Jurong Data Centre Development Pte Ltd (provisional liquidator appointed) (receivers and managers appointed) v M+W Singapore Pte Ltd and others

• Jurisdiction: Singapore
• Judge: Judith Prakash J
• Judgment Date: 16 March 2011
• Neutral Citation: [2011] SGHC 58
• Plaintiff Counsel: Ashok Kumar and Linda Esther Foo (Stamford Law Corporation)
• Docket Number: Originating Summons No 389 of 2010
• Date: 16 March 2011
• Hearing Date: 16 September 2010,15 September 2010
• Subject Matter: Credit and Security
• Published date: 11 April 2011
• Citation: [2011] SGHC 58
• Court: High Court (Singapore)
• Year: 2011

Judith Prakash J: Introduction

On 8 April 2010, the directors of the plaintiff, Jurong Data Centre Development Pte Ltd (“JDD”), passed a resolution acknowledging that JDD could not continue business by reason of its liabilities. A provisional liquidator was appointed the same day. On 22 April 2010, this action was commenced to challenge certain security given to the first defendant, M+W Singapore Pte Ltd (“M+W”), and the appointment of the second to fourth defendants (“the Receivers”) as receivers and managers under M+W’s security. The purpose of the action is to determine whether particular assets of JDD are available for the benefit of its unsecured creditors or whether M+W is a secured creditor with priority.

Background

JDD was incorporated on 21 January 2008 for the purpose of developing, building and owning a state-of-the-art data centre (“the Data Centre”). JDD is currently a wholly owned subsidiary of Japan Land Limited (“JLL”), an investment holding company listed on the Singapore Exchange.

For the purposes of its business, JDD applied to the Jurong Town Corporation (“JTC”) for permission to develop and then lease the piece of land known as Private Lot A2534304, also known as Government Survey Lot 8441A of Mukim 5 (“the property”). By a letter dated 8 April 2008, JTC offered JDD a three-year licence of the property commencing 16 June 2008 and pursuant to this offer, on 22 December 2008, JTC and JDD executed a building agreement relating to the property (“the building agreement”). Under the building agreement, JDD was granted a licence of and authority to enter onto the property for a period of three years from 16 June 2008 for the purpose of building the Data Centre (“the project”) on the property. The building agreement also provided that upon completion of the project (and subject to certain conditions), JTC would grant JDD a 30-year lease of the property commencing retrospectively from 16 June 2008.

Following a tender exercise, M+W was appointed the main contractor for the project. On 19 February 2009, a construction agreement was concluded between JDD and M+W (“the construction agreement”). M+W was to design, construct and complete the project for a price of approximately $213m to be paid by JDD in a progressive manner in accordance with the terms of the construction agreement. Construction work commenced shortly thereafter.

Until June 2009, JDD funded the construction costs of the project by using its own capital and obtaining loans from other companies which were related or associated with JLL (collectively “JL Group”). In the meantime, JLL was actively looking for other sources of funds. Around June 2009, JDD started negotiations with an external investor, Elchemi Group Limited (“Elchemi”), which was a private investment firm incorporated in the British Virgin Islands.

On 21 August 2009, Elchemi entered into a memorandum of understanding with certain JL Group companies which envisaged that Elchemi would take up a 50% shareholding in JDD. It was subsequently agreed that Elchemi’s wholly owned subsidiary, ConnectedPlanet Holding Limited (“ConnectedPlanet”) would front the investment. At about the same time, JDD’s financial resources ran out and it started defaulting on the progress payments due to M+W. In order to reassure M+W about payment, on 14 September 2009, JDD introduced Elchemi to M+W and told M + W that Elchemi would be providing equity and debt funding to JDD to enable the project to be completed. JLL itself took steps to inject further capital into JDD and by 23 October 2009, JDD had an increased share capital of $25m and JLL had become its sole shareholder.

None of the new money moved to M+W although, at about the same time, M+W had been demanding assurances from JDD regarding payment of its outstanding bills amounting to $59,382,859.95. It threatened to stop work on the project unless payment was made.

On 24 October 2009, a meeting initiated by M+W to discuss JDD’s financial situation took place in Tokyo. There are differing accounts of what happened there. M+W’s CEO, Mr Kurzboeck, demanded a first pledge over JDD’s assets in order for M+W to continue work on the project. M+W alleged that this demand was accepted on behalf of JDD. JDD, however, averred that no such agreement was reached at that time as the JL Group needed to get certain internal approvals.

On the afternoon of 27 October 2009, M+W’s solicitors, WongPartnership LLP (“WongPartnership”) sent, inter alia, a draft debenture (“the Debenture”) and a draft security undertaking (“the Security Undertaking”) to Mr Leow Tet Sin, a director of JDD, for execution. The next morning, M+W’s managing director, Mr Cris Dedigama (“Mr Dedigama”), went to JDD’s office to discuss and execute the Debenture and Security Undertaking. That afternoon, there was an urgent board meeting of the directors of JLL to obtain approval for the execution of the Security Undertaking and Debenture. Mr Leow informed the meeting that approximately $59m was owing to M+W and in order for M+W to seek permission from its head office in Germany to continue to fund the construction and completion of the project, M+W required execution of the documents. Mr Leow also informed the meeting that if the documents were not executed, M+W would take immediate legal action to enforce recovery and would cease to carry out any work under the construction agreement. JDD executed the two documents that same evening (28 October 2009).

On the face of the document, cl 3 of the Debenture granted M+W a first fixed and floating charge over JDD’s present and future assets, with the exception of the property which was to be subject to a mortgage upon the written consent of JTC being obtained. Clause 6.3 of the Debenture obliged JDD to use its best endeavours to obtain any consent necessary to enable its assets to be the subject of an effective fixed charge or assignment as contemplated by cl 3. Similarly, as provided under cl 5.2(a) of the Security Undertaking, JDD undertook to procure the written consent of JTC to the entry of a mortgage of the property in favour of M+W. In consideration of JDD’s performance of its obligations under the Security Undertaking, M+W agreed in cl 4 that it would not cease to perform its obligations under the construction agreement.

On 30 October 2009, M+W lodged a caveat (“the first caveat”) against the property on the ground that it was a mortgagee under the documents that had been executed. On 6 November 2009, JDD objected to the lodging of the first caveat, contending that it was inconsistent with the JDD directors’ understanding that the Debenture and the Security Undertaking were not meant to take full effect, registered or enforced, pending JDD’s negotiations with Elchemi. On 10 November 2009, M+W denied that such an understanding existed. The first caveat, however, remained and JDD did not take any steps to have it removed.

On 3 November 2009, the negotiations between Elchemi and the JL Group ended. Pursuant thereto, JDD and ConnectedPlanet entered into an investment agreement whereunder ConnectedPlanet was to invest $71m to acquire a portion of JLL’s shares in JDD (“the investment agreement”). On completion of the transaction, ConnectedPlanet would own 85% of the enlarged issued share capital of JDD.

On 18 November 2009, representatives from JDD, M+W and Elchemi met officers of JTC (“the JTC meeting”) to explain to them what was happening with the project and to seek JTC’s consent for the grant of a mortgage over the property in favour of M+W. There is a dispute over whether the Debenture was mentioned during the meeting but the JTC officers were definitely told of JDD’s desire to grant a mortgage in favour of M+W pending the receipt of the investment from ConnectedPlanet. After the meeting, Mr Leow wrote a letter, dated 18 November 2009, to JTC in which he reiterated the reason for the meeting and the fact that JDD needed a new investor to complete the project. Mr Leow forwarded a copy of the investment agreement with ConnectedPlanet to JTC and said that pending the investment, the mortgage would provide security to M+W “for the purpose of a ‘Bridge Financing’ to complete the project”.

On 25 November 2009, JDD, M+W and ConnectedPlanet entered into an agreement (“the refinancing agreement”). By this agreement, JDD acknowledged that the filing of the Debenture with the Accounting and Corporate Regulatory Authority by M+W had been lawfully and properly carried out. It further agreed to submit a request for, and obtain, JTC’s approval in respect of the creation of a deed of assignment of the building agreement and a mortgage over the property to secure JDD’s obligations under, inter alia, the Debenture and the construction agreement. In return, M+W agreed that JDD would not be required to make any payment under the construction agreement until three days had elapsed from its receipt of Elchemi’s investment or 31 January 2010, whichever was the earlier.

In the meantime, on 19 November 2009, JTC had given its in principle agreement or consent to the arrangement. The formal approval was set out in a subsequent letter dated 4 December 2009 (“the JTC consent letter”) and this contained the following conditions which had to be observed by JDD: 2 We are pleased to inform you that your request to Mortgage the [property] to the aforesaid Mortgagee has been approved by JTC, subject to your irrevocable and unconditional:- (a) return of a duly completed Annex A (Non-financial Institution) based on the format attached with this letter; (b) acceptance of all the conditions in the attached Appendix; and (c) acceptance of all the following which are conditions precedent to JTC’s consent, and (amongst other rights and remedies available to JTC) JTC’s consent is revocable in the event any of the following are not observed or complied with: (i) the Mortgage shall only be for the purpose of...