PT Thiess Contractors Indonesia v PT Kaltim Prima Coal [2012] EWHC 690 (Comm)

Case No Claim No. 2011 Folio 68

[2012] EWHC 690 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Venue Royal Courts of Justice, Rolls Building, 7 Rolls Buildings, Fetter Lane, London EC4A 1NL

Date 26/03/2012

Before

MR. JUSTICE TEARE

Between

PT THIESS CONTRACTORS INDONESIAClaimant

PT KALTIM PRIMA COALDefendant

David Mildon QC and Jern-Fei Ng (instructed by Stewarts Law LLP) for Claimant

Andrew Baker QC and Sudhanshu Swaroop (instructed by Holman Fenwick Willan LLP) for Defendant

Hearing Hearing dates: 12-13 March 2012

Judgment

Mr. Justice Teare :

Introduction

[1]The Defendant, KPC, is the operator of a coal mine in Indonesia. The Claimant, Thiess, is a contractor engaged by the Defendant to perform mining services at the coal mine.

[2]The contractual relationship between the two parties is complex and is to be found in at least two contractual documents, first, the Operating Agreement Mining Services (“OAMS”) dated October 2003 and, second, the Cash Distribution Agreement (“CDA”) dated June 2007. Both parties were party to the former but of KPC and Thiess only KPC was party to the latter. However, there is no dispute that Thiess is entitled to enforce those parts of the CDA which are for its benefit pursuant to The Contracts (Rights of Third Parties) Act 1999. Several other entities, including another mining operator, contractors, marketing agents and banks were also party to the CDA.

[3]The claim in the present action arises out of the CDA which is governed by English law. Claims arising under the OAMS are governed by the laws of Queensland, Australia and are subject to arbitration in Singapore. Such an arbitration is presently underway in Singapore and, on the day before this hearing commenced, the arbitrators published a partial award which has some relevance to the issues in the action before the English court.

[4]The stated purposes of the CDA are “to implement certain account administration and cash management arrangements” in relation to the revenue of KPC and “to implement….payment arrangements in relation to amounts owing …by KPC….pursuant to” the OAMS. In essence the proceeds of sale of the mined coal are paid into various accounts with the banks who distribute the sums held in those accounts in accordance with prescribed forms of instructions emanating from the parties. In particular the CDA provides for sums claimed by Thiess pursuant to the OAMS and which are disputed by KPC to be transferred into a “Dispute Account” pending agreement or a final arbitration award. Blair J., when deciding an earlier jurisdiction dispute in this matter, described the arrangement provided by the CDA as “similar to an escrow arrangement and is in my view by way of security”; see

[2011] EWHC 1842 (Comm)

at paragraph 42. I respectfully agree with that description. However, the circumstances in which security is provided are circumscribed by the terms of the CDA. The question raised by this case is the scope of those terms.

[5]The OAMS provides for five yearly reviews of the rates which KPC pays Thiess for its mining services. In the absence of agreement as to the rates review the OAMS provides for the revised rates to be the subject of mediation, expert determination and arbitration. The initial review date was 1 July 2009. Agreement was not reached and accordingly a mining expert, Mr. Michael Lawrence, was appointed to determine the revised rates. His report was not accepted by KPC and so the question of what the revised rates are to be is now before the arbitral tribunal. When the revised rates have been determined by the arbitral tribunal they “shall apply” from the review date, July 2009, and the next monthly payment claim under the OAMS shall “include all necessary adjustments to give effect to the application of such new pricing arrangements from the Review Date.” That is the means by which Thiess can obtain, retrospectively, payment at the revised rates for its mining services provided since July 2009. The arbitration has not yet determined the revised rates and so Thiess has not yet been able to implement the provisions of the OAMS which enable it to obtain payment at the revised rates it seeks for mining services provided by it since July 2009.

[6]The dispute which has arisen between the parties under the CDA has arisen in this way. In purported pursuance of the procedure set out in the CDA Thiess has claimed the amount which it says represents the revised rates, as claimed by it in July 2009 and determined by the expert. KPC says that Thiess is not entitled to claim amounts based on such rates under the CDA because, under the OAMS, such rates are not yet “payable”. The only sums which are presently “payable” are those based on the original rates. Thiess will only have an enforceable right to claim rates in excess of the original rates if and when the arbitral tribunal determines that the original rates are to be revised (and if so to what extent) and a claim is made for payment based on those revised rates in respect of work done since July 2009. In the result the amount in dispute between the parties has not been transferred into the Dispute Account and accordingly Thiess does not have security for its claim to the revised rates in the arbitration. Thiess maintains that it is entitled to have security by way of the sum in dispute being paid into the Dispute Account. Thiess therefore seeks appropriate declaratory and other relief.

[7]In short, the question raised by the claim in this action relates to the extent of the security arrangements provided by the CDA. There is no dispute that where Thiess makes a monthly claim under the OAMS for the sum it claims is then payable by KPC a dispute as to the amount of the payment due to Thiess in respect of the past month’s mining services will result in the undisputed sum being paid to Thiess and the disputed sum being paid into the “Dispute Account” to await resolution of the dispute. In that sense Thiess is provided with security for payment of the disputed amount. The question which has been raised for determination in this case is whether, where there is a dispute as to the extent to which historic rates of payment should be revised, Thiess is entitled, prior to determination of that dispute, to use the procedures of the CDA to obtain security for payment for its past mining services at the revised rate claimed by it. Thiess maintains that it is. KPC denies that Thiess is so entitled.

The OAMS

[8]The most material terms of the OAMS are as follows: 3A CONTRACT REVIEW 3A.1 Renegotiation of remuneration ………… (c) Following development of the detailed scope of the anticipated services in accordance with Clause 3A.1(b) and not less than four (4) months before the relevant Review Date, the PSC shall prepare and submit to the Company the proposed pricing arrangements for the period of five (5) years commencing on that Review Date together with details of the method of their calculation.” ………… 3A.2 Failure to agree on pricing arrangements(a) If the parties fail to agree the pricing arrangements for any period of five (5) years commencing on a Review Date on or before 1st April immediately preceding that Review Date or any other date agreed in writing between the parties: (i) the matter shall immediately be referred to mediation conducted in accordance with paragraphs (i) to (ii) of Clause 18.3(c); and (ii) the parties must negotiate in good faith and endeavour to agree (acting in good faith) the pricing arrangements;

(b) If the pricing arrangements for any period of five (5) years commencing on a Review Date are not agreed on or before 1st May immediately preceding that Review Date or any other date agreed in writing between the parties the matter shall immediately be referred to expert determination. Unless otherwise agreed by the parties in writing: (i) the matter shall be referred to expert determination in accordance with, and subject to, the Institute of Arbitrators & Mediators Australia Expert Determination Rules;” ……… (viii) should either Party not be satisfied with the determination of the expert the pricing arrangements shall be referred for resolution in accordance with Clause 18.

(c) If the pricing arrangements for any period of five (5) years commencing on a Review Date have not been agreed between the parties or otherwise determined in accordance with Clause 3A.2 by that Review Date, the pricing arrangements applying immediately prior to the Review Date shall continue to apply after the Review Date unless and until the parties agree alternative pricing arrangements or the matter is resolved in accordance with Clause 3A.2(b).

(d) Notwithstanding Clause 3A.2(c), following agreement or resolution of the pricing arrangements for each period of five (5) years commencing on a Review Date such arrangements shall apply from that Review Date, and the PSC’s next Payment Claim following such agreement or resolution shall include all necessary adjustments to give effect to the application of such new pricing arrangements from the Review Date.” ………… 7. PAYMENT ……….. 7.2 Payment of Services Fee In consideration of the PSC providing the Services in accordance with this Agreement the Company must pay the PSC the Services Fee in accordance with this Clause 7, adjusted by any additions or deductions pursuant to this Agreement. 7.3 Payment Claims The PSC shall deliver to the Company within seven (7) days after the end of each month during the Term a written claim for payment (“Payment Claim”). The form of the Payment Claim shall be as determined by the Project Management Group or as otherwise agreed between the parties.” ……….. 7.4 Payment Confirmation The Company shall deliver to the PSC within seven (7) days after the Company’s receipt of a Payment Claim a written statement (“Payment Confirmation”)which states the amount of the Services fee for the month. ……. (i) the matter shall immediately be referred to mediation conducted in accordance with paragraphs (i) to (ii) of Clause 18.3(c); and (ii) the parties must negotiate in good faith and endeavour to agree (acting in good faith) the pricing arrangements; (i) the matter shall be referred to expert determination in accordance with, and subject to, the Institute of Arbitrators & Mediators Australia Expert Determination Rules;” ……… (viii) should either Party not be satisfied with the determination of the expert the pricing arrangements shall be referred for resolution in accordance with Clause 18. 7.5 Payments The Company shall pay to the PSC the amount payable in respect of a Payment Claim ………….within thirty (30) days of the end of the month in which the work the subject of the Payment Claim was performed. Any dispute amounts set out in a Payment Confirmation will be paid to the PSC within fourteen (14) days of it being resolved that the PSC is entitled to such disputed amount …………… 18. ISSUE RESOLUTION ………… (d) (Arbitration) Arbitration of the Issue not resolved by Mediation in accordance with clause 18.2(c) shall be finally settled by International Arbitration. Unless otherwise agreed by both parties: ………. (vii) the place of arbitration shall be Singapore.”

[9]On the day before this hearing commenced the arbitral tribunal made two determinations. The first was that, in circumstances where the expert determination was not accepted, the task of the tribunal is to conduct a de novo review of the pricing arrangements. The second was that the original rates apply until resolution of the pricing arrangements in the arbitration and that Thiess is required to invoice payment claims at the original rates and should not apply the revised rates set out in the expert determination.

The CDA

[10]The most material terms of the CDA are as follows: WHEREAS:(a) (A) The parties hereto have agreed to implement certain account administration and cash management arrangements in relation to the revenue of KPC and Arutmin and payments required to be made to various parties on the terms set out in this Agreement.

(b) (B) KPC and Arutmin have agreed to implement certain payment arrangements in relation to amounts owing thereto by KPC and Arutmin pursuant to the Principal Contractor Agreements and the Marketing Agreements, respectively, on the terms set out in this Agreement.” …… 1. Definitions and Interpretation ……….. Principal Contractor Claim” means a claim by a Principal Contractor or an Approved Principal Contractor for an amount payable by the relevant Coal Company or Indo SPV in accordance with the relevant Assigned Document as contemplated in Clause 10, substantially in the form set forth in Schedule Six Part One.” ……… 10. PRINCIPAL CONTRACTOR CLAIMS 10.1 In relation to the Principal Contractor Claims and the Principal Contractor Claims Confirmations: (i) each Principal Contractor will provide the Cash Management Agent and SCB with a copy of each Principal Contractor Claim it sends to the relevant Coal Company or, as the case may be, the relevant Indo SPV in any calendar month immediately upon sending such Principal Contractor Claim to such Coal Company or, as the case may be, the relevant Indo SPV, and in any event, no later than 12 noon (Singapore time) three (3) Business Days prior to the second Weekly Payment Date in that month. (ii) Each Principal Contractor Claim must be in the form of Schedule Six Part One and must include: (a) The Principal Contractor Claim number; (b) The calendar month covered by the Principal Contractor Claim;

(d) The amount of PPN included in the Total Principal Contractor Claim Amount (“Principal Contractor ClaimPPN”);

(e) Total Principal Contractor Claim Amount less the amount of PPN included in the Total Principal Contractor Claim Amount (“Gross Principal Contractor Claim Amount”);

(f) The amount of Withholding Tax on the Gross Principal Contractor Claim Amount (“Principal ContractorWithholdingTax”);

(g) The net amount claimed, being the Total Principal Contractor Claim Amount less the Principal Contractor Claim Withholding Tax (“Net Principal Contractor Claim Amount”);

(h) The portion of the Total Principal Contractor Claim Amount constituting the Priority Contractor Payment; and

(i) The portion of the Total Principal Contractor Claim Amount constituting the Non Priority Contractor Payment,” ………… (iv) Each Principal Contractor Claim Confirmation must be in the form of Schedule Six Part Two, and must include, in respect of that Principal Contractor’s Principal Contractor Claim: (a) The Principal Contractor Claim number; (b) The Total Principal Contractor Claim Amount; (c) The total amount confirmed by the relevant Coal Company or, as the case may be, the relevant Indo SPV as being payable, including PPN (the “Gross Confirmed Principal ContractorAmount”); (d) The PPN included in the total amount confirmed by the relevant Coal Company or, as the case may be, the relevant Indo SPV as being payable (the “Confirmed PrincipalContractor PPN”); (e) The net amount confirmed by the relevant Coal Company or, as the case may be, the relevant Indo SPV as being payable, being the Gross Confirmed Principal Contractor Amount less the Confirmed Principal Contractor PPN (the “Net ConfirmedPrincipal Contractor Amount”); (f) The Withholding Tax on the Net Confirmed Principal Contractor Amount (“Confirmed Principal ContractorWithholding Tax”); (g) The amount claimed by way of setoff by the relevant Coal Company or, as the case may be, the relevant Indo SPV pursuant to the Set-Off Provision (or equivalent provision under any Assigned Document) (the “Coal Company ClaimDeduction”); (h) The amount to be paid to that Principal Contractor, being the Gross Confirmed Principal Contractor Amount minus the Confirmed Principal Contractor Withholding Tax and Coal Company Claim Deduction (the “Confirmed PrincipalContractor Payment”); (i) The disputed amount of the Principal Contractor Claim, being the difference between the Total Principal Contractor Claim Amount and the Gross Confirmed Principal Contractor Amount (the “Principal Contractor Dispute Amount”);

(j) The portion, confirmed by the relevant Coal Company or, as the case may be, the relevant Indo SPV, as being the Priority Contractor Payment payable (the “Confirmed PriorityContractor Payment”); and

(k) The portion, confirmed by the relevant Coal Company or, as the case may be, the relevant Indo SPV, as being the Non Priority Contractor Payment (the “Confirmed Non PriorityContractor Payment”). (v) Upon receipt by a Principal Contractor of any Principal Contractor Claim Confirmation, that principal Contractor may issue a notice of objection to the Coal Company Claim Deduction portion (“Notice of Objection”), such notice to be in the form set out in Schedule Six Part Three and to be copied to the Cash Management Agent and SCB, setting out: (a) the Coal Company Claim Deduction as stated in the relevant Principal Contractor Claim Confirmation; (b) that Principal Contractor’s calculation of that Coal Company Claim Deduction (the “Principal Contractor’sCalculated Coal Company Claim Deduction”); and (c) the difference between sub-clause (a) and sub-clause (b) above (the “Disputed Coal Company Claim Deduction”).” 10.6 (i) (b) ………… Where following any final court judgment or final arbitral award (in each case, in respect of which there is no appeal), a party refuses to authorise the release of funds from the relevant Dispute Account, the other party may sign the form of the instruction set out in Schedule Six Part Six alone and provide to SCB a copy of the arbitral award or judgment of court (which SCB shall be entitled to assume is authentic), whereupon, to the extent such instructions provide for a payment to that Principal Contractor (and associated Withholding Tax) in connection with an Operating Agreement, SCB, based on such instructions, shall transfer the specified amount to the Principal Contractor’s Payment Account and the relevant Coal Company’s Taxes Account (as specified in the instructions) and SCB shall not be liable to any party for acting on such instructions. To the extent such instructions provide for a payment of funds to the relevant Coal Company or, as the case may be, the relevant Indo SPV, SCB shall transfer, the specified amount to that Principal Contractor’s relevant Primary Account, and the next payment of that Principal Contractor’s Priority Contractor Payment shall be reduced by the amount of such transfer.” ………… 10.7 The amount claimed by a Principal Contractor as a Priority Contractor Payment as set up in its Principal Contractor Claim is deemed to be the Priority Contractor Payment. WHEREAS: (i) each Principal Contractor will provide the Cash Management Agent and SCB with a copy of each Principal Contractor Claim it sends to the relevant Coal Company or, as the case may be, the relevant Indo SPV in any calendar month immediately upon sending such Principal Contractor Claim to such Coal Company or, as the case may be, the relevant Indo SPV, and in any event, no later than 12 noon (Singapore time) three (3) Business Days prior to the second Weekly Payment Date in that month. (ii) Each Principal Contractor Claim must be in the form of Schedule Six Part One and must include: (a) The Principal Contractor Claim number; (b) The calendar month covered by the Principal Contractor Claim; (c) The total amount claimed, including PPN (“Total PrincipalContractor Claim Amount”); (d) The amount of PPN included in the Total Principal Contractor Claim Amount (“Principal Contractor ClaimPPN”); (e) Total Principal Contractor Claim Amount less the amount of PPN included in the Total Principal Contractor Claim Amount (“Gross Principal Contractor Claim Amount”); (f) The amount of Withholding Tax on the Gross Principal Contractor Claim Amount (“Principal ContractorWithholdingTax”); (g) The net amount claimed, being the Total Principal Contractor Claim Amount less the Principal Contractor Claim Withholding Tax (“Net Principal Contractor Claim Amount”); (h) The portion of the Total Principal Contractor Claim Amount constituting the Priority Contractor Payment; and (i) The portion of the Total Principal Contractor Claim Amount constituting the Non Priority Contractor Payment,” (b) The calendar month covered by the Principal Contractor Claim; (c) The total amount claimed, including PPN (“Total PrincipalContractor Claim Amount”); (d) The amount of PPN included in the Total Principal Contractor Claim Amount (“Principal Contractor ClaimPPN”); (e) Total Principal Contractor Claim Amount less the amount of PPN included in the Total Principal Contractor Claim Amount (“Gross Principal Contractor Claim Amount”); (f) The amount of Withholding Tax on the Gross Principal Contractor Claim Amount (“Principal ContractorWithholdingTax”); (g) The net amount claimed, being the Total Principal Contractor Claim Amount less the Principal Contractor Claim Withholding Tax (“Net Principal Contractor Claim Amount”); (h) The portion of the Total Principal Contractor Claim Amount constituting the Priority Contractor Payment; and (i) The portion of the Total Principal Contractor Claim Amount constituting the Non Priority Contractor Payment,” (iv) Each Principal Contractor Claim Confirmation must be in the form of Schedule Six Part Two, and must include, in respect of that Principal Contractor’s Principal Contractor Claim: (a) The Principal Contractor Claim number; (b) The Total Principal Contractor Claim Amount; (c) The total amount confirmed by the relevant Coal Company or, as the case may be, the relevant Indo SPV as being payable, including PPN (the “Gross Confirmed Principal ContractorAmount”); (d) The PPN included in the total amount confirmed by the relevant Coal Company or, as the case may be, the relevant Indo SPV as being payable (the “Confirmed PrincipalContractor PPN”); (e) The net amount confirmed by the relevant Coal Company or, as the case may be, the relevant Indo SPV as being payable, being the Gross Confirmed Principal Contractor Amount less the Confirmed Principal Contractor PPN (the “Net ConfirmedPrincipal Contractor Amount”); (f) The Withholding Tax on the Net Confirmed Principal Contractor Amount (“Confirmed Principal ContractorWithholding Tax”); (g) The amount claimed by way of setoff by the relevant Coal Company or, as the case may be, the relevant Indo SPV pursuant to the Set-Off Provision (or equivalent provision under any Assigned Document) (the “Coal Company ClaimDeduction”); (h) The amount to be paid to that Principal Contractor, being the Gross Confirmed Principal Contractor Amount minus the Confirmed Principal Contractor Withholding Tax and Coal Company Claim Deduction (the “Confirmed PrincipalContractor Payment”); (i) The disputed amount of the Principal Contractor Claim, being the difference between the Total Principal Contractor Claim Amount and the Gross Confirmed Principal Contractor Amount (the “Principal Contractor Dispute Amount”); (j) The portion, confirmed by the relevant Coal Company or, as the case may be, the relevant Indo SPV, as being the Priority Contractor Payment payable (the “Confirmed PriorityContractor Payment”); and (k) The portion, confirmed by the relevant Coal Company or, as the case may be, the relevant Indo SPV, as being the Non Priority Contractor Payment (the “Confirmed Non PriorityContractor Payment”). (v) Upon receipt by a Principal Contractor of any Principal Contractor Claim Confirmation, that principal Contractor may issue a notice of objection to the Coal Company Claim Deduction portion (“Notice of Objection”), such notice to be in the form set out in Schedule Six Part Three and to be copied to the Cash Management Agent and SCB, setting out: (a) the Coal Company Claim Deduction as stated in the relevant Principal Contractor Claim Confirmation; (b) that Principal Contractor’s calculation of that Coal Company Claim Deduction (the “Principal Contractor’sCalculated Coal Company Claim Deduction”); and (c) the difference between sub-clause (a) and sub-clause (b) above (the “Disputed Coal Company Claim Deduction”).” 10.6 (i) (b) ………… Where following any final court judgment or final arbitral award (in each case, in respect of which there is no appeal), a party refuses to authorise the release of funds from the relevant Dispute Account, the other party may sign the form of the instruction set out in Schedule Six Part Six alone and provide to SCB a copy of the arbitral award or judgment of court (which SCB shall be entitled to assume is authentic), whereupon, to the extent such instructions provide for a payment to that Principal Contractor (and associated Withholding Tax) in connection with an Operating Agreement, SCB, based on such instructions, shall transfer the specified amount to the Principal Contractor’s Payment Account and the relevant Coal Company’s Taxes Account (as specified in the instructions) and SCB shall not be liable to any party for acting on such instructions. To the extent such instructions provide for a payment of funds to the relevant Coal Company or, as the case may be, the relevant Indo SPV, SCB shall transfer, the specified amount to that Principal Contractor’s relevant Primary Account, and the next payment of that Principal Contractor’s Priority Contractor Payment shall be reduced by the amount of such transfer.” 10.7 The amount claimed by a Principal Contractor as a Priority Contractor Payment as set up in its Principal Contractor Claim is deemed to be the Priority Contractor Payment.

The claims made under the CDA

[11]Clause 10 of the CDA, which deals with the making of claims by Thiess under the CDA, provides for Thiess to make a Principal Contractor Claim (a “PCC”) in a certain form. A PCC is defined by clause 1 as “a claim by a Principal Contractor …..for an amount payable by the relevant Coal Company …..in accordance with the relevant Assigned Document as contemplated in Clause 10.” It is common ground that the OAMS was the relevant “Assigned Document”.

[12]Clause 10 of the CDA also provides that KPC will serve a Principal Contractor Claim Confirmation (a “PCCC”) setting out, inter alia, the Total Principal Contractor Claim Amount and the Gross Confirmed Principal Contractor Amount, namely, the total amount confirmed by KPC “as being payable”. The difference between those two amounts is the Principal Contractor Dispute Amount which must also be set out. The clause then goes on to provide that Standard Chartered Bank (“SCB”) shall transfer undisputed amounts to Thiess’ account and any Principal Contractor Dispute Amount into the Dispute Account. SCB may make payments from the Dispute Account pursuant to joint instructions of Thiess and KPC or, following any final court judgment or final arbitral award, an instruction from one of the parties accompanied by a copy of the judgment or award.

[13]The first PCC which has given rise to the present dispute is dated 12 October 2010 and is numbered 80. It was preceded by a “Progress Claim” (that is, a Payment Claim under clause 7.3 of the OAMS) also numbered 80 and dated 7 October 2010.

[14]The Progress (or Payment) Claim was stated to have been prepared with reference to the Expert Determination. It stated that “Clause 3A.3(b) of the OAMS provides that the rates determined in accordance with Clause 3A.2 (ie the Determination) shall replace the rates in Schedule 2. To that extent the determination is binding on the parties until such time as it is deemed otherwise as a consequence of the procedures under Clause 18 of the OAMS.” It continued that “Thiess is entitled to be paid the Services Fee based on the new rates in Schedule 2 and we have set out the computations in the attached schedules. We have included the adjustments to the current OAMS rates for the period July 2009 …to end September 2010 and these can be found summarised at items 61A, 61B, 61C and 61D of the Progress Claim with the detailed calculations contained in the attached calculations.” The attached calculations identified a claim in the sum of US$85,356,213.13. The adjustments necessitated by the expert determination accounted for some US$71m. being, in the main, the sums claimed by Thiess at the revised rates for work done since July 2009.

[15]PCC no.80 dated 12 October 2010 identified the “Total Principal Contractor Claim Amount” as US$85,356,213.13.

[16]In response to PCC No.80 KPC served its PCCC dated 22 October 2010. Instead of reciting the “Total Principal Contractor Claim Amount” as US$85,356,213.13 it stated that the “Total Principal Contractor Claim Amount” was US$14,411,980.78. The latter is the sum which KPC says is due to Thiess for the month of September 2010 based upon the original rates. KPC then stated that the Gross Confirmed Principal Contractor Amount was also US$14,411,908.78 with the result that the Principal Contractor Dispute Amount was nil. It followed that whilst the undisputed sum of US$14,411,908.78 was paid to Thiess no sum was paid into the Dispute Account.

[17]PCCs nos. 81, 82 and 83 were issued for the subsequent three months. They also claimed sums based on the rates determined by the expert. In response PCCCs were issued, again based upon the original rates. In the result the difference between the sums claimed by Thiess and the sums accepted as being payable by KPC amounted to about US$85m. The difference between the two positions is now considerably greater because many more months have passed since PCC no.83 was issued.

The competing arguments, in summary

[18]Counsel for Thiess and KPC presented elaborate written submissions which they developed in their oral submissions. It became clear in the oral argument that the central focus of debate was whether clause 10 of the CDA entitled Thiess to serve a PCC which included a claim in respect of payment at the revised rates demanded by Thiess for past services notwithstanding that the dispute as to the revised rates had not been determined by the arbitration commenced pursuant to the OAMS.

[19]I have already noted that a PCC is defined as “a claim by a Principal Contractor …..for an amount payable by the relevant Coal Company …..in accordance with the relevant Assigned Document as contemplated in Clause 10.”

[20]Mr. David Mildon QC, counsel for Thiess, submitted that “a claim for an amount payable” by KPC means an amount claimed by Thiess to be payable by KPC. Clause 10 entitles and obliges KPC to confirm the amount which it accepts is payable. The clause is not concerned with what is actually due or payable to Thiess under the OAMS. What matters is what Thiess is claiming and how much of that claim KPC is prepared to confirm as being payable. Everything in between is the “Dispute Amount” which should be transferred into the Dispute Account. It is self-evident that the Dispute Account mechanism is designed to secure the amount in dispute in the arbitration under the OAMS.

[21]Mr. Andrew Baker QC, counsel for KPC, disputed this analysis. He submitted that Thiess was only entitled to issue a PCC in respect of an “amount payable ……in accordance with the relevant Assigned Documents”, namely, the OAMS. No sums were payable at the revised rates claimed by Thiess until the dispute as to the revised rates had been determined by the arbitral tribunal and Thiess had made a demand thereafter for payment for past services at the revised rates determined by the arbitral tribunal. Until then, as now finally determined by the arbitral tribunal, the rates which applied prior to July 2009 continue to apply and Thiess is not entitled to invoice for payment at the revised rates claimed by it and as determined by the expert.

[22]In response Mr. Mildon submitted that there was no justification for construing “payable” in the CDA as immediately payable. “Payable” was apt to apply to a sum which had been earned but payment of which was postponed until after resolution of the dispute as to the revised rates and provision of a payment claim under the OAMS claiming payment for past services at the revised rates. Further, the phrase to be construed was “payable …as contemplated in clause 10” and that clause contemplated payment after resolution of the dispute by arbitration. Mr. Mildon had several other points which included the following. “Payable” could not mean immediately payable because, pursuant to clause 7.5 of the OAMS, no sum was immediately payable where there was a dispute. Further, it had to be borne in mind that PCCs were to be relied upon by others such as SCB who were under no duty to investigate whether they were in accordance with the CDA or the OAMS. Reliance was also placed on clause 10.7 of the CDA which provided that the amount claimed by Thiess as a Priority Contractor payment as set out in the PCC is “deemed to be the Priority Contractor Payment.” It was suggested that it followed that since the Priority Contractor Payment was stated in PCC no.80 to be, and therefore deemed to be, US$85,353,231 the Total Principal Contractor Claim Amount could not be said to be less than that. Also, the Dispute Account is subject to a charge in favour of Thiess in respect of actual and contingent liabilities. The liability of KPC to pay for past services at the revised rates once they have been determined in arbitration is a contingent liability.

Discussion

[23]Thiess’ entitlement to issue a PCC, and hence to commence the procedure for obtaining security by the payment of disputed amounts into the Dispute Account, is governed by clause 10 of the CDA and by the definition of a PCC in clause 1 of the CDA. However, there is a clear linkage between the CDA and the OAMS because the definition of a PCC refers back to the OAMS. A PCC is a claim “for an amount payable [by KPC] in accordance with the relevant Assigned Documents” which include the OAMS.

[24]The OAMS, when dealing with payment for past mining services at the revised rates, makes express provision in clause 3A.2 for what is to happen if the revised rates are not agreed. The true construction of clause 3A.2(c) has been considered by the arbitral tribunal set up pursuant to the provisions of the OAMS. That tribunal has held that until the dispute as to the revised rates has been resolved by arbitration the rates applying immediately prior to 1 July 2009 continue to apply. The arbitral tribunal has further held that Thiess is required to invoice payment claims at the rates which applied prior to 1 July 2009 and should not apply the revised rates as determined by the expert. No finding has been made as to when payment as to the revised rates may be claimed. Whilst this court must be careful not to trespass upon the jurisdiction of the arbitral tribunal to determine disputes arising under the OAMS this court must nevertheless decide the issue which has arisen before it under the CDA. In that context the court notes that clause 3A.2(d) of the OAMS provides that “following….resolution of the pricing arrangements for each period of five (5) years commencing on a review date such arrangements shall apply from that Review Date, and that [Thiess’] next Payment Claim following such …resolution shall include all necessary adjustments to give effect to the application of such new pricing arrangements from the Review Date.” There was no dispute as to the effect of this clause although the language used to express its effect differed. Mr. Mildon said that the effect of the clause was that payment at the revised rates could only be “collected” after the dispute as to revised rates had been determined and that such collection or payment was “postponed” until the next payment claim after the revised rates had been determined by arbitration. Mr. Baker said the revised rates were only “payable” once the arbitration had determined the revised rates and a payment claim for past services at those rates had been issued.

[25]With that understanding of how the OAMS works with regard to payment at the revised rates for past services it is necessary to return to the definition of a PCC in clause 1 of the CDA; “a claim by [Thiess] for an amount payable by [KPC] in accordance with the [OAMS] as contemplated in clause 10.”

[26]Thiess is not free to claim any amount in a PCC. It can only claim an amount payable in accordance with the OAMS. Thiess can say that payment at the revised rates for past services is “payable” in accordance with clause 3A.2(d) of the OAMS. On the other hand KPC can say that payment at the revised rates for past services is not (presently) payable pursuant to clause 3A.2(c) of OAMS but if the arbitral tribunal decides that services provided after July 2009 are to be paid at rates in excess of the original rates such rates will become payable once a Payment Claim is made following the tribunal’s determination of the revised rates pursuant to clause 3A.2(d) of the OAMS.

[27]It may also be said by Thiess that there is commercial sense in the construction put forward by Thiess because the CDA provides a form of security and it is not unreasonable that such security be available for sums in respect of past mining services which will be payable once the dispute as to the revised rates has been resolved. On the other hand, in circumstances where clause 3A.2(c) states in clear terms that until resolution of the dispute as to revised rates the original rates “shall continue to apply” with the result that the revised rates are not (yet) payable, it would appear to be inconsistent with the scheme of the OAMS (which is incorporated into the CDA by reason of the words “in accordance with the relevant Assigned Documents”) to permit Thiess to issue a PCC under the CDA in respect of sums in respect of which Thiess is not (presently) entitled to issue a Payment Claim under the OAMS.

[28]I was not referred to the familiar authorities on the construction of contracts, no doubt because they are familiar. I take the relevant principles of construction from the recent case in the Supreme Court, Rainy Sky SA v Kookamin Bank

[2011] 1 WLR 2900

where Lord Clarke said:

“14. …….the ultimate aim of interpreting a provision in a contract, especially a commercial contract, is to determine what the parties meant by the language used, which involves ascertaining what a reasonable person would have understood the parties to have meant………….the relevant reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. ……… 21. The language used by the parties will often have more than one potential meaning. I would accept the submission made on behalf of the appellants that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.”

[29]I have sought to construe the material parts of the CDA in accordance with those statements of principle. I have borne in mind that payments made by KPC to Thiess under the OAMS follow a Payment Claim delivered within 7 days after the end of each month. In order to obtain payment of such claims and, in the event of a dispute as to the amount of such claims, security for payment of the disputed amount Thiess must issue a PCC under the CDA. Security is therefore given in respect of sums claimed to be payable at the end of each month. Security is given when such sums are claimed and disputed in whole or in part. There is no provision for security to be provided in advance of such monthly claims. Thus Thiess is not able to obtain security in January for such sums as it anticipates will be payable in July.

[30]That is the security structure or context which the reasonable person would have in mind when considering whether the parties meant that Thiess would be entitled to obtain security now for such sums as will be payable in a future month in respect of work done in the past at the enhanced rates which it hopes the arbitral tribunal will determine to be appropriate.

[31]Having considered the language used (in particular, the phrase “payable by [KPC] in accordance with the relevant Assigned Documents”) I consider that a reasonable person would understand that Thiess could only issue a PCC under the CDA for an amount payable pursuant to a Payment Claim which Thiess had issued under the OAMS. “Payable …in accordance with the relevant Assigned Documents” in the definition of a PCC in clause 1 of the CDA means, in my judgment, payable at the end of a month following the issue of a Payment Claim under the OAMS. Since PCCs nos. 80-83 issued by Thiess claim amounts which were not payable pursuant to a Payment Claim which had been issued under the OAMS they were not valid PCCs.

[32]I accept that where a PCC is issued for an amount payable pursuant to a Payment Claim issued under the OAMS it does not have to be shown that the amount has been correctly calculated having regard to the quantity of coal mined multiplied by the appropriate rates. Such calculations may be disputed and the dispute may be identified in the PCCC and subsequently resolved either by agreement or arbitration. However, that is different from claiming an amount which is not, in principle, payable at the end of the month in question following the issue of a Payment Claim under the OAMS.

[33]I was not persuaded to adopt the contrary conclusion by Mr. Mildon’s several textual points: i) He placed emphasis upon the phrase “as contemplated in Clause 10” in the definition of a PCC. He submitted that since clause 10 contemplated payment from the Dispute Account following an arbitration then “payable” should reasonably be construed in that sense. However, the arbitration contemplated by clause 10 is one which is commenced under the OAMS to resolve a dispute which arises from a valid PCC and a responsive PCCC which gives rise to a Disputed Amount being paid into the Dispute Account. That arbitration will determine to whom the amount in the Dispute Account will be paid. Clause 10 does not contemplate the dispute which has been referred to arbitration in the present case, namely, whether the rates to be paid by KPC should be varied following a 5 year review. There is an issue as to whether any monetary sum was in fact claimed in the arbitration by Thiess. The relief claimed by Thiess does not identify a monetary sum. Rather, it claims a declaration that with effect from the Review date the revised rates have replaced the original rates. Mr. Mildon has suggested that the tribunal’s statement on page 38 of its award that it will “consider the payment of interest on any amounts found to be owing by [KPC] in its subsequent determinations” shows that the Tribunal in fact appreciated that there was also a monetary claim. It may also be noted that the formal claim in the arbitration also included “such further or other relief as the Honourable Tribunal thinks fit” which would be wide enough to cover a monetary claim. Nevertheless, as Mr. Baker submitted, no further sums are in fact due until after the revised rates have been determined by the tribunal and a Payment Claim has been made in respect of “all necessary adjustments”. Whilst there is some force in Mr. Mildon’s argument I consider that if a monetary sum had in fact been claimed in the arbitration there would have been a much clearer reference to it than an inference to be drawn from the last line of the tribunal’s reasons before setting out its formal award. Mr. Mildon noted a reference to the quantification stage (“phase two” of the arbitration) in an earlier ruling by the tribunal but this appears to have been a reference to the quantification of the revised rates rather than to the assessment of a monetary sum due by KPC to Thiess. I therefore find, in so far as it is necessary to make a finding, that no monetary sum was in fact claimed in the arbitration. In any event I consider that the words “as contemplated in Clause 10” do not qualify “payable” but refer the reader to clause 10 as the place in the CDA which deals with PCCs. The words “in accordance with the relevant Assigned Documents” qualify the word “payable”. The reference to Clause 10 is perhaps strictly unnecessary but no more unnecessary than the reference to the form of the PCC being in accordance with Schedule Six Part One which also appears in clause 10. ii) Clause 7.5 of the OAMS provides that where there is a dispute as to any sum claimed in the Payment Claim which is set out in the Payment Confirmation any disputed amounts will be paid within 14 days of the dispute being resolved. Mr. Mildon said that “payable” in the definition of a PCC cannot mean presently payable because no disputed sum is presently payable. However, when a PCC is issued in respect of a sum which is payable pursuant to the OAMS it may well not be known what if any part of the claim will be disputed. If part of it is disputed then that part will not be payable until the dispute is resolved. But when the PCC was issued the claim was for an amount “payable …in accordance with the relevant Assigned Documents”. I do not therefore consider that clause 7.5 of the OAMS assists in determining what “payable” in the CDA means. iii) Clause 10.7 of the CDA contains a deeming provision with regard to the amount stated by Thiess as being the Priority Contractor Payment. Mr. Mildon said that, since the Priority Contractor Payment is part of (and usually the larger part) of the Total Principal Contractor Claim Amount KPC is unable to maintain that the Total Principal Contractor Claim Amount is or can be less than the Priority Contractor Payment. I am unable to accept this submission. There is no provision which deems that the amount stated by Thiess to be the Total Principal Contractor Claim Amount is the Total Principal Contractor Claim Amount. In those circumstances I consider that the deeming provision in clause 10.7 applies where the sum claimed as the Total Principal Contractor Claim Amount is “payable in accordance with the relevant Assigned Documents” but not otherwise. (Mr. Mildon advanced a similar argument based upon the definition of Priority Contractor Payments but that, in my judgment, failed for the same reason.) iv) Finally, the charge on the Dispute Account with regard to actual or contingent debts does not assist Thiess. The question to be determined is what claims Thiess is entitled to make in a PCC. If amounts not presently payable cannot form the basis of a PCC on the true construction of the CDA then the fact that the charge on the Dispute Account is wide enough to include contingent debts does not enable the court to add contingent debts to those permitted to be included in a PCC. I consider that Mr. Baker was correct to say that Mr. Mildon’s argument in this respect was to put the cart before the horse.

[34]Nor was I persuaded by Mr. Mildon’s point that, since the PCC was to be relied on by others such as the SCB who were under no duty to enquire into any document such as a PCC, there should be no necessity for the amounts claimed in the PCC to be payable. It is sufficient, it was said, that Thiess claims that they are payable. As between Thiess and KPC the former has, on the true construction of the CDA, no right to issue PCCs in respect of amounts which are not payable pursuant to a Payment Claim issued under the OAMS. The fact that an invalid PCC may be acted upon by the SCB does not, in my judgment, justify Thiess in issuing an invalid PCC as against KPC.

[35]Mr. Mildon suggested that economic conditions might cause the rates to fall and in those circumstances KPC would be bound, on its argument, when issuing its PCCC to confirm the old rates as being payable until the arbitral tribunal had determined the revised rates. KPC would become an unsecured creditor of Thiess for overpayments which, he suggested, could not have been intended. In my judgment KPC would be bound to pay the historic rates but if and when KPC persuaded the arbitral tribunal that the rates should be revised downwards then the next month’s payment claim by Thiess would have to include “all necessary adjustments” to give effect to the reduced rates. I do not see why this cannot have been intended.

[36]I therefore accept the submission of Mr. Baker for KPC as to the true construction of the CDA. I do not consider that the CDA can fairly bear the meaning suggested by Mr. Mildon for Thiess. If I am wrong about that and the CDA can fairly bear both suggested meanings then I would prefer the construction urged by Mr. Baker because it enables both the OAMS and the CDA to be read together without inconsistency. In so far as Mr. Mildon said that his construction was more consistent with business common sense because it enabled Thiess to obtain security for its fees in respect of past mining services at the revised rates it hoped to establish in arbitration I would not accept that submission. Whilst there would be business common sense (from Thiess’ point of view) in Thiess being able to obtain such security there would also be business common sense (from KPC’s point of view) in KPC being able to restrict the provision of security to such sums as are in dispute following the monthly Payment Claim under the OAMS and the corresponding PCC under the CDA. I do not consider it possible for the court to say that one construction is more consistent with business common sense than the other. Sometimes parties to commercial contracts demand and obtain extensive rights to security for sums due or to become due to them. Sometimes they are unable to obtain any security for sums due or to become due to them. Sometimes they obtain limited rights to security. What is achievable depends in part upon the respective bargaining powers of the parties to those contracts. In the present case Thiess was able to obtain limited rights to security.

[37]It follows from my conclusions as to the true construction of the CDA that the PCCs issued by Thiess were invalid, at least to the extent that they claimed an amount which was not payable under the OAMS. I accept Mr. Baker’s submission that in those circumstances KPC was entitled, when issuing the PCCC, to alter the Total Principal Contractor Claim Amount so that it conformed with the amount payable under the OAMS. It is true that the CDA does not give KPC an express right to do so but nor does the CDA expressly oblige KPC to accept an invalid PCC. I consider that where an invalid PCC is issued KPC must have an implied right, when issuing its PCCC, to correct the Total Principal Contractor Claim Amount so that it conforms with the CDA.

Other arguments

[38]Mr. Baker’s submissions on the true scope of the security provided by the CDA and the circumstances in which the revised rates become payable for past services under the OAMS enabled him to make two further related submissions. First, any claim for payment at the revised rates (prior to the determination of the dispute as to the revised rates by the arbitral tribunal) is a breach of the OAMS and neither clause 10 of the CDA nor the definition of a PCC in clause 1 of the CDA should be construed as enabling Thiess to benefit from its own breach of contract. Second, Thiess’ PCC was issued for an improper purpose, namely, to seek security for an amount which might become payable in the future in circumstances where Thiess was not (yet) entitled to demand payment of such sum or to obtain security for such a claim. However, both additional arguments were based upon the premise that Mr. Baker’s submissions on the true scope of the security provided by the CDA and the circumstances in which the revised rates become payable for past services are correct. If, contrary to my opinion, those submissions are not correct then I do not consider that these additional arguments could succeed. It is therefore unnecessary to say anything more about these additional arguments.

Conclusion

[39]For the reasons I have endeavoured to express I have concluded that Thiess is not entitled to the relief claimed.