Essay: Sandline Int. V Papua New Guinea: Background, Legal Issues, Arguments, Decision.

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In the case of Sandline International Inc. v Papua New Guinea, issues relating to the overthrow of a government, litigation in different jurisdiction and constitutional crisis were raised. The matter of this case was first heard by an Arbitral Tribunal after which an appeal was filed in the Supreme Court of Queensland. An agreement was formed between Sandline and Prime Minister of PNG in which Sandline agreed to provide equipment, manpower, and skills to provide its assistance to PNG regarding armed forces to overcome the military means of a group. Under this agreement, the officials of Sandline were enrolled as “Special Constables” of PNG. A fee of US$36 million was promised to be paid to Sandline in which half of this sum was paid while the agreement was formed and half after 30 days of deploying the members by Sandline (Sturzaker and Cawood, 1999). The initial payment was made by PNG, however, after deployment of the members, the PNG army was angered which resulted in mutiny. The country faced a political crisis in which the chief of Sandline was arrested, and the information given by him helped in bringing the government down.

After this whole incident, Sandline made numerous demands to the government regarding the outstanding payment of the money as per their agreement. However, the government of PNG refused to pay the sum. One of the terms of the agreement was that in case of a dispute, the case would be referred to a three-member arbitral tribunal; therefore, both parties appeared before the arbitral tribunal (August, Mayer and Bixby, 2012). The governing law which applied to the country was the English law. The arbitration between the parties was conducted in Cairns, Queensland. This report will focus on evaluating the facts of the case along with key legal issues raised in the same. This report will evaluate the arguments of both parties; however, more emphasis will be made to the arguments of the government of PNG. The decision, in this case, will be analysed in this report, and the importance of this case in the international law will be discussed as well.

Following are the facts of this case.

1. An agreement was constituted between Sandline and the Prime Minister of PNG regarding military assistance to help PNG overcome the military means of a group in the country.
2. Half of the payment for the agreement was given by PNG when the agreement was formed between the parties (Dinnen, May and Regan, 2017).
3. The key issues raised in this case are regarding the payment of other half of the payment which was to be paid by PNG after 30 days of deploying the members.
4. After the deploying of the member of Sandline, their presence angered the army of PNG which resulted in a mutiny in which the country suffered a serious political crisis.
5. The chief of Sandline was arrested and deported, and the evidence given by him resulted in helping bring the government down.
6. Numerous demands were made by Sandline in order to get the outstanding money from PNG; however, the government of PNG suspended the contract and refused to pay the outstanding debt (Sturzaker and Cawood, 1999).
7. Both parties brought the suit to the arbitral tribunal which has three members as per the arbitration clause which was included by the parties in the agreement.

The arbitration tribunal for this case was constituted as per the UNCITRAL rules. Following were the key legal issues which were presented before the arbitration tribunal.

1. The key issue was whether the government of PNG is liable to remain $18 million to Sandline as per the terms of the contract formed between the parties.
2. PNG provided that the terms of the agreement are not enforceable on the government based on the reason for illegality. This statement was given by PNG based on the following two arguments.
3. The agreement which is formed between the parties resulted in contravening section 200 of the Constitution of the country along with various domestic laws.
4. The international law which applied, in this case, is treated an illegal under the law of England which is applied in this tribunal based on which the agreement between the parties is illegal as well under the law of England (Dinnen, May, and Regan, 2017).
5. PNG provided that the agreement between the parties is governed by the English law and the fact that the international law might consider the agreement legal did not matter since the agreement is illegal as per the provision of the law of England.

Sandline provided the arguments that the government of PNG has violated the terms of the agreement formed between the parties since it has refused to make the payment of half of the money as decided by them in the agreement. Sandline argued that PNG should pay the remaining $18 million as per the provision of the agreement. Moreover, the company argued that PNG is liable to pay under the international law and the government of PNG cannot rely upon internal or domestic laws to suspend the agreement and refused the payment of the remaining sum of money (Dinnen, May, and Regan, 2017). On the other hand, the government of PNG argued that the contract formed between the parties is unlawful as per the domestic laws of the country. It was argued by PNG that the parties who entered into the contract on behalf of the country lacked the capacity to constitute the contract on behalf of the country. The government of PNG submitted that the contract formed between it and the private company, Sandline, did not attract any provisions of the international laws and it should be repudiated based on the domestic laws of the country. The arguments of PNG were based on the fact that the arbitration tribunal was hearing the matter as per the provisions of the laws of England.

Brief facts of the case

The provision of English law applied in the country based on which the ex-Prime Minister of PNG did not have the authority to form a contract on behalf of the country with a private company regarding military assistance. After suspending the contract, an investigation was set by the government of PNG in which it was held that since there was no authority given to the parties to form a contract on behalf of the country, the terms of the contract did not bound PNG (May and Haley, 2014). PNG also argued that the formation of the contract had breached the provisions given under section 200 of the Constitution of the company. It was also argued that many internal laws which applied in the country are contravened due to which the contractual terms are not binding upon PNG. Sandline provided its reply in twofold. Firstly, the company argued that based on the true construction of section 200 of the Constitution, the contract did not violate its terms (Sturzaker and Cawood, 1999). Moreover, the provisions of other regulations are also not violated by the formation of the contraction between the parties. Secondly, Sandline argued under the English law, under which the entire agreement was governed, that PNG could not rely on the provision of section 200 of the constitution according to the international law in order to rescind the contract.

The Arbitral tribunal provided its judgement on 9^th October 1998 and rejected the defence of PNG under its decision. The tribunal held that PNG is liable to pay the remaining US$18 million to Sandline along with interest. The tribunal rejected the arguments of PNG and provided that PNG is an independent state which has the ability to enter into a valid contract (Matasororo, 2016). The agreement which is formed between the country and a private entity is not considered as domestic. Therefore, the contract is governed by the international laws rather than domestic laws. The court provided that rules of international law clearly applies in this case and their application did not cause any difficulty. The court provided that a state cannot rely on its domestic rules to consider a contract illegal. Moreover, the state is a juristic person that operates through the actions of its officials and employees. Based on their actions, the state can be held liable under the international law even if they contravene their duties or authorities while taking the decision for the state (Sturzaker and Cawood, 1999). The rule provides that the state will be held liable for the contractual liability which is created under an international relationship even if such relationship is formed by contravening the internal laws of the state. This provision was established in the report of the UN’s International Law Commission.

The decision was given based on the doctrine of Imputability which provides that the acts outside the scope of authority if the state provide facilities to accomplish the particular act. The tribunal provided that since PNG affirmed that the performance of the contract was frustrated due to change in events, thus, the existence of the contract was not denied by PNG based on which it is valid. Moreover, the arbitration tribunal provided that since the contract formed between a state and a private company is governed by international laws, therefore, the tribunal is bound to apply the rules of international law in this case (Jell-Bahlsen and Jell, 2012). Thus, the tribunal rejected the defence which was raised by PNG in its decision regarding illegality or unlawfulness of the contract. It was held that the contract remains valid under the international law and the remaining amount of U$18 million should be paid by PNG to Sandline. Moreover, this amount should be paid by PNG along with interest to Sandline. An appeal was filed against this order by PNG in the Supreme Court of Queensland by providing that a manifest error of law has been made by the arbitration tribunal in its award. The appeal was made under section 38 (4) (b) of the Commercial Arbitration Act 1990 (Qld) under which the appeal was made for seven question of law (Nelson, 2010). The Supreme Court rejected the appeal and provided that this case is governed under the international law, therefore, the state cannot claim a defence under the Commercial Arbitration Act 1990 (Qld).

The judgement given in this case is relevant since it established the significance of international law in the contracts formed between the state and private corporations. The decision given in the Supreme Court strongly supports the fact that the arbitration agreements which include a clause for application of foreign law and application of domestic laws, then it becomes difficult for the arbitration tribunal to apply the relevant law (Dinnen, May and Regan, 2017). The court provided that even after giving many arguments by PNG regarding the application of English law in the case, the arbitration agreement provided that it is not sufficient to found the agreement illegal or unlawful. This decision highlighted the importance of careful selection of the content of the contract regarding having the right to appeal in case it becomes difficult for the parties to choose between the applications of foreign or domestic laws. While forming a contract between the state and a private company, the parties are required to ensure that they understand which laws govern the terms of the contract which avoid the complexity raised in case the terms of the contract are violated by the parties. The case established the provision that the contracts which are formed between a state and a private company are governed under the international law (Sturzaker and Cawood, 1999). The court provided the reason that the state cannot deny the validity of the contract formed between the parties based on the internal laws which can be amended or enacted by the state itself.

References

August, R.A., Mayer, D. and Bixby, M. (2012) International Business Law. 6^th ed. London: Pearson.

Dinnen, S., May, R. and Regan, A.J. (2017) Challenging the State: The Sandline Affair in Papua New Guinea. Canberra, ACT: National Centre for Development Studies, Research School of Pacific Studies, The Australian National University.

Jell-Bahlsen, S. and Jell, G. (2012) The trans-national gold curse of Papua New Guinea. Dialectical Anthropology, 36(3-4), pp.317-341.

Matasororo, E. (2016) Standoff in Papua New Guinea: Students take issue over corruption. Pacific Journalism Review: Te Koakoa, 22(2), pp.13-19.

May, R.J. and Haley, N. (2014) The military in Papua New Guinea: A ‘culture of instability’but no coup. Security Challenges, 10(2), pp.53-70.

Nelson, H. (2010) Chinese in Papua New Guinea. China in Oceania: Reshaping the Pacific, 1, p.104.

Sturzaker, D. and Cawood, C. (1999) The Sandline Affair-Illegality and International Law. Austl. Int'l LJ, pp. 2014-223.