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

CourtInternational Commercial Court (Singapore)
JudgeQuentin Loh J
Judgment Date12 May 2016
Neutral Citation[2016] SGHC(I) 1
Citation[2016] SGHC(I) 1
Published date17 May 2016
Docket NumberSuit No 1 of 2015
Hearing Date18 November 2015,19 November 2015,25 November 2015,16 November 2015,26 November 2015,24 November 2015,23 November 2015,20 November 2015,14 January 2016,17 November 2015
Defendant CounselDavinder Singh SC, Tony Yeo, Jaikanth Shankar, Zhuo Jia Xiang, Fong King Man, Chan Yong Wei, Hannah Ng and Lazatin Pablo Benedicto (Drew & Napier LLC)
Plaintiff CounselFrancis Xavier SC, Jeremy Gan, Alina Chia, Tng Sheng Rong, Ang Tze Phern, Tee Su Mien, Tan Hai Song and Joseph Lau (Rajah & Tann Singapore LLP)
Quentin Loh J, Vivian Ramsey IJ and Anselmo Reyes IJ: Introduction and the parties

These proceedings in the first case before the Singapore International Commercial Court (“SICC”) concern a joint venture between parties in Australia and Indonesia, with associated companies in Singapore.

The joint venture sought to exploit a technology developed in Australia for the upgrading of coal known as the Binderless Coal Briquetting Process (“BCB Process”) in conjunction with a supply of sub-bituminous coal from mines in Tabang, East Kalimantan (“the Project”).

The second plaintiff, Binderless Coal Briquetting Company Pty Ltd (“BCBC”), a company incorporated in Australia, holds the exclusive worldwide licence of the BCB Process from a consortium led by the Commonwealth Scientific and Industrial Research Organisation (“CSIRO”). The first plaintiff, BCBC Singapore Pte Ltd (“BCBCS”), is a company incorporated in Singapore. BCBC and BCBCS are indirect wholly-owned subsidiaries of the second defendant by Counterclaim, White Energy Company Ltd (“WEC”), a public-listed company incorporated in Australia. These companies are collectively referred to as “the Plaintiffs” or “the WEC parties”.

The first defendant, PT Bayan Resources TBK (“BR”), is a public-listed company incorporated in Indonesia that owns subsidiaries which operate sub-bituminous coal mines in Tabang, Indonesia, including PT Bara Tabang (“Bara”) and PT Fajar Sakti Prima (“FSP”). The second defendant, Bayan International Pte Ltd (“BI”), is a company incorporated in Singapore and is an associated company of BR. These companies are collectively referred to as “the Defendants” or “the Bayan parties”.

BCBC and BI were the original parties to the joint venture but BCBCS and BR were subsequently substituted as the joint venture parties. WEC undertook certain guarantee obligations in relation to BCBC and BCBCS.

These proceedings were transferred to the SICC on 4 March 2015. At subsequent Case Management Conferences, pursuant to discussions with counsel, directions were given for the trial of certain issues as to the true meaning of a number of provisions in various agreements. The parties were able to agree on the formulation of those issues which related to funding obligations, coal supply obligations and certain implied terms (see [88] below).

Background

At a conference in Lexington, Kentucky, in early May 2005, Mr Keith Clark (“Mr Clark”), the then general manager of BCBC, presented a paper entitled “Thermal Drying and Binderless Briquetting of Sub-bituminous Coals”. He described the development and basic concept of the BCB Process – processing raw coal into briquettes with higher calorific value and lower moisture content – as well as some general economics and product properties. In his paper, referring to the development of the BCB process, he said:

The final, and arguably the most challenging, stages of development of this process were performed on a 12 ton per hour plant built in Western Australia by Griffin Coal to demonstrate the binderless briquetting of Collie sub-bituminous coal. Scale-up of the process to this plant proved to be far more complex than had been anticipated and the exercise became a 6 year development project in which key features of the BCB process were developed and the design of commercial scale elements, particularly the briquette presses, were proven.

Approximately 10,000 tonnes of briquettes have been produced at the BCB pilot/demonstration plant at Collie. Most of these have been produced from Collie coal but significant tonnages of both high rank bituminous coal and very low rank brown coal have also been processed.

Although Powder River coals have not been available in sufficient tonnages to conduct trials on the Collie plant around one tonne of Powder River coal has been subjected to the BCB process using a smaller 0.2 tph pilot plant at CSIRO’s laboratory in Sydney (now moved 160km North to Newcastle). These tests showed that the Powder River coals could be formed into low moisture briquettes with properties very similar to those produced from the Collie coal.

After he had presented his paper, Mr Clark was approached by Mr Darcy Wentworth (“Mr Wentworth”), a mining engineer of the Bayan parties, Mr Lim Chai Hock (“Mr Lim”) and Mr David Low (“Mr Low”), directors of BR, who introduced themselves as representatives of PT Gunungbayan Pratamacoal and part of the group of Indonesian companies known as the Bayan Resources Group. There followed a discussion about the possibility of using the BCB Process to upgrade coal for the Bayan parties.

Following exchanges of emails and a meeting in late May 2005, Mr Clark proposed that testing of coal from the Bayan parties be carried out first at the CSIRO pilot plant and then, if the first coal testing proved to be satisfactory, a larger sample could be processed at the Collie plant to verify the suitability of the coal for the BCB Process.

The first sample of coal was received in early June 2005 and tested at the CSIRO pilot plant. This led to Mr Clark preparing a report dated 19 July 2005 entitled “Evaluation of Coal from PT Gunungbayan Pratamacoal’s Tabang Mine for Binderless Coal Briquetting”. After receiving a copy of that report, Mr Wentworth contacted Mr Clark to discuss the next stage of testing. A meeting then took place between Mr Travers Duncan (“Mr Duncan”), the current Chairman of WEC and a director of both BCBC and BCBCS, Mr John Langley (“Mr Langley”), BCBC’s Business Development Director and Mr Clark, representing the WEC parties on the one hand, and Mr Lim, Mr Low and Mr Wentworth representing the Bayan parties on the other, to discuss the further testing and the negotiation of a commercial agreement.

On 11 October 2005, Mr Clark sent the Bayan parties a draft proposal and this led to further exchanges and telephone calls. In January 2006, BCBC provided the Bayan parties with a report entitled “Engineering Assessment of the Binderless Coal Briquetting Process” produced by Sinclair Knight Merz (“SKM”) dated 4 November 2005. That report had been produced for WEC, which was at that time known as Amerod Resources Ltd, as part of its due diligence exercise before it made the decision to acquire all the issued capital of BCBC.

Following exchanges of drafts, BCBC and BR signed the Heads of Agreement and a Confidentiality Agreement on 16 February 2006. Under the Heads of Agreement, the parties proposed to set up various joint ventures.

In the meantime, a further sample of coal had arrived in Australia at the end of October 2005 and was processed at the Collie plant on or about 16 December 2005. That test had to be discontinued prior to processing the entire coal sample because of issues with the dust control and release system. There are issues between the parties as to the cause and significance of the dusty nature of the sample. In an email of 19 December 2005, Mr Clark noted:

Unfortunately the “Demo” plant, with its recent temporary changes to the coal delivery and product receival sections, was satisfactory for handling the Collie coal but the very dusty nature of the Tabang sample did cause some problems. The re-routed delivery system for the milled coal was not set up with suitable sealing and dust control which resulted in dust levels being too high for continued safe operation. It was decided to discontinue the operation until the issues causing the release of dust were corrected.

I should emphasise that, as I explained before we visited the site, the Collie plant was not built as, and should not really be considered as, a demonstration plant. It does not have the layout, the presentation and the components (particularly dust control), that are include[d] in the commercial design. …

Ultimately, the second test was considered to have provided satisfactory briquettes. A report dated 28 December 2005 was prepared on behalf of BCBC with the title “Assessment of PT Gunungbayan Pratamacoal’s Tabang Coal in the Collie BCB Demonstration Plant”.

Following the signing of the Heads of Agreement, meetings took place in Jakarta between 21 and 23 February 2006 involving the parties, lawyers and other advisers.

Drafts of various agreements were then exchanged between the parties leading to the execution of a Coal Briquette Joint Venture Deed (“the JV Deed”) between BCBC and BI on 7 June 2006. The obligations under the JV Deed, together with various subsequent agreements form the subject matter of the issues in this Judgment.

Under cl 2 of the JV Deed, there were conditions precedent to completion and there was a Completion Date defined as “the date that the parties decide to proceed with the Project…”. Pursuant to cl 3.1, “the Project” was defined as including, inter alia, the construction and commissioning of a coal briquette processing plant which employed the BCB Process. This plant was to be located in Tabang, Indonesia, and will be referred to as “the Tabang Plant” in this Judgment. The conditions precedent of completion were set out in cl 2 of the JV Deed and cl 2.1 provided that:

The parties must arrange for a Feasibility Study to be undertaken and then make a decision, based on the results of the Feasibility Study, whether or not to proceed with the Project.

The Feasibility Study was defined as “a technical and economic study to assess the viability of the Project”.

Two documents forming the Feasibility Study were produced initially as drafts and then in final form. First, SKM produced a report entitled “Technical Feasibility Study on the Tabang Mine Coal Upgrade Project” (“the SKM Technical Feasibility Study”) on 25 August 2006. Secondly, Hyde Park Consultants produced a report entitled “Report on the Financial Viability of the Tabang Binderless Coal Briquette Project” (“the HPC Economic Feasibility Report”) on 6 September 2006.

The SKM Technical...

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