PT Thiess Contractors Indonesia v PT Kaltim Prima Coal

A contractual security mechanism must be construed by reference to the language of the agreement, its commercial context and the relationship between interconnected contracts. Where a claim under a security agreement is defined by reference to an amount payable under an underlying contract, the claimant cannot use the mechanism to secure sums that are not yet payable under that underlying contract. A dispute about future or retrospectively adjustable rates does not itself make the increased amount presently payable. The security mechanism applied only to sums claimed under a valid monthly payment claim. An invalid claim could be corrected by the paying party when issuing its confirmation.

PT Thiess Contractors Indonesia provided mining services to PT Kaltim Prima Coal under an Operating Agreement Mining Services governed by Queensland law and subject to arbitration in Singapore. A separate Cash Distribution Agreement, governed by English law, provided a security mechanism under which disputed amounts claimed under the operating agreement could be paid into a dispute account.

Thiess claimed payment at revised rates determined by an expert, although the arbitration concerning the revised rates had not been concluded. Kaltim accepted only the original rates and paid no disputed amount into the dispute account. The issue was whether the Cash Distribution Agreement permitted Thiess to obtain security before the revised rates had been determined and claimed under the operating agreement.

1. Claim dismissed. Thiess was not entitled to the declaratory and consequential relief sought.
2. The entitlement to issue a Principal Contractor Claim under the Cash Distribution Agreement depended on its definition as a claim for an amount payable in accordance with the relevant Assigned Documents, including the Operating Agreement Mining Services.
3. Under the Operating Agreement, the rates applying immediately before the review date continued until the pricing dispute was resolved. Revised rates would become payable retrospectively only after resolution of the pricing arrangements and the submission of the next payment claim containing the necessary adjustments.
4. The phrase payable in accordance with the relevant Assigned Documents meant payable pursuant to a payment claim issued under the operating agreement at the end of the relevant month. It did not include amounts which might become payable after the arbitration. The security structure was confined to sums claimed and disputed through the ordinary monthly payment process and did not provide advance security for anticipated future liabilities.
5. Applying the contractual construction principles stated in Rainy Sky SA v Kookamin Bank [2011] 1 WLR 2900, the court considered the language, relevant background and commercial context. Even if both constructions were linguistically available, the construction which read the two agreements together without inconsistency was preferred. Business common sense did not favour one party’s security expectations over the other’s.
6. The Principal Contractor Claims were invalid to the extent that they claimed amounts not payable under the Operating Agreement. Kaltim therefore had an implied right, when issuing its confirmations, to correct the total claim amount so that it conformed to the contractual scheme.