BRS v BRQ and another and another appeal

• Jurisdiction: Singapore
• Judge: Judith Prakash JA
• Judgment Date: 29 October 2020
• Neutral Citation: [2020] SGCA 108
• Plaintiff Counsel: Nakul Dewan SA (instructed), Lin Weiqi Wendy, Goh Wei Wei and Teh Zi Ling, Stephanie (WongPartnership LLP) (instructing)
• Docket Number: Civil Appeal No 34 of 2019 and Civil Appeal No 35 of 2019
• Date: 29 October 2020
• Hearing Date: 23 September 2020
• Subject Matter: Award,Breach of natural justice,Setting aside,Recourse against award,Whether three-month time limit extended by request for correction,Arbitration
• Year: 2020
• Defendant Counsel: Dhillon Dinesh Singh, Toh Jia Yi and Chee Yi Wen, Serene (Allen & Gledhill LLP)
• Court: Court of Appeal (Singapore)
• Citation: [2020] SGCA 108
• Published date: 03 November 2020

Woo Bih Li J (delivering the judgment of the court): Introduction

BRS (“the Seller”) was undertaking a project to build a hydroelectric power plant (“the Project”) through a special purpose vehicle company, BRR (“the SPV”). While the Project was underway, the SPV ran out of funds, and BRQ (“the Buyer”) entered the picture as an investor to inject fresh funds for the Project to continue. Under a Securities Purchase Agreement (“the SPA”), the Buyer contracted to buy all the shares in the SPV. In the SPA, it was envisaged that the Project would be completed or “wet commissioned” by 31 March 2013, and further that the Project cost would be about S$170m (“the Project Cost”).

The Project was not wet commissioned on 31 March 2013. For present purposes, the parties proceeded on the premise that the Project achieved wet commissioning more than two years later on 31 October 2015. As a result of delays in the Project, and as the actual costs of the Project exceeded the Project Cost, the Buyer and the SPV (collectively, “the Claimants”) initiated arbitration proceedings against the Seller, claiming payment for the additional costs above the Project Cost and damages that were incurred due to the delay in completion. The arbitral tribunal (“the Tribunal”) issued a final award that was in substance in favour of the Claimants (“the Award”). However, it limited the Seller’s liability with respect to certain time-dependent components to 30 June 2014 (the “Cut-off Date”). In the Tribunal’s view, the Project could have achieved wet commissioning on the Cut-off Date (rather than the eventual date of 31 October 2015) if the Claimants had undertaken the construction and commissioning of the Project in the most prudent and cost-effective manner after their takeover of the Project in early 2014.

Both the Seller and Claimants were dissatisfied with various aspects of the Award, and they each filed separate Originating Summonses to set aside portions of the Award, on the bases that the Tribunal had either acted in breach of natural justice and/or in excess of its jurisdiction. Both setting-aside applications were dismissed by the High Court judge (“the Judge”), giving rise to the present appeals.

Background facts

The facts are largely undisputed, and both parties accept that the background to the dispute have been distilled at [5]–[25] of the Judge’s grounds of decision in BRQ and another v BRS and another and another matter [2019] SGHC 260 (“the GD”).¹ In this judgment, we set out the salient facts in chronological order. We should clarify that the sums of money referred to in this judgment are converted to their approximate Singapore currency equivalent for anonymity. For consistency, we have utilised the same rate of conversion as that utilised by the Judge in the GD.

The parties

The Seller is a company engaged in the business of developing, constructing, operating and maintaining infrastructure and power projects. The Seller was awarded a government concession to build and operate a hydroelectric power plant (ie, the Project). To pursue the Project, the Seller, with other investors, set up the SPV.

The SPV carried on with the Project from 2007 to 2011. By the end of 2011, it had run out of funds. The Seller and its parent company, which collectively owned about 95% of the shares of the SPV at the time, were unable to inject more funds into the SPV to guide the Project to completion. Therefore, an external investor was sought, and the Buyer entered the picture as that external investor.

The SPA

Following the completion of the Buyer’s due diligence, on or around 19 September 2012, the parties entered into the SPA,² under which the Buyer agreed to purchase all the shares in the SPV for about S$70m (“the Purchase Consideration”).³ Under cl 9.1 of the SPA, it was acknowledged that the Purchase Consideration payable by the Buyer was based on a number of assumptions, key among which were: cl 9.1.1: that the “Wet Commissioning Date”, defined as “the date on which [the Buyer’s] Engineer certifies that the Project is fully operational”,⁴ shall occur no later than 31 March 2013 (“Wet Commissioning Date”); and cl 9.1.4: that any “Cost Overrun”, defined as any and all Project costs in excess of [the Project Cost],⁵ shall be borne by the Seller alone (and not by the SPV or the Buyer).

Recognising these assumptions, and in order to support the calculation of the Purchase Consideration, the Seller undertook certain obligations: As regards the Wet Commissioning Date, The Seller was obliged to furnish a “Security Bond I” for a certain amount. If the Wet Commissioning Date was after 7 April 2013, cl 9.3 entitled the Buyer to call on Security Bond I in full. If the wet commissioning was not achieved by 31 March 2013, cl 9.10(a) obliged the Seller, at the option of the Buyer, to “cede control of the construction and commissioning of the Project to the [buyer/SPV]”. In the circumstances that the Buyer exercised its right to take over control of the Project, it was obliged, under the same clause, “to undertake the construction and commissioning of the Project in the most prudent and cost effective manner” [emphasis added]. As regards the Cost Overrun, The Seller was obliged under cl 10.2.4 to “bear and contribute or indemnify and hold harmless (as the case may be), as and when required, any and all Cost Overrun”. To lend teeth to the obligation to indemnify any Cost Overrun, pursuant to cl 6.4.1(b)(iv), the Buyer agreed to pay about S$5.1m of the Purchase Consideration directly to the SPV, on behalf of the Seller. This payment would serve as new subordinated loans to the SPV from the Seller (ie, the Seller’s Subordinated Loans, hereinafter “the SSL”).⁶ In the event of a Cost Overrun (ie, when the costs of the Project exceeded the Project Cost), cl 9.7 provided that the claimants “shall notify [the Seller] … to provide such amounts to the [SPV], as is necessary to meet the Cost Overrun” (“the Cost Overrun Notice”). If the Cost Overrun Notice was not satisfied within 14 business days, “the [SSL] from or repayable to [the Seller] shall forthwith stand reduced in the books of the [SPV] by such amount as is specified in the Cost Overrun Notice”.⁷

The Bulk Power Transmission Agreement

There was a separate contract, the Bulk Power Transmission Agreement (“BPTA”), which is also relevant to the parties’ dispute. The SPV had entered into the BPTA with a grid company in 2009 (before the entry of the Buyer). Under the BPTA, the SPV agreed to pay transmission charges to the grid company in exchange for access to its power grid for 25 years. Access to this grid was necessary for the SPV to transmit electricity generated by the Project to consumers and to thereby earn revenue from the Project.

This BPTA obliged the SPV to begin paying transmission charges to the grid company before the Wet Commissioning Date. To minimise the Buyer’s outlay under the BPTA in the event that the Wet Commissioning Date was delayed, cl 11.4 of the SPA required the Seller (and another party whose identity is not material) to indemnify the SPV “against all payment obligations and Losses in relation to or arising under the [BPTA] on or before the Wet Commissioning Date” [emphasis added].⁸

Delays in the Project and Cost Overrun

The Project failed to achieve wet commissioning on the contemplated date of 31 March 2013. A reason for the delay was the occurrence of multiple failures of a “penstock”, which is a pipe that transports water at high pressure to the turbines.

On 16 October 2013, the Buyer issued a Cost Overrun Notice to the Seller, informing the Seller that there was a Cost Overrun of about S$9.6m, and calling upon the Seller to pay the said amount to the SPV within 14 business days.⁹ The Seller acknowledged the Cost Overrun Notice in its reply dated 1 November 2013, but did not challenge the correctness or validity of the notice.¹⁰ The Seller did not pay the amount demanded in the Cost Overrun Notice by the stipulated 14 business days deadline, nor did it do so thereafter.

From November 2013, as was its entitlement under cl 9.11 of the SPA, the Buyer began to oversee the Project more closely. However, the Buyer did not formally exercise its right to take control of the Project until March 2014, when, in accordance with cl 9.10(a) of the SPA (see [8(a)(ii)] above), the Buyer issued a takeover notice, and took over full control of the Project. This included the taking of steps to address the penstock failure as well as to rectify defects in other areas of the Project, such as the transmission line.

The arbitration

On 31 December 2014, while the Project was still under construction, the Buyer initiated arbitration proceedings against the Seller and its parent company (who is no longer a party to the present proceedings) pursuant to the arbitration agreement in cl 14 of the SPA.¹¹

Relief sought

In the arbitration, the Buyer sought a range of reliefs, the main ones being orders:¹² for the Seller to pay the SPV the Cost Overrun amount, or, in the alternative, to indemnify the Buyer for the Cost Overrun amount of about S$70.8m (“the Cost Overrun claim”); and for the Seller to indemnify and hold the SPV harmless for any payment obligations and losses incurred by the latter in relation to the BPTA until the achievement of the wet commissioning on 31 October 2015, amounting to S$13.7m (“the BPTA claim”).

Apart from denying liability,¹³ the Seller brought a counterclaim, seeking, among others, an order that the Buyer and the SPV pay about S$5.1m million, representing the portion of the SSL that was allegedly due to the Seller.¹⁴

For the purposes of the arbitration and the present applications, the parties have proceeded on the basis that the Project was wet commissioned on 31 October 2015, which was when the first discrete part of the Project was wet commissioned.

Tribunal’s Award

The Award was...