IN THE COURT OF APPEAL OF THE REPUBLIC OF SINGAPORE [2020] SGCA 44 Civil Appeal No 78 of 2019 Between Independent State of Papua New Guinea … Appellant And PNG Sustainable Development Program Ltd … Respondent In the matter of Suit No 795 of 2014 Between Independent State of Papua New Guinea … Plaintiff And PNG Sustainable Development Program Ltd … Defendant JUDGMENT [Contract] — [Formation] — [Certainty of terms] [Contract] — [Contractual terms] — [Implied terms] [Companies] — [Memorandum and articles of association] — [Effect] [Companies] — [Members] — [Rights] This judgment is subject to final editorial corrections approved by the court and/or redaction pursuant to the publisher’s duty in compliance with the law, for publication in LawNet and/or the Singapore Law Reports. Independent State of Papua New Guinea v PNG Sustainable Development Program Ltd [2020] SGCA 44 Court of Appeal — Civil Appeal No 78 of 2019 Sundaresh Menon CJ, Andrew Phang Boon Leong JA and Chao Hick Tin SJ 27 February 2020 30 April 2020 Judgment reserved. Sundaresh Menon CJ (delivering the judgment of the court): Introduction 1 The parties in this appeal have been engaged in a longstanding dispute over the proper corporate governance of the respondent, PNG Sustainable Development Program Ltd. The respondent is a Singapore-incorporated company limited by guarantee. At the time proceedings were commenced in the High Court by way of Suit No 795 of 2014 (“Suit 795/2014”), the value of the respondent’s assets exceeded US$1.33bn. In Suit 795/2014, it was argued that pursuant to an agreement that was only partly captured in writing, the appellant holds significant rights of oversight and control over the respondent that are directly enforceable against it and irremovable without the appellant’s consent. The appellant contended that the respondent had acted in contravention of these rights and additionally, breached its obligations as a charitable trustee. Independent State of Papua New Guinea v [2020] SGCA 44 PNG Sustainable Development Program Ltd 2 The High Court judge (“the Judge”) was unpersuaded and entirely dismissed the appellant’s claims: Independent State of Papua New Guinea v PNG Sustainable Development Program Limited [2019] SGHC 67 (“Judgment”). Appellate relief is now pursued on substantially identical grounds. 3 As we explain below, we acknowledge that the appellant’s case holds some intuitive attraction. The respondent is a well-resourced company, incorporated for the purpose of realising profits from certain mining operations and applying these to carry out a programme of sustainable development for the benefit of the people of Papua New Guinea (“PNG”). To achieve this objective, the respondent’s constitution accords its directors broad powers to manage its funds and to make amendments to the company’s corporate structure with what might appear to be only minimal safeguards to ensure accountability. The proposition that the parties behind the respondent’s incorporation, which included the appellant, must have intended and insisted on having greater measures in place to keep the company in check, is persuasive at some level. 4 That being said, the appellant’s case has considerable difficulties, which we will explore in detail later in this judgment. Facts 5 The facts have been set out exhaustively at [8]–[31] of the Judgment and we do not propose to restate them in their entirety. Briefly, the background to this dispute originates with an agreement between the appellant and BHP Minerals Holdings Pty Ltd (“BHP”), presently the world’s largest mining company, to develop the Ok Tedi gold and copper mine in the Western Province 2 Independent State of Papua New Guinea v [2020] SGCA 44 PNG Sustainable Development Program Ltd of PNG. Ok Tedi Mining Limited (“OTML”) was incorporated for this purpose. There were four shareholders: the appellant, BHP, Inmet Mining Corporation and Mineral Resources Ok Tedi No 2 Limited: (Judgment at [8]). The operations at the Ok Tedi mine, whilst profitable, caused extensive environmental damage in the Western Province. In late 2000, the growing economic and reputational cost of this damage prompted BHP to express its intention to shut down the mine prematurely. The appellant, however, was strongly of the view that the mine should remain operational because its profits contributed substantially to the gross domestic product of PNG. In an effort to accommodate the positions of both parties, which were pulling in opposite directions, OTML’s stakeholders commenced extensive negotiations on arrangements that would facilitate BHP’s exit from OTML without compromising the mine’s operations: (Judgment at [9]–[12]). 6 By October 2001, these negotiations were in their final stages. The terms of the resulting agreement are captured in a letter dated 18 October 2001 from OTML to the Controller of Foreign Exchange of the Bank of PNG, whose approval was required for some of the envisaged transactions. In broad terms, it was agreed that the Ok Tedi mine would remain operational subject to enhanced environmental arrangements. BHP would divest its entire 52% shareholding in OTML to a special purpose vehicle which would be independent of OTML as well as OTML’s past and present shareholders. As that special purpose vehicle, the respondent was incorporated in Singapore on 20 October 2001 as a company limited by guarantee. Its initial members were two lawyers from a Singapore law firm who retired after the admission of three new members, these being two of the respondent’s directors and a Singapore-resident director. It was also decided that the transfer of BHP’s shares to the respondent would be conditional 3 Independent State of Papua New Guinea v [2020] SGCA 44 PNG Sustainable Development Program Ltd upon its release from liabilities arising under the Interim Management Agreement and indemnification by the respondent against claims for environmental damage caused by the Ok Tedi mine. 7 The substance of the parties’ arrangements were subsequently recorded in a suite of written contracts (the “Written Contracts”), to which the respondent was also a party. The most relevant of these for the present appeal are a security trust deed in respect of the OTML shares (“Security Trust Deed”) and a master agreement setting out the parties’ primary obligations (“Master Agreement”). Relevant legislation was also enacted to give effect to the said arrangements. The transfer of BHP’s shareholding in OTML to the respondent was effected on 7 February 2002: (Judgment at [22]). 8 The respondent’s corporate constitution is set out in the (i) Memorandum of Association (the “Memorandum”); (ii) Articles of Association (the “Articles”); and (iii) Rules of the PNG Sustainable Development Program (the “Program Rules”), a document of considerable importance to the present appeal, that was annexed to and formed part of the Articles (collectively, the “Constitutional Documents”). Its objects are set out in the Memorandum, and these are, among other things, to apply the income from the Ok Tedi mine to “promote sustainable development within, and advance the general welfare of the people of, [PNG], particularly those of the Western Province of [PNG]” (the “Sustainable Development Purposes”). The objects clause in the Memorandum is a provision of especial importance because it defines the very purposes for which the venture existed and it was suggested that this was foundational to the entire plan. In the premises, much attention was devoted at the hearing before us to the questions of how readily the objects clause could be amended to effect drastic changes to the purposes for which the respondent had been brought into 4 Independent State of Papua New Guinea v [2020] SGCA 44 PNG Sustainable Development Program Ltd existence in the first place, and how this would frustrate and defeat the entire premise of the parties’ agreement. We will turn to that shortly. 9 The appellant’s case in Suit 795/2014 was premised on the existence of a “partly oral and partly written” agreement concluded “in or around October 2001” between the appellant and BHP on behalf of themselves and the respondent (the “Agreement”) even though the latter might not yet have been in existence at the time. Besides the terms outlined at [6] above, the substance of the Agreement as pleaded is said to be as follows: (a) The respondent’s structure and Constitutional Documents would be specifically agreed such that oversight of the company would be vested equally in the appellant and BHP (the “Agreed Oversight Structure”). In particular, the Agreed Oversight Structure contemplated that: (i) the members, directors and staff of the respondent would report and be accountable to the appellant and BHP; (ii) the right to appoint the respondent’s members and directors would be shared equally between the appellant and BHP; and (iii) the appellant and BHP would be entitled to information pertaining to the respondent and to access its books of account, accounting and other records. (b) Even though the Agreed Oversight Structure was meant to regulate the appellant’s and BHP’s rights in respect of the control of the affairs of the respondent, it was to be directly enforceable against the 5 Independent State of Papua New Guinea v [2020] SGCA 44 PNG Sustainable Development Program Ltd respondent (the “Direct Enforceability Term”). Further, it could not be amended without the consent of the appellant and BHP (the “Consent Term”). (c) Pursuant to the Agreement, the respondent would hold the OTML shares on a charitable trust (the “Trust”) for, among other things, the Sustainable Development Purposes. 10 The appellant contended that the respondent breached the Agreement and the terms of the Trust by (i) effecting changes to its Constitutional Documents in contravention of the Agreed Oversight Structure; (ii) failing to provide an account of its dealings and assets; and (iii) dealing with assets in breach of its objects in the Memorandum and the Program Rules.