Carlsberg Breweries A/S v CSAPL (Singapore) Holdings Pte Ltd

• Jurisdiction: Singapore
• Judge: Andrew Phang Boon Leong JCA
• Judgment Date: 10 January 2022
• Neutral Citation: [2022] SGCA(I) 2
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeal No 18 of 2021
• Published date: 13 January 2022
• Year: 2022
• Hearing Date: 19 October 2021
• Plaintiff Counsel: Chew Kei-Jin, Tan Ngee Wee Ervin, Lam Yan-Ting Tyne and Teo Jim Yang (Ascendant Legal LLC)
• Defendant Counsel: Palmer Michael Anthony, Lim Wei Ming Keith, Wee Shilei, Ng Joel Yuan-Ming, and Joyce Khoo (Quahe Woo & Palmer LLC)
• Subject Matter: Contract,Best effort obligations,Obligations imposed,Breach
• Citation: [2022] SGCA(I) 2

Andrew Phang Boon Leong JCA (delivering the judgment of the court): Introduction

This appeal arises out of a decision by the International Judge below (the “Judge”) in Carlsberg Breweries A/S v CSAPL (Singapore) Holdings Pte Ltd [2021] 4 SLR 1 (the “Judgment”) dismissing a claim by the Appellant (“Carlsberg”) for repayment of a loan extended by Carlsberg to the Respondent (“CSAPLH”) under the terms of a loan agreement entered into on 23 December 2010 and subsequently amended by addenda dated 24 September 2013 and 31 October 2013 (“the Loan Agreement”) (see the Judgment at [112]). Carlsberg’s claim for repayment is based on alleged breaches of a Deed of Undertaking dated 12 April 2018 (“the Deed of Undertaking”). These breaches are said to entitle Carlsberg to terminate a Deed of Release of the same date (“the Deed of Release”), and to declare all outstanding amounts under the Loan Agreement immediately due and payable. It is not disputed that if the Deed of Undertaking was breached, Carlsberg would be entitled to terminate the Deed of Release.

The Deed of Undertaking and the Deed of Release arise in the context of a US$40m loan extended by Carlsberg to CSAPLH under the terms of the Loan Agreement. This loan was provided for the purpose of enabling CSAPLH to pay Carlsberg for a 40% shareholding in a joint venture vehicle, Carlsberg South Asia Pte Ltd (“CSAPL”). CSAPL owns shares in a Nepali subsidiary, Gorkha Breweries Pvt Ltd (“GBPL”). 90% of the shares in GBPL are held by CSAPL, while a 9.94% holding is registered in the name of one Rajendra Kumar Khetan (“RKK”), a Nepali businessman. The small balance of shares is held by individual Nepali shareholders who are not relevant for present purposes. CSAPL, through a holding company, also owns shares in an Indian subsidiary, Carlsberg India Pvt Ltd (“CIPL”), which plays only a subsidiary part in the instant dispute.

Carlsberg alleges that CSAPLH had breached cl 2(c) of the Deed of Undertaking (“clause 2(c)” or “cl 2(c)”), which provided that CSAPLH would “use its best efforts to ensure that the director appointed by [RKK] to the board of directors of [GBPL] attends all meetings of the board of directors of [GBPL]”. In particular, Pradeep Prakash Khetan (“PPK”), who was at all material times the director appointed by RKK to the board of GBPL, did not attend the board meetings of GBPL on 26 February, 25 March, 26 April, and 1 July 2019. The central question before us is thus whether CSAPLH had complied with cl 2(c) by using its best efforts to ensure that PPK attended the meetings in question. In this appeal, Carlsberg argued that cl 2(c) had been breached because (a) CSAPLH had colluded with PPK to merely pretend to persuade PPK to attend the board meetings, and (b) CSAPLH could have done more in relation to the third and fourth board meetings to persuade PPK to attend.

The relevant facts Dramatis Personae

The Appellant, Carlsberg, is a wholly-owned subsidiary of Carlsberg A/S, a public company listed on the Denmark stock exchange.

The Respondent, CSAPLH, is a Singapore-registered company. Prior to October 2013, it owned 40% of the shares in CSAPL. Carlsberg owned the remaining 60% of the shares in CSAPL. CSAPL was incorporated in 2010 as part of a restructuring process to consolidate the interests of Carlsberg and the Khetan family in brewery businesses in India and Nepal into a single joint venture entity. In October 2013, CSAPLH entered into a share transfer agreement, pursuant to which CSAPLH sold a 6.67% shareholding in CSAPL to Carlsberg. As a result, Carlsberg held 2/3 of the shares in CSAPL, while CSAPLH held 1/3 of the shares. As indicated above, CSAPL holds 90% of GBPL, while RKK owns 9.94% of it.

The shareholders’ agreement of GBPL was dated 1 November 2010 (“the GBPL SHA”) and was made between Carlsberg, GBPL, CSAPL and RKK (who was defined as the “Khetan Family” in the GBPL SHA). Under the terms of the GBPL SHA, GBPL was to have a board consisting of up to six directors. Five directors were nominated by CSAPL, and one by the Khetan Family: RKK appointed PPK as a director to the board of GBPL. By virtue of their respective shareholdings in CSAPL, it was agreed that Carlsberg was entitled to nominate four directors and CSAPLH was entitled to nominate one director, each through CSAPL, to the board of GBPL. Carlsberg’s nominated directors (the “Carlsberg-nominated directors”) included its two witnesses at the trial below, Soren Hansen (“Mr Hansen”), who was a director of GBPL between 2010 and 16 December 2013, and Peter Steenberg (“Mr Steenberg”), who was a director from 17 November 2015 to present. The director nominated by CSAPLH from 6 September 2014 to date was Mr Pawan Jagetia (“Mr Jagetia”).

The Khetan family holds extensive interests in a business empire, founded by the late MG Khetan, which is involved in banking, insurance, as well as food and beverage holdings. Of central importance to this appeal are three members of the Khetan family: RKK, Chandra Prakash Khetan (“CPK”), and PPK. RKK is the elder of MG Khetan’s two sons, while CPK is the younger. PPK is RKK’s and CPK’s cousin, though it is not in contention that PPK was raised like a son by MG Khetan, and that PPK, RKK, and CPK saw each other as brothers. However, following MG Khetan’s passing in 2007, disputes arose between PPK, RKK, and CPK. While the substance of these disputes is not directly relevant to present proceedings, the fact of the dispute and the state of the present relationship between PPK, RKK, and CPK are. We consider the evidence regarding the present relationship between PPK and CPK in particular below.

There are three other individuals relevant to the present dispute: Surendra Silwal (“Mr Silwal”), who was the GBPL company secretary, chief financial officer and deputy managing director; Ajith Babu (“Mr Babu”), who was the Managing Director of GBPL; and Shanta Tuladhar (“Ms Tuladhar”), who was the Human Resources Director of GBPL in early 2019. We consider the respective roles played by these individuals below.

Facts leading up to the dispute

Sometime in 2009 and 2010, CSAPLH and Carlsberg agreed to, among other things, restructure and consolidate their holdings in Nepal (through GBPL) and India under a new Singapore company, CSAPL. This appears to have been with an eye towards allowing profits from GBPL to be paid out of Nepal, and circumventing restrictions on the flow of money directly from Nepal to India. The GBPL SHA, entered into on 1 November 2010, made provision for the appointment of directors as set out at [6] above. Significantly, the GBPL SHA also provided that: A director could be removed from office only by the party who nominated the director in question; Each party had the right to nominate an alternate director if a director was prevented from attending board meetings; and Critically, that “[t]he quorum for all meetings of the Board of Directors shall be more than half of the number of appointed Directors present in person, of which as a minimum 1 (one) shall be a Director nominated by the Khetan Family” (cl 1.9 of the GBPL SHA). As is readily evident, cl 1.9 of the GBPL SHA in effect gave the “Director nominated by the Khetan Family”, in this case PPK, a veto over resolutions passed at board meetings by not attending them and rendering them inquorate. We note in addition that while RKK was the individual referred to as the “Khetan Family” in the GBPL SHA, it was uncontested that Carlsberg dealt primarily with CPK, and not RKK, in relation to GBPL (see the Judgment at [12]). Carlsberg’s Mr Hansen and Mr Steenberg also gave evidence that PPK would often assist CPK, and would on occasion convey CPK’s wishes in relation to GBPL.

Following the signing of the GBPL SHA, CSAPLH took out a US$40m loan from Carlsberg to purchase 40% of the shares in CSAPL from Carlsberg. The Loan Agreement was entered into in December 2010 and provided (a) for an interest rate of 7.65% per annum, and (b) that the agreement would expire on 30 September 2013, after which the loan and accrued outstanding interest would have to be repaid to Carlsberg. The broader restructuring of the interests CSAPLH and Carlsberg had, which the Loan Agreement was a part of, was set out in a Transaction Agreement dated 1 December 2010. While Carlsberg owned 60% and CSAPLH owned 40% of CSAPL initially following the Loan Agreement, it was envisaged that Carlsberg would eventually become the 2/3 owner, and CSAPLH the 1/3 owner. This would occur by way of a put/call option for the sale of 6.67% of CSAPLH’s shares in CSAPL. This arrangement was included at cl 7.1 of a shareholders’ agreement signed by the shareholders of CSAPL and dated 31 December 2010 (the “CSAPL SHA”).

The 2012/2013 disputes

In 2012 and 2013, various disputes appear to have arisen between CSAPLH and Carlsberg. Among other things, CPK (a) demanded that Carlsberg write off the US$40m loan which had been made to CSAPLH, (b) disputed the value of the put/call option price that CSAPLH would receive on the sale of the 6.67% shares in CSAPL, and (c) objected to various matters relating to the running of GBPL. Carlsberg’s evidence was that it was pressured by PPK refusing to pass resolutions and utilising his effective veto (under cl 1.9 of the GBPL SHA) to block the making of essential business decisions for GBPL. In particular, CSAPL was unable to draw dividends from GBPL for two years, for Financial Year (“FY”) 2010/2011 and 2011/2012. GBPL’s non-declaration of dividends caused Carlsberg to have to provide CSAPL a US$210m loan facility, which was entered into on 8 May 2012.

To resolve the disputes, and in particular that relating to the transfer of the 6.67% interest in CSAPL, Carlsberg held several meetings with CPK and made several proposals. A meeting was held between CPK and various officers of Carlsberg in Hanoi over 23 and 24 September 2013, and Carlsberg’s...