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

• Jurisdiction: Singapore
• Judge: Steven Chong JA
• Judgment Date: 21 September 2017
• Neutral Citation: [2017] SGHC(I) 8
• Docket Number: Suit No 6 of 2016
• Date: 21 September 2017
• Published date: 14 August 2018
• Plaintiff Counsel: Mohammed Reza s/o Mohammed Riaz and Lee Wei Han Shaun (JWS Asia Law Corporation)
• Defendant Counsel: Chou Sean Yu and Kevin Tan (WongPartnership LLP)
• Hearing Date: 13 July 2017,11 July 2017,10 July 2017
• Court: International Commercial Court (Singapore)
• Subject Matter: Breach,Tort,Formation,Intention to create legal relations,Contract,Inducement of breach of contract,Right of first refusal

Steven Chong JA (delivering the judgment of the court): Introduction

This dispute can be traced to a project for the supply of facilities and services in relation to 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 (“FPSO”) of which an integral part was the gas processing facilities (“the Topside Process Modules”).¹

The defendants (collectively referred to as “Bumi”) intended to make a bid for the Project through the first defendant, Bumi Armada Offshore Holdings Limited (“BAOHL”), a wholly-owned subsidiary of the second defendant, Bumi Armada Berhad (“BAB”). They invited the plaintiff, then known as Tozzi Industries SpA (“Tozzi”), to support their bid given its expertise in gas processing facilities. Both parties formalised their working relationship in a Pre-Bid Agreement (“the PBA”). Tozzi’s role in the PBA concerned the supply of some or all of the Topside Process Modules. Central to the PBA was the requirement for Tozzi to work exclusively with Bumi in respect of the bid for the Project. In exchange, Bumi granted Tozzi a right of first refusal.

Although the PBA was only valid for one year, both parties continued to work together on the bid notwithstanding the expiry of the PBA. Eventually when the expiry date was raised, both parties met to discuss and decided to continue the relationship on terms which were recorded in the Minutes of Meeting (“the 1 August MOM”). Crucially, although the 1 August MOM recognised Tozzi’s right of first refusal, it also expressly stated that it was “subject always to successful negotiation and mutual agreement and execution of a formal contract”.²

After BAOHL was awarded the contract for the Project, BAB’s Chief Executive Officer (“CEO”) stated that it would not favour any bidder for the subcontract to supply the Topside Process Modules, thereby implicitly denying that Tozzi had any right of first refusal.

As it turned out, BAOHL eventually awarded the subcontract for part of the Topside Process Modules to another party without first extending the right of first refusal to Tozzi. This led to the commencement of the present proceedings. Although several causes of action were pleaded to ground Tozzi’s claim – breach of express contract, variation, estoppel, waiver and implied contract – ultimately they essentially advance the same claim which is premised on Tozzi’s right of first refusal.

Tozzi called only one witness – Mr Stefano Schiavo, who was intimately involved throughout the period in the lead up to Bumi’s bid for the Project. On the other hand, although Bumi was represented by many senior members of its management in the course of preparing the bid, none of them was offered as a witness for the trial. Instead, its sole witness was its in-house legal counsel, Ms Johana Rosli, who had no personal knowledge whatsoever of the events which led to the proceedings. In fact, she only joined Bumi after the dispute had arisen. For all intents and purposes, Bumi’s defence is akin to a submission of no case to answer. Its principal defence is that the right of first refusal had no contractual force on the basis that it had either expired with the PBA or was in any event “subject to contract” in the 1 August MOM. This judgment will examine the legal effect of the “subject to contract” provision in the 1 August MOM, in particular whether it was intended to qualify the right of first refusal stated therein or the contract which the parties would have negotiated if the right of first refusal had been extended by Bumi and accepted by Tozzi.

Background

In the second quarter of 2012, Husky-CNOOC Madura Limited (“Husky”) invited BAOHL, amongst other qualified companies, to submit a bid for the Project. Bumi invited Tozzi in April 2012 to submit a proposal for engineering, procurement and construction/fabrication (“EPC”) services for two of the Topside Process Modules.³ There were seven Topside Process Modules in total. Tozzi submitted its first unpriced proposal for the supply of those two modules on 1 June 2012. Between September 2012 and February 2013, Tozzi and Bumi discussed working together to prepare a technically compliant and commercially competitive bid to Husky. An issue that arose early on was the number of modules that Tozzi was to supply or design so as to enable it to guarantee, as Bumi desired, that the operation of the whole Topside Process would be in accordance with the specifications in the tender documents.⁴ On 13 December 2012, Tozzi submitted a range of price proposals with a view to supplying EPC services for two modules and at least developing the designs for the remaining five.⁵

On 6 February 2013, Tozzi and BAOHL entered into the PBA which was to govern their working relationship in preparation for Bumi’s bid to Husky.⁶ The PBA was signed by Mr Schiavo for Tozzi and Mr Nicolas Abela (BAB’s then Vice-President, Business Development Asia) for BAOHL. Clause 1(a) of the PBA provided that upon the successful award of the Project, Tozzi would be subcontracted to provide EPC services for three of the Topside Process Modules (namely the sulphur recovery unit, gas sweetening unit and gas dehydrating and dew pointing unit), known collectively as the “TI Packages”.⁷ As mentioned at [2] above, in exchange for Tozzi’s exclusive cooperation under cl 3 of the PBA, cl 2 granted Tozzi a right of first refusal for the subcontract for the TI Packages, in the following terms:

2. Form of association

a. … b. [Tozzi] shall submit a technically compliant and commercially competitive proposal to [BAOHL] for the TI Packages. [BAOHL] reserves the right to procure alternative proposals for comparison purposes in order to ascertain the competitiveness of [Tozzi’s] proposal. [Tozzi] shall ensure their prices are reflective of the current market trend and competitive for purposes of the Project, particularly but not limited to the full capital and operations cycle expenditure. c. [Tozzi] shall be given the right of first refusal for the TI Packages provided [Tozzi’s] prices are competitive as determined by [BAOHL]. d. Upon award of the Project and acceptance of the technical and commercial proposal by [BAOHL], the Parties shall enter into a subcontract, in its name or that of its affiliates, which shall contain particularly but not limited to the following provisions …

[emphasis added]

The PBA was valid for one year because, according to Tozzi, the parties expected Husky’s award to be issued within a year.⁸ Tozzi claims that in the course of the year, it contributed several critical modifications to the design, technology and material selection of various Topside Process Modules so as to increase savings and enhance the effectiveness and reliability of the modules.⁹ According to Tozzi, its design and proposed construction of the Topside Process Modules was integral to Bumi’s successful bid for the Project. These proposals required substantial engineering work and were markedly different from the designs described in the Project’s tender documents. Tozzi submitted a lump-sum price proposal to Bumi for the supply of EPC services for the TI Packages on 28 March 2013.¹⁰ Thereafter, the parties continued to correspond on the technical details, culminating in a visit by BAB’s Head of Proposal Engineering to Tozzi’s facilities in Ravenna, Italy on 6 November 2013.

On 5 February 2014, BAB’s Project Manager – Major Projects, Mr Kailash Chandra Gupta, emailed Mr Schiavo asking for an updated material selection diagram for the Project.¹¹ The expiry of the PBA was not raised and the collaboration between Bumi and Tozzi did not terminate, although there were admittedly few developments in relation to the Project between February and July 2014. The parties merely corresponded on the status of the bid, the timeframe for delivery and various technical queries.¹² Mr Schiavo also tried to persuade Bumi to allow Tozzi to consolidate the design of all the Topside Process Modules, not only the TI Packages.¹³

Mr Schiavo gave unchallenged evidence that notwithstanding the expiry of the PBA, the parties adverted to Tozzi’s anticipated subcontract on a few occasions. In fact, it seems that as late as May 2014, Mr Schiavo was still labouring under the impression that the PBA was extant.¹⁴ On 27 March 2014, BAB’s then-CEO, Mr Hassan Basma, assured Mr Schiavo at a conference in Kuala Lumpur, Malaysia, “Don’t worry, you [ie, Tozzi] will get your orders for the modules.”¹⁵ An apparently contrary position was taken by Mr Gupta on 28 May 2014, when he informed Mr Schiavo, “Please note that we will have to go through competitive bidding to bench mark price and every bidder including you will be free to optimise the solution based on input / output specifications.”¹⁶ Mr Schiavo testified that he had “no idea” what Mr Gupta meant because Tozzi’s solution was unique in the market; however, he suggested that competitive bidding was not incompatible with the PBA in that Bumi could source for quotes in the market as long as Tozzi was offered a right of first refusal.¹⁷ Mr Schiavo replied on 30 May 2014, reminding Mr Gupta of an “agreement” with Bumi under which Bumi could “check [Tozzi’s] price” but after which Tozzi would “have a first right of refusal”.¹⁸ Mr Gupta did not reply to this email. However, in a telephone conversation with Mr Schiavo sometime in June or July 2014, Mr Gupta informed Mr Schiavo that the PBA had expired but he understood there to be a “gentlemen’s agreement” between the parties.¹⁹

On 29 July 2014, having obtained a draft letter of award from Husky, Mr Basma called for an urgent meeting with Tozzi. At this stage, it was anticipated that the Project would be awarded to BAOHL on 1 September 2014.²⁰ This led to the pivotal meeting on 31 July 2014 (“the 31 July Meeting”) at which...