Bumi Armada Offshore Holdings Ltd and another v Tozzi Srl (formerly known as Tozzi Industries SpA)

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 06 August 2018
• Neutral Citation: [2018] SGCA(I) 5
• Plaintiff Counsel: Chou Sean Yu, Tan Yue Shuen Alvin and Daniel Lee Wai Yong (WongPartnership LLP)
• Docket Number: Civil Appeal No 199 of 2017
• Date: 06 August 2018
• Hearing Date: 07 May 2018
• Subject Matter: Tort,Contract,Breach,Right of first refusal,Inducement of breach of contract,Formation
• Year: 2018
• Defendant Counsel: Mohammed Reza s/o Mohammed Riaz and Lee Wei Han Shaun (JWS Asia Law Corporation)
• Court: Court of Appeal (Singapore)
• Citation: [2018] SGCA(I) 5
• Published date: 14 August 2018

David Edmond Neuberger IJ (delivering the judgment of the court): Introduction

This is an appeal against the decision of the Singapore International Commercial Court (“the SICC”) in Tozzi Srl (formerly known as Tozzi Industries SpA) v Bumi Armada Offshore Holdings Ltd and another [2017] 5 SLR 156 (the “Judgment”). The underlying dispute arises from a project for the supply of facilities and services in connection with the development of the Madura BD Gas and Condensate Field in Indonesia (“the Project”). The Project included the construction and lease of a Floating Production, Storage and Offloading unit, a key part of which was the gas processing facilities, which consisted of seven Topside Process Modules (the “Modules”). The first appellant, Bumi Armada Offshore Holdings Limited (“BAOHL”), was awarded the contract for the Project.

The SICC found that BAOHL had breached the right of first refusal that it had granted to the respondent, Tozzi Srl (“Tozzi”), in respect of the supply of all seven Modules. The SICC additionally found in favour of Tozzi in its claim against the second appellant, Bumi Armada Berhad (“BAB”), BAOHL’s parent company, for having induced BAOHL’s breach of contract. BAOHL and BAB (collectively referred to as “Bumi”) appeal against the whole of the Judgment.

The relevant factual background

BAOHL is incorporated in the Marshall Islands and provides services to offshore oil and gas companies. It is a wholly owned subsidiary of BAB, a Malaysian publicly listed company that provides offshore oilfield services. Tozzi is an Italian company, which provides engineering, procurement and construction services to the oil and gas industry.

In April 2012, the developer and owner of the Project, Husky-CNOOC Madura Limited (“Husky”), invited several companies, including BAOHL, to bid for the Project. To help prepare its bid, BAOHL asked Tozzi to provide engineering, procurement and construction (“EPC”) services for three of the seven Modules, which were known as the “TI Packages”.¹

In February 2013, Tozzi and BAOHL entered into a Pre-Bid Agreement (“the PBA”) which governed their working relationship in preparation for BAOHL’s bid for the Project.² The PBA was signed by Mr Stefano Schiavo, Tozzi’s Sales and Marketing Director, and Mr Nicolas Abela, BAB’s then Vice-President of Business Development Asia, for and on behalf of BAOHL.

Clause 1(a) of the PBA provided that, if and when BAOHL was awarded the Project, BAOHL would subcontract to Tozzi the provision of EPC services for the TI Packages. Clause 2(c) granted Tozzi a right of first refusal for the supply of the TI Packages.³ Clause 8(D) provided that the PBA would expire after a year.

In March 2013, following further negotiations on various matters, Tozzi submitted a proposal for the supply of EPC services for the TI Packages.⁴ In January 2014, Mr Schiavo sought to extend the scope of Tozzi’s services to all seven Modules, but this was rejected by Bumi.⁵

The PBA expired on 5 February 2014, without Husky having awarded the Project to any bidder. Notwithstanding this, Bumi and Tozzi continued to work together on BAOHL’s bid for the Project.⁶

On 28 July 2014, after Husky informed BAOHL that it would be awarded the Project (it was anticipated that the Project would be formally awarded by 1 September 2014),⁷ BAB’s then-Chief Executive Officer (“CEO”), Mr Hassan Basma, called for an urgent meeting with Tozzi, and the parties met on 31 July 2014 (“the 31 July Meeting”). The next day, Mr Schiavo e-mailed Mr Basma with the intention of summarising the effect of the previous day’s discussions “as [the] basis for an MOU”.⁸ In his e-mail, Mr Schiavo recorded the following:⁹

BAB and [Tozzi] agree the following:

…

- In the event [Tozzi] will confirm the given price for all the process topsides, then BAB will issue a [purchase order] with the original amount plus the amount for the e-house. - In the event [Tozzi] will not confirm the given price, they will highlight and justify all the changes. - If an agreement and complete understanding between BAB and [Tozzi] will be reached on such changes then will proceed with the issue of a [purchase order] to [Tozzi] with the agreed amount. - On the contrary BAB will involve other companies and seek quotations from them. However [Tozzi] will be granted right of first refusal.

…

On 1 August 2014, Bumi prepared the minutes of the 31 July Meeting (“the 1 August MOM”), which were then signed by Mr Schiavo and Mr Abela for and on behalf of Tozzi and BAOHL respectively. The 1 August MOM contained ten numbered and indented paragraphs, followed by a single unindented and unnumbered paragraph. The SICC described the 1 August MOM in the following terms (Judgment at [13]):

… The 1 August MOM similarly recorded Tozzi’s right of first refusal: 5. Tozzi will review their earlier price and confirm within 3 weeks for entire topsides. They will list assumptions made in confirmation or price. At the conclusion of FEED, Tozzi will adjust the price for assumptions. If adjusted price is acceptable to [BAOHL], Tozzi will be awarded the work. In case this is not, [BAOHL] will go out for a price check and offer first right of refusal to Tozzi for lowest price alternative offer.

It also recorded that Bumi wished to carry out improved Front End Engineering and Design (“FEED”) works and requested Tozzi to undertake the FEED. This proposal, as well as several other items recorded in the 1 August MOM, appeared to require further deliberation and follow-up action. For example, Tozzi was to provide details of the manpower available to perform the FEED works in Kuala Lumpur; the power generation and flare system “can be considered for supply by Tozzi”; and options for vendors for the detailed engineering works were proposed by both sides for further consideration. The last paragraph of the 1 August MOM contained what seems to be a “subject to contract” provision: Both [BAOHL] and Tozzi agree that these minutes of meeting dated 1st August 2014 constitutes an understanding of the discussions, which took place on 31st July 2014 and is subject always to successful negotiation and mutual agreement and execution of a formal contract.

[original emphasis omitted]

On or about 8 August 2014, Husky awarded the Project to BAOHL.¹⁰ On 5 November 2014, whilst the Front End Engineering and Design (“FEED”) works by Tozzi were still underway, Bumi issued a Request for Quote (“RFQ”) inviting proposals for the supply of all seven Modules.¹¹ Mr Schiavo strongly objected to the RFQ on the basis that it was inconsistent with Tozzi’s right of first refusal, and he also pointed out that Tozzi had commenced the FEED works in reliance on its right of first refusal.¹² Notwithstanding that, in January 2015, Tozzi submitted its quote for the EPC supply of the seven Modules.¹³ Later that month, Bumi informed Tozzi that it had decided to subcontract only the supply of the TI Packages (ie, three instead of seven Modules),¹⁴ and Tozzi submitted a revised quote for the supply of the TI Packages in February 2015.¹⁵ In both submissions, Tozzi referred in its covering letter to an existing agreement between the parties.¹⁶

In late February 2015, Mr Schiavo met with Mr Jesse van de Korput, BAB’s new CEO, and raised Tozzi’s right of first refusal, which was embodied in both the PBA and the 1 August MOM.¹⁷ Mr Schiavo subsequently raised the same issue again in an e-mail sent on 1 March 2015.¹⁸ Mr van de Korput responded in an e-mail, effectively denying Tozzi’s entitlement to a right of first refusal. Mr Schiavo then met with Bumi’s team involved in the Project on 1 April 2015 to discuss the commercial aspects of Tozzi’s proposal,¹⁹ and six days later Tozzi submitted its final bid for the supply of the TI Packages.²⁰

Thereafter, on 20 May 2015, the subcontract for the supply of the TI Packages was awarded by BAOHL to VME Process Asia Pacific Pte Ltd (“VME”),²¹ without Tozzi first being given the opportunity to exercise a right of first refusal – ie, to match VME’s bid. This led to the commencement of the present proceedings by Tozzi against BAOHL and BAB.

The proceedings before the SICC

At the trial below, Tozzi called Mr Schiavo as a witness, who was, as the SICC said, “intimately involved throughout the period in the lead up to Bumi’s bid for the Project”. By contrast, the SICC explained, Bumi only called “its in-house legal counsel … who had no personal knowledge whatsoever of the events which led to the proceedings … [and had] only joined Bumi after the dispute had arisen” [emphasis in original] (Judgment at [6]). In the circumstances, the SICC observed, “[f]or all intents and purposes, Bumi’s defence is akin to a submission of no case to answer” (Judgment at [6]).

In the Judgment (at [5]–[6] and [20]), the SICC explained that Tozzi’s case against BAOHL was that BAOHL had acted in breach of contract in not giving effect to Tozzi’s right of first refusal, and that BAOHL’s principal defence was that the right of first refusal had no contractual force because of the “subject to contract” stipulation contained in the 1 August MOM. The SICC also considered two other issues: first, whether the right of first refusal extended to the supply of all seven Modules (as Tozzi contended) or only to the TI Packages (as BAOHL argued); and second, whether Tozzi was also entitled to succeed against BAB for the tort of inducing that breach of contract if BAOHL was liable to Tozzi for breach of contract.

The SICC determined all three issues in Tozzi’s favour. It held that a binding agreement had been reached at the 31 July Meeting that Tozzi would be granted a right of first refusal as recorded in para 5 of the 1 August MOM (see [10] above) (Judgment at [24]). The SICC also held that the right extended to, and was infringed in respect of, the supply of all seven Modules (Judgment at [30] and...