Independent State of Papua New Guinea v PNG Sustainable Development Program Ltd

• Jurisdiction: Singapore
• Judge: Judith Prakash J
• Judgment Date: 12 February 2016
• Neutral Citation: [2016] SGHC 19
• Plaintiff Counsel: Koh Swee Yen, Yin Juon Qiang and Joel Quek (WongPartnership LLP)
• Docket Number: HC/Originating Summons No 234 of 2015
• Date: 12 February 2016
• Hearing Date: 12 August 2015,30 July 2015,06 May 2015,19 May 2015
• Subject Matter: Capacity,Effect,Originating processes,Estoppel by representation,Estoppel,Consideration,Contract,Companies,Collateral contracts,Civil procedure,Ratification,Memorandum and articles of association,Pre-incorporation contracts,Accounts
• Year: 2016
• Citation: [2016] SGHC 19
• Defendant Counsel: Nish Shetty, Joan Lim-Casanova, Jordan Tan, Lim Chingwen and Sarah Hew (Cavenagh Law)
• Court: High Court (Singapore)
• Published date: 15 February 2017

Judith Prakash J: Introduction

In this originating summons (“OS 234” or “this OS”), the Plaintiff, the Independent State of Papua New Guinea (“the State”), seeks a declaration that it is entitled to inspect and take copies of all true accounts, books of account and/or records of the Defendant, PNG Sustainable Development Program Limited (“PNGSDP”). This OS is an offshoot of the action in Suit 795 of 2014 (“S 795”), having been commenced after a summons in S 795, which had prayed for the same relief, was dismissed on the ground that the relief prayed for, being final, had to be sought by way of an originating process rather than by an interlocutory application.

PNGSDP has mounted a root-and-branch attack on the State’s alleged right of inspection. Its argument that the State not entitled to the relief it seeks is threefold. First, it is inappropriate to commence this action by way of an originating summons. Secondly (and this is the most hotly contested ground), the State does not have and may not enforce any alleged right of inspection. In particular, it refutes the State’s three arguments, which are based on the Memorandum and Articles of PNGSDP, an alleged collateral contract incorporating the same, and estoppel. Thirdly, even if the State has an enforceable right of inspection, it does not extend to the documents listed in the Schedule to OS 234.

Facts Parties to the dispute

The plaintiff is the Independent State of Papua New Guinea.

The defendant, PNGSDP, is a not-for-profit company limited by guarantee which was incorporated on 20 October 2001 in Singapore. It is also registered and operating in Papua New Guinea (“PNG”) as an overseas company. It is governed by its Memorandum of Association (“the MA”) and Articles of Association (“the AA”) (collectively “the M&A”), to which the New Rules of the PNG Sustainable Development Program (“the New Program Rules”) are annexed. PNGSDP has four members and its board of directors comprises eight international and Papua New Guinean directors and one independent Singapore director.

Events leading to the incorporation of PNGSDP The history

In 1976, the State entered into an agreement with the predecessor of BHP Minerals Holdings Pty Ltd (“BHP”) setting out the parameters for the development of the Ok Tedi Mine (“the Mine”), a gold and copper mine in the Western Province of PNG. The terms of the agreement were reflected in the First Schedule to the Mining (Ok Tedi Agreement) Act 1976 (PNG). In accordance with the agreement, Ok Tedi Mining Limited (“OTML”), a company in which both BHP and the State were shareholders, was nominated in 1984 to undertake, construct, develop and operate the Mine. OTML’s primary assets were the Mine and the Special Mining Lease No 1, which afforded mining rights to OTML until 2022.

In 2001, BHP informed the State that it wished to close the Mine ahead of its scheduled mine life basically due to concerns regarding the environmental impact of the Mine. At the time, the shares in OTML were held in the following proportions:

BHP	52%
The State	20%
Inmet Mining Corporation	18%
Mineral Resources Ok Tedi No 2 Limited	10%

After deliberation, the State informed BHP that the Mine had to continue operating in view of its potential to bring social and economic benefits to the State and, in particular, the people of the Western Province. BHP agreed to negotiate terms upon which the Mine would continue operations.

After 12 months of negotiations, an agreement was reached. This was essentially BHP’s exit plan: under the agreement, BHP would gift its interest in OTML to an independent third party so that mining could continue, in return for certain indemnities and protection from prosecution and a law would be passed to reflect the agreement. In December 2001, the Mining (Ok Tedi Mine Continuation (Ninth Supplement) Agreement Act 2001 (PNG) (“the 2001 Act”) was passed reflecting the agreement between the State and BHP Billiton Limited (“BHPB”), an entity which had been formed by a merger around June 2001 between BHP and Billiton plc. The main elements of this agreement included the following: An independent company (ie, PNGSDP) would be incorporated in Singapore to hold BHPB’s shares in OTML. PNGSDP would use the dividend stream from OTML for certain specified purposes and for the benefit of the people of PNG. BHPB would be given protection against prosecution by the State and an indemnity by PNGSDP against any future proceedings for compensation resulting from the environmental damage caused by the operation of the Mine and this indemnity would be secured by PNGSDP’s assets. PNGSDP was to operate its business in accordance with certain rules; it would invest one third of its annual dividends from OTML into a fund (“the Development Fund”) to be used for supporting development projects in PNG and the other two thirds into a long-term fund (“the LT Fund”) to be used for sustainable development purposes to benefit the people of PNG after the closure of the Mine.

The formation and operations of PNGSDP

Shortly after the incorporation of PNGSDP in October 2001, the following agreements were entered into to carry into effect the agreement that had been reached between the State and BHPB: a Master Agreement dated 11 December 2001 between the State, PNGSDP, BHPB, BHP, OTML and the two other shareholders in OTML (“the 2001 Master Agreement”); a Deed of Indemnity dated 11 December 2001 between PNGSDP and BHPB (“the DOI (BHPB)”); a Deed of Indemnity dated 11 December 2001 between PNGSDP and the State (“the DOI (State)”); a Security Deed dated 7 February 2002 between PNGSDP, OTML and Insinger Trust (Singapore) Limited (“ITSL”) (“the Security Deed”); a Security Trust Deed dated 7 February 2002 between PNGSDP, OTML, BHPB, and ITSL (“the Security Trust Deed”); and an Equitable Mortgage of Shares dated 7 February 2002 between PNGSDP and ITSL. I will refer to the above documents, together with the M&A, as “the Transaction Documents”.

At its inception, PNGSDP was governed by the M&A and the Rules of the PNG Sustainable Development Program. (The aforesaid rules were replaced by the New Program Rules in April 2004.) In the words of Sir Mekere Morauta (“Sir Mekere”), who was PNG’s Prime Minister when PNGSDP was incorporated and who is currently the chairman of PNGSDP’s board of directors, safeguards were built into PNGSDP to ensure its corporate integrity. One such safeguard was the decision to incorporate PNGSDP in Singapore. This was, he says, partly motivated by the fact that PNGSDP would remain independent and unaffected by any potential change in the government of PNG. Other safeguards were built into the M&A, to which the State and BHPB specifically agreed, to ensure that funds from OTML would be used to promote sustainable development within PNG and advance the general welfare of its people. In Sir Mekere’s words, the M&A placed a particular emphasis on strong governance mechanisms, accountability and transparency. For example, board meetings could be quorate and board resolutions could be approved only with the blessings of at least one of each of the classes of directors (Class “A” directors were appointed by BHPB and Class “B” directors by certain organs or offices of the State: see Arts 24 and 38 of the AA).

What is important for the purpose of this OS are cl 9 of the MA, Art 52 of the AA and Rule 20 of the New Program Rules. They, loosely speaking, set out the State’s right of inspection and right to information:

MEMORANDUM OF ASSOCIATION OF [PNGSDP]

…

9. True accounts shall be kept of the sums of money received and expended by [PNGSDP] and the matters in respect of which such receipts and expenditure take place, of all sales and purchases of goods by [PNGSDP] and of the property, credits and liabilities of [PNGSDP]; and, subject to any reasonable restrictions as to the time and manner of inspecting the same that may be imposed in accordance with the Articles of Association for the time being, such accounts shall be open to the inspection of the members and by authorised representatives of BHP Billiton Limited (or any successor corporation) and the Independent State of Papua New Guinea.

…

ARTICLES OF ASSOCIATION OF [PNGSDP]

…

52. The Directors shall from time to time determine at what times and places and under what conditions or regulations the books of account and other records of [PNGSDP] shall be open to the inspection of members (not being Directors) and by authorised representatives of the State. No member (not being a Director) shall have any right of inspecting any account or book or document of [PNGSDP] except as conferred by statute or authorised by the Directors or by the members in General Meeting.

[Annotation: Amended by EGM on 30/10/12]

…

NEW RULES of the PNG SUSTAINABLE DEVELOPMENT PROGRAM

(Adopted by Special Resolution passed on 21 April 2004)

…

20. REPORT TO BHP BILLITON, OTML AND THE STATE

[PNGSDP] must give annually:

(a) a copy of the annual audited accounts of [PNGSDP]; (b) a report of the Program’s activities describing: (i) the financial status of the Program (including details of payments made under Contractual Obligations; the balance of the [LT Fund] and its investments); (ii) the Projects supported by [PNGSDP] and amounts committed for or spent on each Project and (iii) the amount spent by [PNGSDP] on Operating Expenses and the proportion of that expenditure to amounts spent on Projects; and (iv) details of any OTML shares subscribed by [PNGSDP],

to [BHPB], OTML and the State.

PNGSDP began operations in 2002. That was also the year that Sir Mekere ceased to be Prime Minister of PNG. Since then, PNGSDP has committed the equivalent of US$430m to approximately 650 projects and programs...