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Customary Land Owners' Right to Sue for Compensation in Papua New Guinea and the OK Tedi Dispute [1997] MLJ 4; [1997] 25 MLJ 65 (1 January 1997)

Customary Land Owners’ Right To Sue For Compensation In Papua New Guinea And The Ok Tedi Dispute

Lawrence Kalinoe[*] and M J Kuwimb[**]

1. Introduction

The recently abandoned lawsuit by principal plaintiffs Alex Maun and Rex Dagi, representing some 7,500 or so villagers of the Ok Tedi and Fly River systems of the Western Province of Papua New Guinea, against the operators of the Ok Tedi gold and copper mine, Broken Hill Proprietary Limited (BHP), in the Victorian Supreme Court (Australia) and the National Court of Papua New Guinea has attracted widespread public interest and media attention, both in Papua New Guinea and Australia. The issues and awareness generated by the lawsuits are arguably not limited to matters of merely legal significance, but also raise wider moral and political questions, including that of acceptable standards of behaviour of multinational corporations in developing countries. In this commentary, however, we restrict ourselves to discussing the background to the statutes which were specifically enacted by the Papua New Guinea legislature to stifle the lawsuits. We also consider the effect of the controversy on the general right of customary land owners to seek redress in a court of their choice for damages caused to the environment on which they rely for their day to day subsistence. It will be helpful to begin with a brief background to the events leading up to the filing of the lawsuits by the villagers of the Ok Tedi and Fly River systems against the operators of the mine, BHP and Ok Tedi Mining Limited (OTML).

2. Background On The Ok Tedi Gold And Copper Mine

The Ok Tedi Mining Limited (OTML) operates the Ok Tedi Copper Mine in the Western Province of Papua New Guinea. An American transnational, Kennecott Copper Corporation, carried out the initial explorations in the late 1960s but withdrew from developing the mine in the mid-1970s, shortly before Papua New Guinea’s Independence from Australia. In 1981, amidst soaring gold prices, OTML was created as a truly transnational consortium to operate the mine, with Australia’s BHP (30% interest), America’s Amoco Minerals Corporation (30%), a German industrial conglomerate (20%) and the Papua New Guinea Government (20%). The operation of OTML is conducted by BHP. In recent times, the ownership of OTML is being restructured to give BHP 52 percent, the Papua New Guinea government 30 percent and Metal Mining Corporation (MMC) 18 percent.[1]
Gold production began in 1984 and ceased in 1989. Gold is now only obtained as a by-product of copper smelting. Extraction of copper ore began in 1987 and is expected to continue for another 15 years. In 1979 a feasibility study for the Ok Tedi project recommended that a permanent tailings dam should be built for the treatment or disposal of wastes and tailings on the Ok Ma river, and a stable waste dump be constructed in the Ninga and Ok Gilor valleys. Accordingly, construction work began at the Ok Ma dam site, but major landslides in December 1983 and January 1984 forced the company to abandon the construction of a tailings retention dam. Since then OTML has repeatedly argued that since the area is subject to frequent landslides, high rainfall and seismic activity, the storage of tailings and other waste cannot be guaranteed, and therefore the building of a retention dam is too big a risk. Initially the Papua New Guinea government did not accept this argument. Nevertheless, to allow gold production to commence in May 1984, the government gave approval to the use by OTML of an interim tailings dam system. This involved the retention of the sand fraction at the Ok Ninga valley and “the tailings [being] dumped directly into the river system without first being treated”.[2]
In February 1986, Parliament passed the Mining (Ok Tedi Sixth Supplemental Agreement) Act 1986. This statute legally bound the company to construct and operate a long term copper mine, whereas initially the main partners had preferred to mine only the gold cap, without any commitment to mine the copper until the copper price rose. This Act (and the Agreement it entailed) allowed for the suspension of the requirement for the construction of permanent tailings disposal facilities and stable waste dumps, pending the outcome of a detailed, three year environmental study to be carried out by the company. In the meantime, the company was allowed to continue dumping tailings directly into the Fly River System. A spokesperson for the Wingti Government said:

“The government [did this] after giving much thought to the advantages and disadvantages of the project, [believing] at that time that the overall development advantage to the nation outweighed the environmental impact on the Fly River System as it was not considered permanent.”[3]


After a successful vote of no confidence in the Wingti Government, a new government began in 1989 with Rabbie Namaliu as Prime Minister. In mid-1989, the new government was pressured by public opinion to re-negotiate the earlier agreement, to force OTML to build a tailings dam and put an immediate stop to the direct discharge of tailings into the Ok Tedi river. Hence in about June 1989, the new Minister for Environment and Conservation, Mr Jim Yer Waim, was understood to have taken a firm stand against pollution of the Fly River and delta areas. He was reported to have threatened to advise cabinet to close the mine, unless OTML was prepared to construct tailings treatment facilities to reduce environmental damage to acceptable levels.[4] In support of their Minister, the Department of Environment and Conservation released a statement to the effect that:

“The pollution of the river system and delta has been compounded as the mine moved from the gold to the copper phase and the amounts of mine tailing and waste rock discharged to the river increased two to three times.”[5]


In spite of these developments, the Namaliu government on 28 September 1989 decided not to force OTML to build a permanent tailings dam. Instead, the government opted for the company to be allowed to dispose of the mine waste directly into the river system, with the government and the company then being committed to compensate the people living along the length of the Fly River.[6] After the decision was taken, Mr Waim the Minister said:

“Everybody [Ministers] were concerned with the effects on the Fly River and everybody was concerned with the welfare of the nation. We decided in favour of the people. It was the best decision any responsible government could take under the circumstances. In any thing there has got to be give and take. We risked our environment in favour of the people.”[7]


The Minister for Justice, Mr Bernard Narokobi, had this to say on the decision:

“After exhaustive briefings and careful questioning by Ministers, the Government has reached the view that the interests of all persons can be best served by allowing the mine to operate without the tailings dam.”[8]


Probably the best summation of the reasons behind the government’s decision is to be found in the following statement from the Times of PNG:

“Because of political expediency, environmental experts say the government is foregoing the welfare and health of thousands of Western Province (Fly River) people and the environment of the nation to boost its financial capacity in a trying time.”[9]


Indeed, writing in 1991, Hyndman observed that:

“Underlying the national government decision was the pragmatic view that, with the Bougainville mine closed, it was essential to secure revenue from Ok Tedi in 1991. The decision ‘in favour of the people’ was one of political expediency that actually jeopardised the welfare and health of 40,000 Fly River people.”[10]


The mine dumps about 80,000 tonnes of tailings every day into the Ok Tedi and Fly River systems.[11] Non-governmental organisation groups, such as the Australian Conservation Foundation[12] and the German based Starnberg Institute,[13] have criticised the mine for polluting the 1,000 kilometre long Ok Tedi and Fly River systems. Two observers from the Starnberg Institute have claimed:[14]

“The known effects on the environment so far have been very profound. Not only is the water in the two rivers, the lagoons and the Fly River delta under strain, but the sedimentary deposits also impose a burden on the river regions. Copper in solution and other heavy metals can make the water in both rivers toxic to fish and undrinkable for humans ... According to the mine administration, fish stock in the upper reaches of the Ok Tedi have already fallen by 50-80% after only a few years of operation.”


We agree with David Hyndman, a respected commentator on the Mountain Ok people (the affected customary land owners), who has made the following pertinent assessment:

“Weak environmental protection plans coupled with a long series of ecological disasters starting in 1984 have endangered natural resources sustaining more than 40,000 indigenous peoples of the Ok Tedi and Fly River Basins, and the Ok Tedi project has been an ecological catastrophe ...

Since the mid-1980s, pollution from suspended sediments and heavy metals has been 10,000 times greater than American Environmental Protection Agency standards and has threatened subsistence staples such as fish, crustaceans, turtles and crocodiles, and gardens and sago palms growing along the riverbanks and backswamps.”[15]
Consequently, BHP, the main owner (now with 52% interest) and operator of the mine, was sued on 5 May 1994 in the Victorian Supreme Court by some 7,500 villagers of the Miripiki Clan who live in the vicinity of the river systems.[16] The villagers were claiming $2 billion for compensation and $2 billion as exemplary damages. The writ alleged that BHP and OTML had “negligently and in breach of their duties of care” discharged poisonous material into the Ok Tedi-Fly River systems and had destroyed the villagers’ subsistence way of life. It also alleged that the Papua New Guinea government, a 30 percent share holder in OTML, had “failed, neglected and refused” to enforce environmental agreements and covenants. On 6 September 1994, more than 1,000 new writs were filed in the National Court in Port Moresby against BHP and the Papua New Guinea government.[17] The Wingti government’s initial response to the law suit was to introduce legislation, with retrospective effect, in order to:[18]

  1. limit the aggregate of claims for damages by land owners;
  2. establish a compensation tribunal with exclusive power to deal with such claims speedily and competently;
  3. compel the resource developers either to establish a fund which would accumulate over time, or to put up a bond from which future claims could be met; and
  4. give the State power to sue developers for environmental or other damage for unlimited amounts.

The Prime Minister at the time, Mr Wingti, also stated that his government would “seriously consider whether to abolish common law claims by land owners for compensation and instead give landowners a statutory basis”.[19]
On 25 August 1994, the Supreme Court ruled that the snap resignation and purported re-election as Prime Minister of Mr Wingti on 23 September 1993 did not comply with s 142(3) of the Constitution. As a result, a new Prime Minister had to be re-elected in the next sitting of Parliament, and in the process the Wingti government was defeated. Consequently, the Wingti govemment’s proposed legislation did not live to see the light of day.
The new government of Sir Julius Chan with Mr John Giheno as Minister for Mining and Petroleum brought a new approach and attitude to the issue. Giheno insisted that the government should pursue a compensation agreement with the Ok Tedi and Fly River land owners.[20] The Chan government then offered a compensation package of $113 million to the land owners, and was hoping thereby to persuade the land owners to accept an out of court settlement.[21] At first, the land owners did not accept the compensation package and continued to maintain their court actions in both the Victorian Supreme Court and the Papua New Guinea National Court. Later, however, they accepted a total settlement package of AUD$550 million, about six months after the passage of the Mining (Ok Tedi Restated Eighth Supplemental Agreement) Act 1995 and the Compensation (Prohibition of Foreign Legal Proceedings) Act 1995 (see below).
In an attempt to force the land owners to reach settlement, the Chan government first embarked on the Mining (Ok Tedi Eighth Supplemental Agreement) Bill 1995. In response to the widespread criticisms that this Bill attracted, coupled with the prevalent view held by many at that time that the Bill did not comply with certain constitutional requirements, that Bill was subsequently “rearranged”. In the process, the original Bill became two separate but related pieces of legislation: the Mining (Ok Tedi Restated Eighth Supplemental Agreement) Act 1995 and the Compensation (Prohibition of Foreign Legal Proceedings) Act 1995. The former came into effect on 2 February 1996, and the latter on 11 April 1996. In view of the interest the abandoned Bill attracted, and to provide some basis for comparison, the Mining (Ok Tedi Eighth Supplemental Agreement) Bill 1995 will now be considered in some detail.

3. The Mining (Ok Tedi Eighth Supplemental Agreement) Bill 1995

The Bill was intended, if enacted, to give effect to the Eighth Supplemental Agreement between all the share holders (Papua New Guinea, BHP and MMC) and OTML. The Eighth Supplemental Agreement (“the Agreement”) mainly dealt with the issue of “compensation payment” and “compensation claims” in “affected areas” of the Ok Tedi - Fly River systems. Among other things, the Agreement also provided for purchase of additional equity by the State.
Clause 5.1 purported to amend Clause 29.12 of the Principal Agreement and substitute it with the following:

Subject only to Clauses 29A, 29B, 29C, 29D, 29E, 29F, 29G and 29H, this Clause 29 covers (and has at all times covered) the field in respect of, and expresses (and has at all times expressed) completely, exhaustively and exclusively the regime applicable to the regulation of environmental management and protection with respect to the Project and the Company’s operations (including without limitation, with respect to the disposal of overburden, tailings or other waste and all other effects resulting from the Company’s operations upon the physical environment, the land, the streams and rivers, the inhabitants and the biota of the State). The provisions of this Clause 29 prevail (and has at all times prevailed) over any inconsistent law in force in the State (other than Clauses 29A, 29B, 29C, 29D, 29E, 29F, 29G and 29H), whether in force before or at the time Clause 5 of the Eighth Supplemental Agreement becomes effective or at any time thereafter and, notwithstanding Clause 9.8 of this Agreement, prevail (and have at all times prevailed) also over the Approved Proposals.


In effect, what this Clause attempted to achieve was to extinguish and/or invalidate the application of all other laws, including common law, except as provided for under the Agreement, for the determination of compensation claims. The general compensation regime was then set out under Clause 5.2 of the Agreement. The particular clause of interest is Clause 29F, which was inserted by an amendment to Clause 29 of the Principal Agreement as provided under Clause 5.2. Owing to its significance, Clause 29F and the sub-clauses are set out in full below.


29F Compensation Proceedings

29F.1 The fact that the Company has undertaken the obligations upon it by Clauses 29A, 29B and 29C constitutes an absolute defence to any Compensation Proceedings, whether or not that defence is pleaded and whether those Compensation Proceedings are commenced before, on or after the date upon which the Company permanently ceases mining and milling operations. That defence may be relied upon not only by the Company but also by any other party to any Compensation Proceedings.


29F.2 Neither:

(a) a non-citizen; nor

(b) any other person

shall directly or indirectly commence or maintain or otherwise continue any Compensation Proceedings.


29F.3 Neither:

(a) a non-citizen; nor

(b) any other person

shall directly or indirectly assist any person to commence or maintain or otherwise to continue any Compensation Proceedings.


29F.4 Without limitation to Clauses 29F.2 and 29F.3, neither:

(a) a non-citizen; nor

(b) any other person

shall give evidence in or directly or indirectly assist any person to give evidence in any Compensation Proceedings.


29F.5 Neither:

(a) a non-citizen; nor

(b) any other person

shall register or enforce, or commence any suit upon, or otherwise do anything to give effect to, any judgment or order given in any Compensation Proceedings.


29F.6 Under the law of Papua New Guinea:

(a) no:

(i) cause of action; or

(ii) other right

exists which may form a basis for Compensation Proceedings and there is no civil or criminal liability in respect of any such:

(iii) cause of action; or

(iv) other rights; and

(b) any act or omission that would, notwithstanding this Agreement, constitute a basis for Compensation Proceedings is justifiable within the meaning of the rule known as the rule in Phillips v Eyre.[22]


29F.7 If, notwithstanding the preceding provisions of this Clause 29F, any person would be able to directly or indirectly to commence or to maintain or otherwise to continue any Compensation Proceedings, those Compensation Proceedings:

(a) shall not be commenced after; and

(b) shall not be maintained or otherwise continued unless they were commenced prior to,

the expiration of three months commencing on the date on which the cause of action or other right forming a basis for those Compensation Proceedings accrued or otherwise first arose, and whether it accrued or otherwise first arose:

(c) before (and even if it accrued or otherwise first arose before the date that is three months before);
(d) on; or
(e) after

the date upon which Clause 5 of the Eighth Supplemental Agreement becomes effective.


29F.8 If, notwithstanding the preceding provisions of this Clause 29F, any person would be entitled to receive any benefit as a result of any Compensation Proceedings, a debt is owed by that person to the person that is required to provide that benefit in the amount of the benefit and the person that is required to provide that benefit may set off the amount of that debt against its liability to provide the benefit. For the purposes of this Clause 29F.8 a reference to the provision of a benefit includes a reference to the payment of damages, compensation or any other form of monetary relief.


29F.9 This Clause 29F.9 overrides all other provisions of this Clause 29F.

Nothing:

(a) in this Clause 29F prohibits a person from defending or otherwise resisting Compensation Proceedings;

(b) in Clauses 29F.3, 29F.4 and 29F.5 prohibits a person from:

(i) directly or indirectly assisting any person defending or otherwise resisting Compensation Proceedings;

(ii) giving evidence in or directly or indirectly assisting any person to give evidence in aid of any person defending or otherwise resisting Compensation Proceedings; or

(iii) registering or enforcing, or commencing any suit upon, or otherwise doing anything to give effect to, any judgment or order in favour of a person defending or otherwise resisting Compensation Proceedings; and

(c) in Clause 29F.6 deprives a person of a defence or other right which may form a basis for defending or otherwise resisting Compensation Proceedings.


29F.10 The provisions of this Clause 29F shall survive the termination of this Agreement.


The Mining (Ok Tedi Eighth Supplemental Agreement) Bill 1995 stipulated criminal sanctions under s 8 to enforce the compensation regime of the Agreement. Generally, it was to be an offence under s 8(1) of the proposed legislation to commence compensation proceedings outside or in contravention of the Agreement. Equally, under s 8(2), it was to be an offence to aid, abet, counsel or procure another person (or a party) to commence compensation proceedings outside the terms of the Agreement or in contravention of the terms of the Agreement. Clearly this would have extended to cover lawyers acting for their clients and persons giving evidence at trial. The penalties in both instances were a fine not exceeding K100,000, or in default an additional fine not exceeding K10,000 for each day that the offence continued.
Clause 5.4 of the Agreement which purported to amend Clause 23.17 of the Principal Agreement is also of some interest. It allowed for the company to treat any compensation payment as an allowable deduction for tax purposes and, in the hands of the recipient, as exempt income which is not subject to income tax.[23]

Ancillary Powers of the Minister Under the Bill

The Minister for Mining and Petroleum was given the following powers under s 5 of the Bill to facilitate the implementation and enforcement of the Eighth Supplemental Agreement:

Notwithstanding anything in any other law in force in the country at any time (whether before or after the commencement of this Act), the Minister has power on behalf of the State, to make all grants, issues, renewals and extensions required by or under the Eighth Supplemental Agreement to be made by the State, and is not bound in that regard by any provisions of any such law requiring or permitting any authority, consent, approval, report, recommendation, appeal, procedure or formality, or by any similar provision.


If this provision had been passed in that form, it would have given absolute power to the Minister in relation to every matter affecting OTML, including environmental matters, foreign investment regulations, and other general regulatory aspects of the operations of the company.

Constitutional Implications

In State v NTN Pty Ltd [1992] PNGLR 1, the full bench of the Papua New Guinea Supreme Court held that for a statute to place qualifications or restrictions on qualified rights of individuals, it must comply with the requirements of s 38 of the Constitution.[24] Generally, such law must be a law that is made in consideration of the National Goals and Directive Principles and the Basic Social Obligations set out in the Preamble to the Constitution, and the law must be made “for the purpose of giving effect to the public interest in:

(a) defence; or

(b) public safety; or

(c) public order; or

(d) public welfare; or

(e) public health (including animal and plant health); or

(f) the protection of children and persons under disability (whether legal or practical); or

(g) the development of under-privileged or less advanced groups or areas”.[25]


Such a law can also be made to provide for “the protection of the exercise of rights and freedoms of others”.[26] This type of law must also comply with the procedural requirements of s 38(2) of the Constitution by:

(a) expressly stating the purpose for which the law is made; and

(b) specifying the right or freedom it restricts or regulates; and

(c) being properly certified (under s 110, Constitution) by the Speaker of Parliament that the law has been made by an absolute majority.


The Mining (Ok Tedi Eighth Supplemental Agreement) Bill had to comply with this constitutional scheme for it to be a valid law. The Bill sought to comply with the procedural requirements of s 38 under s 4. Section 4 stated that the Bill was made to regulate or restrict the rights and freedoms in ss 45, 46, 47 and 48 of the Papua New Guinea Constitution. In respect of s 38, it was stated in s 4(1) that the law (ie the Bill) was made:

“(a) taking into account the National Goals and Directive Principles (including, in particular, the goals that Papua New Guinea should, among other things, be economically independent and its economy basically self-reliant and that Papua New Guinea’s natural resources and environment should, among other things, be conserved and used for the collective benefit of all Papua New Guineans) and the Basic Social Obligations (including, in particular, the obligation to protect Papua New Guinea and to safeguard the national wealth, resources and environment in the interests not only of the present generation but also of the future generations), for the purpose of giving effect to the public interest in public safety, public order, public welfare, the protection of children and persons under disability ... and the development of under privileged or less developed areas;

(b) in order to protect the exercise of the rights and freedoms of others; and

(c) to make provisions for cases where the exercise of one such right may conflict with the exercise of another.”


It was also stated in s 4(2) that:

“(2) This Act, to the extent that it creates or otherwise gives rise to rights, privileges, obligations and duties that are not the same as between citizens, is a law for the special benefit, welfare, protection and advancement of females, children and young persons, members of underprivileged and less advanced groups and residents of less advanced areas for purposes of Section 55 of the Constitution.”


In our view, it is doubtful whether the Bill could properly be said to have been for the purpose of giving effect to “public safety”, or “public order”, or “public welfare”, or “public health” including the health and well being of animal and plant ecology, or “the protection of children and persons under a disability”, or for assisting in “the development of under-privileged or less advanced groups or areas”. Was the purpose of the Bill to give effect to any of the above or rather to implement and enforce the Eighth Supplemental Agreement? It is quite clear that the Bill was intended to enforce the Eighth Supplemental Agreement. This then leads to our submission that the Bill, if passed, would have been unconstitutional. We base this view on the decision of the Supreme Court in the NTN case, where the court insisted that the procedural and substantive requirements of s 38 of the Constitution should be strictly complied with.
One other area of concern which the Bill raised, in our view, was the relevance of s 53 of the Constitution, which prohibits the unjust deprivation of property or an interest or right over property without “just compensation”. Under s 53(4) of the Constitution, the taking of possession of property includes a reference to an “extinction or determination” of any interest or right over property. The provisions of ss 53(1) and (2) allow for circumstances in which property or an interest in property can be taken or extinguished, but only with “just compensation”. This is generally in situations where the property is required for “a public purpose” and is “declared and so described” by an Act of the Parliament. The Bill under s 6 attempted to describe the public purpose as required under s 53 of the Constitution by merely stating:

“6. Public Purpose

The [purposes] ... of the Eighth Supplemental Agreement [are] a public purpose within the meaning of any law in force in the country and are hereby declared to be, and described as, a public purpose for the purpose of Section 53 of the Constitution.”


In our view, s 6 did not adequately describe the public purpose which the Bill attempted to address. We doubt that the purpose of the Mining (Ok Tedi Eighth Supplemental Agreement) Bill 1995 was a “public purpose”; on the contrary, the real purpose seems to have been to implement a contractual arrangement between the main share holders and OTML, a matter of private contract law as opposed to public law. In our opinion, the Bill on its face did not attempt to address a “public purpose”, but rather its purpose was to “provide for the approval and implementation of [the] Eighth Supplemental Agreement”.[27] It follows therefore that the Bill would not have withstood a constitutional challenge based on the requirements of s 53 of the Constitution.

4. The Mining (Ok Tedi Restated Eighth Supplemental Agreement) Act 1995 And The Current Regime

From the original Mining (Ok Tedi Eighth Supplemental Agreement) Bill 1995, just discussed, two pieces of legislation emerged, aimed in our view at effectively stifling the $4 billion law suit by the customary land owners in the Victorian Supreme Court and the related suits in the Papua New Guinea National Court. The two statutes were the Mining (Ok Tedi Restated Eighth Supplemental Agreement) Act 1995 and the Compensation (Prohibition of Foreign Legal Proceedings) Act 1995. The main features and purposes of the original Bill were retained, but with much improved legislative drafting techniques to comply with the requirements of ss 38 and 53 of the Papua New Guinea Constitution.
Section 1 of the Mining (Ok Tedi Restated Eighth Supplemental Agreement) Act 1995 addresses the important issue of constitutional compliance by first stating the rights or freedoms which the Act will affect. Then follows a statement for purposes of s 38 of the Constitution, to the effect that the law is made with due regard to the National Goals and Directive Principles and the Basic Social Obligations set out in the Preamble of the Constitution, and “for the purpose of giving effect to the public interest in safety, public order, public welfare, the protection of children and persons under disability (whether legal or practical) and the development of under privileged or less advantaged groups or areas ...”. A notable omission in this statement is the criterion under s 38(1)(a)(i)(E), that such legislation can be enacted for the purpose of giving effect to the public interest in “public health (including animal and plant health)”. It is conceded, given the use of the disjunctive “or” in the list of various purposes (seven in total) for which such legislation can be enacted, that the omission does not affect the legislation’s compliance with s 38 of the Constitution. However, we hold grave reservations for the purported contention that the legislation can be properly viewed as being enacted for the purpose of “giving effect to the public interest in public safety, public order, public welfare and the protection of children and persons under disability”. We submit that the legislation does not give effect to the above contended purposes because such purposes are too remote. However, we do agree that perhaps the enactment of the legislation may give effect to the public interest in “the development of under-privileged or less advanced groups or areas”, as set out under s 38(1)(a)(i)(G) of the Constitution. Nevertheless, there cannot be much argument with our observation that the immediate purpose of the legislation is of course to give legislative effect to the Restated Eighth Supplemental Agreement between all the major share holders (including the State of Papua New Guinea) and OTML. Therefore it necessarily follows that the legislation in its current form does not comply with the substantive requirements of s 38 of the Constitution.
Under s 2 of the Mining (Ok Tedi Restated Eighth Supplemental Agreement) Act 1995, the legislation attempts to comply with s 53 of the Constitution by asserting that since the Ok Tedi project is of significant economic benefit to the nation, and the legislation is aimed at facilitating the continued economic benefits which the Ok Tedi project offers the nation, any abrogation of the customary land owners’ right to sue for compensation by the legislation is done for a public purpose and is reasonably justified in a democratic society having proper regard for the rights and dignity of mankind. We suggest that if the term “public purpose”[28] as used in s 53(1) of the Constitution can be properly equated to the term “national interest”,[29] then the legislation is possibly in compliance with s 53 of the Constitution. However, if viewed more closely, the legislation could not be said to be serving a “public purpose”. Rather, the essential purpose is to give legislative effect to the Restated Eighth Supplemental Agreement, a private law commercial agreement between the various parties.[30]
The Compensation (Prohibition of Foreign Legal Proceedings) Act 1995 addresses the issue of compliance with constitutional requirements (under s 1 of that Act) in very similar terms to that attempted under the previously discussed Bill. The main difference is that the Compensation (Prohibition of Foreign Legal Proceedings) Act 1995 does not make any attempt to comply with the constitutional requirements of s 53 of the Constitution, despite the fact that its main effect is to abrogate and deprive customary land owners, whose interests are akin to property rights and recognised by s 53(4) of the Constitution, from pursuing redress in a court of law or forum of their choice. Hence, it is our view that this legislation is open to challenge, and may very well be found to be unconstitutional on that ground alone.[31]

Implications of the Mining (Ok Tedi Restated Eighth Supplemental Agreement) Act 1995

Under this legislation, and in particular Clause 5 of the Restated Eighth Supplemental Agreement of 4 August 1995 which is included in a schedule to the legislation, a compensation scheme is provided for those customary land owners who are affected by the environmental impact of the Ok Tedi mine. Any customary land owner from the affected area, including those who have taken out lawsuits against BHP and OTML, who does not elect to opt out of the compensation scheme (by an election in writing, executed by a clan leader) within six months of the coming into effect of the Act, is deemed to have agreed to abide by the compensation scheme under the Act.[32] The general compensation scheme under the Act provides for:

(a) K10 million for environmental damage from the commencement of the mine to 1993;

(b) K4 million for 1994;

(c) K4 million or thereabouts for 1995;

(d) K5.5 million or thereabouts for 1996;

(e) K4.7 million or thereabouts for 1997;

(f) K4.9 million or thereabouts for 1998;

(g) K5.2 million or thereabouts for 1999;

(h) K5.5 million or thereabouts for 2000.


This compensation scheme will be reviewed in the year 2001. Pertinent parts of Appendix 1 of the Restated Eighth Supplemental Agreement provide as follows:

“1. The following arrangements replace any current right to make claims in connection with environmental effects of Ok Tedi Mining Limited’s operations.

2. Residents of the Affected Area will have six months after this Act commences in which to elect that they want compensation determined by agreement with the Company or, failing agreement, by a Warden under the procedures of Part VII of the Mining Act 1992. An appeal can be made from a Warden’s determination to the National Court.

3. All residents of the Affected Area who do not elect as referred to in paragraph 2 above will instead be entitled to participate in arrangements under which the Company must pay general compensation each year on the basis of a fixed amount per tonne of ore mined or waste excavated. General compensation will be distributed in accordance with arrangements to be agreed with the Minister for Mining and Petroleum.

4. All residents of the Affected Area, whether they are seeking compensation in accordance with paragraph 2 above, or participate in the general compensation arrangements in accordance with paragraph 3 above, may claim specific compensation for particular types of damage or loss (such as damage to or loss of improvements and livestock).”
By s 4(5), the compensation scheme set up under the Act “constitutes an absolute defence” to any form of compensation proceedings associated with the mining activities of OTML. To be absolutely sure of that, s 5(5) provides:

“(5) Under the law of Papua New Guinea, no -

(a) cause of action; or

(b) other right,

exists -

(c) in relation to an Existing Compensation Claim; or

(d) in relation to a Compensation Claim that is not an Existing Compensation Claim, which may form a basis for Compensation Proceedings.”


And again under s 5(6):

“(6) Under the law of Papua New Guinea, any act or omission that would, notwithstanding this Act, constitute a basis for Compensation Proceedings is:

(a) to the extent that such Compensation Proceedings would relate to an Existing Compensation Claim; and

(b) to the extent that such Compensation Proceedings would not relate to an Existing Compensation Claim,

justifiable within the meaning of the rule known as the rule in Phillips v Eyre (1870) LR 6 QB 1).”


Yet again under s 5(7):

“(7) Under the law of Papua New Guinea, there is no civil liability in respect of any act or omission that would, notwithstanding this Act, constitute a basis for Compensation Proceedings -

(a) to the extent that such Compensation Proceedings would relate to an Existing Compensation Claim; and

(b) to the extent that such Compensation Proceedings would not relate to an Existing Compensation Claim.”


Of course the net effect of these provisions is that OTML and its owners are absolutely immune from a law suit. The consequences of this situation are, to borrow the words of a Papua New Guinean non-governmental organisation:[33]

“... these laws deprive landholders of their rights and ... leave the environment unprotected by taking away landholders’ rights to sue for exemplary damages in the National Court ... under the existing law of civil wrongs.”


As was the position in our earlier review of the Mining (Ok Tedi Eighth Supplemental Agreement) Bill 1995, the Minister for Mining and Petroleum is again given wide ranging powers under s 6 of the Act to ensure the smooth operations of the mine.[34]
The only avenue which the Act sanctions for customary land owners to pursue compensation is under Part VII of the Mining Act 1992 before a Mining Warden. This avenue is limited to “specific compensation for particular types of damage or loss (such as damage to or loss of improvements and livestock’)”.[35]

Implications of the Compensation (Prohibition of Foreign Legal Proceedings) Act 1995

The main feature of this legislation is the prohibition of compensation proceedings in any foreign courts in relation to any mining and petroleum projects in Papua New Guinea.[36] The prohibition is not restricted to foreign courts of law per se but also to any forum or tribunal that is not established under Papua New Guinea laws.[37] Any person who contravenes this Act by pursuing compensation proceedings in a foreign court is guilty of an offence, with a maximum penalty of a fine not exceeding K10,000 or imprisonment for a term not exceeding five years, or both (s 5 of the Act).
Perhaps with reference to the Ok Tedi land owners’ recently abandoned $4 billion law suit, s 6 of the Act provides:

“Notwithstanding any law to the contrary, a judgment of a foreign court, in relation to compensation proceedings ... made after the coming into operation of this Act is not enforceable in Papua New Guinea.”


Needless to say, this provision clearly contradicts Papua New Guinea’s bilateral and perhaps multilateral obligations under the Reciprocal Enforcement of Judgments Act (Ch 50).[38]

5. Conclusion

It appears that the ultimate objectives of the original Mining (Ok Tedi Eighth Supplemental Agreement) Bill 1995 have been realized upon the passage into law of the Mining (Ok Tedi Restated Eighth Supplemental Agreement) Act 1995 and the Compensation (Prohibition of Foreign Legal Proceedings) Act 1995. After these statutes came into effect, the Ok Tedi customary land owners who had filed a $4 billion law suit against BHP and OTML were clearly intimidated and coerced into submission. On 11 June 1996 they dropped all legal action in Papua New Guinea and Victoria and accepted the compensation scheme under the Restated Eighth Supplemental Agreement. The whole saga attracted a large amount of national and international attention, and undoubtedly brought to the notice of a wide audience the plight of ordinary customary land owners attempting to deal with the environmental devastation wreaked by a multinational corporation. It is to be seriously regretted that, in response to the land owners’ legal actions for compensation, the Papua New Guinea government chose to implement such a dangerously repressive precedent for a democratically elected legislature by legislating to suppress its citizens’ choice of legal redress.




[*] Lecturer in Law, University of Papua New Guinea; Ph D Candidate, Centre for Natural Resources Law, Law Faculty, University of Wollongong.

[**] Candidate for LLM (Hons), Centre for Natural Resources Law, Law Faculty, University of Wollongong.

[1] See Recital G of the Mining (OK Tedi Restated Eighth Supplemental Agreement) Act 1995.

[2] Times of PNG, 17 May 1989, pp 17, 23. The Ok Tedi gold and copper mine project is governed by a separate Act of Parliament, the Mining (Ok Tedi Agreement) Act 1976. This Act regulates all relevant matters, including the conduct of the environmental impact assessment and other environmental monitoring processes by way of conducting and submitting to the government periodic Supplemental Studies. The Act also allows for amendments to be made to the Agreement, by enacting a Supplemental Agreement. The Ok Tedi project is exempted from the application of the Environmental Planning Act (Ch 370) (see s 3(2)(b)).

[3] Times of PNG, 17 May 1989, p 23.

[4] Id, at p 17.

[5] Ibid.

[6] See Post Courier, 24 September 1989, p 1.

[7] Ibid.

[8] See Post Courier, 16 October 1989.

[9] Times of PNG, 5-11 October 1989, p 1.

[10] D Hyndman, “Zipping Down the Fly River on the Ok Tedi Project,” in J Connell and R Howitt (eds), Mining and Indigenous People in Australasia (Sydney, Sydney University Press 1991), at p 82.

[11] Post Courier, 9 September 1992, at p 1. According to the finding of the Starnberg Institute, however, the mine dumps up to a total of 150,000 tonnes of tailings per day: see Kyere and Castel, “Development and the Environment”, (1991) Catalyst (Special Issue).

[12] Post Courier, 9 September 1992, at p 1.

[13] Kyere and Castel, “Development and the Environment”, (1991) Catalyst (Special Issue).

[14] Id, at p 33.

[15] D Hyndman, above n 10, at pp 78-79. For detailed studies on the evolution of the Ok Tedi Mine, see R Jackson, Ok Tedi: The Pot of Gold (Port Moresby, Word Publishing 1982); and W Pintz, Ok Tedi: Evolution of a Third World Mining Project (London, Mining Journal Books 1984).

[16] Post Courier, 6 May 1994, at p 2. See also Australian Financial Review, 7 September 1994, at p 24.

[17] Australian Financial Review, 7 September 1994.

[18] R Callick, “PNG Laws to Neutralise $4bn Claim on Ok Tedi”, Australian Financial Review, 18 May 1994.

[19] Ibid.

[20] Times of PNG, 23 March 1995, at p 9.

[21] Daily Telegraph Mirror, 19 April 1995, at p 44.

[22] The rule in Philips v Eyre says that “where by the law of another country an act complained of is lawful, such act, though it would have been wrongful if committed here, cannot be made a ground of an action in an English court”: (1870) LR 6 QB 1, Cockburn CJ at 28-29. The effect of this rule in this instance is to prevent any action being taken against BHP or OTML in Australia.

[23] The Bill was in fact approved by the cabinet in the last week of July 1995 and was widely expected to go before Parliament in September 1995. There has been some criticisms against the Bill, particularly in its resort to criminal sanctions: see Australian Financial Review, 11 August 1995, at p 3, and Post Courier, 14 August 1995.

[24] Section 38 provides as follows:

“(1) For the purpose of this Subdivision, a law that complies with the requirements of this section is a law that is made and certified in accordance with Subsection (2), and that-

(a) regulates or restricts the exercise of a right or freedom referred to in this Subdivision to the extent that the regulation or restriction is necessary -

(i) taking into account the National Goals and Directive Principles and the Basic Social Obligations, for the purpose of giving effect to the public interest in - (A) defence; or (B) public safety; or (C) public order; or (D) public welfare; or (E) public health (including animal and plant health); or (F) the protection of children and persons under disability (whether legal or practical); or (G) the development of under-privileged or less advanced groups or areas; or

(ii) in order to protect the exercise of the rights and freedoms of others; or

(b) makes reasonable provision for cases where the exercise of one such right may conflict with the exercise of another,

to the extent that the law is reasonably justifiable in a democratic society having a proper respect for the rights and dignity of mankind.

(2) For purposes of Subsection (1), a law must –

(a) be expressed to be a law that is made for that purpose; and

(b) specify the right or freedom that it regulates or restricts; and

(c) be made, and certified by the Speaker in his certificate under Section 110 (certification as to making of laws) to have been made by an absolute majority.

(3) The burden of showing that a law is a law that complies with the requirements of Subsection (1) is on the party relying on its validity.”

[25] Constitution, s 38(1)(a)(i).

[26] Constitution, s 38(1)(a)(ii), and see also s 38(1)(b).

[27] See the Preamble to the Mining (Ok Tedi Eighth Supplemental Agreement) Bill 1995.

[28] “Public purpose” and “public interest” are difficult concepts to define. According to the Webster’s New Collegiate Dictionary, the word “public” is defined as “pertaining to the people, relating to, or belonging to, or affecting a nation, state or community at large - as opposed to private”. Hence the terms “public purpose” and “public interest” mean the pursuance of the purpose and interest of the “public” as defined. In this context, the National Goals and Directive Principles and the Basic Social Obligations, and the Recommendations of the Constitutional Planning Committee should be consulted in giving effect to the terms “public purpose” and “public interest” (see Constitutional Planning Committee, Final Report of the Constitutional Planning Committee, Part 1, Ch 5 - Port Moresby, Government Printer 1974). Useful indicators are also given in s 1 of the Land Act (Ch 185).

[29] In determining what is the “national interest” at a particular point in time, the National Goals and Directive Principles should be given prominence. Of course, the Parliament of the day is the ultimate authority to make decisions on matters of the “national interest”. Hence, the notion of “national interest” at a given time may vary slightly from the “public interest” as found in the Constitution. That is because “national interests” may vary depending on the political landscape in a given Parliament, whereas “public interest” as contained in the Constitution must be strictly construed according to the constitutional material available for interpretation. In the context of the legislation under review, the Parliament has spoken on the “national interest”. If and when it is challenged in a court of law, the court will be required to construe it according to the Constitution (see A J Regan and E Wolfers, “Aids to Interpretation of the Constitution - Some Preliminary Thoughts”, (1986) 14 Melanesian Law Journal 153). For the leading case on the application of s 53(1) of the Constitution, see Minister for Lands v Frame [1980] PNGLR 433.

[30] In this regard it is interesting to note the comments made by the Constitutional Planning Committee, in warning against economic domination by foreign multinational corporations (CPC Report, above n 29, Part 1, Ch 5 at p 14):

“Countries of the Third World have become increasingly concerned by, and resentful of, the extent to which giant foreign corporations are dominating their economies and obtaining massive profits from operations in their countries ... We in Papua New Guinea are all too familiar with the extent and effects of the present foreign control over our economy ...”

Certainly times have changed! Who would have thought that the government of Papua New Guinea would legislate against its own people to protect a giant foreign corporation? Perhaps the “national interest” has changed over the last 20 or so years since the CPC Report?

[31] In fact Rex Dagi, one of the principal plaintiffs in the Ok Tedi land owners’ lawsuit against BHP had filed a constitutional challenge to the Compensation (Prohibition of Foreign Proceedings) Act 1995 on 26 April 1996. It is understood that that challenge was withdrawn after an out of court settlement was reached on the substantive compensation issue (see The National, 5 July 1996, pp 30-31, and Australian Financial Review, 12 June 1996, at pp 1 and 31).

[32] Clause 5.3, Restated Eighth Supplement Agreement.

[33] Individual and Community Rights Advocacy Forum (ICRAF), The National, 8 December 1995, p 25.

[34] Section 6 reads:

“Notwithstanding anything in any other law in force in the country at any other time (whether before or after the commencement of this Act), the Minister has power, on behalf of the State, to make all grants, issues, renewals and extensions required by or under the Restated Eighth Supplemental Agreement to be made by the State, and is not bound in that regard by any provisions of any such law requiring or permitting any authority, consent, approval, report, recommendation, appeal, procedure or formality, or by any similar provisions.”

[35] Appendix 1, Clause 4 of the Restated Eighth Supplemental Agreement.

[36] Section 4, Compensation (Prohibition of Foreign Legal Proceedings) Act 1995.

[37] See s 3 of the Act, on the definition of the term “foreign court”. Clearly this would include bodies like the Amsterdam-based International Water Tribunal and possibly the International Court of Justice.

[38] It has already been reported that:

“The Australian Government is considering annulling its bilateral agreement with PNG regarding enforcement of judgements in response to the gazettal by Papua New Guinea on April 11 of the Compensation (Prohibition of Foreign Legal Proceedings) Act.” See The Independent, 3 May 1996 at p 3.


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