PacLII Home | Databases | WorldLII | Search | Feedback

Papua New Guinea Law Reform Commission

You are here:  PacLII >> Databases >> Papua New Guinea Law Reform Commission >> 1977 >> [1977] PGLawRComm 4

Database Search | Name Search | Recent Documents | Noteup | LawCite | Download | Help

Fairness of Transactions, Report 6 [1977] PGLawRComm 4 (1 December 1977)



(REPORT No. 6)



The Law Reform Commission of Papua New Guinea was established by the Law Reform Commission Act 1975 and began functioning in May, 1975.

The Commissioners are-

Bernard Narokobi, Chairman
Francis Iramu, Deputy Chairman
Meg Taylor
Anna Natera
John Nilkare
Riley Samson
William Kaputin

Abdul Paliwala is Secretary to the Commission.

The Commission's Office is on the ground floor of the Development Bank Building in Waigani.
The postal address of the Commission is-
Law Reform Commission
P.O. Wards Strip
Papua New Guinea
Telephone: 258755/258941


29th November, 1977

The Honourable Delba Biri, M.P.,
Minister for Justice.


In your reference to us dated 26th March, 1976 you asked us to enquire into and report to you as soon as possible on the effectiveness of the Transactions with Natives Act 1958-1963 and any reforms necessary to make that law suit the needs and conditions of Papua New Guinea today.

In this report we recommend the repeal of the above act and its replacement with a new act: The Fairness of Transactions Act.

Yours faithfully,

FRANCIS IRAMU, Deputy Chairman



This report proposes a law under which unfair transactions can be reviewed and rewritten by a court of law to make them fairer


This law will cover all commercial transactions including agreements or promises to buy, sell, lease, or work. It also applies to customary transactions of a commercial nature. However, it will not cover transactions of a family nature or transactions between the government and foreigners or foreign businesses.


A party will have to prove lack of genuine mutuality that is lack of equality in the making of the transaction or some other great unfairness. Lack of equality between parties may, among other things, exist if it can be proven-

(a) that the party did not understand the nature of the transaction and the other party made no effective effort to explain-an example is where a person who cannot read or write is made to sign a complicated written contract;

(b) that one party was so predominant (strong or influential) that the other party could not exercise a proper choice-an example may occur in the case of a big business firm against a small Papua New Guinean trader;

(c) that the other party knew some important information which made the transaction unfair and did not tell it to the other party-an example is a person who sells a car knowing that it is soon going to break down and no spare parts are available;

(d) the party made such a serious mistake or misunderstanding about the transaction that it should not be held responsible for the result-an example is a person who buys a shallow water fishing net under the mistaken belief that it was a deep water one.


The Court must mediate between the parties, and only if mediation fails will the court make a decision.


However, if a transaction has already been reviewed and new circumstances arise there may be further reviews so long as they take place within six years of the date of the original transaction.


Dispela repot i traim long kamapim wanpela Lo bai lukluk ken long ol wok o tok bisnis namel long wan wan man o kampany, em ol i no wokim gut olsem kot bai i ken mekim kamap gut ken.


Dispela lo bai I bilong lukluk long ol wok binis na tu ol promis na toktok orait I stop namel long wan wan man, lain man, or Kampani long baim, salim, lis long samting o wok. Dispela lo tu bai lukluk long ol pasin ol tumbuna i save senisim ol samting. Tasol dispela lo bai ino inap long lukluk long ol wok na tok bisnis namel long ol family o wok na tok bisnis namel long Gavaman na ol man bilong narapela kantri na tu ol bisnis bilong narapela kantri.


Long dispela kain toktok wanpela bilong tupela lain i bin mekim dispela tok bisnis i mas
soim tru long kot olsem em i no bin i gat inap o wankain strong na pawa bilong mekim dispela tok o wok bisnis. Long soim wanpela lain i no gat wankain pawa bilong tok bisnis ol i mas soim long kot olsem:

(a) narapela lain i no save long ol dispela kain pasin bilong wok o tok bisnis, na nara pela lain ino helpim ol na toksave long dispela kain wok na toktok. Wanpela belong dispela kain ol pasin em long taim bilong mekim dispela tok bisnis, wanpela bilong tupela lain i sainim hap pepa na tok i orait long ol kain hadpela toktok i no klia tumas long em;

(b) Narapela bilong dispela kain pasin em olsem wanpela lain i gat planti strong na pawa bilong toktok na narapela i no gat. Dispela kain pasin i save kamap namel long ol bikpela kampani na ol liklik bisnisman long Papua New Guinea;

(c) Na tu sampela lain i save long sampela bikpela toktok na i no tok save long ol narapela lain na i save mekim kain tok bisnis bilong ol i no gutpela. Dispela kain pasin I save kamap name1 long ol man o lain i save salim kar na ol i save olsem dispela kar I no gutpela tumas na bai i bagarap hariap na i no gat spea pat bilong dispela kar;

(d) Last bilong dispela kain pasin em long taim wanpela bilong tupela lain i no save gut long wonem samting em i kisim o kisim narapela samting olgeta na i no long samting em i bin tok orait long kisim. Dispela kain pasin i save kamap long taim wanpela man i laik kisim umben (fishing net) bilong painim pis long wara gat bikpela daun wara tasol em i apuris na kisim umben bilong painim pis long liklik daun wara. Man i bin mekim dispela misteko apuris na kisim narapela samting, ol no ken putim trable long em.


Kot mas traim na stop namel long tupela lain igat tok koros na larem tupela i toktok na pinisim wonem kain koros toktok tupela i gat. Sapos tupela yet i no i nap long stretim toktok bilong tupela bai kot i ken stretim toktok bilong tupela.


Tasol bai kot i lukluk ken long dispela tok bisnis bilong tupela lain sapos long namba wan lukluk ken bilong kot, wanpela samting i kamap na dispela tupela lain i no save long dispela samting bai kamap. Dispela kain lukluk ken bai ol inap long mekim long sikis yar (6 years) stat long taim tupela lain i mekim namba wan tok bisnis bilong tupela.


Inai pepa ese ia hereva be kara maoro lasi ena taravatu be kota ese itaia lou bona torea lou
hamaoromaoro karana totona.


Inai taravatu ese bisnes karadia o gaukaradia hegeregere hoihoi mai, hoihoi lao, kontrak o
gwauhamata bisnes karadia totona be do ia itaia tao. Bona sene idia kara dekenai bisnes karadia danu do ia itaia tao. To, bema kara be family obese gauna o gavamani bona tanobada haida taudia ida bisnes karadia neganai be do ia itaia lasi.


Bema oi, ese oi hereva dahaka oi karaia tau ta ida be hegeregere lasi o maoro momokani
lasi be namo oi hamomokani laia-

(a) oi be 'dahaka umui karaia be oi diba namonamo lasi bona unai tau ese danu ia hamaoroa namonamo lasi hegeregere be oi be duhai duhai bona tore tore be oi diba lasi bona oi be inai kontrak be oi diba namonamo lasi to unai tau ese ia hereva dekenai oi sain kava.

(b) unai tau be goada o siahu tauna bona oi emulalona ia ania bona oi be sibona laloa oi karaia lasi-inai be hegeregere bisnes badana ese Papua New Guinea taunimanima edia bisnes maragi ida idia karaia bamona.

(c) unai tau ese gau badadia be ia diba inai kara umui karaia be maoromaoro lasi bona ia ese inai be ia hadibamu lasi-hegeregere be oi ese tau ta dekenai motuka ta oi hoia to ia hamaoromu lasi inai motuka be nega daudau lasi lalonai do ia dika bona spea- pats (spare parts) be idia noho lasi.

(d) bema oi emu kerere o diba namonamo lasi neganai kara umui karaia neganai unai tau be habadelaia lasi hegeregere bema oi laloa reke be dobu badana gauna to gau be dobu mara i gauna. Inai be oi sibona emu kerere.


Kota ese kerere taudia huanai hereva hereva bona kerere hamaoromaoro. To inai ia gaukara lasi neganai kota ese ena laloa ia karaia diba.

Bema oi ura kara umui karaia be kota dekenai oi abia lai neganai be inai kara umui karaia dinanai bona ia lao hua toi ia abia lasi lalonai oi abia lao, to hua toi ia abia murinai be lasi. Bema inai kara be idia itaia murinai dahaka diba lasi gauna ia vara neganai be do itaia lou diba bona dahaka ia vara be kara gunana ena karaia dinana bona ia lao lagani 6 ia ore lasi lalonai ia vara be namo.



This report recommends that a court should be able to review any unfair transaction in order to make it more fair. This principle is not new to our customary law. The Transactions with Natives Act also gives strong protection in the case of contracts involving Papua New Guineans.

The common law has also been moving in a similar direction. The principle of fairness is also a very important part of our customary law. However, the law is defective in many respects. What this report recommends is a rationalization of the law so that the principle of fairness applies to every transaction whether it involves Papua New Guineans or not and whether it involves customary law or the common law. The only exceptions allowed would be contracts between a governmental body and a non-citizen and a governmental body and a foreign enterprise within the meaning of the National Investment and Development Authority Act.


The present law on transactions in Papua New Guinea is either based on the customary law or on the common law. Under the Native Customs (Recognition) Act customary law applies in all those cases where the parties intended the transaction to be governed by customary law or where it would be unjust in all the circumstances not to apply customary law. In practice the majority of Papua New Guineans transact under customary law. The common law applies in all cases where customary law does not apply and in particular it covers transactions taking place in the modern sector of the economy. However, the law is affected by much legislation regulating particular types of transactions. Thus a contract of employment is regulated directly by legislation laying down minimum wages and conditions and indirectly by acts governing such things as workers' compensation industrial safety and different aspects of industrial relations.

The most important Act for our purposes is the Transactions with Natives Act. Under Section 6(a) of this Act a contract in which one party is an automatic citizen is generally unenforceable against any party unless it is in writing and contains the full names and residences of every party. Secondly, under Section 8 a court may ignore the terms of the contract and give any decision that it considers equitable.

The purpose of the present reform is to improve upon the principles underlying the Transactions with Natives Act and to make the object of fairness applicable to all transactions with few exceptions.

In Chapter 2 of this report we deal with developments in the common law of contract. In Chapter 3 we discuss the Transactions with Natives Act and in Chapter 4 we set out our proposals for reform. A draft Fairness of Transactions Bill with brief explanatory notes is attached at the end of the report.


The common law of contract is based on the theory that people enter into contracts freely, that they bargain, out the terms and conditions of their contracts and only seal their bargains when they are satisfied with the terms they have negotiated. The theory also requires, for the sake of certainty, that a contract once entered is binding no matter what happens in the future when the contract is being carried out.

But the theory and reality are rather different. Most contracts we enter are standard term contracts. A trade store owner offers goods at set prices and we either take them at those prices or leave them. Business organizations offer goods according to their terms. If you want to buy a car or a truck, you buy on the terms and conditions of the dealer or you don't buy at all. These terms are usually imposed on the dealer by the manufacturer and are designed to limit the liability of both the dealer and manufacturer as far as is legally possible.

When people enter contracts which will run for some time, things often happen which change the basis of the contract. One party may have entered the contract on the basis of certain facts (e.g., that he could supply the goods sought at a certain price), which turn out not to be true. However, the present law says that the contract must be carried out to the letter even though subsequent events change the circumstances in which the contract was entered.

The law of contract is often harsh and we are not convinced that it suits the needs of our country. It assumes that people enter contracts on equal terms. This is usually not the case in our country. Most Papa New Guineans, like most people in most countries, understand little contract law and very little about the fact that contracts for important things like the purchase of a car or the building of a house or the supply of certain items over a period have detailed terms and conditions. They enter contracts with many terms and conditions without knowing the details of what they have undertaken because they believe that in their dealings with businessmen they have no other choice.

We think that the courts should have the power to rewrite the conditions of a contract where one person enters the contract on unequal terms and accepts conditions which place the greater part of the burden of the contract on him. The contract should be rewritten so that its terms and conditions are fair to both parties.

We also think that in the case of a contract which is to run for a period, if circumstances change so that the contract becomes unfair on one party, then if the parties and others affected by the contract cannot settle the matter themselves, the courts should be able to rewrite the contract so that it is fair to all persons affected by it.

Whilst the main principle of contract law has been that people are bound by the contracts they enter, the courts have or a long time been prepared to let people off contracts they have been induced to enter as a result of sharp practices or unequal bargaining power. The fact that the party prevailed upon was illiterate, poor and in great need, mentally weak or physically ill are matters which the courts take into account in deciding whether the parties to the bargain were equal 1

A recent English case is an example. In Lloyds Bank v Bundy2 the defendant, a farmer, had for many years banked at a particular branch of the plaintiff bank. His son ran a company which banked at the same branch. Unfortunately the son's company got into financial difficulties and the father allowed the bank to mortgage his farm to help his son's company. This happened on three occasions. On the last occasion Mr. Bundy signed the papers mortgaging his farm most reluctantly. He did so on the advice of the local bank manager who had the papers ready for him to sign. When the son's company finally collapsed, the bank went to court to have Mr. Bundy ordered off his farm so that they could sell it to recover the loan they had made to Mr. Bundy's son. The Court of Appeal refused to do this and Lord Denning after reviewing the earlier cases said 3

'They rest on "inequality of bargaining power". By virtue of it the English law gives relief to one who, without independent advice, enters into a contract upon terms which are very unfair or transfers property for a consideration which is grossly inadequate, when his bargaining power is grievously impaired by reason of his own needs or desires, or by his own ignorance or infirmity, coupled with undue influences or pressures brought to bear on him by or for the benefit of another'.

The case has been followed in Canada4.

The unequal bargaining power of companies over individuals has also worried the English courts. In 1954 in Karsales (Harrow) Ltd v Wallis5 a hire-purchase company sold a car to the defendant. But by the time the car was delivered to him it had been damaged and parts in it changed. It would not go and was delivered to him by being towed to his place at night. The defendant refused to accept the car and did not make any payments under the hire purchase agreement he had entered to pay for the car. The hire purchase agreement contained a clause to the effect that the company gave no undertaking that it was road worthy or that it was fit for the purpose for which it was sold. The Court of Appeal, led by Lord Denning, said that the company could not rely on the clause because they had not carried out their part of the contract. They fundamentally breached the contract by not supplying a car that worked.

The House of Lords criticised this decision in the Swiss Atlantique case in 1966 but Lord
Reid acknowledged the problem as follows6-

'Exemption clauses differ greatly in many respects. Probably the most objectionable are found in the complex standard conditions which are now so common. In the ordinary way the customer has no time to read them, and if he did read them he would probably not understand them. And if he did understand them and object to any of them he would generally be told he could take it or leave it. And if he then went to another supplier the result would be the same. Freedom to contract must surely imply some choice or room for bargaining'

But in 1974, the House of Lords struck down a restraint of trade agreement because it was an unequal bargain. The Schroeder Music Publishing Co. Ltd, v Macaulay7 the defendant composer entered a standard form agreement with the plaintiff publisher to give the publisher all the fruits of his song writing talents for 5 years. The publisher was to have the world copyright of the songs. If they were published or recorded, the composer received royalties, but if the publisher did not use the songs, the composer could not exploit his work himself or give it to another publisher.

Lord Diplock said8-

'Terms of this kind of standard form contract have not been the subject of negotiation between the parties to it, or approved by any organization representing the interests of the weaker party. They have been dictated by that party whose bargaining power, either exercised alone or in conjunction with others providing similar goods or services, enables him to say: "If you want these goods or services at all, these are the only terms on which they are obtainable. Take it or leave it"

and shuck the agreement down.

Lord Reid's judgment is more conservative, but the inequality of bargaining power of the parties is the crux of his decision.9

The bill set out in this working paper goes further than the position presently reached by the case law, but we believe we must go in this direction otherwise we could be faced with the absurd situation in which Mr. Justice Menzies of the High Court of Australia found himself in 1973.

In South Australian Railways Commissioner v Egan, His Honour said10 -

'This appeal is concerned with perhaps the most wordy, obscure and oppressive contract that I have come across. It is the standard form of contract which the South Australian Railways Commissioner requires those executing railways works for him to sign. It was probably complied a long time ago mainly by putting together, with some incongruity, provisions from other contracts. In the compilation, I am sure that not one oppressive provision which could be found was omitted. The contract is so outrageous that it is surprising that any contractor would undertake work for the Railways Commissioner upon its terms. It is, of course, a contract to which the doctrine of contra preferentem applies. The employment of such a contract tempts judges to go outside their function and attempt to relieve against the harshness of, rather than give effect to, what has been agreed by the parties. Courts search for justice but it is justice according to law; it is still true that hard cases tend to make bad law'

and then went on to uphold the contract.

Not all standard form contracts are necessarily bad. Those which have been developed over the years and widely adopted in a field of commercial activity can facilitate the conduct of business. Other standard form contracts can be hammered out in lengthy negotiations and may contain clauses harsh on one party but which may have been agreed to in return for concessions from the other party. The bill we propose does not allow genuinely mutual contracts to be re-opened unless they have led to unforeseen or unfair results.

The proposed bill would apply to most contracts and transactions of an economic nature.
It is a short bill expressed in simple language.

In Papua New Guinea there is little evidence that contracts affecting consumers are deliberately harsh and unconscionable, but problems arise because of different perceptions of the nature of commercial agreements. We have therefore suggested a new law that would be as simple as possible. The different perceptions of commercial agreement and of what is fair in this context will be worked out in the courts on a case-by-case basis. The concept of fairness that will eventually prevail will be that of the courts. In addition the wide discretionary powers given to the courts will allow some scope for provincial and regional differences to emerge.

In many other common law jurisdictions law reformers have taken a different approach in trying to overcome problems caused when people are forced into harsh contracts by sharp practices or undue pressure. They have recommended very detailed legislation dealing with narrow topics. In South Australia, for instance four separate pieces of consumer legislation have been enacted in recent year 11 and in addition the Federal Trade Practices Act applies to certain transactions in South Australia, as it does in other Australian States. Another example of detailed legislation is the United Kingdom's Consumer Credit Act 1974. The Act implements the recommendations of Crowther Report of March, 197112 concerning consumer credit, and is to be followed by further legislation to reform the law regulating security interests in personal property. As well as repealing the Bill of Sale Acts, the Money Lenders Acts and Hire Purchase Acts, the new Act provides for the detailed regulation of most credit agreements for € 5 000 sterling or less. The courts are given the power to re-open an 'extortionate credit bargain'. An extortionate credit bargain is defined as one which requires a debtor or his relative to make payments which are grossly exorbitant or otherwise grossly contravene ordinary principles of fair dealing.

The use of a short and simple bill is not particularly novel: the Transaction with Natives Act is a very short Act giving wide powers to the courts. The Australian Capital Territory's Law Reform (Harsh and Unconscionable Contracts) Bill consists of eight short clauses and is even simpler than our present proposal. In New South Wales Professor Peden has also recommended that a short bill of ten clauses, called the Contracts Review Act, should be enacted to overcome the problems of harshness and unconscionability. 13 Whether or not a contract is harsh and unconscionable is to be judged in relation to eleven factors such as relative economic circumstances. 14 The New Zealand Contracts and Commercial Law Reform Committee has also recommended that the courts be given 'wide power to review any credit transaction which appeared harsh and unconscionable at its inception or in the method of performance'. 15


The Transactions with Natives Act has been in force since 1958 and replaced legislation that went back as far as 1893 in Papua and 1921 in 'New Guinea.1 That Act covers much of the ground covered by the proposed bill but it has a number of defects.

It has a discriminatory element in that it applies only to contracts to which a native (an automatic citizen) is a party. We think everyone in Papua New Guinea should be entitled to test transactions for fairness regardless of the nationality of the parties.

The Act requires that for contracts to be enforceable they must be in writing and contain the full names and residences of every party and what is to be done under the contract by each of the parties.2 Whilst this requirement a1lows people to escape from the consequences of harsh oral contracts, it also means that people can escape from the consequences of oral contracts that might be completely fair.

Section 8 is probably the most important provision of the Act. It states-

'If an action is brought upon a contract by a party to the contract against another party to the contract, the Court which hears the action may, whether the contract has been completely executed by all the parties thereto or not, ignore the terms of the contract and give such verdict as the Court considers equitable'.

The Section was intended to empower the courts to restructure unfair contracts but it is rarely used. There are two main reasons for this. First the section is very vague. It does not give the courts any guidance as to the criteria to be used for ignoring the terms of the contract and it leaves it open to the courts to interpret the section narrowly according to the ordinary contract law. Secondly it seems probable that the section a lies only to those contracts which are enforceable under Section 6 because they are in writing.3 Thus a party to a contract which did not comply with Section 6, for instance by not including the address of a party in writing, could not use Section 8 to have unfair provisions of the contract set aside and replaced by more equitable ones.

The Act does not apply to job contracts to be carried out by automatic citizens within a month. With the growth of the number of Papua New Guinean tradesmen, this provision could operate to exclude from the Act people who should be entitled to its protection.
As can be seen from this short discussion, the Act has a number of defects. We consider that it should be replaced by legislation that goes further down the path it pioneered and that the new Legislation should give more guidance on the matters to be taken into account when restructuring contracts.


The main thrust of the bill is to allow transactions which are unfair to be restructured so that they become fair. In some cases transactions will be so unfair that they will be declared void and of no effect, but in most cases unfair transactions will have their terms changed to make them fair.

The bill encourages the use of mediation to restructure unfair transactions. Adjudication by the court would be used only if mediation has failed.

The bill would ensure the overall fairness of transactions in relation to the way they were entered into, their individual terms and conditions and their results. In the bill, fairness means the equitable distribution of the benefits and disadvantages of the transaction.

The bill would apply to most economic transactions, but it would not apply to transactions such as those relating to marriage or the custody of children. Transactions between governmental bodies and either non-citizens or foreign enterprises would be exempted from the operation of the bill, but the bill would otherwise apply to the transactions of all residents of Papua New Guinea, citizens and non-citizens alike.

There is a great deal of legislation already in Papua New Guinea affecting contractual relations. The more obvious Acts include the Sale of Goods Act, the Arbitration Acts and the various commodity marketing acts. Such legislation as the National Investment and Development Authority Act and the acts regulating banking and insurance are also relevant. The proposed bill is meant to apply to nearly all transactions even though they are also governed by existing Legislations.

A transaction could be re-opened if it was not genuinely mutual or if the results of the transaction were unfair to party. A transaction could, under the bill, be re-opened at any time during its operation or within three years of its completion. It could be re-opened more than once, but each time it is re-opened there must be new circumstances not anticipated in the earlier proceedings and in any case not later than six years from the date of the agreement.

It should be noted that there is already provision for the re-opening of hire purchase contracts in Papua New Guinea. Section 39 of the Hire Purchase Act provides that the National Court may re-open harsh or unconscionable contracts or given relief to a party on an equitable ground.

All those affected by the transaction, including those who would, under English law, be treated as third parties, may join in the proceedings to restructure the transaction. Lawyers would be able to appear in the proceedings only by leave of the court. However if under custom a person was obliged or expected to represent a party in proceedings, he would be allowed to do so.

The courts would be required to attempt to mediate disputes brought under the bill and to restructure the mediated transactions. Only when mediation has failed would the courts adjudicate the transaction. No one would be able to enter a contract to avoid the provisions of the bill and transactions which were defective in certain ways would remain subject to the bill. If some one started an action under another part of contract law, the courts could use the powers in the bill to restructure a transaction if they thought that doing so would do justice between the parties.

Finally, the bill would repeal and replace the Transactions with native Act 1958-1963.



1. K. L. Fletcher, 'Review of Unconscionable Transactions' 8.
University of Queensland Law Journal (1973) 45. See generally.

2. (1975) 1 QB 326.

3. (1975) 1 QB 339

  1. McKenzie v Bank of Montreal (1975) 44 ADLR (3d) 641. See also a similar approach taken in Towers v Affleck (1974) 1 W.W.R. 714 and Pridmore v Calvert (1975) 54 DLR (3d) 133.

5. (1956) 1 W.L.R. 936.

6. (1967) 1AC 361 at 406

7. (1974) 1 W.L.R. 1308.

8. (1974) 1 W.L.R. 1308 at 1316.

9. (1974) 1 W.L.R. 1308 at 1314-15.

10. (1973) 47 ALJR 140 at 141.

  1. The South Australian Consumer Credit Act 1972-73, Consumer Transactions Act 1973, Misrepresentation Act 1971-72 and Manufacturers Warranties Act 1974.
  2. Cmn 4596. The Act has been criticised in that some of its provisions are so technical as to be unintelligible to the average citizen and difficult for his lawyer'. (K. E. Lingren,

The Consumer Credit act 1974; its Scope', Modern Law Review Vol. 40 No. 2 (March 1977) p. 159 at 173) and also defended rather faintly, in the following terms: 'There is a limit to what this or any other enactment can achieve in the way of consumer protection. The field of human activity on which the law can effectively operate is very limited. The law cannot by itself redress bargaining inequality, educate the ignorant, eliminate trading malpractice or remove hardship caused by sheer inadequacy of a consumer's financial resources'. (R. M. Goode, 'The Consumer Credit Act 1974'. Cambridge Law Journal Vol. 34 No. 1 (April 1975) p. 79 at 130).

  1. John R. Peden, Report on Harsh and Unconscionable Contracts, (October 1976), Macquarie University, N.S.W.

14. Clause eight.

  1. Report of the Contracts and Commercial LW Reform Committee on Credit Contracts. (February 1977) Wellington, NZ.


1. (a) Transactions with Natives Ordinance 1893-1952 (Papua)
(b) Natives Contracts Protection Ordinance 1921-1952 (New Guinea)

  1. See Section G. An attempt to use the Act to have a hire purchase contract declared unenforceable was made in Edric Eupu v AGC (Pacific) Co. Ltd. (1971-72) PWGLR 470 but if failed because it was held that the rather vague address of 'Edric Eupu of Popondetta' was sufficient for the purposes of the Act.
  2. Kelly J. Obiter dictum in Edric Eupu v AGC (Pacific) 1971-72 P&NGLR 470 at 473



Fairness of Transactions Bill
No. 6 of 1977



1. Interpretation.


2. Objects.
3. Fairness.


4. Grounds on which transactions may be reviewed.
5. Excluded Transactions.


6. Mediation.
7. Judicial Orders.


8. Joining of other transactions or persons.
9. Limitation of proceedings.
10. Representation in proceedings.


11. Contracting out.
12. Effect on other laws.
13. Regulations.
14 Repeals.







Fairness of Transactions Act 1977

Being an Act relating to the effect of certain transactions, so as to ensure that they operate fairly without causing undue harm to, or imposing too great a burden on, any person, and in such a way that no person suffers unduly because he is economically weaker than, or is otherwise disadvantaged in relation to, another person.

MADE by the National Parliament to come into operation on a date to be fixed by the Head of State, acting with, and in accordance with, the advice of the Minister, by notice in the National Gazette.


In this Act, unless the context otherwise requires-

"government body" means-

(a) the National Government; or

(b) a provincial government body; or

(c) an arm, department, agency or instrumentality of the National Government or a provincial government body; or

(d) a body set up by statute or administrative act for governmental or official purposes.

"party" in respect of a transaction means a person who-

(a) derives or derived or is entitled to or was intended to derive any right or benefit from the transaction; or

(b) suffers, or has suffered or may suffer any disadvantage from the transaction; or

(c) has undertaken or may undertake any duty as a result of the transaction.

"transaction" means any promise, agreement, arrangement or dealing of an economic or commercial nature whether supported by consideration or not; and includes-

(a) an informal, incomplete or completed transaction;

(b) subject to Section 7(a) a transaction was not genuinely mutual or was mani-virtue of any law;

(c) a transaction governed by customary law;
but does not include-

(d) gifts, whether of a reciprocal nature or otherwise; or

(e) transactions which are primarily of a non-economic kind (including transactions relating to marriage, divorce, engagement to marry and custody of children), except to the extent that their economic or commercial aspects or consequences can properly be treated separately from their non-economic or non-commercial aspects and consequences.

(f) transactions between a governmental body and a non-citizen or a governmental body and a foreign enterprise within the meaning of the National Investment and Development Act 1974.

Clause 1

Is the definition clause. The definition of "transaction" limits the transactions to which the legislation applies. Contracts between a governmental body and a non-citizen or a governmental body and a foreign enterprise within the meaning of the National Investment and Development Act are excluded. There is to be one law applicable to all people in Papua New Guinea, citizens and non-citizens alike.



(1) The primary object of this Act is to ensure the overall fairness of transactions subject to it, and to the extent that it is relevant to the primary object, the fairness of the manner of entering into a transaction, the fairness of any particular aspect of a transaction, its propriety and legality.

(2) For that purpose, and subject to its provisions, this Act applies to transactions as defined in Section 1 and allows for-

(a) the investigation of a transaction; and

(b) the re-opening and review of a transaction irrespective of fault and validity, enforceability or effect of any promise or agreement; and

(c) the fair distribution and adjustment of rights, duties, benefits and disadvantages arising out of a transaction.

Clause 2

Provides for the overall fairness of transactions by allowing the investigations, re-opening and redistribution of the benefits and disadvantages of a contract.


(1) For the purposes of this Act, the concept of fairness relates to the principle of the just and equitable distribution of the rights, duties, benefits and disadvantages of a transaction.

(2) Accordingly, in the application of this Act, except where the contrary intention appears, both circumstances existing at and before the time of entering into a transaction and the circumstances existing after that time shall be taken into account, as may be appropriate, to determine the fairness of the transaction.

Clause 3
Defines fairness as relating to the principle of the just and equitable distribution of the rights, duties, benefits and disadvantages of a transaction.



(1) A transaction to which this Act applies may be reviewed by a court on the application of any party, if the court is satisfied that the transaction was not genuinely mutual or was manifestly unfair to a party.

(2) Without limiting the generality of Subsection (1) unless the court is satisfied that the transaction was entered into on an equal footing in all material respects a transaction shall be deemed not to be genuinely mutual if a party to the transaction-

(a) did not understand the transaction and no effective effort was made to explain its terms to him prior to entering into the transaction; or

(b) in relation to the complainant, was in such a predominant position (whether economically, socially, personally or otherwise), that an ordinary person with the background of the complainant was not likely to exercise a true freedom of choice in relation to the transaction; or

(c) had information affecting the fairness of the transaction which he did not disclose to the other party; or

(d) was mistaken, in or had miscalculated the likely consequences of the transaction to such an extent that he could not reasonably be held responsible for such consequences.
Clause 4

Gives the grounds on which transactions may be reviewed. If the court decides that a transaction is not genuinely mutual or was manifestly unfair to one party it may proceed to review. Four situations are given in which a transaction shall be deemed not to be genuinely mutual, the first one being when one party didn't understand the transaction and no effective effort was male to explain it to him.


Nothing in this Act shall be taken to permit the enforcement in any way of any illegal transaction or any illegal part of any transaction or any transaction or part of any transaction which is void or avoidable as being contrary to public policy unless that part of the transaction which is illegal, void or avoidable can properly be treated separately from other parts of the transaction.

Clause 5

Is meant to overcome unsatisfactory aspects of the law of contract regarding illegality, which sometimes allow a party to plead illegality and avoid the consequences of his dealings.


6. (1) In all proceedings under this Act, a court shall attempt to arrive at an amicable settlement that conforms with the primary object of the Act as set out in Section 2, in the first instance by mediation before exercising its jurisdiction under Section 7.

(2) The court may adjourn any proceedings if it thinks that by so doing a settlement maybe reached.

(3) If the court consists of more members than one, one of the members may exercise the mediatory jurisdiction of the court under Subsection (1).

(4) If a mediated settlement in accordance with Subsection (1) is arrived at, the court shall include it in an order, which shall be enforceable in that court or another of competent jurisdiction.

Clause 6

Requires a court to first attempt to settle a dispute by mediation. If the mediation is successful, its outcome is incorporated in an order of the court which can later be enforced if it becomes necessary.


(1) If in the opinion of the Court, the attempt at a mediated settlement of any proceedings in accordance with Section 6 has failed and there is no real likelihood of such a settlement being arrived at within a reasonable time, the court shall proceed to review the matter and make such order between the parties as conforms with Section 2.

(2) Where a party has-
(a) entered into a transaction in good faith; and

(b) in reliance on the terms and conditions of the transaction has altered his position and the court, having regard to all possible implications in respect of the parties and any other persons, is of the opinion that it would be unjust or inequitable to grant relief by way of an order under Subsection (1), it may refuse to grant, wholly or in part, any relief applied for under this Act.

Clause 7

Provides that if mediation fails the court can review the matter and reach a decision in conformity with its primary function under the Act. If the court finds that a party to the transaction has in good faith altered his position on the basis of the transaction, the court may refuse to grant any relief if it would be unjust to do so.



(1) Where in any proceedings under this Ad it appears to the court that in the interests of justice and for the purpose of attaining the object of this Act it is desirable that-

(a) some other transaction should be dealt with in the same proceedings or in association with, or at the same time, as those proceedings; or

(b) a person who is not a party to the proceedings should be made a party the court may order that the other transaction be so dealt with, or that the person be so joined.

(2) The court may adjourn any proceedings in order to allow for the implementation of an order under Subsection (1).

Clause 8

Allows the court to join actions so that they may be heard together and also to add new parties to the proceedings as it sees fit for the purpose of attaining the object of the Act.


Any party to proceedings under this Act-

(a) may appear in such proceedings either personally or by a representative; and

(b) may not be represented in such proceedings by a legal practitioner except by leaveof the court.

Clause 9

Allows a customary representative to appear for a party in any action under the Act and only allows representation by a legal practitioner by leave of the court.


(1) Proceedings under this Act must be commenced within three years from the date of the transaction to which they relate.

(2) A transaction that has already been dealt with under this Act may be further reviewed if the court is satisfied that there exist new circumstances or consequences not apparent or anticipated in the earlier proceeding provided that no further review shall be made after three years from the date of the last order made under Section 6 or 7 but in any case no later than 6 years after the date of the transaction to which they relate.

Clause 10
Imposes a three year limitation period on proceedings under the Act. It also allows further applications concerning the one transaction if new circumstances arise not later than three years after the date of any order made under the Act.



A promise, agreement and arrangement the purpose, intention or effect of which is to exclude or restrict the operation of this Act in relation to a transaction is, to the extent that it attempts to do so, void and of no effect.

Clause 11

Makes attempts to 'contract out' of the provisions of the Act 'void and of no effect'. With the exception of those transactions excluded by Clause 5 the Act is intended to apply to all economic agreements in Papua New Guinea. However such attempts to contract out are not prohibited but declared void and ineffective.


In any proceedings commenced in any court under any other law but relating to a transaction to which this Act applies, the court may apply the provisions of this Act if it considers that doing so would promote fairness between the parties to the proceedings.

Clause 12

Is intended to enlarge the application of the Act to all cases where the court considers that its application would promote the idea of fairness contained in the Act.


The Head of State, acting on advice, may make regulations, not inconsistent with this Act, prescribing all matters that by this Act are required or permitted to be prescribed, or that are necessary or convenient to be prescribed for carrying out or giving effect to this Act.

Clause 13

Enables regulations to be made under the Act.


The Transactions with Natives Act 1958 and the Transactions with Natives Act 1963 are repealed.

Clause 14

Repeals the Transactions with Natives Act 1958 and the Transactions with Natives Act 1963.


Printed and Published by E. C. Awo-Papua New Guinea Government Printer,
Port Moresby.-10418/500 books.-3.78.

PacLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback