Akfel Commodities Turkey Holding Anonim Sirketi v Townsend, Adam

• Jurisdiction: Singapore
• Judge: Chao Hick Tin SJ
• Judgment Date: 30 July 2019
• Neutral Citation: [2019] SGCA 43
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeal No 116 of 2018
• Year: 2019
• Published date: 03 August 2019
• Hearing Date: 02 May 2019
• Plaintiff Counsel: Ramesh Kumar s/o Ramasamy, Ashish Kamani, Afzal Ali and Lim Min Li Amanda (Allen & Gledhill LLP)
• Defendant Counsel: Lim Gerui, Chan Jin Yi, Wesley and Toh Ming Min (Drew & Napier LLC)
• Citation: [2019] SGCA 43

Chao Hick Tin SJ (delivering the grounds of decision of the court): Introduction

This appeal raised the question as to the circumstances under which conditional leave to defend should appropriately be granted to a defendant and the applicable principles. The plaintiff in the action sought summary judgment for his claim on a contractual breach. The defendant company sought unconditional leave to defend on the ground that the contract was a sham or an illegal agreement. The judge in the court below gave the defendant company leave to defend on condition that it furnished security of $2m. The defendant company appealed to this court against the imposition of that condition.

We heard the parties on 2 May 2019, and having considered their arguments, we dismissed the appeal and upheld the conditional leave to defend ordered by the court below. We now provide detailed reasons and some clarification on the law on the grant of conditional leave to defend.

Facts

The appellant, Akfel Commodities Turkey Holding Anonim Sirketi (“Akfel”), is the main holding company for a group of companies known as the Akfel Group, which is in the business of trading gas and power in Turkey. The Akfel Group was owned by two Turkish brothers, Mr Mehmet Fatih Baltaci and Mr Murad Abdurrahman Baltaci (“MFB” and “MAB” respectively and hereinafter collectively called “the Baltaci Brothers”) at all material times before end of 2015. The Baltaci Brothers held all the shares in Akfel, as well as all the shares in Akfel Commodities Pte Ltd (“Akfel Singapore”), the latter being a company incorporated in Singapore in March 2015. In December 2015, they transferred all their shares in Akfel to Akfel Singapore.

Mr Adam Townsend, the respondent in this appeal and the plaintiff in the proceedings below, is a consultant who provides consultancy services to major energy companies around the world. Mr Townsend provided consultancy services to the Akfel Group on a non-exclusive basis since 2009, and was receiving monthly retainer fees, starting at approximately €8,000, which was periodically increased to €35,000 just before the commencement of the Consultancy Agreement (see [5] below). He was also paid bonuses and reimbursed for his expenses. There was no written agreement between the Akfel Group and Mr Townsend for his services until the execution of the Consultancy Agreement in 2016.

Mr Townsend’s case was that, on or about 14 March 2016, another oral agreement was reached between MFB and him where on account of his enhanced involvement in the management of the Akfel Group, his monthly retainer fee would be increased. At the time, MFB was the Chairman, a director and the majority shareholder of Akfel Singapore, which fully owned Akfel. The oral agreement was later incorporated into a written Consultancy Agreement which was executed between Mr Townsend and Akfel. By a Deed of Guarantee, Akfel Singapore guaranteed Akfel’s performance of the Consultancy Agreement. The Consultancy Agreement contained, inter alia, the following terms: cll 3 and 4.1: Mr Townsend undertook to (i) comply with all reasonable and lawful instructions issued by Akfel, (ii) advise Akfel and its subsidiaries, (iii) endeavour to promote the interests of Akfel and the Akfel Group, (iv) work at least 25 hours a week in carrying out consulting services and representing Akfel, (v) serve as a director for Akfel and its subsidiaries, and (vi) make himself available when reasonably required by Akfel; cll 5.1 and 5.2: Akfel was to pay Mr Townsend €45,000 per month on a quarterly basis, within 14 days of receipt of Mr Townsend’s invoices, and reimburse his reasonable expenses; cl 4.2: Akfel was to do everything necessary to enable Mr Townsend to fulfil the aims of the Consultancy Agreement, including providing full and unmitigated access to Mr Townsend to the offices of Akfel and its subsidiaries and to the employees of the Akfel Group; cll 1.3 and 2.1: the Consultancy Agreement was to commence on 1 August 2016 and run for five years unless terminated as provided for by the terms of the agreement or by Akfel giving at least 24 months’ written notice or by Mr Townsend giving at least 12 months’ notice; cll 1.12 and 9.4: if Akfel terminated the Consultancy Agreement for any reasons other than those falling within cll 2.1, 9.2(a), 9.2(b) and 9.2(c) (ie, where it was terminated without cause), Akfel was to pay Mr Townsend liquidated damages equal to 24 months of his retainer (ie, €1,080,000); and cl 16: Singapore was the governing law and exclusive jurisdiction was conferred on the Singapore courts.

Mr Townsend claimed that Akfel had breached the Consultancy Agreement by terminating it on 16 March 2017. Akfel’s primary defence was that the Consultancy Agreement was a sham contract – it was intended to operate as a device through which Mr Townsend would be compensated for agreeing to act as an intermediary of the Baltaci Brothers in furtherance of a scheme whereby the Baltaci Brothers would attempt to retain and exercise control over the affairs of Akfel and the Akfel Group whilst at the same time concealing their involvement in the said scheme. Further, Akfel averred that the Consultancy Agreement was concluded in furtherance of an illegal venture, designed to avoid or circumvent the consequences under Turkish law in respect of the Baltaci Brothers’ suspected involvement with the Gulenist Terror Organisation/Parallel State Structure (“FETO/PDY”) and/or the failed coup in Turkey that took place in July 2016. Akfel averred that the Consultancy Agreement was not enforceable, as enforcing it would be tantamount to sanctioning a contravention of two Turkish court orders. To understand Akfel’s position, we will briefly set out the chronology of events that took place in Turkey during the material time and explain how the two Turkish court orders came into being.

Sometime in 2014, Turkish authorities commenced large-scale investigations into the affairs of FETO/PDY, including companies and organisations suspected to have provided financing to FETO/PDY and persons suspected to be connected with FETO/PDY. On 15 July 2016, FETO/PDY launched a coup against the Turkish government, which failed. In response, the Istanbul Chief Public Prosecutor’s Office commenced investigations to identify persons who financed FETO/PDY in the coup attempt. The Istanbul Chief Public Prosecutor’s Office applied for and obtained an injunction from the Istanbul courts on 18 August 2016 (“the August 2016 Injunction”) for the confiscation of assets owned by various persons, including those of the Baltaci Brothers.

Against this backdrop of political turmoil in Turkey in 2016 and 2017, various changes were effected in Akfel. Starting from 28 March 2016, the Baltaci Brothers resigned from the Akfel board and Mr Townsend joined the board. From March 2016 to August 2016, the Baltaci Brothers transferred most, if not all, of their shares in Akfel Singapore to companies in which Mr Townsend was involved. As mentioned, the commencement date of the Consultancy Agreement was stated to be 1 August 2016.

Four months later, on 1 December 2016, due to findings on Akfel’s connection with the armed terrorist organisation of FETO/PDY and its financial support of the organisation, the Istanbul courts accepted the Istanbul Chief Public Prosecutor’s Office’s request for the Savings Deposit Insurance Fund (SDIF) or Tasarruf Mevduati Sigorta Fonu (“TMSF”), an entity controlled by the Turkish state, to be appointed as trustee for Akfel (“the December 2016 Order”). TMSF therefore took control of Akfel. TMSF asked Mr Townsend to continue his work at Akfel soon after it took over the company, but it also thwarted his work by taking measures such as blocking external consultants from communicating with him. A few days later, on 17 December 2016, Mr Townsend issued Akfel an invoice for his retainer fees for the preceding quarter which Akfel failed to pay. On 16 March 2017, TMSF’s lawyers sent Mr Townsend a termination letter, claiming that the Consultancy Agreement was “collusive and legally invalid”:

As a result of reviewing and analyzing the Agreement, it has been seen that the Agreement is contrary to the ordinary course of business considering certain regulations under the Agreement such as; the difference between the signing date (March 14th, 2016) and the effective date (August 1st, 2016), the evident disproportion in the periods for termination notice belonging to the parties, shortness of the non-competition obligation period, structure of the payments being non-monthly, Company’s being unlimitedly liable whereas the Consultant’s liability is limited and the choice of Singapore Law as the governing law of the Agreement. In this context, we opine that the explained issues are of a nature which supports the collusive character of the Agreement.

Subsequently, in mid-2017, MAB was identified in a Turkish indictment as a suspect who had financed the FETO/PDY. According to Mr Townsend, MAB’s detention was brought to an end by the Istanbul courts after hearings were carried out in December 2017. As for MFB, Akfel took the position that investigations against MFB were still ongoing as of January 2018 because he had yet to be arrested, while Mr Townsend gave evidence that MFB was not a fugitive as his address was officially registered with the Turkish courts.

After Mr Townsend’s services were unilaterally terminated by TMSF in March 2017 (see [9] above), he commenced Suit No 329 of 2017 against Akfel on 13 April 2017 claiming liquidated damages or alternatively damages for breach of the notice period, his retainer fees for the months of September 2016 to March 2017 (less part payment), and reimbursements of reasonable expenses. Assistant Registrar Cheng Pei Feng (“AR Cheng”) granted Mr Townsend’s application for summary judgment at first instance. Akfel’s appeal was heard by Judicial Commissioner...