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
world1, 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 transaction2 (including a
transaction governed by customary law3) 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
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
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:
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
have the proceedings sent to mediation; or alternatively
adjourn the matter to allow the parties to reach
Only after a mediated order has failed may the court proceed to
exercise its jurisdiction under section 8 of the FTA.
The Court can review transactions and make a wide range of
orders including, but not limited to:
refusing to grant, wholly or in part, any relief applied for
under the FTA4.
just and equitable distribution.
upholding or striking down contracts5.
[Note: Under the FTA any order made by the
Court must not depart drastically from the rule of law of right to
It is not possible to contract out of the FTA.
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.
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.
2See section 1 of the Fairness of
Transactions Act 1993
3See section 3 of the Fairness of
Transactions Act which defines the word
"transaction" to include as a transaction governed by
4See section 8 of the Fairness of
5In Bank South Pacific Ltd v Tingke
 PGNC 250 Justice Kandakasi acknowledged that the "PNG
courts have adopted and applied principles in contracts generally
pursuant to Schedule 2.2 of the Constitution, to either
uphold or strike done contracts."
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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