Sui Southern Gas Co Ltd v Habibullah Coastal Power Co (Pte) Ltd

• Court: High Court (Singapore)
• Judge: Judith Prakash J
• Judgment Date: 23 February 2010
• Neutral Citation: [2010] SGHC 62
• Citation: [2010] SGHC 62
• Defendant Counsel: Sundraresh Menon SC and Tammy Low Wan Jun(Rajah & Tann LLP)
• Published date: 26 February 2010
• Plaintiff Counsel: Kenneth Tan SC (counsel instructed), Prakash Mulani and Aftab Ahmad Khan (M&A Law Corporation)
• Hearing Date: 28 August 2009,30 September 2009
• Docket Number: Originating Summons No 248 of 2009
• Date: 23 February 2010
• Subject Matter: Arbitration

Judith Prakash J: Introduction

The plaintiff, Sui Southern Gas Company Limited (“SSGC”), is a public sector limited company incorporated under the laws of Pakistan, whose principal business is that of a supplier of gas throughout the South Pakistan provinces of Sindh and Balochistan. The defendant, Habibullah Coastal Power Company (Private) Limited (“HCPC”), is a corporation organised under the laws of Pakistan.

By an Amended and Restated Gas Supply Agreement dated 31 March 1996 (“the Agreement”) between SSGC and HCPC (collectively “the parties”), relating to a power generation complex (“the Plant”) in Skeikh Manda near Quetta, in the Balochistan province of Pakistan, SSGC agreed to supply natural gas to HCPC in order to allow HCPC to generate electricity at the Plant. Pursuant to a Power Purchase Agreement with the Pakistan Water and Power Development Authority (“the Authority”), HCPC agreed to supply all the electricity produced at the Plant to the Authority.

Unfortunately, a dispute arose between SSGC and HCPC which they referred to arbitration, as required by the Agreement. Essentially, HCPC claimed that SSGC had breached the terms of the Agreement by failing to supply sufficient quantities of gas, causing HCPC to suffer a loss and thereby entitling it to damages under the Agreement. SSGC disputed this claim and averred that it had at all times complied with its obligations under the Agreement, and thus it had incurred no liability thereunder. Under the Agreement, the seat of arbitration was to be in Singapore and English law governed the conduct of the arbitration. The three-member Arbitral Tribunal (“the Tribunal”) rendered its award (“the Award”) on 1 December 2008. The Award was in all material respects in HCPC’s favour.

This originating summons was taken out by SSGC in March 2009, SSGC sought an order that the Award be set aside pursuant to s 24(b) of the International Arbitration Act (Cap 143A, 2002 Ed) (“the Act”) and art 34 of the UNCITRAL Model Law on International Commercial Arbitration (“the Model Law”) which is set out in the First Schedule to the Act (which by virtue of s 3 of the Act has the force of law in Singapore). It did so on the grounds that: the Award dealt with disputes or issues not contemplated by or, alternatively, not falling within, the terms of the submission to arbitration and/or contained decision on matters or issues beyond the scope of the submission to arbitration, in breach of art 34(2)(a)(iii), Sch 1 of the Act (“the scope of submission argument”); the Award was in conflict with the public policy of Singapore, in breach of art 34(2)(b)(ii), Sch 1 of the Act (“the public policy argument”); and a breach of natural justice had occurred in connection with the making of the Award by which the rights of SSGC had been prejudiced, in violation of s 24(b) of the Act (“the natural justice argument”).

However, in written and oral submissions, counsel for SSGC rightly chose not to rely on the natural justice argument, and I shall say no more about that aspect of the application.

HCPC contested the application. After hearing the parties, I held that the application was to be dismissed, with costs as taxed or agreed to be paid by SSGC to HCPC, and the Award upheld because SSGC had not convinced me that any of its complaints was well-founded. I now set out the grounds of my decision.

Background

In December 1995, the Government of Pakistan increased the gas allocation to HCPC (“Gas Allocation”) for the purposes of allowing HCPC to generate electricity at the Plant, which HCPC would then supply to the Authority. The Gas Allocation was to be 21 million standard cubic feet (“MMCF”) of natural gas on a “firm basis” and an additional 4 MMCF on an “as and when available basis”.

The Agreement was the means by which the Gas Allocation was to be implemented. Pursuant to arts 3.1 and 3.2 of the Agreement, SSGC was obliged to supply all of the Plant’s requirements for natural gas, to the extent of the “Daily Contract Quantity”. Pursuant to art 1.23 of the Agreement, the “Daily Contract Quantity” was 21 MMCF of natural gas per day, plus the “Additional Allocation Gas”, subject to availability, of 4 MMCF per day.

The delivery of all such quantities of natural gas was pursuant to the “Delivery Priority”, which was defined in art 1.25 as:

[HCPC’s] right to receive and [SSGC’s] obligation to deliver Gas on a priority basis, consistent with [HCPC’s] Gas Allocation, such that deliveries to the [Plant] will be the last non-residential deliveries on [SSGC’s] pipeline system to be curtailed or reduced in the event of a reduction or curtailment of deliveries on [SSGC’s] pipeline system; provided, further, [HCPC] will be the first non-residential customer to have deliveries restored when the conditions which caused the reduction or curtailment are abated or remedied.

The term “pipeline system” was not, however, defined in the Agreement, and was one of the disputed matters before the Tribunal.

Since 2000, SSGC had on a number of occasions limited (or “curtailed”) the amount of gas supplied to the Plant, which caused HCPC to have to burn alternative fuel in order to meet its obligations to the Authority and, on occasion, to pay liquidated damages to the Authority. It was as a result of these events that HCPC had claimed damages for breach of contract against SSGC in the arbitration.

The Award

The Tribunal, in para 4.6 of the Award, set out a list of 8 issues which it had to determine: (a) SSGC’s obligation to provide gas, on a true construction of the Agreement; (b) Whether SSGC had complied with that obligation; (c) To the extent that it did not, whether it had a contractually permitted excuse in respect of each curtailment; (d) To the extent that SSGC had not met its obligation to provide gas or honour its Delivery Priority, whether such failure was excused by the practical limitation imposed by the pipelines and equipment SSGC had employed; (e) To the extent that SSGC had not met its obligation to provide gas, and had no contractually permitted excuse, whether HCPC was entitled to claim damages; (f) To the extent that SSGC was in breach of its obligations under the Agreement, whether HCPC was entitled to a defence of set-off; (g) If SSGC was not in breach of the Agreement, whether HCPC was in breach of the Agreement by effecting a set-off; (h) Whether the Tribunal should grant the damages and declarations sought by HCPC.

The Tribunal ruled in favour of HCPC, and it is necessary to set out a summary of the material aspects of the Award which SSGC sought to impugn. In para 12 of the Award, the Tribunal declared that: (a) SSGC had breached its obligations to supply the Daily Contract Quantity pursuant to the Agreement; (b) SSGC was obliged to deliver 21 MMCF per day to HCPC save where there was a valid circumstance of Force Majeure (invoked in compliance with the notice provisions of art 13 of the Agreement), Emergency, or other contractually permitted excuse under arts 3.2(b), 9.6 and 12 of the Agreement; (c) SSGC was obliged to deliver an additional 4 MMCF per day save where there was a valid circumstance of Force Majeure (invoked in compliance with the notice provisions of art 13 of the Agreement), Emergency, or other contractually permitted excuse under arts 3.2(b), 9.6 and 12 of the Agreement, or where there was insufficient gas in SSGC’s pipeline system (as defined in para (e) below) to provide the additional 4 MMCF per day, once residential demand had been satisfied; (d) in circumstances where there was insufficient gas to satisfy the obligation to provide 25 MMCF per day to HCPC, SSGC was only entitled to curtail supplies to HCPC: (i) once all other non-residential users on the pipeline system had been so curtailed; and (ii) to the extent necessary to supply gas to residential customers, such curtailment not relieving SSGC of its obligation to supply 21 MMCF per day, and a further 4 MMCF, save where such 4 MMCF was not available, having applied the Delivery Priority; (e) the terms “pipeline systems” and “systems” as used in the Agreement encompassed the entirety of SSGC’s pipeline system, and were not restricted to any particular province or other geographical area.

In the Award, the Tribunal expressed a view as to whether the practical limitations imposed by the pipelines and equipment SSGC had chosen to employ excused its failure to meet its obligations under the Agreement (as interpreted by the Tribunal). The Tribunal was satisfied that no practical limitations excused such failure, and at para 7.3 of the Award, the Tribunal declared that:

On the evidence, the following steps could also be taken to increase the system’s capacity:

(a) as Mr. Ghaznavi admits, operate the system at a higher pressure; (b) add an extra loop of pipeline between Dadhar and Abe Gum; (c) add a compressor at RS-1 and Nuttal; (d) make gas from Zamzama field available; (e) reduce amount of gas transported South to Karachi; (f) install storage components and linepacking; (g) stop taking on more customers than it can satisfy demand for – as it is contractually mandated not to do.

SSGC contended that the Award, and in particular the declaration set out in [12] above, was perverse, as it contained manifestly gross errors of law and imposed impossible obligations on SSGC. As such, SSGC submitted, the Award should be set aside.

Perversity and irrationality

In its submissions, SSGC relied heavily on the contention that the Award was perverse, manifestly unreasonable and irrational, and should therefore be set aside. SSGC deployed this argument in two ways.

In oral arguments before me, SSGC relied on it as an independent ground on which the Award could be challenged: counsel for SSGC submitted that the various circuits of the United States courts of appeal had...