Morten Innhaug v Sinwa SS (HK) Co Ltd and others

• Judge: Lai Siu Chiu J
• Judgment Date: 24 January 2011
• Neutral Citation: [2011] SGHC 20
• Citation: [2011] SGHC 20
• Court: High Court (Singapore)
• Published date: 26 January 2011
• Docket Number: Originating Summons No 22 of 2010
• Plaintiff Counsel: Tan Wee Kong Joseph (Legal Solutions LLC)
• Defendant Counsel: Gopinath Pillai and Tan Kian Hong Aloysius (Eldan Law LLP)
• Subject Matter: Contract
• Hearing Date: 31 August 2010

Lai Siu Chiu J:

In this Originating Summons (“the OS”), Morten Innhaug (“the plaintiff”) applied to court for a determination of the meaning of a clause in a Shareholders’ Agreement dated 4 July 2007 (“the Agreement”) that he had signed with Sinwa SS (HK) Co Ltd (“the company”), Sim Yong Teng (“Sim”) and Tan Lay Ling (“Tan”) who are the first, second and third defendants respectively.

The plaintiff incorporated a British Virgin Islands company called Nordic International Limited (“NIL”) on 16 January 2007 and was initially the sole director and shareholder holding 50,000 shares. The plaintiff also incorporated a Singapore company called Nordic Maritime Pte Ltd (“NMPL”) of which he was both a director and shareholder.

At the material time, NIL had purchased a fishing trawler which was initially named BGP Atlas before it was renamed Nordic Venturer (“the Vessel”). When the Agreement was signed, NIL was in the process of converting the Vessel to a seismic survey vessel to perform a time charter to a company called BGP Geoexplorer (“BGP”) for three years commencing 15 June 2007 (“the Time Charter”). Earlier in December 2006, BGP had entered into an agreement with TGS-NOPEC Geophysical Company SA (“TGS”) to provide seismic acquisition services.

The plaintiff sought financial assistance to convert and equip the Vessel to perform the Time Charter. He approached the second defendant with a view to getting the second defendant’s company Sinwa Limited (“Sinwa”) to become a joint venture partner. It was envisaged that Sinwa would purchase shares in NIL which would be the joint venture vehicle. Eventually, the plaintiff and Sinwa signed the Agreement on 4 July 2007.

After the Agreement was signed, the plaintiff transferred 50% (ie, 25,000) of his shares in NIL to Sinwa in exchange for a cash injection of US$2m into NIL by Sinwa. Pursuant to cl 6.1 of the Agreement, the second and third defendants were appointed directors of NIL as nominees of Sinwa while the plaintiff and Kjell Gauksheim (“Gauksheim”) were appointed directors as the plaintiff’s nominees.

On 28 August 2007, the rights and obligations of Sinwa under the Agreement were novated to the company, which is incorporated in Hong Kong.

At this juncture it would be appropriate to look at cl 8 of the Agreement. The parties’ differing interpretation of it led to the present dispute. The clause reads as follows: 8.1 Parties agree that:- 8.1.1 all technical and economical matters relating to the operations and management of the Vessel, and/or matters related to the time charter party and/or matters related to the client BGP and end user TGSN, shall be solely decided by the directors appointed by [the plaintiff] (whose decision shall be final); 8.1.2 all matters relating to the account and/or management and/or auditing of the accounts and books and financing of the Vessel and/or matters relating to the Credit Facilities shall be solely decided by the directors appointed by SINWA (whose decision shall be final); and 8.1.3 save as aforesaid, all other decisions in respect of any other matters shall carry the unanimous agreement of both parties.

Clause 3.4 of the Agreement states:

A shipmanagement on terms agreed by the Parties shall be entered into between NIL and NMPL in respect of the seismic and marine management of the Vessel at an agreed price of United States Dollars Eight Hundred Only (USD$800.00) per day for the duration of charter.

Pursuant to cl 3.4, NMPL was indeed appointed the manager of the Vessel by an agreement dated 1 Jan 2007 (“the ship management contract”). The defendants’ stand was that only the plaintiff benefited from the ship management contract.

The conversion of the Vessel was funded partly by a loan from Oversea-Chinese Banking Corporation Limited (“OCBC”) to NIL (“the loan”) evidenced by a charge dated 10 October 2007 in favour of OCBC. The loan was guaranteed by the company (“the Guarantee”). The defendants asserted that because of the Guarantee, it was understood by the parties that matters within the purview of Sinwa’s nominee directors (pursuant to cl 8.1.2 of the Agreement) would include the collection of charter hire from BGP as the same would be used to service the monthly payment of interest on the loan. The plaintiff was also aware that all charter hire collected was paid into an account with OCBC from which the monthly payments of interest on the loan were deducted. The persons who dealt with OCBC on the loan were the company’s/Sinwa’s nominee directors and not the plaintiff or Gauksheim.

Unbeknownst to the defendants, the plaintiff entered into an agreement with BGP, TGS and NMPL on 23 August 2008 (“the Assignment”) to assign the Time Charter to another company called Nordic Geo Services Limited (“NGS”). NGS is a wholly-owned subsidiary of NMPL, which latter company the defendants contended the plaintiff owned/controlled. In so doing, the defendants contended, the plaintiff breached his fiduciary duties as a director of NIL. Notice of the Assignment dated 22 September 2008 was given by BGP to NGS to which the plaintiff gave an acknowledgement on 23 September 2008.

In addition to the Assignment, BGP, TGS and NMPL had on the same day entered into a Memorandum of Understanding (“the MOU”) wherein BGP and TGS agreed that BGP will transfer to NMPL its rights and obligations in the Time Charter as well as in the seismic acquisition service agreement, see supra[3].

The defendants claimed they were unaware of the Assignment or the MOU as no notice of the same was given to any of them. They only became aware of the documents on or about 9 September 2008, when Gauksheim emailed the second and third defendants informing them that NMPL had taken over the seismic operations of BGP, and he and the plaintiff would be liaising with TGS regarding the operation of the Vessel. When queried, Gauksheim informed the two defendants of the Assignment.

The two defendants immediately asked for details of the Assignment as the same would be required by OCBC. They pressed Gauksheim again when he failed to respond within a week. Finally, Gauksheim replied on 16 September 2008 to say that there would be no changes to the Time Charter save that NGS would carry out the seismic surveying operations in place of BGP, and NGS would replace BGP to pay charter hire to NIL.

Gauksheim then dealt with OCBC directly on the change of name of the Vessel without informing the second or third defendants. The second and third defendants found out only when OCBC forwarded (on 8 October 2008) to the third defendant a copy of Gauksheim’s email to OCBC dated on 25 September 2008. The plaintiff was, however, copied in all of Gauksheim’s email correspondence with OCBC.

The defendants did not recognise the Assignment due to its financial implications for the company. They were also not informed by the plaintiff or Gauksheim as to the reasons for the Assignment to an entity (viz, NGS), whose background and creditworthiness were unknown to the defendants. They only found out the reason from the plaintiff’s affidavit filed on 10 November 2009 in Originating Summons No 960 of 2009 (“OS 960”) wherein the company applied to court for leave to bring an action on behalf of NIL against the plaintiff. In his aforesaid affidavit filed in OS 960, the plaintiff explained he consented to the Assignment because of the many concerns that BGP had with the condition of the Vessel, particularly with respect to its compressors and generators.

The defendants maintained that if the Assignment was indeed necessary, it should first have been discussed by the board of NIL, and the plaintiff should have informed the board of BGP’s concerns given the financial implications on the joint venture. Had the plaintiff done so, the defendants would have objected to the Assignment. The defendants accused the plaintiff of preferring his own interests over those of NIL in unilaterally assigning the Time Charter to NGS. They pointed out that the plaintiff was in a position of conflict as he was both the charterer and the owner of the Vessel. In order for the plaintiff to have acted in the interests of NIL, he should have incorporated a wholly owned subsidiary of NIL to take over the Time Charter so that NIL would have benefited.

Consequently, the company issued a formal letter to the plaintiff on 23 October 2008 to put on record his...