Papua New Guinea (PNG) is a fascinating country with an abundance of resources, diversity of landscapes and thousands of tribes speaking about 800 distinct languages. The country offers many economic opportunities to foreigners and locals alike.  As one of the fastest growing economies in the world[1], PNG attracts a wide range of people wanting to conduct business in the region. 

If you or your company intend to enter into a transaction in PNG of an economic or commercial nature then you need to make sure the transaction operates fairly and does not cause undue harm, or impose too great a burden on the other party, especially if the other party could be seen as being at a disadvantage.  PNG courts have the power to determine whether an agreement is fair and reasonable. A transaction that is found to be unfair can be reviewed by the courts under the Fairness of Transactions Act 1993 (FTA)

What is the FTA?

The FTA was passed by the PNG Parliament out of concern around issues of equality and fairness of parties’ bargaining positions during negotiations leading to agreements.  The FTA ensures the fairness of any transaction[2] (including a transaction governed by customary law[3]) in which one party is disadvantaged for economic or other reasons, and to prevent any transaction which is manifestly unfair.

When is a transaction considered to be unfair?

Section 5 of the FTA provides that a transaction will be regarded as not genuinely mutual or manifestly unfair when a party can demonstrate to the Court:

  • that they did not understand the transaction and no genuine effort was made to explain its terms prior to entering into the transaction.
  • the other party was in a predominant position (whether economically, socially, personally or otherwise).
  • that the other party had or should have had at the time of entering into the transaction or immediately after information affecting the fairness of the transaction which was not disclosed.
  • that they were mistaken or had miscalculated the likely consequences of the transaction and the mistake or miscalculation was to such an extent adverse to his interests that he could not reasonably be held responsible for such consequences.

Will the FTA apply to me if I am not in PNG?

The FTA applies to all transactions entered into, either within or outside of PNG where at least one party is a PNG:

  1. citizen;
  2. resident; or
  3. registered company.

Mediation and Adjudication

The court must in the first instance attempt to arrive at an amicable settlement.  Under section 7 of the FTA the court must first:

  1. have the proceedings sent to mediation; or alternatively
  2. adjourn the matter to allow the parties to reach settlement.

Only after a mediated order has failed may the court proceed to exercise its jurisdiction under section 8 of the FTA.

Court Orders

The Court can review transactions and make a wide range of orders including, but not limited to:

  1. refusing to grant, wholly or in part, any relief applied for under the FTA[4]
  2. just and equitable distribution.
  3. upholding or striking down contracts[5].  

[Note: Under the FTA any order made by the Court must not depart drastically from the rule of law of right to contract.]

Contracting out

It is not possible to contract out of the FTA.

Limitation

Any proceeding under the FTA must be made within 3 years after the date of the transaction.  Proceedings made after this date will be statute barred.

Conclusion

When entering into a PNG related transaction if one of the parties is not on an equal footing then they should be advised by the stronger party to obtain independent legal advice prior to entering into the agreement.

Finally, all contracts or agreements should be reviewed by a qualified lawyer to reduce the risk the transaction being found to be unfair under the FTA.