PT Bayan Resources TBK v BCBC Singapore Pte Ltd

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ,Judith Prakash JA,Dyson Heydon IJ
• Judgment Date: 29 August 2018
• Neutral Citation: [2018] SGCA(I) 6
• Published date: 31 August 2018
• Date: 29 August 2018
• Year: 2018
• Hearing Date: 08 February 2018,07 February 2018
• Plaintiff Counsel: Davinder Singh SC, Jaikanth Shankar, Chan Yong Wei, Lydia Ni Man Chuo, Phang Hwee Guang and Teo Li Fang (Drew & Napier LLC)
• Defendant Counsel: Francis Xavier SC, Alina Chia and Tee Su Mien (Rajah & Tann Singapore LLP)
• Court: Court of Appeal (Singapore)
• Citation: [2018] SGCA(I) 6
• Docket Number: Civil Appeal No 154 of 2017

Sundaresh Menon CJ (delivering the judgment of the court): Introduction

In 2006, the parties to the present appeal entered into a joint venture in the hope of exploiting a new technology to upgrade coal and then sell it commercially. In the ensuing years, their relationship came under increasing strain and eventually collapsed, leading the respondents to commence Suit No 1 of 2015 (“the Suit”) against the appellants. The trial was conducted before Quentin Loh J, Vivian Ramsey IJ and Anselmo Reyes IJ (collectively, “the Court”), and they ordered that it be heard in separate tranches, each dealing with specific issues. The Court rendered its decision in the first tranche in 2016 and in the second tranche in 2017: see respectively, BCBC Singapore Pte Ltd and another v PT Bayan Resources TBK and another [2016] 4 SLR 1 (“First Tranche Judgment”) and BCBC Singapore Pte Ltd and another v PT Bayan Resources TBK and another [2017] 5 SLR 77 (“Second Tranche Judgment”). No appeal was filed against the First Tranche Judgment, which primarily concerned the determination of the scope and content of the parties’ obligations under the joint venture. This appeal concerns only the Second Tranche Judgment, which dealt largely with whether the parties had breached those obligations, and if so, what consequences flowed from such breaches.

Background facts

The facts relevant to the dispute are detailed in the two aforementioned judgments of the Court. It therefore suffices for us to set out just the relevant facts pertinent to the present appeal.

The appellants are PT Bayan Resources TBK (“BR”) and Bayan International Pte Ltd (“BI”). BR is a public-listed Indonesian company that owns a number of subsidiaries operating coal mines in Tabang, Indonesia, including PT Bara Tabang (“Bara”) and PT Fajar Sakti Prima (“FSP”). BI is a company registered in Singapore and associated with BR. We refer to BR and BI collectively as “the Appellants”.

On the other side of the dispute are the respondents, BCBC Singapore Pte Ltd (“BCBCS”) and Binderless Coal Briquetting Company Pty Limited (“BCBC”). BCBC is an Australian company that holds the exclusive worldwide licence for a coal-upgrading process known as the binderless coal briquetting process (“the BCB Process”), and BCBCS is a Singaporean company associated with it. Both BCBC and BCBCS are indirect wholly-owned subsidiaries of White Energy Company Ltd (“WEC”), a public-listed Australian company. These three companies are referred to in this judgment as “the WEC Parties”, while BCBCS and BCBC (the respondents in this appeal) are referred to as the “the Respondents”.

Inception of the joint venture

In 2005, the parties envisioned using the BCB Process to upgrade and then sell the Appellants’ coal. This eventually led to the execution of a joint venture deed (“the JV Deed”) between BCBC and BI in June 2006. Under the JV Deed, the parties agreed to construct and commission a coal briquette processing plant in Tabang, Indonesia (“the Tabang Plant”). The construction and commissioning of this plant will be referred to hereafter as “the project” where appropriate to the context. A deed of novation was executed in 2009, the effect of which was that BCBCS and BR were substituted for BCBC and BI respectively as the parties to the JV Deed.

In 2007, the parties incorporated an Indonesian joint venture company, PT Kaltim Supacoal (“KSC”), with BCBCS holding 51% and BI, 49% of the issued shares. With the execution of the JV Deed and the incorporation of KSC, the joint venture was underway, but friction between the parties started to develop by November 2007, when they realised that they had underestimated the costs of the Tabang Plant. To exacerbate matters, in the years following the execution of the JV Deed, the Indonesian government passed legislation that had the effect of adding to the cost of operating the Tabang Plant and KSC’s business. Of particular note is a piece of legislation known as “the HBA Regulations”, which came into force in October 2010 and which set the benchmark price for the sale of minerals and coal in Indonesia (“the HBA Price”).

These developments led the parties and KSC to enter into a series of funding agreements and memoranda of understanding in the years after the JV Deed was executed. For our purposes, the following are noteworthy: In March 2009, the parties entered into two memoranda of understanding: first, a “Memorandum of Understanding (KSC Funding Arrangements)” (“the Funding MOU”), which set out the parties’ funding obligations; and second, a “Memorandum of Understanding (Expansion of joint venture)” (“the Expansion MOU”), which concerned the future expansion of the joint venture. In September 2009, KSC entered into an agreement with Standard Chartered Bank for a US$10m working capital loan facility (“the SCB Loan Facility”). In December 2010, KSC, BR and BCBCS entered into a “Priority Loan Funding Agreement” (“the PLFA”), which was backdated to April 2010. Under the PLFA, it was agreed that BCBCS would advance a revolving working capital facility of up to US$20m to KSC; while BR would provide KSC with a “Coal Advance”, which entailed BR supplying coal (through Bara and FSP) to KSC at the market price (approximately US$15 per tonne in March 2010) but requiring payment of only US$8 per tonne upon delivery, with the balance that remained due constituting the advance. The parties’ obligations under the PLFA were originally intended to last until June 2011, but this was later extended to 31 December 2011 by way of an addendum, which also increased the facility limit from US$20m to US$40m. Between March and June 2011, KSC entered into coal supply agreements (“the 2010 CSAs”) with BR’s coal mining subsidiaries, Bara and FSP. The agreements were backdated to October 2010 when the HBA Regulations came into force, and the effect of this was that the obligation on Bara’s and FSP’s part was to supply coal to KSC at the HBA Price. Pursuant to the “Coal Advance” under the PLFA, however, KSC only had to pay US$8 per tonne upfront for the coal.

In October 2011, the Tabang Plant was shut down for modification works to take place. It was anticipated that the modification works would be completed around June 2012.

Deterioration of the parties’ relationship The KSC board meeting in November 2011

Things came to a head in the last quarter of 2011. On 28 October 2011, the WEC Parties sent an information package to the Appellants, which revealed that KSC had exceeded its 2011 budget by nearly US$7m as at 30 September 2011.

On 2 and 3 November 2011, a KSC board meeting (“the November 2011 Board Meeting”) was held. Two sets of handwritten notes recording the discussions were in evidence, one taken by the WEC Parties and the other by the Appellants. These sets of notes are generally consistent. They record that BR’s shareholders had instructed BR’s management to address serious concerns over the feasibility of the joint venture. The Appellants indicated that they wanted to exit the joint venture, and that they were willing to sell their shares in KSC (as represented by BI’s 49% shareholding therein) to the WEC Parties. The Appellants were happy for the WEC Parties to continue with the joint venture on their own, and while BR remained willing to supply coal to KSC, this would have to be on arms’ length terms and “at commercial rates”.

Cessation of coal supply to KSC on 9 November 2011

Following the November 2011 Board Meeting, the Appellants informed the WEC Parties on 4 November 2011 that as an interim measure, BR would continue supplying coal to KSC at the HBA Price. On 7 November 2011, KSC sought coal from Bara and FSP, informing them that it still needed “a lot of coal”. In total, KSC received some 8,000 tonnes of coal from Bara and FSP from 3 to 8 November 2011.

On 9 November 2011, WEC made a public announcement on the Australian Stock Exchange to the effect that BR had formed the view that the joint venture might not be economically viable, and that the price of the coal supplied to KSC had to be “substantially higher” than what had been agreed on under the 2010 CSAs. The announcement also stated that BR believed that it could generate much higher margins by selling the coal directly into the export market, and that these issues “[went] directly to the economic viability of [the Tabang Plant] and the willingness of each of the shareholders to continue with their investment in KSC”.

On the same day, after WEC’s announcement, BR e-mailed Bara and FSP instructing them to stop supplying coal to KSC. BR’s e-mail, the contents of which were eventually conveyed to KSC and WEC, was in the following terms:

You may or may not be aware that Bayan has decided to withdraw from the KSC joint venture (see [WEC’s] press release attached). At this time we are still working out some of the commercial details surrounding this and therefore do not want to supply them any more coal until this has been resolved. In this regard, please stop all supply to them until further notice.

The meeting on 17 November 2011

The cessation of coal supply to KSC was followed by a meeting on 17 November 2011 (“the 17 November 2011 Meeting”) attended by a few representatives from each side to discuss the “impasse relating to KSC”. The only record of the meeting consisted of a set of handwritten notes taken by Mr Brian Flannery (“Mr Flannery”), who represented the WEC Parties. His notes reflected the WEC Parties’ desire to bring the Tabang Plant to completion, and also KSC’s need for coal in order to bring the plant up to its design capacity.

During the meeting, the Appellants reiterated their desire to exit the joint venture, and again raised the possibility of the WEC Parties buying out their share of the joint venture for US$45m, which was the amount that they had invested in the project up to that point in time. Mr Flannery’s notes ended with a...