INSIGHT

PNG accedes to the New York Convention – what will change?

By Sarah Kuman, Rachel Nicolson, Julian Berenholtz, Jessye Freeman, Sam Kay
Papua New Guinea Dispute Resolution Arbitration

In brief 4 min read

The Independent State of Papua New Guinea recently acceded to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which is likely to increase its attractiveness to foreign investors. However, much depends on how the PNG legislature and courts implement and interpret the New York Convention.

Key takeaways

  • The Independent State of Papua New Guinea (PNG) acceded to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) on 17 July 2019 and it will come into force on 15 October 2019.
  • PNG's accession ought to simplify (and reduce the cost of) enforcing foreign awards against entities resident in PNG (including the PNG Government).
  • PNG's courts may refuse to enforce a foreign arbitral award based on the limited and exhaustive grounds in Articles V and VI of the Convention.
  • Awards arising out of arbitrations seated in PNG (albeit rare) ought to be more readily enforceable.
  • We would expect that substantive litigation commenced in PNG in contravention of an arbitration agreement is now more likely to be stayed, in view of the direction in Article II of the Convention.
  • We are yet to see how the Convention will be implemented in PNG's domestic legislation, and how it will be interpreted by PNG's courts.

What's changed?

Acceding to the New York Convention brings PNG in line with 159 other states and should, following the passage of a new international arbitration Act, lower the barriers to the enforcement of arbitral awards against entities with assets in PNG, and the recognition of arbitration agreements in PNG.

This move follows PNG's recent attention to its foreign investment laws (see our Insight: Foreign investment in PNG) and its work with the Asian Development Bank, collectively signalling PNG's openness to foreign investment.

The devil is, as always, in the detail. We understand that the proposed legislation implementing the Convention is being drafted now, and it will be important to see how PNG's courts will interpret and apply the Convention – in particular, the exceptions to recognition and enforcement in Articles V and VI (including on grounds of incapacity, non-arbitrability, public policy).

The New York Convention – what is it?

PNG has not qualified its accession by including either the reciprocity reservation (the contracting state will only enforce awards made in the territory of another contracting state) or the commercial reservation (the contracting state will only enforce awards that concern legal relationships the state regards as 'commercial' according to its domestic law).

As the full title suggests, the Convention requires the recognition and enforcement of foreign arbitral awards by contracting states. The Convention sets out, in exhaustive terms, the grounds on which the courts of a contracting state might refuse to do so. The interpretation of each of those grounds by the courts of contracting states has, however, varied.

The Convention's second aim is to ensure respect for parties' arbitration agreements. It does this by Article II, which obliges the court of a contracting state to refuse jurisdiction and refer the parties to arbitration, where a valid arbitration agreement is on foot.

The NYC in PNG

Accession to the New York Convention is likely to increase the attractiveness of PNG to foreign investors because it should provide a clearer avenue for the enforcement of contractual obligations by PNG's courts.

As flagged above, however, questions remain about what the Convention will look like in PNG. It is not clear whether PNG's legislature will update its 1951 Arbitration Act to implement the Convention or repeal and replace the Arbitration Act in its entirety. The Asian Development Bank reports that it, along with the United Nations Commission on International Trade Law (UNCITRAL), advised PNG on its accession to the Convention and is providing PNG with 'ongoing advice.'1 As such, we expect that (like Australia) PNG may elect to adopt (in whole or part) the UNCITRAL Model Law on Arbitration.

Until such time as PNG passes a new arbitration Act or amends the existing Act to implement the New York Convention, the Convention does not have the force of law domestically, in PNG.

What's next?

We will keep track of the progress of a new or updated Act, and keep you up to date with any significant developments. 

In the meantime, if you'd like to discuss this development, please contact any of the people below.