Case Summaries

Independent State of Papua New Guinea v PNG Sustainable Development Program Ltd [2020] SGCA 44

SUPREME COURT OF SINGAPORE

30 April 2020

Case summary

Independent State of Papua New Guinea v PNG Sustainable Development Program Ltd [2020] SGCA 44
Civil Appeal No 78 of 2019

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Decision of the Court of Appeal (delivered by Chief Justice Sundaresh Menon):

Outcome: CoA dismisses state’s appeal against respondent company for breaches of partly oral partly written agreement. No such agreement found to exist.


Facts

1 Ok Tedi Mining Limited (“OTML”) was incorporated pursuant to an agreement to develop the Ok Tedi mine in the Western Province of Papua New Guinea (“PNG”). It had four shareholders including the Independent State of PNG (the “appellant”) and BHP Minerals Holdings Pty Ltd (“BHP”). The operations at the Ok Tedi mine caused extensive environmental damage in the Western Province. In late 2000, BHP expressed its intention to shut down the mine prematurely but this was opposed by the appellant. OTML’s stakeholders consequently commenced negotiations on arrangements that would facilitate BHP’s exit from OTML without compromising mine operations.

2 The broad terms of the resulting agreement (recorded in a suite of written contracts) were as follows. The Ok Tedi mine would operate subject to enhanced environmental arrangements. BHP would divest its entire shareholding in OTML to a special purpose vehicle, which would apply income from the mine to promote sustainable development within, and advance the general welfare of the people of, PNG (“Sustainable Development Purposes”). To that end, PNG Sustainable Development Program Ltd (the “respondent”) was incorporated in Singapore on 20 October 2001. It was also agreed that BHP would be released from and indemnified against claims for damage caused by the Ok Tedi mine.

3 In Suit 795 of 2014, the appellant argued that beyond these written agreements, it was also party (along with BHP and the respondent) to an overarching partly oral and partly written agreement (“Agreement”) with the following terms:

(i) The respondent’s structure and constitutional documents would be specifically agreed such that the company’s oversight would be vested equally in the appellant and BHP (the “Agreed Oversight Structure”).

(ii) The Agreed Oversight Structure would be directly enforceable against the respondent and unamendable without the consent of the appellant and BHP.

(iii) Pursuant to the Agreement, the respondent would hold the OTML shares on a charitable trust (the “Trust”) for the Sustainable Development Purposes.

The appellant further contended that the respondent had breached the Agreement as well as its obligations as a charitable trustee.


Background to the appeal

4 The High Court judge (“the Judge”) held that the existence of the Agreement was unsupported by the available evidence. It followed that the Trust did not exist as it was pleaded to arise pursuant to the Agreement. The Judge therefore dismissed the pleaded breaches of the Agreement and Trust. The appellant appealed against the entirety of these findings.


The court’s judgment

5 There were considerable difficulties with the appellant’s case of a partly oral partly written agreement. The OTML negotiations involved sophisticated and well-resourced parties. It seemed implausible that they would have intended to leave some things out of their written arrangements. On the other hand, if the parties had not intended to keep part of their agreement oral, it was unclear how there could have been an oral agreement at all (at [12]). Beyond this, it was almost as implausible that significant terms could have been mistakenly omitted from the parties’ agreed form of documentation (at [13])          

6 The absence of express terms was not remediable by way of contractual implication because the point at which the Agreement came into being and the nature of its terms remained uncertain (at [15]–[16]). Moreover, the parties had actively considered the possibility of entrenching various provisions, including those which would have embodied the Agreed Oversight Structure, before choosing not to do so. There was accordingly no “gap” to be filled in their legal documentation (at [18]–[19]).

7 The Court of Appeal held that the difficulties with the appellant’s case came down to its failure to plead a case founded on mistake and to seek the rectification of the written agreements. More fundamentally, there was simply no evidence of any consensus beyond the parties’ written agreements or even an intention to create legal relations beyond the same. This was fatal to the appeal (at [13], [20][21]).

8 The appellant’s proposition that OTML’s stakeholders must have insisted on greater measures to keep the respondent in check, was persuasive on some level. That being said, the respondent’s contention that its directors were generally not subject to any external scrutiny was not as implausible as the appellant claimed it to be (at [22]–[23], [46]). Indeed, when considered in its totality, the respondent’s case presented an equally compelling narrative. The parties’ written agreements bore all the hallmarks of a finely calibrated arrangement that ensured both the respondent’s adequate supervision as well as its protection from undue external influence (at [47]).

9 The parties chose to incorporate the respondent as a company limited by guarantee, meaning that it had no immediate access to capital and possessed a limited fund-raising capacity (at [27]). This type of legal vehicle facilitated the respondent’s objects, some of which were charitable in nature (at [45]). One limitation, however, was the apparent lack of director accountability, there being no shareholders to influence the manner in which the respondent was run (at [31]).

10 This downside was managed by the limits on directorial conduct prescribed in the “Rules of the PNG Sustainable Development Program” (“Program Rules”), a document annexed to and part of the respondent’s Articles of Association. Under the Program Rules, the respondent’s activities had to be carried out in accordance with the objects in its Memorandum of Association (“Memorandum”), which included the Sustainable Development Purposes (at [35]). This objective was reinforced by a host of supporting provisions. In this way, the parties incorporated the respondent’s objects within the Program Rules and foreclosed the possibility of directors repurposing the respondent for their personal gain (at [40], [43]–[44]).

11 As an added precaution, the appellant and BHP entrenched the Program Rules in the respondent’s constitution (at [41]). They also provided for direct rights of enforcement against each other and the respondent to ensure that the directors would be held accountable for breaches of the Program Rules (at [42]).

12 The Court held that having gone to such lengths to set up the respondent’s governance structure, it was far more logical to conclude that the parties detailed this exclusively in writing, as opposed to an odd mix of partly oral and partly written agreements (at [48]).

13 For completeness, the Court also rejected the appellant’s claim of an estoppel by convention: there was no basis on which to find any kind of understanding that the appellant and BHP would hold greater rights of control than those reflected in their written agreements. In any case, the appellant had failed to particularise which of these agreements was subject to its pleaded estoppel and thus its claim also failed for uncertainty (at [50]–[51]).        

 

This summary is provided to assist in the understanding of the Court’s grounds of decision. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s grounds of decision.

 

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