John Leahy outlines some of the legal matters business people need to bear in mind when doing business in Papua New Guinea.

Investors in PNG from common law countries will find the legal system both familiar and intriguing. It is familiar because it is a Westminster system albeit with its own characteristics, a modern written constitution with a large contingent of absolute and qualified rights (that need to be constantly borne in mind!) and a common law of its own having been developed since Independence, albeit with the common law and rules of equity of England (other than that part relating to the royal prerogative) as its starting point and not that of its colonial forebear, Australia.

Much legislation will have a familiar ring to it. The Companies Act and the Goods and Services Tax Act have been tailored locally from the New Zealand examples, the competition law bears a resemblance to the original Australian Federal Trade Practices Act. And, of course, many of the enactments that were in place at Independence and sourced from various Australian state and federal laws at that time are still in force.

Books have of course been written on the subject of customary land law, but as a first step it helps to know that the customary landowner cannot sell his or her land.

But there is much that is unique or at least unusual.

Laws with a PNG flavour

The highly sophisticated and recently enacted Information Technology and Telecommunications Act is a home-grown product albeit with substantial assistance on the details from consultants familiar with the myriad models in use worldwide. State agreements are used particularly, although not exclusively, in the resource sectors to define the fiscal and other terms upon which investments are to be made. Fiscal stability legislation exists to ‘lock-in’ the tax rules for projects in the resource sector, albeit with a cost in terms of the tax rate.

Land law

The formalised land law builds on a base that has its roots in both English and German legal traditions. The formal system co-exists with the customary system that still applies to ‘unalienated’ land (that is to say, some 90% of the land mass). Even mines and petroleum projects are generally built on land that remains customary while subject to protection afforded to the developer by the issue of a lease under the Mining or Oil and Gas Acts, as the case may be.

Books have of course been written on the subject of customary land law, but as a first step it helps to know that the customary landowner cannot sell his or her land. That is the position in customary law and remains the position under the relevant legislation. So, the land is effectively held in perpetuity for future generations. Meanwhile, the landowners have certain rights of usage of the land. To add to the complexity, different groups may have different rights over the same land. So in real sense different groups may each be landowners in respect of the same land.

Against that background, elaborate mechanisms have been developed to accommodate the interests of the traditional landowners. Oil and gas projects, for example, require social mapping and landowner identification studies to be undertaken at various stages from exploration through development. The State has an option to acquire equity in such projects and then effectively shares that equity with the traditional landowners. Landowners in oil and gas projects are also entitled to a royalty interest. Complementing these entitlements there are statutory arrangements for the establishment of trusts and for Incorporated Land Groups created under special legislation. Moreover, a development agreement is required to share the benefits among the various entitled persons.

Judicial system

Sitting alongside the legislation and the underlying law is a fiercely independent judicial system. Commercial interests can be asserted knowing that the judges will seek to follow the common law position.

The law in PNG. Familiar? Yes. Intriguing? Yes. Full of traps for the unwary? Definitely!

John Leahy is a Partner at Leahy Lewin Nutley Sullivan Lawyers in Port Moresby (www.llns.com.pg) and President of the Papua New Guinea Chamber of Commerce. 

This article first appeared in Business Advantage Papua New Guinea 2012/13.