Singapore: BCBC Singapore Pte Ltd v Pt Bayan Resources TBK [2016] SGHC(I) 01: joint venture deed

In its first written judgment, the Singapore International Commercial Court (SICC) provides some insight into Singapore's approach to contractual interpretation, including in relation to implied terms and ambiguity, and the impact of foreign illegality on business dealings.

The case in question concerns a joint venture dispute between parties in Australia and Indonesia, with associated companies in Singapore, over the construction and commissioning of a coal briquette processing plant in Indonesia.

In a very comprehensive judgment, the SICC considered the obligations of the parties under a joint venture deed (JV Deed) along with other project agreements and side deeds.

Following judgment, the SICC (in which two of the three presiding Judges were International Judges) invited submissions from the parties as to the future conduct of the case, with a Case Management Conference to be held within 30 days of the judgment.1

KEY FACTS

An Australian company, Binderless Coal Briquetting Company Pty Ltd (BCBC), was the holder of an exclusive worldwide licence to exploit the "Binderless Coal Briquetting Process," a process by which raw coal is processed into briquettes with higher calorific value and lower moisture content than normal (BCB Process). Bayan International Pte Ltd (BI), a Singaporean entity, was part of the "Bayan Resources Group", an Indonesian group of companies with interests in coal.

After conducting investigations and procuring feasibility reports, BCBC and BI agreed to construct and commission a plant in Indonesia employing the BCB Process (Project). Further, they agreed that companies related to BI would supply the joint venture facility with coal.

In January 2007, the parties established the joint venture company, PT Kaltim Supacoal (KSC) in Indonesia, with BCBC Singapore Pte Ltd (a Singaporean company in the same corporate group as BCBC)(BCBCS) holding 51% of the shares, and PT Bayan Resources TBK (a publically listed Indonesian entity in the Bayan Resources Group)(BR) holding the remaining shares.

In January 2008, BCBC and BI entered into a Memorandum of Understanding agreeing that PT Thiess Contractors Indonesia (Thiess) would be appointed to construct the Project under a D&C Alliance Contract with KSC. The project had a target completion date of 1 March 2009.

In January 2009, the Indonesian Government passed Law No 4 of 2009 on Mineral and Coal Mining, which imposed permit requirements and set benchmark prices for various types of coal.

A Certificate of Practical Completion was issued in relation to the work carried out by Thiess under the D&C Alliance Contract on 30 April 2009.2

The cost of the construction and commissioning of the Project exceeded early estimates and continuing budget revisions. As a consequence, BCBCS committed more funds to the Project and requested BR to do the same. Further, KSC entered into an agreement with Standard Chartered Bank in September 2009 for a US$10M working capital loan facility (SCB Loan Facility).3

In December 2011, BR sent a "Default Notice" to BCBC's publically listed parent company, White Energy Company Ltd (WEC), and BCBCS alleging breaches of the JV Deed by BCBCS and total failure of consideration and purpose of the same. BR also gave notice that the BCBCS were to remedy all the defaults within 30 days.4

WEC responded by alleging that BR was in breach of its funding obligation and requesting confirmation that BR would meet same.5 Without admitting liability and purely to mitigate further loss and damage, BR agreed to transfer certain funds.

In December 2011, BCBCS and BCBC commenced proceedings in the High Court of Singapore against BR and BI, and the action was transferred to the SICC in March 2015.

THE ISSUES

The Court considered a series of issues broadly related to the following three categories of issues: funding, coal supply, and the counterclaim.6

Funding Issues

The funding issues focussed on three key issues, namely, whether BR was obliged to:7

  1. provide funding for the commissioning, operations and maintenance of the Project in accordance with a funding MOU executed in March 2009 (Funding MOU);
  2. consent to KSC obtaining an advance from SCB to repay monies lent to it by BCBCS; and
  3. contribute 49% of KSC's care and maintenance costs.

The SICC looked at the terms of the JV Deed and Funding MOU which were expressly governed by Singaporean law.8 Under Singaporean law a contextual approach is taken to contractual construction (i.e. 'the Court ascertains the intention of the parties at the time they entered into a contract based on all "relevant" evidence'). Extrinsic evidence can be used to interpret a contract if it is 'relevant, reasonably available to all the contracting parties and relates to a clear or obvious context.' Subsequent conduct can also be considered as an aid to construing a contract. 9

In considering the JV Deed, the SICC looked at the natural and ordinary meaning of the funding obligations clauses and held that had the parties intended to give up their 'significant right' to withhold consent to calls for funding then they would have articulated this in the Funding MOU.10

The SICC commented on what it considered, or more relevantly did not, to form relevant extrinsic evidence under Singaporean law, including evidence of subsequent conduct. For example, the Court looked at BR seeking clarification of the costs associated with its funding obligations, and did not consider this relevant contextual evidence of BR's awareness of its legal obligation to contribute to such costs under the Funding MOU. 11

Ultimately on the question of funding, the SICC determined that BR was under no obligation to provide funding for commissioning costs or care and maintenance costs (even though it was subject to good faith obligations under the JV Deed), nor was it under any obligation to consent to KSC obtaining a further advance to repay debts owed to BCBCS.12

Coal Supply Issues

The first coal supply issue was whether BR was under an obligation to supply and / or assist to procure coal to be supplied to KSC under the JV Deed or other agreements or side deeds. In relation to this issue, KSC had entered into coal supply agreements with entities related to BR.

On this issue, the SICC held that there was insufficient evidence to determine how much coal was required by KSC in the period in question, which was during the commissioning phase.13 To that end, it reserved its decision until later when the issue could be further explored.

The second coal supply issues was whether the coal supply agreements (and related side agreements) for the supply of coal between November 2011 and March 2012 were illegal or entered into for an illegal purpose under Indonesian law, and thus unenforceable in Singapore. This was namely because of the transfer pricing and tax implications of the economic model used for pricing the coal. In 2010 the Indonesian Government introduced new regulations for the mining industry impacting on permits, and more relevantly, on mandated minimum benchmark prices for various types of coal.14

The SICC explored the two distinct strands that comprise illegality in Singapore. First, as a matter of public policy:15

... a Singapore court will not enforce a contract or award for damages for its breach, if its object or purpose would involve doing an act in a foreign and friendly state which would violate the law of that state.

Second, on an independent conflict of laws basis, the SICC confirmed that a contract would be:[16]

... invalid in so far as the performance of it is unlawful by the law of the country where the contract is to be performed.

BR's argument that the coal supply agreement and associated side letter were illegal was dependent upon them being illegal under Indonesian law – that is, they conflicted with the regulations issued by the Indonesian government. Following the consideration of evidence from experts in Indonesian law put forward by both sides, the SICC found that there were common grounds on which an agreement would be held to be unenforceable under Indonesian law.17 In this case however, the SICC rejected the allegation that the agreements were tainted by illegality as they were consistent with the regulations introduced by the Indonesian government. Further, the judgment provides detailed consideration of the pricing mechanisms in the coal supply agreements and related side letter which may prove useful in similar commercial settings.

Counterclaim Issues

One of the contentious counterclaim issues was whether there was an implied term in the JV Deed: [18]
... that in providing technical assistance to KSC in the development of the Patented Briquetting Process, BCBCS was under a contractual duty to use the reasonable skill and care to be expected of a competent designer, builder and operator of a coal preparation and briquetting plants.

The SICC addressed the approach to implied terms in Singapore noting that a court must first ascertain how the gap in the contract arises as the implication will only be considered where parties did not contemplate the gap.19 Secondly, the court will consider whether it is necessary in business or commercial sense to imply the term to give the contract efficacy.20 Thirdly, the specific term to be implied will be considered and it must be one that the parties 'would have responded "Oh, of course!" had the proposed term been put to them at the time of the contract.' 21

As to the implied term alleged in this instance, the SICC held that the obligation in the JV Deed for BCBCS to provide technical assistance did not go so far as to impose an obligation to provide this assistance as it related to design, building or operating of coal preparation and briquetting plants. As such, there was no implied contractual duty to use the reasonable care and skill expected of a competent designer, builder or operator of the same.22

Footnotes

1 [289].

2 [51].

3 [53].

4 [77].

5 [78].

6 [86].

7 [91].

8 [99].

9 [99] – [103].

10 [116].

11 [123] – [125].

12 [154].

13 [167]–[171].

14 [204].

15 [175].

16 [176].

17 [192].

18 [88].

19 [238].

20 Ibid.

21 Ibid.

22 [270].

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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