BCBC Singapore Ptd Ltd and another v PT Bayan Resources TBK and another [2016] SGHC (I) 01
On 12 May 2016, the Singapore International Commercial Court (SICC) rendered its first judgment, only four months after the parties filed their closing submissions.
The case involves a dispute worth approximately US$800 million involving Singapore, Australian and Indonesian companies over a joint venture agreement for the production and sale of upgraded coal from East Kalimantan, Indonesia. In March 2015, the proceedings were transferred to the SICC to be heard by Justice Quentin Loh of the Supreme Court of Singapore, together with International Judges Vivian Ramsey (formerly an English High Court Judge) and Anselmo Reyes (formerly Judge of the Court of First Instance in Hong Kong).
The judgment is significant. It is the first judgment rendered by the SICC—itself a bold innovation in the suite of dispute resolution options available in Singapore for transnational commercial disputes.
The SICC’s success will be determined by its ability to convince commercial parties to bring their disputes before it, wherever they arise. That is likely to depend on whether the SICC can offer high-quality and commercially sound decisions that are delivered promptly, as compared to other dispute resolution options. To prove that to commercial parties, the SICC needs to establish its credentials. That clearly is not lost on the Chief Justice who transferred these proceedings to the SICC, despite the fact that the underlying agreement was governed by Singapore law.
The Chief Justice’s decision to transfer the case was vindicated by the SICC. The judgment stands out for its clarity and the fact that the parties only had to wait four months after they delivered their closing submissions for the resolution of the preliminary issues heard by the Court. Time will tell whether the SICC is successful in establishing Singapore as a centre for the resolution of international commercial disputes, but this decision has the SICC off to a flying start.
Looking ahead
As the SICC develops, there remain several issues to be clarified, each providing potentially attractive dispute resolution options for commercial parties. For example, there may be the potential for issues relating to international arbitral awards, such as applications for their setting aside, to be dealt with by the SICC instead of the Singapore High Court. Additionally, the availability at the SICC of eminent international judges who hail from countries with civil law systems recently has been identified as a factor that potentially levels out forum non conveniens arguments in favour of Singapore as an appropriate forum to determine international commercial disputes, including where the governing law is not that of Singapore. Companies with transnational disputes should continue closely to monitor these developments as they assess the attractiveness of the SICC as a dispute resolution option.
The parties and their dispute
The plaintiffs, Binderless Coal Briquetting Company Singapore Pte Ltd (BCBC Singapore) and its parent, an Australian company, Binderless Coal Briquetting Company (BCBC), sought damages from their Indonesian joint venture partner PT Bayan Resources TBK (Bayan Resources) and a related Singapore-incorporated company Bayan International Pte Ltd (Bayan International).
The dispute also related to the joint venture company PT Kaltim Supacoal (KSC), incorporated in Indonesia, whose shares were held by BCBC Singapore and Bayan Resources. The Joint Venture Deed was governed by Singapore law (the JV Deed).
The original parties to the KSC joint venture were BCBC and Bayan International. Subsequently, through a Deed of Novation, Bayan International and BCBC were substituted by Bayan Resources and BCBC Singapore respectively. Bayan Resources and BCBC Singapore entered into a Memorandum of Understanding (KSC Funding Arrangements) (the Funding MOU), which also was governed by Singapore law.
KSC entered into two coal supply agreements with PT Bara Tabang (Bara) and PT Fajar Sakti Prima, subsidiaries of Bayan Resources, between March and June 2011. These became known as the “2010 CSAs”. In April 2011, BCBC, Bayan Resources, Bara and KSC entered into a side letter dealing with the supply of coal (the April 2011 Side Letter).
The disputes arose from alleged breaches of a joint venture for the application of a patented technology, the “Binderless Coal Briquetting Process”, to produce and sell upgraded coal from East Kalimantan in Indonesia.
On 27 December 2011, BCBC Singapore and BCBC filed a suit in the Singapore High Court against Bayan International and Bayan Resources for breach of contract, which was then transferred to the SICC on 4 March 2015. By agreement, the Parties requested that the SICC decide certain issues relating to the existence and scope of their contractual obligations on a preliminary basis, without deciding whether those obligations had been breached. The SICC agreed to address three categories of issues on this basis: (i) the funding issues; (ii) the coal supply and illegality issues; and (iii) the counterclaim issues.
1. The funding issues
First, the SICC considered whether Bayan Resources was obliged to: (i) provide funding for the commissioning, operations and maintenance of the Tabang Plant (the coal briquette processing plant that would upgrade the coal located in Tabang, Indonesia) under the Funding MOU, and if so, what the scope of that obligation was; and (ii) contribute 49 percent of KSC’s care and maintenance costs, given Bayan Resources’ ownership of 49 percent of KSC, and if so, what the scope of that obligation was.
Both the documents that governed these issues, the JV Deed and the Funding MOU, were governed by Singapore law. The SICC noted that, applying Singapore law principles of construction, the Court “ascertains the intention of the parties at the time when they entered into a contract based on all ‘relevant’ evidence” (see Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR(R) 1029 (Zurich Insurance), para 132). The starting point of the analysis is the text of the contract, but extrinsic evidence may be admissible to interpret the words of an agreement, provided it is “relevant, reasonably available to all the contracting parties and relates to a clear or obvious context” (Zurich Insurance, para 132(d)).
According to its terms, the Funding MOU must be read in accordance with and subject to the JV Deed, under which such funding required the “unanimous consent” of the JV partners. The SICC rejected BCBC Singapore’s argument that extrinsic evidence showed that the Funding MOU was intended to override the JV Deed and found that Bayan Resources did not consent to providing such funding. On that basis, the SICC held that Bayan Resources was not obliged to provide funding for the commissioning, operations and maintenance of the Tabang Plant, nor was it obliged to contribute to KSC’s care and maintenance costs.
Second, the SICC considered whether Bayan Resources was obliged to consent to KSC’s obtaining a further advance of US$3.033 million from Standard Chartered Bank under a US$10 million working capital loan facility to repay BCBC Singapore’s temporary loan of US$3.033 million to KSC. The SICC found that Bayan Resources had agreed only to KSC’s use of the loan facility for the immediate repayment of other prior loans by BCBC Singapore to KSC. The SICC held that Bayan Resources was not obliged to consent to KSC’s obtaining the further US$3.033 million advance to repay the US$3.033 million temporary loan.
2. The coal supply and illegality issues
Third, the SICC also considered whether Bayan Resources was under an obligation to supply and/or assist in procuring coal to be supplied to KSC between early November 2011 and 2 March 2012 on the basis set out in the JV Deed, the Priority Loan Funding Arrangement (the PLFA) and/or the April 2011 Side Letter. The SICC decided to reserve this issue for a later tranche as it did not have sufficient evidence before it.
Fourth, the SICC considered whether between early November 2011 and 2 March 2012, the supply of coal under the April 2011 Side Letter and coal supply agreements was and/or would have been illegal and/or was entered into for an illegal purpose under Indonesian law by virtue of Regulation 17 of 2010 on Procedures to Determine the Benchmark Price for the Sale of Minerals and Coals (the HBA Regulations); and whether the April 2011 Side Letter should be void for uncertainty.
Foreign illegality
With respect to “foreign illegality”, the SICC relied on the doctrine stated by the Singapore Court of Appeal in Peh Teck Quee v Bayerische Landesbank Girozentrale [1999] 3 SLR(R) 842: a Singapore Court will not enforce a contract or award 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.
Both parties’ submissions focused on answering the question whether the 2010 CSAs and the April 2011 Side Letter were illegal under Indonesian law. The SICC looked to Indonesian law in order to understand the meaning of the HBA Regulations, which the Defendants contended were violated by the 2010 CSAs and the April 2011 Side Letter.
After considering expert evidence on Indonesian law and the HBA Regulations, the SICC found that the 2010 CSAs only permitted performance that fully complied with the Indonesian laws and the HBA Regulations in relation to the sale of coal. The SICC also found that the arrangement under the April 2011 Side Letter, read with the 2010 CSAs, was entirely consistent with the objectives of the HBA Regulations and did not give rise to any illegality.
Uncertainty
With respect to the alleged uncertainty as to the status of the April 2011 Side Letter, the SICC applied Rudhra Minerals Pte Ltd v MRI Trading Pte Ltd (formerly known as CWT Integrated Services Pte Ltd) [2013] 4 SLR 1023, which held that a contract would not be invalidated even though further terms needed to be agreed, unless the failure to reach agreement on those further terms rendered the contract unworkable or void for uncertainty. The SICC held that the April 2011 Side Letter was not void for uncertainty because the purported “gaps” regarding apportionment of payment reconciliations between the JV partners were not of such a nature that warranted striking down the entire contract for uncertainty. The April 2011 Side Letter established a broad overarching framework that was workable in practice.
3. The counterclaim issues
Fifth, the SICC considered whether BCBC Singapore was under an implied contractual duty to use the reasonable skill and care to be expected of a competent designer, builder and operator of coal preparation and briquetting plants in providing technical assistance to KSC.
In order to determine whether there are implied terms under Singapore law, the SICC followed the three-step test set out by the Singapore Court of Appeal in Sembcorp Marine Ltd v PPL Holdings Pte Ltd & Anor [2013] 4 SLR 193, paras 93-101. According to the SICC (para 238):
For there to be implied terms, the court must, as a first step, ascertain how the gap in the contract arises; implication will be considered only if the court discerns that the gap arose because the parties did not contemplate the gap. Under the second step, the court considers whether it is necessary in the business or commercial sense to imply a term in order to give the contract efficacy. Finally, the court considers the specific term to be implied. This must be one which the parties, having regard to the need for business efficacy, would have responded “Oh, of course!” had the proposed term been put to them at time of the contract. If it is not possible to find such a clear response, then, the gap persists and the consequences of that gap ensue.
Applying this test, the SICC found that BCBC Singapore was not under such an implied contractual duty. Its obligation to provide “technical assistance” under the JV Deed related to the development of the patented technology, and not the much wider obligation to provide KSC with designs and other technical information required to enable the construction, procurement and commissioning of the Tabang Plant. The SICC held that that went much further than “technical assistance”.
Sixth, the SICC determined whether there was an implied obligation in the JV Deed and/or the Funding MOU for BCBC Singapore to procure that KSC produce 1 million metric tonnes per annum of upgraded coal briquettes within a reasonable period of time.
Applying the same test, the SICC held that there was no such implied obligation on BCBC Singapore. There was no gap that the parties did not contemplate and it was not necessary in the commercial or business sense to imply such a term. Such an implied term would impose a guarantee of performance on one party to a joint venture for a project involving inherent risks in achieving capacity. Further, the SICC considered that there was no express reference in the JV Deed that BCBC Singapore must achieve a particular output by a particular time: indeed, when the JV Deed was being drafted such express reference was proposed and rejected.
The SICC will hear the parties as to the further conduct of this case after they have had the opportunity to consider the judgment. Unless the parties request for an earlier date, the next Case Management Conference will be held 30 days from the date of the judgment.
