JES International Holdings Ltd v Yang Shushan

• Jurisdiction: Singapore
• Judge: Kannan Ramesh JC
• Judgment Date: 05 April 2016
• Neutral Citation: [2016] SGHC 52
• Plaintiff Counsel: Foo Maw Shen, Chu Hua Yi, Ooi Huey Hien (Rodyk & Davidson LLP)
• Docket Number: Suit No 815 of 2014
• Date: 05 April 2016
• Hearing Date: 04 August 2015,06 August 2015,05 August 2015,24 July 2015,22 July 2015,21 July 2015,11 August 2015,12 August 2015,28 July 2015,23 July 2015,25 November 2015
• Subject Matter: Contract,Agency,Implied authority of agent Damages,Measure of damages,Breach,Agency by estoppel
• Published date: 09 April 2016
• Citation: [2016] SGHC 52
• Defendant Counsel: Wu Xiaowen (Lexton Law Corporation)
• Court: High Court (Singapore)
• Year: 2016

Kannan Ramesh JC: Introduction

As the evidential tapestry was weaved before me, an intriguing story unfolded. At its heart, this is a story of two fathers, their respective children and companies, and agreements which they had each signed. The question of which agreement was operative and who they were between was a matter of significant discord. The two fathers are Jin Xin (“JX”) and the Defendant, Yang Shushan. The two children are Jin Yu (“JY”), JX’s daughter, and Yang Nan (“YN”), the Defendant’s son. The two companies are the Plaintiff, JES International Holdings Ltd, and Scibois Co Ltd (“Scibois”). JX and the Defendant are respectively the moving spirits of these companies.

A shroud of intrigue cloaked the dispute because YN, despite being omnipresent in the evidential quilt-work, was a man missing. He did not surface as a witness in these proceedings. An attempt was made to explain his absence with scandalous and scurrilous allegations of conspiracy and improper alliances between him and JY made shockingly by none other than the Defendant, his father.

However much this story was laced by intrigue, the mist had to be pierced to get to the issues at the core of these proceedings. The Plaintiff’s case is that pursuant to a sale and purchase agreement allegedly executed on 4 July 2014 by the Plaintiff, and the Defendant and YN (“the 4 July SPA”), the Plaintiff and the Defendant had agreed to a share swap. Under the share swap, the Plaintiff would purchase 51% of the shares in Scibois in consideration of which the Defendant and YN would be issued and allotted a total of 20% of the enlarged share capital of the Plaintiff as well as be paid a sum of US$30m. The share swap was to be performed in two tranches. The first tranche, which is salient to the present proceedings, involved the transfer of 120,802,800 ordinary shares in the Plaintiff to the Defendant (“the First Tranche JES Shares”) in exchange for the Plaintiff receiving 20% of the shares in Scibois (“the First Tranche Scibois Shares”). The First Tranche JES Shares, or at least a part thereof, are at the centre of the battleground between the Plaintiff and the Defendant. The 4 July SPA stipulated a moratorium on the transfer or disposal of the First Tranche JES Shares, which kicked in upon the transfer of the same to the Defendant. Sometime in July 2014, the Defendant received the First Tranche JES Shares. He then transferred 60,000,000 of those shares (“the Collateral Shares”) to a third party (“the Lender”). The Plaintiff asserts that this was in breach of the moratorium.

The Defendant’s position is that the moratorium in the 4 July SPA does not bind him. Alternatively, he argues that the 4 July SPA was forged or executed without his authority. He alleges that the operative moratorium is contained in another agreement described as “the Supplementary Agreement Pertaining to (the Supplementary Agreement of) the Framework Acquisition Agreement” (“the SA2”) executed between the Defendant and JX (on behalf of the Plaintiff) on 23 May 2014, and that there is no restriction on the mortgage or pledge of the First Tranche JES Shares under that moratorium. He asserts that the transfer of the Collateral Shares to the Lender does not breach the moratorium in the SA2.

Recognising that this judgment is of substantial length and complexity, for the reader’s better understanding, I have set out, in an annex to this judgment, a table of references and abbreviations that I have used.

The background facts

Much of the facts are a matter of heated controversy. However, there are certain key facts that are relatively uncontroversial. I will set them out.

The dramatis personae

The Plaintiff is a company listed on the mainboard of the Singapore Exchange. Its principal business is shipbuilding. Its principal shareholder is a company called JES Overseas Investment Ltd (“JESOIL”), which, up to 4 July 2014, held 44.17% of the issued and paid-up capital of the Plaintiff. The principal shareholder of JESOIL is JX who holds 76% of its shares. JX was also at all material times the Chairman, Chief Executive Officer, and, as noted earlier, the moving spirit of the Plaintiff. He stepped down as the Plaintiff’s Chief Executive Officer on 16 March 2015.

JY is JX’s daughter, and was the Deputy Chief Executive Officer of the Plaintiff until she took over from her father as the Chief Executive Officer. She is also a significant shareholder of the Plaintiff.

The Defendant is a businessman. He is Chairman of Scibois, holding 40% of its shares. Scibois is incorporated in the British Virgin Islands. YN held the remaining 60% until he transferred the First Tranche Scibois Shares to the Plaintiff thereby decreasing his share in Scibois to 40%. The Defendant is the controlling mind and moving spirit of Scibois notwithstanding YN’s interest. The Plaintiff presently holds 20% of Scibois’ shares, being the First Tranche Scibois Shares.

Scibois owns 75% of the equity in Ste De Commerce Internationale Du Bois Au Congo Scibois Spril (“Scibois Congo”), a private company incorporated in the Democratic Republic of Congo (“DRC”). Scibois Congo owns and operates a forestry concession issued by the Government of the DRC (“the Concession”). The Concession is a forest harvesting licence valid until May 2036 covering an estimated area of 229,400 hectares. The transactions which are the subject of discord before me concern the Concession. According to the Defendant, the value of the Concession is US$3b, which would make Scibois’ indirect interest worth approximately US$2.1b.

YN is in charge of the general operations of Scibois Congo. In 2014, when the transactions came into being, YN was only 33 years old. The Defendant claims that both he and YN have at all times had a poor command of the English language.

The planned issuance of Islamic bonds

The Defendant and JX were introduced to each other through mutual acquaintances sometime in the second half of 2013. The introduction morphed into a discussion at the end of 2013 on a possible collaboration between Scibois and the Plaintiff for the Plaintiff to issue Islamic bonds for US$500m on the back of the Concession. The idea essentially was to unlock the value of the Concession by using it as backing for the Islamic bonds. This would in turn make the Islamic bonds attractive to investors. The Plaintiff would be able to raise significant proceeds as a result, enabling it to diversify from its core shipbuilding business, which was not doing particularly well at that time. The Defendant was the prime mover behind the idea.

The proposed transaction was essentially a share swap involving the Plaintiff acquiring 51% of the equity in Scibois from the Defendant and YN, in exchange for shares of the Plaintiff that would be issued and allotted to them.

Towards this end, on 6 December 2013, the Defendant sent JX an email setting out his proposal for the share swap and the issuance of the Islamic bonds. The Defendant was anxious to get the show on the road, and sent a chaser to JX on 18 December 2014. This email was copied to JY and the Plaintiff’s general manager, Zhu Xiao Yang (“Zhu”). This was the first documentary evidence of JY’s involvement in the transaction.

Between 25 December 2013 and 8 January 2014, emails were exchanged by the Defendant and JY. Information on Scibois was sought by JY and provided by the Defendant, and a timeline for execution and completion of the transaction was proposed by the Defendant. This culminated in the Defendant sending an email to JY, Zhu and YN dated 11 February 2014 enclosing a document described as “Cooperation framework agreement on bond issuance between Scibois and JES” (“the CAA”). This was the first time YN surfaced in the transaction. The intended parties to the CAA were the Plaintiff and Scibois. The CAA was, however, not executed.

JY’s response was to forward to the Defendant and YN, via her email dated 28 February 2014, a Memorandum of Understanding. The parties identified therein were again, the Plaintiff and Scibois.

Negotiations and discussions actively continued between 28 February 2014 and 6 April 2014. There is controversy on whether YN was involved in the negotiations on behalf of the Defendant. I will examine the differing positions later. For present purposes, it is sufficient to note that the evidence does show that YN was involved, and was in fact an active participant, in the negotiations.

Execution of the Framework Acquisition Agreement and the first supplementary agreement

The negotiations resulted in the execution of an agreement described as “the Framework Acquisition Agreement” (“the FAA”) on 6 April 2014. The FAA was, however, dated 8 April 2014. It is relevant that the parties to the FAA were the Plaintiff on the one hand, and the Defendant and YN on the other. It is also relevant that the FAA was in both English and Mandarin. It outlined the main terms that had been agreed concerning the share swap and the issuance of Islamic bonds. Significantly, cl 2.1 of the FAA provided that:

The Parties agree that they shall use their best endeavours to negotiate and enter into a definitive sale-and-purchase agreement in relation to the Proposed Acquisition, upon the relevant terms and conditions set forth in this Agreement and such other terms which the Parties may agree [to] in the course of negotiations. [emphasis added]

It is also relevant that on the same day as the execution of the FAA, another agreement was executed by JX and the Defendant which covered many of the same terms as the FAA. This agreement was described as the “Supplementary Agreement Pertaining to the Framework Acquisition Agreement” (“the SA1”). What was the purpose of the SA1 and who the parties thereto were are matters of significant controversy. The Plaintiff’s position is that the parties were JX and the Defendant, and that the SA1 served to bind the two of them...