This was an appeal against an order of the National Court refusing an application by the appellant for a stay of proceedings. The respondent demise chartered the Andhika Asoka. The appellant loaded a cargo of logs onto the ship at Kimbe, Papua New Guinea (PNG). Some logs were placed under deck, and some on deck. The ship then departed for Japan, where the logs were to be unloaded. At the time the ship sailed for Japan (8 July 1993) a letter of indemnity (LOI) was signed by an officer of the appellant. Approximately 364 logs were lost overboard on 18 July 1993 when the ship was off the coast of Japan. On 5 August 1993, the respondent's P&I Club, North of England Protection & Indemnity Association Ltd (NEPIA), provided the owner of the logs, Nissho Iwai Corp of Japan, who was also the majority shareholder of the appellant, with a letter (the NEPIA letter), which bound the respondent to have all issues concerning loss of or damage to the cargo determined according to Japanese law, in Japan, by the Tokyo District Court. The appellant submitted that the relevant contract, comprising the bill of lading and the LOI, was to be construed according to Japanese law, and that it would suffer prejudice in having to bring Japanese witnesses to PNG.

The respondent commenced proceedings in the National Court, seeking a declaration that the appellant was liable to indemnify the respondent in accordance with the provisions of the LOI. The appellant's application to stay those proceedings relied on the fact that the question of liability and assessment of loss or damage to the cargo was to be submitted to the jurisdiction of the Tokyo District Court, to be determined in accordance with Japanese law; that no such determination had been submitted to that Court; and that the respondent's action was premature and an abuse of process. The expense involved in having experts in Japanese law travel to Papua New Guinea was relied upon. The appellant denied that it had any liability to the respondent pursuant to the LOI.

The National Court refused to grant the stay on the basis that any proceedings in Japan were for the loss of cargo due to negligence, and that the proceedings in Papua New Guinea were separate proceedings pursuant to the LOI, and were not based on negligence. The appellant appealed to the Supreme Court.

Held: Appeal dismissed.

The first ground of appeal is that the trial Judge failed to refer to the Court's inherent jurisdiction to stay proceedings. However, here is nothing to show that the Judge was unaware that he had an inherent jurisdiction to grant such an order. He simply considered that the plaintiff’s action was distinct from any proceedings for negligence, and that, as a matter of law, the respondent was entitled to proceed under the LOI.

The appellant further alleges that the trial Judge failed to properly take into account certain affidavit evidence, and failed to give sufficient weight to that evidence. This, it is submitted, led to the failure to conclude that the appellant would suffer prejudice if the stay were not granted. The relevant affidavit of Mr Minohara stated as follows:

(b) In order that Arya is held liable to NIC it will need to be proven that, inter alia, Arya has breached its duty under the Japanese Carriage of Goods by Sea Act which provides, in part, for the exercise of due diligence by the owner of a ship to make that ship seaworthy.

(c) The Insurer’s contention is in this case that Arya failed to satisfy the necessary standards of due diligence to ensure that the vessel was seaworthy in accordance with the requirements of Japanese law. As a matter of construction, the Letter of Indemnity which Arya is relying upon in the PNG litigation does not extend to cover any negligence which may have to be proved against Arya (or its owner or insurers) in Japan.

(d) Only if the NIC claim has been determined and there has been a finding that as a matter of construction, the Letter of Indemnity does allow Arya to claim an indemnity in respect of its own negligence (if such negligence is proved or admitted to) could Arya have any basis to commence the PNG litigation. However even in those circumstances Japan is the most natural and appropriate forum for determining all matters concerning the NIC claim and the PNG litigation. Given that:

(i) the Bill of Lading, Letter of Indemnity and NEPI[A] letter are all governed by the law of Japan;

(ii) the loss of logs occurred off the coast of Japan which resulted in various Japanese shippers in turn allegedly suffering damage ...

The evidence then continues and raises issues of the expense and inconvenience of the litigation proceeding in PNG.

The trial Judge did not make reference to Mr Minohara's affidavit. Did the trial Judge fail to give that evidence sufficient weight? That is not quite the issue here, because it is clear from the judgment that the stay of proceedings was refused because, whilst such evidence as that adduced and the NEPIA letter may have related to proceedings in Japan based on the issue of negligence, nevertheless the respondent's action in PNG was based on a LOI which was distinct from the question of negligence. It was held that there were no proceedings in Japan concerning the LOI.

In terms of forum non conveniens, the foremost question is the nexus between the cause of action in Japan and the cause of action commenced in PNG in relation to the LOI, and whether there is any duplication of proceedings. The respondent says that there are no pending proceedings between the parties in Japan, and there is no way in which the Japanese Court could have jurisdiction to hear the respondent’s claim. Further, it is a misnomer to refer to any potential proceedings in Japan as an action for negligence, as any proceedings there would arise out of a breach of a contract of carriage, and not simple negligence. The common law area of negligence has been superseded and wholly covered by a written contract between the parties evidenced by the bill of lading. The issue of who is liable for damaged cargo due to breaches of a bill of lading may not be the same as the issue of who is liable under a LOI. Each case will depend on its own facts.

Here, leaving aside the question of the circumstances in which the LOI was signed, it was an indemnity in relation to certain kinds of damage to the logs, and that pieces stowed on the deck were at the shipper's and consignee's risk. That, in this Court's judgment, gives rise to a distinct cause of action from a cause of action concerning the issue of negligence under the bill of lading. Here a dispute did exist under the LOI. The respondent made a claim under the LOI, which was denied. That claim is not dependent on negligence. The appellant is a PNG company, and the LOI giving rise to the cause of action was created and executed in PNG, and is prima facie governed by PNG law. The principal issue under the LOI is whether it is enforceable by the respondent, and that is not necessarily dependent on questions of seaworthiness, or any other issue founded in negligence relating to the loss of cargo. There is no duplication of proceedings. There was no agreement in the LOI to submit the claim for indemnity to the jurisdiction of Japan, and the NEPIA letter does not bind the respondent in relation to the LOI.

This Court is not persuaded that the trial Judge wrongly exercised his discretion in finding that the respondent's cause of action was based upon the LOI, which was a separate cause of action to that based in negligence. NIC is a Japanese company, and it has a claim arising out of a breach of a contract of carriage evidenced by a bill of lading, in which it was agreed that Japan would have jurisdiction. That agreement on jurisdiction relates solely to NIC's cause of action for loss of cargo due to breaches of the contract of carriage, and is distinct from the respondent's claim against the appellant pursuant to a LOI which is governed by PNG law. It cannot be said that the appellant is prejudiced by that claim proceeding in PNG. The issue of the LOI is unlikely to require that Japanese witnesses would have to be brought to PNG. On the contrary, the respondent might be prejudiced if a stay were to be granted, in that it could not bring its action in Japan.