P T Jaya Putra Kundur Indah and Another v Guthrie Overseas Investments Pte Ltd

• Jurisdiction: Singapore
• Judge: Lai Siu Chiu J
• Judgment Date: 07 December 1996
• Neutral Citation: [1996] SGHC 285
• Court: High Court (Singapore)
• Year: 1996
• Published date: 30 January 2013
• Plaintiff Counsel: Josephine Chong (David Lim & Partners)
• Defendant Counsel: Indranee Rajah and Joseph Kan (Drew & Napier)
• Citation: [1996] SGHC 285

Judgment:

GROUNDS OF DECISION

The background 1. The principal players involved in this suit may be briefly described in the following manner. The first plaintiff is a company organised and existing under the laws of Indonesia. The President Director and beneficial owner of all the shares in the first plaintiff is one Johanis Se Nga ('Se Nga'). The second plaintiff is a company incorporated in Singapore carrying on the business of a housing and commercial developer. The managing director of the second plaintiff is one Ang Yee Lim ('AYL'), also referred to as Lawrence Ang in the affidavits. The defendant is a company incorporated in Singapore. It is a wholly-owned subsidiary of Guthrie GTS Limited, a company listed on the Stock Exchange of Singapore.

2. Sometime in 1988, PT Jaya Putra Kundur ('JPK'), an Indonesian company wholly-owned by Se Nga, acquired a piece of land, comprising approximately 90 hectares, situated at Kampong Patam on the island of Batam, Indonesia. Se Nga approached the second plaintiff in 1989 to discuss the possibility of a joint venture using the land. Based on market sentiment prevailing at that time, Se Nga and AYL decided to develop that piece of land in Batam into a holiday resort. They then started to look for another partner to invest in and jointly develop this project. When these plans became known in the market, Guthrie GTS Limited showed a keen interest in investing in and participating in the development. Two directors of Guthrie GTS Limited, Ben Yeo ('BY') and James Lim ('JL') met up with AYL and heard his proposals on the project. Subsequently, BY and JL were introduced to Se Nga. Discussions between the parties followed and agreement was reached.

3. By a joint venture agreement dated 4 May 1990 made in Singapore between the defendant, the first plaintiff and the second plaintiff ('the 1st JVA'), the parties entered into a joint venture to develop on the land in Batam a holiday resort known as the Indah Puri Resort. This resort was to consist of:

a) a hotel;

b) a golf club;

c) a condominium complex;

d) a marina;

e) holiday chalets; and

f) a jetty with immigration and customs clearance facilities.

As at the time I heard this application, only the golf course and the condominium complex had been completed. The main reasons why the rest of the resort project had not been completed were because of disagreements between the plaintiffs and the defendant on, amongst other things, the size, concept, aesthetics of the various parts of the project, the lack of funds and the plaintiffs' refusal to assist in the financial difficulties faced by the joint venture vehicle.

4. Pursuant to the 1st JVA, the joint venture vehicle through which the resort was to be developed was to be a joint venture company called PT Guthrie Jaya Indah Island Resort ('PTG'). All three parties were to be the shareholders of PTG. The initial shareholding of PTG was set out in Section 2 of the 1st JVA which provided that the defendant would hold 51% of the shares in PTG while the plaintiffs would each hold 24.5% of the shares. The 1st JVA also provided that the defendant could appoint up to five directors to sit on the board of PTG while the plaintiffs could appoint up to two directors each. Under the terms of the 1st JVA, Se Nga and AYL were deemed to be directors of PTG as representatives of the first and second plaintiffs respectively.

BY, JL and one Low Hua Kin were deemed to be the directors of PTG as representatives of the defendant. It was also agreed that JPK was to transfer its interest in the land in Batam to PTG. However, it was not in dispute that, as at the time I heard this application, the process of incorporation for PTG had not been completed. PTG hence remained unincorporated under Indonesian law.

5. Section 6 of the 1st JVA provided that the defendant would undertake to provide all technical, management and marketing services to PTG for the project, in return for which the defendant would be paid management fees by PTG. Section 12 contained detailed provisions as to the quorum and voting requirements of directors' and company meetings with respect to resolutions concerning certain specified matters, such as the sale of golf club memberships, execution of agreements for the construction of any part of the project, termination of the management agreement relating to the project, alterations to the capital structure of PTG, selection of corporate officers and changes to the overall financial policy of PTG. Section 14 provided that the defendant bore the general responsibility for procuring the financing for the project.

6. Guthrie Batam Resort Marketing Services Pte Ltd ('GBRMS') was incorporated in Singapore to manage and carry out the marketing of the project in Singapore. The shareholding of GBRMS was in the same proportions as that of PTG. GBRMS started marketing the resort sometime in September 1990.

7. Although it was agreed in the 1st JVA that the defendant would take charge of the management of the project, no formal management agreement was drawn up. It was not disputed, however, that a wholly-owned subsidiary of Guthrie GTS Ltd, called Guthrie PMS (S) Pte Ltd ('GPMS'), undertook the duties of project manager and were paid management fees for their services. GPMS's duties included calling for tenders for the construction of the resort, recommending suitable contractors and administering the award of the projects' contracts to the best tender in terms of costs and quality.

8. Initially, things went smoothly. In September 1990, the first sale of the golf memberships was launched. As of May 1996, approximately 1,500 golf memberships had been sold. The early preliminary works on the resort commenced sometime in late 1990. Actual construction started in or around mid-1991. GPMS proceeded to award contracts for building the golf course, the golf club house and the social facilities. In 1991, the parties set up a company, PT Guthrie Jayakundur Construction, to undertake the construction of the condominium complex. By October 1991, GPMS was in the process of finalising the design layout of the marina. In January 1992, the sale of marina memberships was launched. About 180 memberships were sold at $180,000 per membership.

9. Tenders for the construction of the marina were invited in March 1992. In July 1992, a letter of intent was offered to PT Ballast Indonesia Construction, but for reasons that were unclear, the contract was never signed. In September 1993, a contract was awarded to Hai Sheng Construction Pte Ltd, but the marina it built sank within a few months of its completion. In May 1994, PT Marina City submitted a proposed offer to build the marina, but nothing came out of this. In September 1994, Easteel Construction Services Pte Ltd was awarded the contract; however, it had to withdraw because certain technical assumptions based on which it had taken on the contract were found to be inaccurate.

In May 1995, a letter of intent was awarded to Yean Tong Construction Pte Ltd, but this soon fell through because the necessary corporate guarantee from Guthrie GTS Ltd could not be obtained.

10. In 1993, Batam became less popular as an investment opportunity and a holiday destination. Sales of golf memberships, marina memberships, condominium units as well as public interest in the project generally declined. The decreased revenue affected the Company's cash flow and financial ability to complete the project. To alleviate the financial problems, the defendant injected funds into the project by buying some of the unsold condominium units for itself. In accordance with its obligations under the 1st JVA, the defendant also secured bank loans for the Company approximating $3.5m. In 1995, the defendant took up the majority of the unsold condominium units.

But PTG's financial problems still persisted -- it could not pay its suppliers and the staff salaries. There were also problems with staff performance and morale. To make matters worse, in late 1994, the apartment owners began to complain that the facilities that had been promised, such as the marina, had not been completed. Many marina membership owners threatened to withdraw their memberships.

11. The working relationship between the parties deteriorated as a result of all these problems. The plaintiffs blamed the defendant for failing to keep to its end of the bargain by providing adequate financing for the project with the result that both the plaintiffs had to procure and provide personal guarantees for overdraft facilities granted to PTG. In this respect, the main disagreement between the parties was as to who was responsible for the provision of finance necessary for the building of the various parts of the resort, particularly the marina. The plaintiffs also alleged that the defendant had failed to live up to its obligation under the 1st JVA in that GPMS had not performed its function as the project manager satisfactorily.

12. The defendant, on the other hand, blamed the plaintiffs for being uncooperative, difficult and indecisive when it came to making decisions regarding the various parts of the project. This was particularly so when it came to the construction of the marina. AYL and Se Nga unrealistically expected the construction of the marina to be financed primarily by the sale of the marina memberships, and when the launch of the marina memberships did not live up to expectations, they lost interest in the viability of constructing the marina. As a result, AYL and Se Nga were reluctant to inject any capital to finance the marina's construction. They would repeatedly make excuses to avoid committing themselves to awarding the contract for building the marina to any contractor. The lack of commitment on the part of the plaintiffs paralysed the resort project in respect of the marina.

13. In reply to the plaintiffs' contention that it was the defendant who bore the financial burden of injecting more capital into the...