements of s. 47 it would not affect the validity of the Gas Agreement, which is a s. 184 agreement. As referred to, s. 184 (c) (i) and the last two lines of s. 184 provide that an agreement made pursuant to s. 184 will be valid regardless of the terms of any other provision in the OG Act. In any event, clause 15 does not have that effect.

57. Clause 15 (a) of the Gas Agreement makes provision in respect of Social Mapping and landowner identification. Section 47 OG Act relates to Social Mapping and landowner identification studies. While clause 15(a) does not define the meaning of ‘Social Mapping and Landowner Identification’, it is plainly used in a way intended to be consistent with its use in the OG Act. The OG Act does not contain a definition of Social Mapping and landowner identification studies (SMLI studies). Section 47 (6) contemplates that the Minister may make regulations prescribing the scope and method of SMLI studies. The regulations do not contain any such prescriptions. Clause 15 contains an acknowledgement by the State that the SMLI studies already undertaken in the ‘Mapped Areas’ were submitted in accordance with the requirements of the OG Act. ‘Unmapped Areas’, for which SMLI studies had not yet been done, are the subject of exhibit J to the Gas Agreement which sets out a protocol for the preparation of them. The State acknowledges in clause 15 (a) (iii) that studies prepared in accordance with that protocol will satisfy the requirements of the OG Act for full-scale SMLI studies. Clause 15 does not relieve the Third to Eighteenth Defendants from the obligation to complete the studies referred to in s. 47 (5) OG Act. No other provision in the Gas Agreement provides that the studies identified in exhibit J need not be completed before the development forums referred to in clause 15 (b) and s. 48 OG Act, or before the issue of petroleum development licences.

Consideration

58. From a perusal of clause 15 of the Gas Agreement, there is no provision that purports to diminish or remove the requirements of s. 47 OG Act or to relieve the third to eighteenth defendants from the provisions of s. 47. Clause 15 is comprised of amongst others acknowledgements and agreements by the State that SMLI studies have been undertaken and were submitted in accordance with the requirements of the OG Act and not that s.47 or part thereof not be complied with.

59. Consequently, I am satisfied that the answer to this question is “no”. I also note that in any event, for the reasons stated in my consideration of the third question that an agreement made by the State pursuant to s. 184 OG Act would have effect in accordance with its terms, notwithstanding any other provision of the OG Act, which includes s. 47.

Seventh question

Whether clause 10.9 (b) of the Gas Agreement diminishes or negates s. 175 and s. 179 OG Act (Statement of Claim 28 (2))

60. The plaintiffs submit that the answer to this question is “yes”. It is submitted that clause 10.9 (b) clearly diminishes or negates the right of project area landowners to negotiate with a licensee to acquire from the licensee, on freely negotiated commercial terms, a participating interest in the Hides, Angore and Juha gas fields pursuant to s. 175 OG Act. It also deprives the project area landowners such as the plaintiffs of being able to enter into a commercial arrangement with NGC for NGC to hold and manage landowners’ participating interests together with Provincial Governments through NGC pursuant to s.179 (2)(c) OG Act.

61. The defendants submit that the answer to this question is “no”. Clause 10.9 (b) is concerned solely with the equity interests in a petroleum project to which the State may become entitled under s. 165 OG Act. Section 175, however, is concerned solely with equity interests that Provincial and Local level Governments and landowners may independently acquire through negotiation with licensees additional to any equity benefit that they may be granted by the State pursuant to s. 167. The right of acquisition under s. 175 is in no way related to, and therefore is not impaired by, clause 10.9 (b).

Consideration

62. From a perusal of clause 10.9 (b), I am satisfied that the submissions of the defendants on this question are correct. Clause 10.9 (b) does not in my view, diminish or negate s. 175 and s. 179 OG Act.


Eighth question

If the answer to either of the questions at (6) and (7) above is “yes”, is either of clause 15 or clause 10.9 (b) of the Gas Agreement illegal, a nullity and of no force or effect. (Statement of Claim 29)

63. The plaintiffs submit that the answer to this question is “yes”. They submit that if the requirement for Social Mapping and landowner identification studies under s. 47 OG Act were not done, and the defendants seek to legally waive the requirement by clause 15, such agreement is illegal and of no force and effect. Similarly, clause 10.9 (b) diminishes the application of s. 175 OG Act without the consent of the project area landowners who are affected by the term of the agreement and therefore it is equally illegal, void and of no force or effect.

64. The defendants submit that the answer to the question is “no”. Neither clause 15 nor clause 10.9 (b) is void ab initio and they are not consequently, “illegal, a nullity and of no force or effect.”

Consideration

65. As I have found that the answer to questions six and seven is “no”, the question does not arise.

Ninth question

Whether s. 48 OG Act requires that NEFC prepare a cost and benefit analysis in respect of each petroleum project for which a development forum is convened pursuant to s. 48 (1) prior to it being thus convened. (Statement of Claim 28 (3))

66. The plaintiffs submit that the answer to this question is “no”. However, the requirement for a costs and benefit analysis to be done for a resource project is imposed by s. 116 (2) Organic Law and that requirement is mandatory for any development of natural resources. Further as it is a requirement of the Organic Law, the cost and benefit studies by the NEFC must be done before the development forum contemplated by s. 48 OG Act and the results must be available to the parties before the development forum to enable parties to fully participate in the discussion for development.

67. The defendants submit that the answer to this question is “no”. Section 48 makes no mention of the NEFC and cannot be construed as requiring it to prepare any analysis in respect of a particular petroleum project. The NEFC is charged with providing high level advice on economic and fiscal matters to the National Executive Council. Its functions do not generally include project level activities. Consistent with that, s.116 (2) Organic Law is a general requirement that the NEFC carry out a cost and benefit analysis for and in relation to the development of natural resources. This high level function of the NEFC is carried through in s. 117 (8) (a) (v) Organic Law.

Consideration

68. From a perusal of s. 48 OG Act and the submissions of the parties I am satisfied that this question should be answered “no”.

Tenth question


Whether s. 179 OG Act requires that the National Gas Corporation be involved in any agreement executed by the State pursuant to s. 184 OG Act. (Statement of Claim 28 (4)).

69. The plaintiffs submit that this question should be answered “yes”. The NGC was incorporated and in existence before the Gas Agreement was signed in May 2008. Once incorporated, s. 179 (2) (c) makes it clear that it shall have the purpose of managing participating interests of Provincial Governments and project area landowners in gas projects (including downstream processing of natural gas) in Papua New Guinea conducted pursuant to licences granted after the commencement date, whether such participating interests are granted under the OG Act or acquired on commercial terms. The NGC mandate under s. 179 (2) is broad enough to include its involvement in project agreements executed by the Minister under s. 184 OG Act.

70. The defendants submit that the answer to this question is “no”. The functions of the NGC are set out in s. 179 (2) OG Act. None of those functions make the NGC a necessary participant in any agreement executed by the State pursuant to s. 184 OG Act.

Consideration

71. From a perusal of s. 179, it is not provided that NGC is required to be involved in any agreement executed by the State pursuant to s. 184 OG Act and so the answer to this question is “no”.

Eleventh question

If the answer to either of the questions at (9) and (10) above is “yes” whether the Gas Agreement is illegal, a nullity and of no force or effect (Statement of Claim 30), what orders should be made pursuant to Order 10 Rule 24.

72. The plaintiffs submit that it is premature to suggest to the court what the result should be before the court hears and determines the answers to the legal questions posed herein. Instead, the parties should be invited to make submissions as to how the matter should be dealt with once the court has considered the questions posed and made its ruling in respect of each of the questions/issues raised.

73. The defendants submit that the answer to this question is “no”. Compliance with these sections is not a mandatory condition to the making of a gas agreement under s. 184 OG Act.

Consideration

74. The last part of this question is for the court to determine after the court has considered and answered all of the questions including the first part of this question. As to the first part of this question, I have found that the answers to both questions 9 and 10 is “no” and so the first part of this question does not arise.

Conclusion

75. Given the answers that I have found to the above questions, I am satisfied that each of the claims for declaratory relief in the Amended Statement of Claim cannot succeed. Further, as the Amended Statement of Claim does not plead any cause of action entitling the plaintiffs to any other relief, this proceeding should be dismissed.

Orders

a) This proceeding is dismissed;

b) The plaintiffs shall pay the defendants’ costs of and incidental to this proceeding to be taxed if not agreed;

c) Time is abridged.

_____________________________________________________________

Haiara’s Legal Practice: Lawyers for the Plaintiffs
Greg Manda Lawyers: Lawyers for the First and Second Defendants
Allens Lawyers: Lawyers for the Third to Eighteenth Defendants

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