Singapore International Commercial Court · Decided 25 July 2017

BCBC Singapore Pte Ltd and another v PT Bayan Resources TBK and another

[2017] SGHC(I) 06Case no. Suit No 1 of 2015

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[1] This is our judgment and determination of the issues in the second tranche (“Tranche 2”) of these proceedings. To recapitulate, these disputes arise out of a joint venture which sought to exploit a technology developed by Australian parties for the upgrading of sub-bituminous coal from mines in Tabang, East Kalimantan, owned by Indonesian parties, into coal briquettes with a higher calorific value and lower moisture content. The terms of the joint venture were set out in the JV Deed dated 7 June 2006. However, during the course of the joint venture, the parties subsequently entered into a number of ancillary agreements, memoranda, side letters and other documents recording their various agreements on the many issues that cropped up.
Introduction
[2] The background and facts surrounding these disputes have been set out in our earlier judgment dated 12 May 2016 for the first tranche of this trial (“Tranche 1”): see BCBC Singapore Pte Ltd and another v PT Bayan Resources TBK and another [2016] 4 SLR 1; [2016] 5 LRC 186 (“the First Judgment”) at [1] – [85]. We will not repeat the same and will only refer to those facts insofar as it is necessary to do so to answer the issues raised in Tranche 2. Unless otherwise specified, we adopt the same abbreviations used in the First Judgment.
[3] To recapitulate, in the First Judgment, we determined issues which fell into three categories, viz, funding issues, coal supply issues and counterclaim issues (see the First Judgment at [86]). We held, inter alia, as follows:
(a) in respect of the funding issues, we held that BR was not obliged to fund the joint venture between November 2011 and March 2012 on two grounds (see the First Judgment at [92] – [131]). First, cl 4 of the Funding MOU did not override cll 7.1 and 8 of the JV Deed. Secondly, the good faith obligation in cl 17.3 of the JV Deed did not constrain BR to approve any and all additional expenditure assessed by BCBCS. We also held that BCBCS had not undertaken to fund the joint venture until commercial production (see the First Judgment at [137] – [146]);
(b) with regard to the coal supply issues, we held that the arrangements under the April 2011 Side Letter read with the 2010 CSAs were neither illegal nor tainted with illegality (see the First Judgment at [172] – [228]);
(c) on the counterclaim issues, we held that BCBCS was not under an implied obligation to use the reasonable skill and care expected of a competent designer, builder and operator of coal preparation and briquetting plants in providing technical assistance to KSC (see the First Judgment at [263] – [271]). For completeness, we also held that there was no implied term of the JV Deed and/or the Funding MOU that BCBCS was under a contractual obligation to procure that KSC produce 1 MTPA of upgraded coal briquettes within a reasonable time (see the First Judgment at [272] – [287]).
[4] We also held that we were not able to answer the other coal supply issue, Issue 4, which was formulated as follows (see [155] of the First Judgment):
We left this question open for Tranche 2 because there was “insufficient evidence … before us to answer the question of what coal KSC required in early November 2011 to 2 March 2012”: see [171] of the First Judgment. We stated that “what stage the commissioning had reached by early November 2011 and whether there was sufficient coal for the commissioning process during the relevant period … cannot be answered on the inadequate evidence placed before us”, and reserved Issue 4 for Tranche 2 where the necessary facts and evidence could be fully adduced and explored.
[5] For Tranche 2, the parties formulated a further list of eleven issues for our determination. Again, the issues fall within three broad categories:
(a) coal supply issues (Issues 1 to 4);
(b) repudiation issues (Issues 5 to 8); and
(c) causation and loss issues (Issues 9 to 11).
Notably, the parties were unable to agree on all the issues to be determined in Tranche 2. They agreed on the framing of Issues 2, 4, 5 to 8, 10 and 11, but were unable to agree on the wording of Issues 1, 3 and 9. In response, we informed the parties that we would hear Tranche 2 on the basis of the list of agreed and non-agreed issues set out in the Plaintiffs’ solicitors’ letter to the Court dated 18 November 2016. On those issues upon which the parties could not reach agreement, we would decide matters based on the pleaded issues, with each party being able to argue as to what the pleaded issues were. We have set out these agreed and non-agreed issues in our judgment below.
[6] In this tranche, the parties were, in essence, focused on:
(a) Issue 4 from Tranche 1 (Issues 1 to 3 of Tranche 2);
(b) the alleged breaches by BR of obligations in relation to the supply of coal to KSC (“BR’s coal supply obligations”) (Issue 4 of Tranche 2);
(c) whether, in the events that occurred at the end of 2011 and early 2012, either party was in repudiatory breach of its obligations; and if so, whether the other party had accepted the other’s repudiatory breach (if any) and put an end to the joint venture (Issues 5 to 8 of Tranche 2); and
(d) whether, even if BR was in repudiatory breach of its coal supply obligations, such breach could have caused BCBCS loss, given our conclusion in Tranche 1 that BR was not obliged to fund KSC between November 2011 and 2 March 2012 (Issues 9 to 11 of Tranche 2). The thrust of the Defendants’ case on this point is as follows:
(i) BCBCS was not entitled under the JV Deed to unilaterally fund KSC without BR’s approval;
(ii) accordingly, KSC was simply not viable, since it was devoid of funding from BR and unable to receive funding from BCBCS due to BR’s objections to such funding;
(iii) even if coal had been supplied, KSC would not have been able to do anything with the coal (much less upgrade the same into coal briquettes) without funding;
(iv) thus, even if BR had breached its coal supply obligations, this could not have caused loss to BCBCS.
On these premises, it follows that, even if BR had breached its coal supply obligations, the damages for such breach would only be nominal. Thus, the Defendants argue that there is no need for a third tranche of these proceedings (“Tranche 3”) to determine the quantum of any loss or damage suffered by BCBCS due to BR’s alleged breach.
[7] During a Case Management Conference (“CMC”) before Tranche 2, we informed the parties that reference could be made to evidence from Tranche 1 (to avert the need to recall witnesses to repeat their evidence). In this judgment, we shall refer to evidence from Tranche 1 where it is relevant.
[8] We heard Tranche 2 on 4–6 and 12–13 January 2017. Thereafter, the parties submitted written closing submissions and reply submissions. We then heard oral closing submissions from the parties on 20 April 2017.
The witnesses
[9] The following witnesses testified for the Plaintiffs in this tranche:
(a) Mr Brian Flannery (“Mr Flannery”), the Managing Director and the Chief Executive Officer (“the CEO”) of WEC, who is also a director of the Plaintiffs, and who was a former director of KSC;
(b) Ms Neale, the Business Development Counsel of WEC (see also [83(b)] of the First Judgment); and
(c) Mr John Reilly (“Mr Reilly”), who was KSC’s Construction Superintendent from 19 July 2007 to August 2009 and KSC’s Site Operations Manager from September 2009 to December 2011, and who has more than 35 years of experience in the coal industry.
In addition, Mr David Friedlander filed an affidavit for the Plaintiffs which was admitted into the evidence. But the Defendants did not cross-examine Mr Friedlander; and, upon their withdrawal of the argument that BCBCS had repudiated the JV Deed by permitting WEC to make public announcements relating to the same (see [146] below), his evidence became superfluous. The Plaintiffs had also intended to call Mr Toh Ching Wah (“Mr Toh”), but later decided, in view of developments during the trial, not to rely on his evidence (see [53] below).
[10] The following witnesses testified for the Defendants in this tranche:
(a) Mr Neil, a Director and Chief Development Officer of BR and a director of BI (see also [84(a)] of the First Judgment);
(b) Mr McLeod, a Director and the Chief Financial Officer (“the CFO”) of BR and a director of BI (see also [84(b)] of the First Judgment);
(c) Mr Lim, a Director and the Chief Operating Officer (“the COO”) of BR and a director of BI (see also [84(d)] of the First Judgment); and
(d) Mr John Kipling Alderman (“Mr Alderman”), the President of Advanced Coal Technology (a company which provides coal quality consulting and process design services), who has 41 years of experience in the coal industry.
[11] The following representatives of the Plaintiffs and the Defendants also played leading roles in the key events detailed at [13] – [65] below:
(a) Mr Duncan, the current chairman of WEC and a director of the Plaintiffs (see also [83(a)] of the First Judgment);
(b) Mr Maras, the CFO of WEC (see also [83(c)] of the First Judgment);
(c) Dato Low Tuck Kwong (“Dato Low”), the chairman of BI; and
(d) Mr Chin, the President Director and the CEO of BR and a director of BI (see also [84(c)] of the First Judgment).
The key facts
[12] We now set out the key facts in Tranche 2. Insofar as these facts are disputed, the following paragraphs constitute our findings of fact.
Events leading up to the November 2011 Board Meeting
[14] The PLFA was signed by KSC, BR and BCBCS on 17 December 2010 but backdated to 22 April 2010 (see [58] of the First Judgment).
[15] On 23 September 2010, the HBA Regulations were introduced to determine the HBA prices for minerals and coal in Indonesia. The HBA Regulations came into force on 1 October 2010 (see [62] of the First Judgment).
[16] Between March and June 2011, KSC entered into the 2010 CSAs with Bara and FSP respectively (see [66] of the First Judgment). The 2010 CSAs were backdated to 1 October 2010, the date when the HBA Regulations came into force.
The November 2011 Board Meeting
[20] The November 2011 Board Meeting took place on 2 and 3 November 2011. Mr Flannery, Mr Maras and Mr Michael Chapman (“Mr Chapman”), the COO of WEC and Acting General Manager of KSC, represented BCBCS. Mr Chin, Mr McLeod and Mr Neil represented BR. In addition, Mr Lim and Mr Irwan Darmawan, who had just been appointed as KSC’s Financial Controller, attended the meeting on 2 November 2011.
[21] There are two sets of notes of the discussions on each day. Mr Maras and Mr Neil took notes on 2 November 2011; Mr Maras and Mr McLeod took notes on the next day. We note these are contemporaneous records and they are generally in harmony with Mr Chin’s, Mr Flannery’s and Mr Maras’ accounts of the meeting in their AEICs.
[22] Mr Maras’ note indicates that the meeting began on 2 November 2011 with Mr Chapman first providing the Board with an update on the Tabang Plant, which had been shut down in October 2011 for modifications to be effected to the production module. His note then states the following:
BR’s representatives thereafter stated, inter alia, as follows:
(a) Mr McLeod said that the solution was “[to] get out of [the] project”, for example, by selling the power station or stripping the Tabang Plant and selling the steel, and stated that “[the] project is not feasible”.
(b) Mr Chin stated that BR wanted to sell the Project back to BCBCS. BR was “not sabotaging the [P]roject”, but its view was that “[the] project will not make money for KSC”. BR wanted “to get out of [the] JV”. Mr Chin also stated “project not returning to BR a return greater than discount built in to sell 4,200 CV [ie, Kcal/kg GAR] coal based on HBA Index”.
(c) Mr Chin noted that, if BCBCS wanted to continue with the Project, BR would work with BCBCS to support BCBCS, for example, in relation to infrastructure issues. However, he said that “BR would need to sell coal to KSC at commercial rates” (for example, at US$40 per tonne for 4,200 CV coal, ex mine, without transport).
(d) Mr Chin also stated that BR wanted the issue to be finalised by the end of 2011, ie, within two months.
[23] Mr Neil’s note is a very brief one. It tersely states, inter alia, as follows:
[24] During Tranche 1, Mr Neil gave the following evidence regarding the meeting on 2 November 2011:
Mr Neil’s evidence was therefore that, on 2 November 2011, BR’s position was that it was exiting the joint venture immediately and that by the end of the 2 November meeting, BR no longer considered itself a party to the joint venture; it considered that it had exited the joint venture after informing BCBCS of the same.
[25] Following the discussions on the Project’s feasibility, the meeting was adjourned to the next day. Mr Maras’ note indicates that, on 3 November 2011, the following discussion occurred:
(a) BR stated that it wished to recover its US$45m investment in the Project. It would support WEC by supplying coal on arms’ length terms.
(b) In response, Mr Flannery proposed two options which would allow the parties to “continue as is” until June 2012 and complete the modifications to the Tabang Plant. First, KSC could buy and sell coal at the HBA price (with BCBCS funding the shortfall). Secondly, coal could just be transferred with no sales recorded. Mr Flannery stated that either option would enable BR to write off its loans before the end of the year. Further, if the Tabang Plant were abandoned in the future, BCBCS would be entitled to the production module while BR would be entitled to the power station.
(c) At this point, the meeting was adjourned for 30 minutes. When it resumed, Mr McLeod informed the meeting that BR did not see that the Project was viable and did not want to participate further as a 49% shareholder in KSC. Mr McLeod then set out two options as follows:
(i) first, BCBCS could buy out BR’s 49% stake in the Project, thus enabling BR to recoup its US$45m investment, with the payment terms to be negotiated (“the US$45m buyout option”);
(ii) secondly, the parties could immediately close the Tabang Plant and wind down the Project.
Mr McLeod also reiterated that BR’s involvement would have to conclude by the end of 2011.
[26] In relation to [25(b)] above, Mr Flannery deposed that, at the meeting on 3 November 2011, he had proposed the following options to BR:
[27] Mr McLeod’s note of the meeting on 3 November 2011 is in line with Mr Maras’ account, and reflects the following:
(a) Mr Chin stated that BR would supply coal, haulage and barging at commercial rates to KSC. BCBCS replied that the Project was not viable if KSC had to buy coal at US$40 per tonne.
(b) BCBCS stated that it wished to carry on with the Project, and suggested a deadline of June 2012.
(c) BR’s offer to BCBCS was for the latter to buy BR’s shares in the Project, with the payment terms being flexible.
[28] Having set out the records of the November 2011 Board Meeting and Mr Neil’s testimony, we note that Mr Chin deposed on the meeting as follows:
We note that Mr Chin identified Bara and FSP as the entities with obligations in relation to supplying coal to KSC, and spoke only of the 2010 CSAs. He did not state that BR had any obligations in relation to coal supply under the JV Deed or the PLFA.
[29] Having reviewed the documentary evidence and heard the witnesses, we make the following further findings regarding what transpired at the November 2011 Board Meeting:
(a) BR told BCBCS that the joint venture no longer made financial sense for BR; the Project was not feasible.
(b) BR wanted to exit the joint venture and its exit to be finalised by the end of December 2011. We note that Mr Neil testified that BR had exited the joint venture on 2 November 2011, and no longer considered itself a party to the joint venture thereafter (see [24] above). If Mr Neil’s evidence is accepted, BR would have repudiated the JV Deed because, under the JV Deed, a party could not withdraw or bring the joint venture to an end by a unilateral declaration at a KSC Board Meeting. However, we do not accept Mr Neil’s evidence. The notes of the meeting show, and we find, that BR did not communicate to BCBCS that it had exited from the joint venture during the meeting. We place less weight on Mr Neil’s evidence, given during cross-examination a few years after the event, and give more weight to the contemporaneous documents.
(c) Rather, what BR did was to inform BCBCS that it no longer wished to continue with the joint venture for the reasons set out above. BR then presented two options to BCBCS: the latter could buy out BR at US$45m on terms (ie, the time over which payment could be made) which were negotiable, or the parties could immediately wind down the Project and shut down the Tabang Plant. In turn, BCBCS presented two options to BR. Essentially, these were two experienced business entities negotiating with proposals and counter-proposals which were aligned to their respective, but conflicting, interests. What the parties said subsequently is consistent with this.
(d) However, BR stated that if BCBCS wanted to continue with the Project, then Bara and FSP would only supply coal to KSC from then on at HBA prices, viz, at commercial rates and on arms’ length terms. We find that, in making this statement, BR committed a repudiatory breach of the PLFA by renunciation. This is because, under Art 7 of the PLFA, Bara and FSP were only entitled to US$8 per tonne immediately, and not HBA prices, for the coal which they supplied to KSC (see [58] of the First Judgment). By stating that Bara and FSP would only supply coal at HBA prices, BR renounced its obligation under Art 7.1 of the PLFA to ensure that coal was supplied to KSC in line with the deferred payment mechanism which the PLFA provided for. We consider that Art 7 was a condition of the PLFA. Therefore, BR’s renunciation of its obligation under Art 7.1 amounted to a repudiation of the PLFA.
(e) It is noteworthy that BCBCS did not state at any time during the November 2011 Board Meeting that BR was in breach of its obligations. Nor did it state that it accepted any repudiatory breach by BR.
(f) On the contrary, BCBCS asked that the Project continue as is until June 2012 by which time the modifications would have been completed. In this regard, BCBCS proposed two options. First, KSC could buy and sell coal at HBA prices and BCBCS would fund the shortfall. Secondly, coal could be transferred with no sales recorded.
(g) The parties did not arrive at any final, concluded positions at the November 2011 Board Meeting. Rather, the meeting ended in an impasse and both sides left to consider their options and positions.
The Cessation of the Coal Supply
[30] On 4 November 2011, Mr McLeod sent an email to Mr Maras and Mr Chapman stating that he had spoken to Mr Chin, and confirmed that as “an interim measure and for the short term Bayan would … [c]ontinue to supply coal to KSC at HBA … [and] [t]ake the upgraded coal at HBA”.
[31] On the same day, KSC requested that Bara and FSP deliver “2,000 tons of coal” and received 2,030.21 tonnes; again, on 5 November, KSC requested for “1,000 tons of coal” and received 1,035.88 tonnes. On 6 November, KSC requested for 2,000 tons of coal and received 809.34 tonnes on that day. Then, on 7 November, KSC made the following request for coal:
[32] On 7 and 8 November 2011, KSC received 1,594.67 tonnes and 1,717.1 tonnes of coal from Bara and FSP respectively. In total, from 3–8 November 2011, KSC received 8,228.43 tonnes of coal from Bara and FSP. As of 9 November, KSC had a stockpile of 18,606.56 tonnes of run of mine (“ROM”) coal.
[33] However, on 9 November 2011, Mr Neil emailed Mr Wong Chong Keong (“Mr Wong”), the mine manager of Bara and FSP, instructing Mr Wong not to supply any more coal to KSC. This email, which was copied to Mr McLeod and Mr Chin (“the 9 November 2011 email”), stated as follows:
We find that, by this email, BR instructed Bara and FSP to cease the supply of coal to KSC.
[34] Subsequently, two KSC employees informed Mr Reilly that Bara and FSP would not supply any more coal to KSC as they had been instructed not to do so. On 10 November, Mr Reilly sent the following email to Mr Wong:
Mr Wong then visited Mr Reilly in his office and showed him the 9 November 2011 email, which led Mr Reilly to inform Mr Chapman of the situation. We thus find that BR’s instruction to Bara and FSP to cease supplying coal to KSC was communicated to KSC. Bara and FSP did not supply any ROM coal to KSC after 8 November 2011. For the reasons set out in [137], [140] and [182], we find that BR was thus in repudiatory breach of the JV Deed.
The 17 November 2011 Meeting
[35] On 17 November 2011, Mr Duncan and Mr Flannery met Dato Low and Mr Chin at BR’s office in Jakarta. The meeting had been arranged at Mr Duncan’s suggestion “to discuss the current impasse relating to KSC”. During the meeting (“the 17 November 2011 Meeting”), it is undisputed that the parties discussed the US$45m buyout option. But it is disputed whether Mr Chin conditioned Bara and FSP’s supply of coal to KSC on the US$45m buyout option during this meeting. Mr Flannery stated that he did; however, Mr Chin denied this.
[36] Importantly, Mr Flannery took a handwritten note of the 17 November 2011 Meeting. The material portions of that note, which we accept, are as follows:
[37] This note records Mr Chin as saying that coal would “only” be supplied to KSC if the parties agreed on how the WEC parties would pay US$45m, the quantum of the Bayan parties’ loan to KSC, to BR. Mr Chin also said that BR’s only flexibility was on the payment terms. Additionally, the note indicates that Mr Duncan stated his understanding of BR’s position just before the meeting ended, viz, that coal would only be supplied if BCBCS agreed to the US$45m buyout option; there is no record that Mr Chin or Dato Low then sought to disabuse Mr Duncan of his (alleged) misapprehension. Mr Flannery’s note is the one contemporaneous record of the meeting. We therefore find that, at the 17 November 2011 Meeting, BR (through Mr Chin) conditioned the supply of coal to KSC on the US$45m buyout option.
[38] We also note, and it is not BCBCS’ case otherwise, that BCBCS made no protest over the cessation of the coal supply at this meeting. BCBCS also did not state that BR was in repudiatory breach in any way, or that it reserved its position thereon or that it accepted BR’s repudiatory breach.
[39] On the contrary, during cross-examination, Ms Neale testified that, after the 17 November 2011 Meeting, BCBCS did not want to accept any (alleged) repudiatory breach by BR but wished to continue with the joint venture.
Events preceding the 6 December 2011 EGM
[40] On 18 November 2011, Mr Todd Rollason, the commissioning manager of WEC, emailed Geared Engineering, a company which had been asked to look into gearboxes for the Tabang Plant, copying Mr Reilly and Mr Richard Kruger (“Mr Kruger”), a KSC employee who handled procurement, to request that all KSC-related orders be cancelled. While this email was sent to Geared Engineering, Mr Reilly testified that, as it was copied to Mr Kruger, it could also have been sent to other vendors supplying engineering services or materials to the Tabang Plant in respect of the modification works. We find that as of 18 November 2011, given that coal supply to KSC had ceased, it is not surprising that KSC-related orders of this nature were cancelled.
[41] On 21 November 2011, BCBCS sent a letter to BR, accusing BR of breaching cll 3.8(b)(iii) – (iv), 17.1, 17.2, 17.3 and 20.5 of the JV Deed. According to BCBCS, BR had breached the JV Deed as its representatives had stated at the 17 November 2011 Meeting that (1) Bara would only supply coal to KSC “on the condition that [WEC] repay in full loans of approximately USD $45 million made by BR to KSC” and that (2) “Bara intended to cease supplying coal immediately unless [WEC] agreed to pay BR that amount”. BCBCS required BR to remedy the breach within seven days by directing Bara to supply coal in accordance with the 2010 CSA to which Bara was a party, and reserved all its rights arising out of BR’s breach of the JV Deed.
[42] We note that there was no allegation that BR had breached the PLFA, or a direct claim that Bara and FSP had breached the 2010 CSAs. Moreover, BCBCS did not purport to accept any repudiatory breaches by the Bayan parties but only called on BR to remedy its alleged breaches of the JV Deed.
[44] On 24 November 2011, BR replied to BCBCS’ letter of 21 November 2011, stating that BCBCS’ notice of breach was “misconceived” and that:
(a) BR had maintained that Bara must supply coal to KSC in compliance with the HBA Regulations;
(b) Bara would supply coal to KSC based on the 2010 CSA to which Bara was a party; and
(c) “at no point in time did [it] link the issue of Bayan’s intention to withdraw from the joint venture to an issue of cessation of coal supply”.
BR then demanded that BCBCS retract its letter which it characterised as “mischievous and made mala fide”.
[45] On 29 November 2011, WEC responded to BR’s letter of 24 November 2011 on behalf of the WEC parties as follows:
(a) First, WEC maintained that BR had conditioned Bara’s supply of coal to KSC on the US$45m buyout option at the 17 November 2011 Meeting, but stated that it was “proceeding on the basis that [BR’s] letter of 24 November 2011 withdraws that demand”.
(b) Secondly, WEC averred that BR’s duty was to procure Bara to supply coal to KSC “in accordance with the [2010] CSA as amended on 5 April 2011” (and not in accordance with the 2010 CSA alone).
(c) Thirdly, WEC claimed that BR was obliged to provide to KSC 49% of US$20m (a figure which WEC said that it had assessed to be what KSC required through to the end of June 2012), as funding for KSC’s operations. WEC requested BR’s confirmation that it agreed to provide such funding to KSC.
[46] We note that BR’s letter of 24 November 2011 was clearly a repudiatory breach of the then extant PLFA (for the reasons given in [29(d)] above). But the WEC parties did not contend that it was a repudiatory breach or accept the repudiation. Instead, the WEC parties expressly repeated that BR had to procure Bara to supply coal under the 2010 CSA to which Bara was a party. Additionally, it introduced the new element of BR’s alleged obligation to fund its 49% share of US$20m (KSC’s anticipated expenditure to the end of June 2012). The parties disputed the existence of this obligation in Tranche 1; and we found and ruled in favour of the Defendants in the First Judgment (see [3(a)] above).
[47] On 2 December 2011, BR responded to WEC’s letter of 29 November 2011. First, BR stated that it had “not given any notice to suggest that it would not comply with the [2010] CSA”. BR claimed that it had “no knowledge of what 5 Apr 2011 amendment” WEC was referring to and requested a copy of that amendment. Secondly, BR rejected WEC’s request for BR to provide 49% of KSC’s funding requirements.
The 6 December 2011 EGM
[48] On 6 December 2011, KSC held an extraordinary shareholders’ meeting (“the 6 December 2011 EGM”) at BR’s office in Jakarta. The 6 December 2011 EGM was held pursuant to a Notice issued by BR, dated 8 November 2011, calling for such a meeting to discuss and resolve issues pertaining to the 2010 CSAs, KSC’s sale of upgraded coal briquettes to BR, and the joint venture.
[49] Mr Chin, Mr Neil and Mr Oliver Khaw (“Mr Khaw”), BR’s in-house legal counsel, represented BR. Mr Duncan, Mr Flannery, Mr Maras, Ms Neale and Mr Chapman represented BCBCS. There are several contemporaneous records of this meeting: handwritten notes by Mr Neil and Ms Neale, file notes prepared by Ms Neale, and what appear to be four versions of a set of draft minutes of the meeting (the first being the original prepared by Mr Khaw; the second incorporating Mr Khaw’s first set of amendments to the original; the third being a version of the original with Ms Neale’s amendments (ie, without Mr Khaw’s initial amendments as reflected in the second version); and the fourth reflecting Mr Khaw’s mark-ups on the third version to incorporate his initial and other amendments). We take the fourth version to be the final copy of the minutes as it reflected input from both parties and their in-house lawyers.
[50] The records of the meeting indicate, and we so find, that the following transpired:
(a) Mr Duncan stated that Bara was obliged to supply coal to KSC under the 2010 CSAs as amended by the April 2011 Side Letter. Mr Khaw replied that the Bayan parties would only comply with the former: BR was only obliged to comply with the latter if the joint venture continued; however, it proposed to withdraw from the joint venture. Mr Chin clarified that Bara was prepared to supply coal to KSC in line with the 2010 CSAs, which required coal to be sold at HBA prices.
(b) Mr Duncan requested that BR comply with its obligations under all the relevant agreements. Mr Chin “questioned how the agreements [could] be enforced against BR where BR [wished] to exit the JV”. Mr Duncan said that BR could not unilaterally exit the joint venture, and noted that cl 7.1(x) of the JV Deed states that the parties’ unanimous consent is necessary to wind up KSC. Mr Khaw said that “this provision was not relevant as BR’s intention [was] to exit the JV”.
(c) Mr Duncan and Mr Flannery stated that Mr Chin had conditioned the supply of coal to KSC on the US$45m buyout option at the 17 November 2011 Meeting. Mr Chin denied this. Mr Flannery noted that he had been informed that Bara had received instructions to stop supplying coal to KSC. Mr Chin stated that “coal supply will continue on the condition that KSC agrees to pay the HBA price for the coal”.
(d) Mr Chin reiterated BR’s intention to withdraw from the joint venture, noting the costs had substantially overrun the initial projection.
(e) Mr Duncan offered to arbitrate the coal price issue in Singapore. Mr Chin rejected this offer.
(f) Mr Chin reiterated BR’s offer to sell its 49% stake to BCBCS stating that, if BCBCS was not agreeable, KSC would have to be liquidated unless BCBCS had a counter-proposal. Mr Duncan replied that the WEC parties would not buy BR out unless the coal supply issue was resolved.
(g) Mr Flannery stated that, if BR was not willing to fund KSC, KSC would need to go into care and maintenance. Mr Chin replied that KSC should “stop its operations to avoid incurring further costs”. Mr Flannery then “agreed to suspend KSC operations and maintain a limited number of people on site”, and added that BR would be provided with “proposals for BR’s approval on crew required to implement a care and maintenance program on a monthly cost basis”.
[51] We make the following findings in relation to the 6 December 2011 EGM:
(a) BR reiterated that it intended to withdraw from the joint venture. BCBCS made clear that it wished to continue with the Project. The parties negotiated to achieve their respective aims during the meeting, but did not reach a mutually acceptable position.
(b) In reiterating that the Bayan parties would only supply coal to KSC at HBA prices, BR again committed a repudiatory breach of the PLFA (see [29(d)] and [46] above).
(c) BR, having previously instructed Bara and FSP to stop supplying coal to KSC from 9 November 2011, was in continuing repudiatory breach of the PLFA and the JV Deed, at the time of the 6 December 2011 EGM. We expand on this at [137] and [182] below.
(d) BCBCS did not accept the repudiatory breaches set out at [(b)] and [(c)] above. On the contrary, it wanted to keep the Project alive.
(e) WEC and BR agreed to put KSC into care and maintenance at this meeting. We expand on this at [176] below.
Events following the 6 December 2011 EGM
[52] On 6 December 2011, Mr Neil sent an email to Mr Wong, copying Mr Chin, which stated as follows: “If Kaltim Supacoal ask for more raw coal please agree to supply them”. Mr Reilly deposed that he was not aware of this email at the material time, and that its contents had never been communicated to him or his subordinates at KSC in December 2011. Mr Neil accepted during cross-examination that he was “not in a position to disagree” with Mr Xavier’s statement that “neither the WEC parties nor KSC were aware of this email until these proceedings”. We therefore find that this email was internal correspondence and that its contents were never communicated to KSC.
[53] We also note that the Plaintiffs had initially raised queries about the authenticity of this email, and had intended to rely on Mr Toh’s evidence to this end. However, during cross-examination, Mr Neil revealed that he had sent this email because Mr Chin had instructed him to do so. Upon further probing by Mr Xavier, Mr Neil said that, by this time, BR had taken internal legal advice and possibly external legal advice. Thereafter, the Plaintiffs withdrew their challenge to the authenticity of the email.
[54] On 12 December 2011, WEC sent a letter to BR on behalf of the WEC parties which stated the following:
(a) WEC pointed out that BR’s refusal to fund KSC, in their letter of 2 December 2011 and at the 6 December 2011 EGM, were breaches of BR’s obligations under the JV Deed and the Funding MOU.
(b) WEC observed that BR appeared to be unaware of BR’s funding obligations under cl 4 of the Funding MOU to fund 49% of the cost of commissioning, operating and maintaining the Tabang Plant.
(c) WEC was accordingly prepared to give BR a further opportunity to reconsider its position, having regard to its obligations under the Funding MOU and the JV Deed, and to confirm that BR would fund 49% of KSC’s funding requirements.
(d) WEC gave BR up to 10.00am (Jakarta time) on 13 December 2011 (the time to which it had been agreed that the 6 December 2011 EGM would be adjourned) to provide the requested for confirmation. WEC stated that otherwise it would commence proceedings in Singapore for damages arising from BR’s breach of its funding obligation and “from its breach of its obligation to procure [Bara] to supply coal to KSC in accordance with the [2010 CSA] as amended on 5 April 2011 …”.
[55] On 13 December 2011, BR replied to WEC’s letter of 12 December 2011 by a letter with the heading: “RE: DEFAULT NOTICE”. BR’s letter was addressed to WEC and BCBCS, and incorporated a default notice pursuant to cl 13.1(b) of the JV Deed (“BR’s Default Notice”). In its letter, BR stated that it would pay its 49% share of the outstanding salaries and termination payments of KSC employees. BR also stated that it would pay 49% of the outstanding obligations in relation to the SCB loan, but reserved the right to claim such amounts from BCBCS and WEC. BR further denied that it had any obligation to fund 49% of KSC’s ongoing funding requirements. Moreover, BR accused BCBCS of the following breaches of the JV Deed (which it gave BCBCS 30 days to remedy):
(a) Breach of cl 7.1(s) and/or cl 7.1(bb) of the JV Deed, in that
(i) KSC had exceeded its budget by approximately US$7m up to 30 September 2011 (“the Excess Expenditure”) under BCBCS’ unilateral management of such expenses, without any and/or sufficient prior notice to BR and without BR’s consent (“the Excess Expenditure Argument”); and
(ii) the PLFA threshold sum of US$40m, viz, the working capital facility limit, had been exceeded by approximately US$6m (“the Excess Debt”) without BR’s consent (“the Excess Debt Argument”).
(b) Breach of cl 16.3 of the JV Deed, in that WEC had made public announcements in relation to the joint venture without BR’s consent.
[56] On 15 December 2011, the Tabang Plant was put into care and maintenance upon Mr Reilly and Mr Chapman’s issuance of a memorandum to this effect.
[57] On 20 December 2011, WEC sent another letter to BR on behalf of the WEC parties. WEC maintained that BR was in breach of its obligation to fund 49% of KSC’s ongoing funding requirements. WEC also stated that “one of the consequences of BR’s refusal to provide funding in accordance with its obligations is that KSC will need to suspend its operations and implement a care and maintenance program”. WEC asked BR to confirm that it would provide 49% of the funding necessary for the care and maintenance program.
[58] We pause to note that, in this letter of 20 December 2011, WEC did not allege that the Tabang Plant was put into care and maintenance because of BR’s breach of its coal supply obligations, or because of BR’s breach of the JV Deed due to its alleged unilateral withdrawal from the joint venture. We further note that the statement of claim states that the Tabang Plant was put into care and maintenance because of “[BR’s] failure to provide funding to [KSC]”.
[59] On 22 December 2011, BCBC sent a letter to BI demanding that BI perform BR’s obligations by procuring coal for KSC’s operations and providing 49% of (a) KSC’s funding requirements and (b) the funding for the care and maintenance program. We note that, since the Tabang Plant was put into care and maintenance on 15 December 2011, KSC could not have had any immediate further requirement for coal thereafter.
[60] On 22 December 2011, BR replied to WEC’s letter of 20 December 2011 and stated the following at para 5:
[61] On 24 December 2011, WEC sent a letter to BR on behalf of WEC and BCBCS to demand that BR withdraw BR’s Default Notice.
[62] On 27 December 2011, the Plaintiffs commenced this action against the Defendants.
[63] On 31 December 2011, the last day of the “Availability Period” under the PLFA expired (see [67] of the First Judgment).
[64] On 21 February 2012, BR sent a letter to BCBCS (“BR’s Termination Notice”) referring to the JV Deed, the Deed of Novation and the Funding MOU, which stated, inter alia, the following:
(a) The consideration for the JV Deed and/or the Funding MOU had wholly failed.
(b) BR had agreed under the JV Deed and Funding MOU to provide a reasonable amount of funds, within a reasonable time period, in consideration of BCBCS exploiting the technology so that KSC could produce upgraded coal briquettes of commercial viability, for sale at a commercial profit, at 1 MTPA within a reasonable time period. To date, five and a half years after the JV Deed was signed and 34 months after the Tabang Plant had “reached commissioning stage”, KSC had not produced and/or was unable to produce 1 MTPA of upgraded coal briquettes.
(c) BCBCS had breached cll 7.1(s) and (bb) of the JV Deed in that BCBCS had failed to get BR’s consent for the Excess Expenditure.
(d) BCBCS had exceeded the US$40m sum under the PLFA as amended by the Addendum to the PLFA (“the Addendum”) by US$6m, without BR’s consent, in breach of cll 7.1(s) and (bb) of the JV Deed.
(e) In light of BCBCS’ (alleged) breaches of its obligations as set out in BR’s Default Notice, and alleged implied terms under the JV Deed and the Funding MOU, “we hereby terminate the JV Deed and/or [Funding MOU] with immediate effect”.
[65] On 2 March 2012, BCBCS replied to BR’s letter of 21 February 2012 stating that BR’s Termination Notice was “misconceived” and BR did not have any grounds to terminate the JV Deed. On the contrary, by reason of its conduct, BR had repudiated the JV Deed. After setting out its reasons therefor, BCBCS then proceeded to accept BR’s repudiation. As we explain at [179] and [195] below, BCBCS thereby brought the joint venture to an end.
[66] We now turn to the issues in Tranche 2.
The coal supply issues
[67] We first address the coal supply issues, Issues 1 to 4, and reference is made to [4] above.
Issue 1
[68] The parties were unable to agree on the wording of Issue 1.
[69] The issue raised by the pleadings relates to BR’s obligations in relation to the supply of coal to KSC between November 2011 and 2 March 2012. (The November 2011 Board Meeting took place on 2 and 3 November 2011 and 2 March 2012 was the date when, at the latest, the JV Deed was brought to an end.) In our judgment, consistently with the pleadings, the issue between the parties can be formulated as follows:
[70] Article 7.1 of the PLFA provides as follows:
We make the following observations regarding this provision:
(a) First, we reiterate that, while Art 7.1 only referred to FSP, the parties accepted that Art 7.1 extended to Bara as well: see the First Judgment at [157].
(b) Secondly, Art 1 of the PLFA defined the Availability Period as “[t]he period up to and including 30 June 2011 or as mutually agreed between the parties”. On 29 June 2011, the parties executed the Addendum which extended the Availability Period to 31 December 2011 (see [67] of the First Judgment and [63] above).
(c) Thirdly, Art 1 of the PLFA defined “Feedstock Coal” as “coal as defined in the Coal Supply Agreement”, which was in turn defined as “the Coal Supply Agreements between [KSC] with FSP and [Bara] (as the case may be)”.
[71] Clause 3.8(b)(iii) of the JV Deed provides that BR must “assist in procuring Coal for the operation of the Business”. Clause 1.1 of the JV Deed defines “Business” as follows:
[72] Clause 3.9 of the 2010 CSAs provides as follows:
Our Decision
[73] In the First Judgment, we made findings, in relation to the 2010 CSAs and Art 7.1 of the PLFA, at [167] where we stated the following:
[74] Consequently, we make the following findings:
(a) By cl 3.9 of the 2010 CSAs, Bara and FSP were obliged to supply to KSC, as and when requested by KSC, sufficient coal to allow testing of the Coal Briquette Processing Plant and each Electricity Generator up to the point where their commissioning was achieved.
(b) Under Art 7.1 of the PLFA, BR had a prima facie obligation to ensure that Bara and FSP supplied coal to KSC in accordance with cl 3.9 of the 2010 CSAs.
[75] We also find that, under cl 3.8(b)(iii) of the JV Deed, BR was under a similar obligation to ensure that Bara and FSP supplied coal in accordance with their obligations under cl 3.9 of the 2010 CSAs. This obligation was part of their duty to “assist in procuring Coal for the operation of the Business”.
[76] We would only add that, under cl 7.1 of the PLFA, BR’s obligation was limited in time to the “Availability Period”. The Availability Period ended on 31 December 2011 (see [70(b)] above). It follows that BR had no obligation in relation to coal supply under the PLFA after that date. However, BR continued to be subject to the obligation under cl 3.8(b)(iii) of the JV Deed.
[77] Accordingly, the answer to Issue 1 (as formulated by us) is as follows:
(a) Under Art 7.1 of the PLFA, BR had a prima facie obligation to ensure that Bara and FSP supplied coal to KSC in accordance with cl 3.9 of the 2010 CSAs. However, this obligation expired on 31 December 2011.
(b) Under cl 3.8(b)(iii) of the JV Deed, BR had a prima facie obligation to ensure that Bara and FSP supplied coal to KSC in accordance with their obligations under cl 3.9 of the 2010 CSAs. This obligation persisted until the JV Deed was terminated.
Issue 2(i)
[78] This brings us to Issue 2(i), which was framed in these terms:
This raises the question of the status of the Tabang Plant in November 2011. The answer is to be found in the documents, and the evidence of Mr Reilly and Mr Alderman.
Our Decision
[79] Clause 1 of the JV Deed defines the relevant phrase “Coal Briquette Processing Plant Commissioning” as follows:
Clause 1.1 of the 2010 CSAs provides that, “unless the context or subject matter otherwise requires, the words and terms ... defined in the [JV Deed] will have the same meaning ... in this Agreement”.
[80] In his AEIC, Mr Alderman exhibited a commissioning proposal to the KSC Board which outlined the proposed commissioning stages for this project. That proposal identifies “No Load Commissioning”, “Load Commissioning” and “Production Ramp Up” as stages of the commissioning process. In cross-examination, Mr Alderman agreed, and we so find, that commissioning of the Tabang Plant would have entailed (1) modification works after construction, and then (2) commissioning to check the Tabang Plant's individual components without a load, followed by (3) load commissioning, ie, running the production module with a load, and finally (4) ramping-up to commercial production. Stages (3) and (4) would have involved testing the production module with coal loads until the Tabang Plant was able to attain commercial production or some percentage of it.
[81] The Tabang Plant had been shut down at the end of October 2011 and was undergoing modifications in November 2011 to address issues which had arisen (see [22] above). The Defendants rely on Mr Alderman’s evidence to aver that, since extensive modifications to the Tabang Plant were being carried out, the Tabang Plant had effectively reverted to the construction phase, so that it was nowhere near commissioning in November or December 2011. The Plaintiffs rely on Mr Reilly’s explanation of the modifications and his evidence that the operation of the production module was imminent. Mr Reilly referred to the modifications to the drying column and coal injection pipes in the period up to November 2011, and the proposed modifications to the dust extraction systems for the cooling system and briquetting machines which were delayed to November 2011 because of late deliveries in October 2011.
[82] We prefer Mr Reilly’s evidence on the state of the Tabang Plant in November 2011. Mr Alderman based his assessment to a large extent on the November 2011 Board Pack which included minutes of the KSC Board Meeting in March 2011 (“the March 2011 Board Meeting”). Importantly, the November 2011 Board Pack only dealt with activities at the Tabang Plant up to September 2011. However, as Mr Reilly explained in his AEIC, work had been done to the Tabang Plant in October 2011 and further work was to be carried out in November 2011 (see [81] above). Mr Alderman referred to some email correspondence in October and November 2011 to pick out matters which were being dealt with at that time. However, Mr Reilly was able to give first-hand evidence on the state of the Tabang Plant from his personal day to day experience whilst Mr Alderman’s view, as he accepted, was based on documents.
[83] Having considered the evidence, we accept, broadly, Mr Reilly’s view of the situation in November 2011. We find that substantial progress was being made on modifications which were on course for completion in November or December 2011. We find that the Tabang Plant was being commissioned in November 2011 because, as we have found at [80] above, the modifications were part of the commissioning process. The Tabang Plant remained in the commissioning phase until 15 December 2011, when it was put into care and maintenance when the modifications were not yet complete. We note that, at the 6 December 2011 EGM, Mr Chin, whilst complaining about the time which had been taken for commissioning, observed that “the [Tabang Plant] still remains under commissioning”. This is consistent with the view we have reached.
[84] Given the modifications carried out up to October 2011 and to be carried out in November 2011, we also find that, in early November 2011, KSC properly viewed the stages of commissioning which required coal for testing, viz, load commissioning and ramping-up, Stages (3) and (4), as being imminent.
[85] Accordingly, we answer Issue 2(i) as follows. In November 2011, the Coal Briquette Processing Plant Commissioning had not been achieved. The commissioning was in the modification works phase, viz, Stage (1) above; yet, Stages (3) and (4), which required coal, were imminent.
Issue 2(ii)
[86] Issue 2(ii) was formulated as follows:
This issue raises two questions:
(a) First, what coal was available at the Tabang Plant between November 2011 and 2 March 2012?
(b) Secondly, how much coal was necessary for the testing of the Tabang Plant, including the electricity generators?
Our Decision
[87] On 9 November 2011, when Bara and FSP stopped delivering coal, KSC had a stockpile of about 18,500 tonnes of ROM coal (see [32] above). We accept Mr Reilly’s evidence that there were 3000 tonnes in the base layer which was necessary to prevent contamination from clay. There were therefore about 15,500 tonnes of ROM coal available for use.
[88] The Defendants rely on Mr Alderman’s evidence to contend that the Tabang Plant had sufficient coal to operate for at least one to two months after it resumed operations. On the basis that operations would have resumed on 7 December 2011, the Defendants submit that a stockpile of 18,500 tonnes would have lasted up to between 7 January and 7 February 2012. The Plaintiffs, on the other hand, rely on Mr Reilly’s evidence to submit that 40,000 tonnes of ROM coal was necessary, for an adequate stock of coal, to ensure continuous testing and commissioning after a resumption in December.
[89] We have found that, in early November 2011, KSC properly viewed the stages of commissioning which required coal for testing, including load commissioning and ramping-up, as being imminent (see [84] above). As stated in the November 2011 Board Pack, KSC had assumed that, following completion of the modification works, the production module of the Tabang Plant could operate with 14 briquetting machines at 7.5 tonnes per hour (“TPH”) for a total production of 105 TPH. The production module was designed to produce upgraded coal briquettes at the rate of 140 TPH which would require, at a conversion rate of 1.6, 224 TPH of raw coal to be used in the process. It follows that, at the time that the November 2011 Board Pack was prepared, the view was that the production module would achieve 47% or, say, 50% of its capacity. The calculation in the November 2011 Board Pack was based on a daily production of approximately 18.36 hours per day (with an availability rate of 90% and a utilisation rate of 85% applied to the 24 hour period of a day). On this basis, the daily raw coal consumption would have been about 2,000 tonnes. Thus, 60,000 tonnes would have been required for 30 days of operations. After making allowance for the 15,500 tonnes already available on site, this would mean that, approximately, a further 44,500 tonnes of coal would have had to be delivered to the Tabang Plant for 30 days of operations.
[90] The Defendants criticise the basis of Mr Reilly’s calculations. They aver as follows, relying on Mr Alderman’s evidence:
(a) the proper assumed production rate of the briquetting machines in November 2011 was only 13.1%;
(b) the drying column was not operating to reduce the average moisture content of the briquettes to 9% up to October 2011;
(c) the daily shift reports from August to October 2011 showed that there was no improvement in dust issues;
(d) it would have taken one to two months of operations for the Tabang Plant to return to its production levels before the shutdown;
(e) the Tabang Plant had not demonstrated an ability to operate consecutively for 30 days.
On this basis, the Defendants submit that there was adequate coal for at least one to two months after the resumption of commissioning (see [88] above).
[91] We consider that Mr Alderman’s criticisms of the basis of Mr Reilly’s calculations are unjustified. Essentially, Mr Alderman was looking at the historical position prior to the modifications which were to be carried out in November 2011. Those modifications had the express purpose of improving the characteristics of the Tabang Plant. Mr Alderman arrived at his production rate of 13.1% by dividing the total production of 10,932.57 tonnes of briquettes in September 2011 by 30 days (to reflect a month of production). However, the Tabang Plant only operated for 13 days in September 2011. The daily production was therefore about 840 tonnes per day, which amounted to 30% of the targeted daily production rate. We note that the Tabang Plant had operated for 20 days and 22 days in March and May 2011 respectively. We therefore find that it was realistic to assume that, after the modifications to deal with the problems identified by Mr Alderman had been effected, the production module could have achieved production at about 50% for 30 days.
[92] In terms of the time which would have been required to reach production levels after resumption in December 2011 (see [90(d)] above), we were not impressed by the way in which Mr Alderman sought to justify his opinion that one or two months would have been required. He had not considered the available data which showed production levels being achieved in shorter time and, on being shown the data, he accepted that he would have to review this aspect. We find that production at the rate which was anticipated in the November 2011 Board Pack would have been achieved much more rapidly than Mr Alderman suggested.
[93] Further, we find that, with regard to the coal which was necessary for testing the production module during commissioning, much more was needed than the existing 15,500 tonnes. Accepting Mr Reilly’s evidence, we find that 15,500 tonnes would only have permitted the production module alone (excluding the power station) to run for about eight days (operating at about 18 hours per day). We find that the 40,000 tonnes of coal which Mr Reilly had planned to accumulate was much closer to what was required.
[94] It follows that, on 9 November 2011, when Bara and FSP stopped delivering coal, there was insufficient coal for the testing of the Tabang Plant or any electricity generator and this continued until 2 March 2012 (see [195] below). Thus, the answer to Issue 2(ii) is “no”.
Issue 2(iii)
[95] The parties framed Issue 2(iii) in these terms:
[96] As noted at [31] above, on 7 November, KSC sent the following email to employees of Bara and FSP:
This was the final request for coal which was made before the coal supply to KSC was stopped on 9 November 2011. Coal had been supplied on 7 and 8 November 2011 pursuant to that request.
The Parties’ Arguments
[97] The Defendants submit that, under cll 3.1 to 3.5 of the 2010 CSAs, KSC was required to provide Nominated Monthly Quantity (“NMQ”) Notices to Bara and FSP in respect of the coal to be delivered to KSC in a particular month:
(a) KSC was required to provide a Provisional NMQ Notice no later than 30 business days before the first day of each month;
(b) KSC was required to provide a Final NMQ notice no later than 10 days before the first day of each month;
(c) If no valid Final NMQ Notice was provided, the NMQ for the relevant month would be deemed to be zero tonnes of coal.
It is common ground that KSC did not provide NMQ Notices to Bara or FSP. The Defendants therefore submit that there was no obligation to supply coal under the 2010 CSAs in response to the request of 7 November 2011; and, consequently, there was no such obligation at the time when Bara and FSP stopped delivering coal to KSC on 9 November 2011.
[98] The Plaintiffs contend that the obligation to supply coal for testing under cl 3.9 of the 2010 CSAs was not subject to the requirements of cll 3.1 to 3.5 of the same. Clause 3.1 of the 2010 CSAs makes clear that the aim of these provisions was to assist Bara and FSP to plan how much coal they would have to deliver to KSC to enable it to deliver upgraded coal briquettes.
[99] In any event, the Plaintiffs submit that it is undisputed evidence that both parties had adopted a highly flexible approach on coal supply requests; and the procedures under cll 3.1 to 3.5 had never been followed. The Plaintiffs rely on Mr Reilly’s evidence that KSC placed its requests for coal over the telephone or in person or via email, between one day and a few days in advance.
[100] However, the Defendants argue that, whilst Bara and FSP supplied small amounts of coal to be helpful to KSC, on the basis of informal notices, KSC was reminded of its obligation to comply with the NMQ procedure. The Defendants rely on the evidence of Mr Neil, and the following emails:
(a) an email of 16 June 2010 from Mr Goh Tiak Chua (“Mr Goh”), a BR representative, to, inter alia, Mr Reilly, in which Mr Goh drew Mr Reilly’s attention to the provisions of cll 3.1 to 3.5 of the 2010 CSAs and sought confirmation that they had been complied with; and
(b) an email of 25 June 2010, from Mr Phang Kiew Beng, who appears to have been a representative of Bara and FSP, to Mr Goh, in which the former referred to the NMQ procedure.
[101] In response, the Plaintiffs rely on Mr Reilly’s evidence that the matter was, subsequent to the email from Mr Goh, discussed at the KSC Board Meeting on 21 and 22 June 2010 (“the June 2010 Board Meeting). The notes of the June 2010 Board Meeting state:
Mr Reilly deposed that, following the June 2010 Board Meeting, he continued to liaise with Mr Wong over the supply and delivery of coal to KSC up till November 2011 and adopted the previously existing flexible arrangement. The Plaintiffs therefore submit that the procedure to be adopted was that agreed and implemented between Mr Reilly and Mr Wong, and that KSC was not required to comply with cll 3.1 to 3.5 of the 2010 CSAs.
Our Decision
[102] First, we find that the NMQ procedure set out in cll 3.1 to 3.5 of the 2010 CSAs does not apply to the obligation to supply coal to KSC under cl 3.9 of the same. Clause 3.1 of the 2010 CSAs provides as follows:
[103] The reference in cl 3.1 to Coal to enable KSC “to operate the Briquette Processing Plant and fulfil its obligations to deliver Upgraded Coal Briquettes” indicates, in our judgment, that this provision applies to Coal to operate the Tabang Plant. The provisions that follow in cll 3.2 to 3.5 and which set out a nominations procedure would be necessary for the large quantities of coal which would have been required if the Tabang Plant was in production. This is also confirmed by cll 3.6 and 3.7 which deal with the annual quantity to produce 1 MTPA of upgraded coal briquettes. However, after cl 3.8 which contains a separate provision for Coal for the Electricity Generator, cl 3.9 simply states as follows (see [72] above):
In our judgment, the obligation to supply coal to KSC for testing under cl 3.9 of the 2010 CSAs was triggered “as and when” KSC requested coal. Thus, when KSC requested coal over the telephone or in person or via email, between one day and a few days in advance (see [99] above), the obligation under cl 3.9 was triggered and there was no requirement for KSC to provide NMQ notices for coal for testing. We also find and hold that the obligation was triggered upon a request for coal, even if a specified quantity of coal was not stated in the request. We do not accept that KSC had to specify a quantity of coal to make a valid request for the same.
[104] Secondly, we find that, even if, there was a requirement for KSC to comply with cll 3.1 to 3.5 of the 2010 CSAs, that ceased to be the case in view of what the parties agreed at the June 2010 Board Meeting, and Mr Reilly and Mr Wong’s subsequent decision to continue with the existing informal procedure. Thereafter, the obligation to supply coal to KSC under cl 3.9 of the 2010 CSAs was triggered by KSC’s informal requests for coal. We note that the minutes of the June 2010 Board Meeting were approved at the following KSC Board Meeting on 12 October 2010, with the final minutes to be reissued for execution by both BCBCS and BR.
[105] In these premises, KSC was not required to comply with cll 3.1 to 3.5 of the 2010 CSAs when it made its request for coal on 7 November 2011. That was a valid request for a substantial quantity of coal. It complied with the procedure under cl 3.9 of the 2010 CSAs and the informal procedure adopted by the parties. The request made on 7 November 2011 was thus operative on 9 November 2011 when Bara and FSP stopped delivering coal, and continued to be operative until 2 March 2012 (see [195] below).
[106] It follows that, in the period between November 2011 and 2 March 2012, KSC had made a request in accordance with the 2010 CSAs for the quantity of coal that KSC required to enable testing of the Tabang Plant or any electricity generator of the Tabang Plant. The answer to Issue 2(iii) is therefore “yes”.
Issue 2(iv)
[107] Issue 2(iv) was as follows:
The Parties’ Arguments
[108] The Plaintiffs submit that there is nothing in cl 3.8(b)(iii) of the JV Deed or in the 2010 CSAs which makes the Defendants’ obligation to supply coal conditional upon continued financing of KSC. They rely on Lucky Realty Co Pte Ltd v HSBC Trustee (Singapore) Ltd [2016] 1 SLR 1069 (“Lucky Realty”) as authority for the proposition that, in interpreting a contract, the text of the contract is the first port of call: see Lucky Realty at [2] and [49]. The Plaintiffs thus submit that BR’s obligations in relation to coal supply were not affected by questions of funding.
[109] The Plaintiffs also challenge the Defendants’ argument that BR’s coal supply obligations did not arise because KSC had no money or would soon have no money to pay for coal. They submit that Bara and FSP were not entitled, under the 2010 CSAs, to stop supplying coal on account of late payment. They rely on Chitty on Contracts vol 1 (H G Beale gen ed) (Sweet & Maxwell, 32nd Ed, 2015) (“Chitty”) at para 21-013, Alan Auld Associates Ltd v Rick Pollard Associates and Another [2008] BLR 419 (“Alan Auld Associates”) and Ioannis Valilas v Valdet Januzaj [2015] 1 All ER (Comm) 1047 at [29].
[110] The Plaintiffs further submit that the Bayan parties never demanded payment from KSC, relying on Mr Maras’ evidence that the parties had an arrangement whereby payment for raw coal and briquettes would be recorded as liabilities and/or credits in KSC’s books. They argue, on this basis, that the question of the Bayan parties ceasing the coal supply because of lack of payment was never an issue, and thus not raised at the November 2011 Board Meeting or the 6 December 2011 EGM as a reason for not supplying the coal.
[111] The Defendants submit that the obligation under cl 3.9 of the 2010 CSAs was inextricably linked to and dependent on KSC’s reciprocal obligation to pay for the coal supplied. In this regard, they rely on J W Carter, Carter’s Breach of Contract (LexisNexis Butterworths, 2011) (“Carter’s Breach of Contract”) at paras 1-08 to 1-17 and Tan Jin Sin and another v Lim Quee Choo [2009] 2 SLR(R) 938 (“Tan Jin Sin”). The Defendants also submit that a buyer’s obligation to pay and a seller’s obligation to deliver goods are concurrent conditions; in other words, each party’s obligation depends on the other’s readiness and willingness to perform their corresponding obligation. For this submission, the Defendants cite Morton v Lamb (1797) 7 TR 125 (“Morton”), The Aktor [2008] All ER (Comm) 784 (“The Aktor”) at [67], Chitty at para 13-029 and The Law of Contract in Singapore (Andrew Phang Boon Leong gen ed) (Academy Publishing, 2012) (“The Law of Contract in Singapore”) at para 16.028. The Defendants accordingly aver that Bara and FSP’s obligations to supply coal did not arise unless and until KSC stood ready and willing to perform its corresponding obligation to pay for coal.
Our Decision
[112] The central issue here, over which the parties’ arguments are joined, is whether the obligation under cl 3.9 of the 2010 CSAs, borne by Bara and FSP, was a dependent obligation, in the sense that the obligation only arose if KSC was concurrently ready, willing and able to perform its obligation to pay for the coal: see Carter’s Breach of Contract at para 1-08, Chitty at para 13-029 and The Law of Contract in Singapore at para 16-028.
[113] In Tan Jin Sin, which concerned an agreement about the enforcement of a judgment, the Court of Appeal (“the CA”) observed at [17] as follows:
[114] Thus, the issue here turns on a construction of the 2010 CSAs. We have set out the principles of contractual interpretation under Singapore law in the First Judgment: see the First Judgment at [99] – [103]. We also note that the CA reiterated in Lucky Realty that, in construing a contract, the text of the agreement is the first port of call (see [108] above).
[115] In this case, cl 3.9 of the 2010 CSAs provided that Bara and FSP were to supply coal to allow testing “as and when requested by Buyer, on the same terms and conditions as are set out in this Agreement with respect to price and quality …” (see [72] above). Clause 10.4 of the 2010 CSAs states:
This provision is clear. It does not make delivery of coal dependent on payment of the invoice. Nor is KSC’s obligation to pay concurrent with the obligation to supply coal under cl 3.9; the present case is thus distinguishable from Morton and The Aktor, where the buyer’s duty was to pay on delivery. In our judgment, the remedy for a failure to pay under the 2010 CSAs was to make time of the essence (as stated in Chitty at 21-014); it is clearly not of the essence under the 2010 CSAs. It would then have been open to Bara or FSP, if KSC’s failure to pay had become a repudiatory breach, to terminate the 2010 CSAs, as in Alan Auld Associates.
[116] In any event, we find that the arrangement between KSC and Bara and FSP was that payment was not demanded from KSC. Rather, as Mr Maras explained (see [110] above), the price of coal supplied was treated as a credit to Bara and FSP in KSC’s accounts. There had therefore been no failure to pay; the arrangement did not lead to payment.
[117] It follows that, even if there was no funding for KSC, such that KSC was not able to pay Bara and FSP for the coal which it received:
(a) Bara and FSP continued to be under an obligation to supply coal to KSC under cl 3.9 of the 2010 CSAs;
(b) BR’s obligation to ensure that Bara and FSP fulfilled this obligation, under Art 7.1 of the PLFA and cl 3.8(b)(iii) of the JV Deed (see [77] above), remained in place.
We therefore answer Issue 2(iv) in the affirmative.
Issue 2(v)
[118] Issue 2(v) is as follows:
[119] This raises the issue of whether the matters pleaded in para 178A(a)(iv) of the defence and counterclaim affect BR’s coal supply obligations. That paragraph states as follows:
Our Decision
[120] It is convenient to consider each of the four allegations – allegations (A), (B), (C) and (D) – in that paragraph of the pleading in turn.
[122] Secondly, allegation (B) is, essentially as follows:
(a) KSC was not self-funding, and any additional expenditure by KSC could be funded only by way of shareholder funding;

The judgment continues past this page. Read the rest at eLitigation.

BCBC Singapore Pte Ltd and another v PT Bayan Resources TBK and another

Grounds of decision

Introduction

The witnesses

The key facts

Events leading up to the November 2011 Board Meeting

The November 2011 Board Meeting

The Cessation of the Coal Supply

The 17 November 2011 Meeting

Events preceding the 6 December 2011 EGM

The 6 December 2011 EGM

Events following the 6 December 2011 EGM

(a) Breach of cl 7.1(s) and/or cl 7.1(bb) of the JV Deed, in that

The coal supply issues

Issue 1

Our Decision

Issue 2(i)

Our Decision

Issue 2(ii)

(a) First, what coal was available at the Tabang Plant between November 2011 and 2 March 2012?

(b) Secondly, how much coal was necessary for the testing of the Tabang Plant, including the electricity generators?

Our Decision

Issue 2(iii)

The Parties’ Arguments

Our Decision

Issue 2(iv)

The Parties’ Arguments

Our Decision

Issue 2(v)

Our Decision