Sembcorp Marine Ltd v PPL Holdings Pte Ltd and another

• Jurisdiction: Singapore
• Judge: Tay Yong Kwang J
• Judgment Date: 30 May 2012
• Neutral Citation: [2012] SGHC 118
• Date: 30 May 2012
• Docket Number: Suit No 351 of 2010/H
• Published date: 07 June 2012
• Plaintiff Counsel: Kenneth Tan S.C. (instructed), N. Sreenivasan and Valerie Ang (Straits Law Practice LLC),Davinder Singh S.C., Eugene Quah Siew Ping, Bernette Colleen Meyer and Isaac Lum Wei Yuen (Drew & Napier LLC)
• Hearing Date: 05 August 2011,19 September 2011,29 September 2011,27 July 2011,02 December 2011,21 September 2011,28 September 2011,26 July 2011,29 July 2011,28 July 2011,20 September 2011,03 October 2011,01 August 2011,27 September 2011,04 October 2011,22 September 2011,27 January 2012,05 October 2011,03 August 2011,02 August 2011,30 September 2011,06 October 2011,26 September 2011,05 March 2012,04 August 2011
• Defendant Counsel: Alvin Yeo S.C., Monica Chong and Koh Swee Yen (WongPartnership LLP)
• Court: High Court (Singapore)
• Subject Matter: Contract

Tay Yong Kwang J :

This case concerns the aftermath of a joint venture deal that turned sour. The plaintiff, Sembcorp Marine Ltd (“Sembcorp”), and the first defendant, PPL Holdings Pte Ltd (“PPL Holdings”) entered into a joint venture arrangement in 2001 in order to capture a segment of the offshore oil rig construction market. The joint venture company was the second defendant in the counterclaim, PPL Shipyard Pte Ltd (“PPL Shipyard”), with Sembcorp and PPL Holdings each holding 50% of the shares in PPLS. In brief, Sembcorp contended that PPL Holdings had acted in such a way as to drop out of the joint venture arrangement, leaving a Chinese company, Yangzijiang Shipbuilding (Holdings) Limited (“Yangzijiang”), in its place. This would be a highly undesirable situation for Sembcorp, because Yangzijiang is a Chinese rig building company which wishes to enter the Singapore market and which Sembcorp alleged to be its competitor. Sembcorp’s case was that PPL Holdings’ actions left Sembcorp in the unenviable position of being a partner in a joint venture with a competitor.

The issues that arise in this case pertain mainly to the question of whether certain terms can be implied into the agreements between the parties and also other questions of contractual interpretation. The reliefs claimed by Sembcorp include an order that PPLH transfer to Sembcorp the shares in PPLS that PPLH had agreed to transfer to Yangzijiang and declarations to the effect that the joint venture agreement between the parties has been terminated. In the counterclaim, PPLH claimed, inter alia, declaratory relief that certain resolutions passed by directors nominated by Sembcorp to the PPLS board of directors be invalidated.

The background The parties

Quite apart from the named parties to this action, there were also a number of companies and natural persons who played pivotal roles in this case. The parties and their relationships listed here are set out as around 2001 before the joint venture arrangement was entered into between the parties and before the ownership structure of some of the companies changed significantly.

Sembcorp Marine was a publicly listed company incorporated in Singapore and in the business of constructing oil rigs and ships. It was a company linked to the Government of Singapore. Sembcorp Marine was represented in many of its negotiations in relation to the joint venture by its then President, Mr Tan Kwi Kin (“TKK”).

PPL Holdings was a private company incorporated in Singapore. Before the joint venture arrangement was entered into between the parties in 2001, PPL Holdings held 97% of the issued share capital of PPL Shipyard. The remaining 3% share capital was held by E-Interface Holdings Limited (“E-Interface”), the second defendant. E-Interface was a private company incorporated under the laws of the British Virgin Islands and was a wholly-owned subsidiary of PPL Holdings. In other words, prior to the joint venture arrangement, PPL Holdings held 100% of PPL Shipyard’s shareholding; 97% directly and 3% indirectly through E-Interface. There were only two directors of PPL Holdings, one Dr. Benety Chang (“Chang”) and one Mr. Anthony Aurol (“Aurol”). As will be seen, Chang and Aurol were the key figures in the events that were to follow. PPL Holdings and E-Interface will be referred to jointly as “the defendants”.

PPL Shipyard was in the business of design and construction of offshore drilling rigs. It was a private company incorporated in Singapore and its day to day operations were managed by Chang, who was the Executive Deputy Chairman, and by Aurol, the Executive Director.

On the same side of the fence as PPL Holdings and PPL Shipyard were two other companies, Baker Technology Limited (“Baker”) and Saberon Investments Pte Ltd (“Saberon”). Baker was a public company listed on the Stock Exchange of Singapore. It owned the entire issued share capital of PPL Holdings. Chang was the Chief Executive Officer of Baker and Aurol was the Chief Operating Officer. Chang and Aurol also served as two of the six directors of Baker. The defendants’ position is that although Chang and Aurol were the only directors of PPL Holdings (the first defendant), the exercise of their powers was with reference to the directors of the board of directors of Baker.

Saberon held approximately 67% of the issued and paid up share capital of Baker. Chang held 67% of the shares in Saberon and his wife, Doris Heng, held another 15%. Aurol held 15% of the shares in Saberon. The remaining 3% of Saberon was held by Tan Yang Guan.

The events surrounding the joint venture agreement

On 9 April 2001, the joint venture agreement (“the JVA”) was signed between Sembcorp and PPL Holdings. At least part of the motivation for the joint venture was the opportunity to launch a strong joint vehicle to bid for a project put out for tender by Santa Fe International Corporation to build two semi-submersible drilling rigs. Neither party to the JVA was believed to have been able to successfully bid for this project on its own. The parties to the JVA were at the outset a very complementary match for one another, although in this litigation the parties dispute the extent to which this was so. Sembcorp’s case is that PPL Holdings was experienced in constructing drilling rigs but did not have sufficient financial and other resources to successfully bid for the semi-submersible project. Sembcorp on the other hand was able to procure finance and provide corporate guarantees for the joint venture and also had ample shipyard space¹. PPL Holdings’ case was similar, save that it preferred to state that PPL Holdings entered into the joint venture for Sembcorp’s yard space and not its financial resources. Despite this, PPL Holdings acknowledged that Sembcorp was a desirable business associate because it was financially strong and was a government linked company². Sembcorp claimed that the whole chronology of events was relevant to the question of the backdrop of facts for the implication of certain terms into the JVA and the parties took care to state their positions carefully.

Chang, on behalf of PPL Holdings, initially offered in a memorandum of 27 February of 2001 to TKK that the joint venture be between the publicly listed Baker and Sembcorp³, with PPL Shipyard as the joint venture vehicle. Chang recognised that Sembcorp’s concerns with this proposal were that Baker as a listed company might be restricted in its flexibility to make decisions and that the shareholders of Baker would be able to dispose of their shareholding easily in the market. To allay Sembcorp’s concerns, Chang was willing to subject his entire shareholding of about 83% in Baker to a moratorium on disposal and commit himself to a management contract with the joint venture company. TKK, on behalf of Sembcorp, rejected this proposal and preferred that the joint venture be between Sembcorp and the private company PPL Holdings, with PPL Shipyard as the joint venture vehicle. Chang subsequently agreed to this.

On 29 March 2001, Sembcorp and PPL Holdings entered into a Sale and Purchase Agreement (“S&P”) by which PPL Holdings agreed to sell, and Sembcorp agreed to buy, 10,000 shares representing 50% of the issued share capital of PPL Shipyard⁴. The price of the shares was about $16 million, which was calculated with reference to PPL Shipyard’s Net Asset Value at that time. Pursuant to cl 4(H) of the S&P, Sembcorp and PPL Holdings were obliged to enter into a joint venture agreement which had as its main objective the expansion of the business of PPL Shipyard.

The JVA was entered into between Sembcorp and PPL Holdings on 9 April 2001. Several clauses of the JVA were highly relevant to the proceedings at hand and they are set out in full below. A significant part of Sembcorp’s case hinged on its argument that the JVA was premised on the ongoing participation of Sembcorp and PPL Holdings as equal business partners holding equal shares in PPL Shipyard. In this regard, cls 4 and 5 of the JVA were particularly relevant. Sembcorp also alleged that PPL Holdings had breached cl 13, which was entitled “Confidentiality”, and cl 24, which was entitled “Good Faith”. Additionally, cl 11 was relevant as it set out Sembcorp’s right of pre-emption over PPL Holdings’ shares in PPL Shipyard. 1. INTERPRETATION

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“Party” or “Parties” shall mean all or any of the parties named in this Agreement, as the case may be, their respective successors-in-title and transferees who acquire the shares in accordance with this Agreement;

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3. THE PARTIES’ OBJECTIVES

The Parties acknowledge that they have entered into this Agreement with the aim to continue and expand [PPL Shipyard]’s Business through the marketing contacts and assistance, support in terms of facilities and other resources, and financial backing that the Parties can provide.

4. SHARE CAPITAL

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4.2 Unless otherwise agreed to in writing between the Parties hereto, the share capital of the Company shall be held in the following proportions:

Name of Party	Percentage of shareholding
SembCorp	50 per cent
PPLH	50 per cent

4.3 The percentage proportion of the Parties shall be maintained for the duration of this Agreement unless otherwise agreed in writing. 5. BOARD OF DIRECTORS 5.1 Unless otherwise agreed, the Board of Directors of the Company shall comprise of six (6) Directors who shall be appointed by the Parties as follows:

SembCorp	3 Directors
PPLH	3 Directors

so long as they shall hold such number of shares for the time being in the capital of the Company as are not less than the proportions set out herein. Any member of the Board may appoint an alternate to attend Directors’ meetings and otherwise act as a Director...