IMSML Website Article 10/2024: Shin Yang Shipping Sdn Bhd v Ng Yew Loon & Ors [2023] MLJU 297, A Maritime Joint Venture in Indonesia

This case is about the Plaintiff (P) entering a joint venture (JV) to operate a shipping business in Indonesia with the Third Defendant (D3). D3 was the JV vehicle. There was unfortunately no JV agreement spelling out the details in clear express terms what the parties intended to do under the JV. Instead, the actual terms of the JV had to be teased out from a series of discussions between P and D3 from June to October 2016.

In the end, the P delivered 2 tugs and 2 barges (hereinafter referred to as ‘the Vessels’) to D3 for use in the JV business. However, when D3 did not pay for the Vessels, in June 2017, P took legal action against D3 in the North Jakarta District Court (hereinafter known as ‘the North Jakarta Action’) in order to recover the Vessels which have not been paid for. The North Jakarta Action was dismissed in November 2017.

The P then brought an action against the Defendants (D1, D2 and D3) at the High Court of Kuala Lumpur. The case was heard by Ailan Sulaiman JC and the judgment was given on 16 February 2023, after conclusion of the trial. At the trial, the P had alleged that D1 and D2 (ie who was D1’s father) committed fraud by way of a conspiracy to facilitate the conversion of the vessel by D3. Strangely, the P did not seek any declaration as to fraud or conspiracy despite making the allegations.

Dismissal of Fraud and/or Conspiracy Allegations Against D2

D2 was not involved in any of the discussions setting up the JV, or in the discussions for the P to deliver the Vessels to D3. From the documentation, it was clear that D2 was not at any of the discussions between June and October 2016. This was also corroborated by the testimony of the Plaintiff’s Managing Director (PW2). PW2 said that he had only met D2 once at a dinner in January 2017. Ailan Sulaiman J said, therefore, D2 did not make any representation to P, see Para [10] and [11]. There was, therefore, no evidence to infer an intention to defraud.

Dismissal of Conversion Allegations Against D2

The P alleged that conversion of the Vessels took place when the Vessels were not paid for, but were re-flagged and re-named in Indonesia. As D2 remained a director of D3 at that time, the P alleged that the irresistible conclusion is that he was also behind the conversion of the Vessels, see Para [13]. Ailan Sulaiman J found that D2 was a mere director of D3 was not in total control of the company as required for liability to attach as required by cases such as Barclay Pharmaceuticals Ltd and Others v Waypharm [2012] EWHC 306 and Victor Cham and Another v Loh Bee Tuan [2006] 3 CLJ 770. Further, his Lordship also pointed out that there was lack of actual, active involvement since 2010 due to health reasons. Then there is the fact that D2 was also removed as director y shareholders of D3, see Para [14].

The P used searches with Equasis, an information service developed by the European Commission and the French Maritime Association for safety related information on ship, to show how the vessel moved directly from the P to D3. As at 18 July 2022, D3 was shown to be the registered owner of the Vessels. The database searches show that, at no time, was either D1 or D2 registered owners of the vessel, or were at any time sued by them, see Para [21].

Even more worrying for the P, conversion was not the right ground for P’s claim against D3. Ailan Sulaiman J held that in reality, the correct claim for the P against D3 was detinue under Malaysian Law, see Para [22]. Note that this is peculiar to Malaysian Law, as in the UK, detinue is now treated as conversion under the Torts (Interference with Goods) Act 1977. In the context of Malaysian Law, Ailan Sulaiman J held that an important pre-requisite for the tort of detinue, ie a demand by P for the return of the Vessels, was never made, see Bullen & Leake, 12 Edition, No.2 at p 358 and 359, cited with approval in Perbadanan Kemajuan Negeri Selangor v Teo Kai Huat Building Contractor [1982] 2 MLJ 165 per Abdul Hamid FJ (as he then was). His Lordship regarded this as a claim for detinue as the P is seeking to recover the Vessels themselves, see Para [22], and the injurious act is the wrongful detention of the goods, see Para [23].

Dismissal of Allegations of Conspiracy Against D3

There was no evidence that D1 (ie the Son) or D2 (ie the Father) were the alter egos and directing minds of D3, ie D3 was not under their control, see Para [16]. Both were mere directors of D3 from 4 November 2011 until their removal sometime between October 2017 and June 2018 by shareholders of D3, see Para [16].

There was no conspiracy. D1 could not have conspired alone. There was no evidence of involvement of D2 and/or D3 in any conspiracy. Conspiracy can only be committed by a ‘group of people’ to do something harmful or illegal, ie it must involve more than one person, see Oxford Advanced Learner’s Dictionary at Para [7]. The requirement of more than one person being involved is also found in the Evidence Act 1950, Section 10, see Para [8].

The P's Allegation that D1 Acted Fraudulently

As the allegations of fraud against both D2 (D1's father) and D3 (the JV company) had been dismissed, any allegations of fraud made by the P was in essence that only D1 acted fraudulently (ie by way of misleading the P or through concealment of facts from the P) during the negotiations right up to the execution of the documents as well as transactions. Therefore, in essence the P's entire case was that the JV was in reality a scam by D1 to get the P to deliver the Vessels to D3 without there ever being any intention to pay for the Vessels, see Para [27] to [28].

Ailan Sulaiman J examined the period from June to October 2016. His Lordship noted that D1 attended the meeting under the name of 'Raynard Ng' as a representative of Gemilang Group of Companies (GGC) in meetings with the Shin Yang Group of Companies (SYG).

Note:

[1] SYG was the parent company of the P.

[2] D1 was the sole director of the Malaysian JV, Gemilang Raya Maritime Sdn Bhd (GRM), when it was incorporated on 16 August 2016.

[3] By 29 September 2016, five directors had been added to GRM, four of which were from SYG.

Whatever D1 said at that meeting was not in his personal capacity, but merely as a representative of GGC, see Para [32]. If there was a scam from the start, then GGC or its representative must have known about the JV scam from the start. However, the P never pursued this angle of alleged fraud, see Para [33]. Hence, the P had to show that D1 perpetrated the scam alone, and he had filed to do so, see Para [36].

The minutes of all the meetings that had taken place (ie six of them), on the face of it accurately reflected the discussions that took place between the parties. There is no reason to give credence to carte blanche allegations that other things were not noted down, although D1 did object to certain parts of the minutes (of 17 August 2016) and lodged a police report (on 22 June 2022), see Para [37]. Ailan Sulaiman J applied Tindok Besar Estate Sdn Bhd v Tinjar [1979] 2 MLJ 229 and held that as the minutes of the meeting are contemporaneous documents, its contents take priority and precedence over any subjective, self-serving 're-collection' or attempt to add or subtract from them, see Para [39]. Although representatives of the P (five of them) were at the meetings, Ailan Sulaiman J felt that it was unsafe to rely on their recollection as it may have been difficult to separate in their minds what they were thinking, see Para [38].

At Para [41] and [42], the facts regarding the shareholding and company structure for the JV was described as follows:

[1] SYG (60 percent) and GGC (40 percent) were the shareholders of the Malaysian JV (ie Gemilang Raya Maritime Sdn Bhd);

[2] The Board of Directors of the Malaysian JV was in accordance with the percentage of the shareholding;

[3] The Malaysian JV held the same percentage in the Indonesian JV (D3) through a 'trust device', depending on the scope and limitations allowed under Indonesian Law.

Surprisingly, before the final shareholding arrangements could be sorted out and finalised, the P agreed to sell the Vessels to D3, and deliver them in advance before D3 had made any payment for them, see Para [44]. In particular, P agreed for payment to only come later, with 30 percent from shareholders and the remaining 70 percent from financing. There was no evidence that this arrangement had indeed changed at all, see Para [46]. Ailan Sulaiman J emphasised that the decision to do this was purely by the P on its own volition. There was no representation on this from either D1 or even GGC, see Para [47]. There was evidence from Loretta Jane Lau Mei Nah, SYG's Legal Counsel, that when she attended the fourth meeting (of six in total) on 5 September 2016, this was to discuss the value of the vessel for the purposes of financing. Ailan Sulaiman J inferred that by early September 2016, the P had already agreed to deliver the Vessels as payment was already a given, see Para [51].

According to Ailan Sulaiman J, what is consistent from the emails and minutes of the meetings SYG and GGC were committed to forming and activating the JV, in the absence of any false representations by D1, see Para [48]. There was evidence of a 'genuine intention on both sides to pursue a JV shipping business in Indonesia', ie a natural progression of matters. It would be too far fetched to impose a fraudulent slant to them, see Para [49]. Reading fraud by D1 into this scenario meant that he was working clandestinely behind the scenes of each meeting and email, in order to perpetuate a fraud without the knowledge or awareness of others, see Para [50].

Note: On 22 November 2016, Sim Chia Yien of GGC circulated an email with a list of 12 timeframe and action plan items relating to the setting up and activation of the JV. Ailan Sulaiman J held that none of the items appear contrived, but instead exhibited an orderly setting up and progression of the JV. His lordship stressed that it supports the notion that the proposed JV was genuine, see Para [63].

All the parties had access to the legal documentation, including copies of the trust documents. The signatures on these documents were significantly similar to the sample hand writing provided by the parties. There was no evidence rebutting this evidence of handwriting expert, En Chua Chun Kee from Jabatan Kimia Malaysia, see Para [57]. The P had legal representation that handled the vetting of the documents. As a shipping company of repute, the P would have executed the relevant documents with its eyes wide open. There was no evidence of fraud by D1 or GGC in the transactions, see Para [60]. There were also several facts that were relevant in putting a dent in the allegations of fraud made by the P:

[1] From the minutes of the meetings, the P was also never excluded from any of the meetings, see Para [66];

[2] When the Vessels were re-flagged and re-named, there not a murmur of discontent from any of the parties at the meetings, see Para [67];

[3] There was no record of any request made by the P or SYG for payment for the Vessels to be expedited, see Para [67].

The North Jakarta Action and Its Aftermath

At the start of this article, this author noted that P sued D3 (the Indonesian JV held under trust documents by the Malaysian JV in order to comply with Indonesian Law) in the North Jakarta District Court on 21 June 2017. In filing its court documents, the P made no mention of the JV agreements, and that the mechanism of payment for the Vessels were through a combination of shareholder contribution (30 percent) and financing (70 percent). The new names and re-flagging of the Vessels were not mentioned. On reading these court documents, one would have the impression that this was simply a sale transaction where the Vessels were delivered to D3 (the Indonesian JV), and there was a breach of contract by D3 with respect to non-payment for delivery of the ships, see Para [69] and [70].

There was no whiff of fraud or conspiracy in the North Jakarta Action, be it D1, D2 (D1's father) or D3 (the Indonesian JV). The P's response to losing the North Jakarta Action based on breach of a contract of sale, was instead to file a claim in the Malaysian Court system (at the Kuala Lumpur High Court) based on various torts. Ailan Sulaiman J remarked 'that smacks of afterthought', see Para [70]. It is submitted that the Indonesian JV correctly tried to call for a meeting to resolve SYG's failure to inject capital as agreed in the Indonesian JV, see Para [71]. The exchange of documents show that there was an agreement for a JV and in reality the dispute between the parties was the injection of capital into the JV and to the subscribing of shares in the Indonesian JV, see Para [73].

In the end, Ailan Sulaiman J came to the realisation that the correspondence between the parties show growing tensions between the parties SYG and GGC as to their respective obligations under the JVs and frustration in not getting the JVs off the ground. The North Jakarta Action came out of the blue and fed to the growing discontent between the parties, see Para [74]. The P's case at the Kuala Lumpur High Court was an example of flip-flopping between alleged torts and fraud concerning the JV, rather than an actual contractual dispute between the parties to the JV. Ailan Sulaiman J concluded that this inconsistency casts a shadow over the P's case, see Para [75]. For D1 to have pulled the wool over the eyes of not just all the representatives of SYG but also GGC, would have required a high level of intelligence and sophistication. His Lordship was of the view that was something D1 'did not exhibit or possess', see Para [76].

It was going to be a tall order for the P to prove that D1 had gone rogue. That would require showing D1 coming up 'with a dastardly plan of fraudulently relieving the P of the Vessels, to the blissful ignorance of the eight other representatives of GGC', see Para [78]. Ailan Sulaiman J understood the P's frustration in losing the Vessels to an Indonesian company, but frustration cannot be rightly assuaged by alleging fraud when there was none, see Para [79].

A Surprising Judgment at the Very End

After reading most of Ailan Sulaiman's judgment, one would have the impression that the P's case had failed miserably. This is a summary of his Lordship's finding so far:

[1] There was no evidence that D2 (D1's father) and D3 were involved in any scam or fraud to get the vessel transferred to the Indonesian JV without intending to make payment for it;

[2] There was no evidence that D1 singlehandedly perpetrated any scam;

[3] The documentation suggested that there was a genuine attempt to execute the terms of the JV;

[4] The P voluntarily transferred the Vessels to D3 in advance of agreeing to any terms regarding payment;

[5] The P's case in conversion was wrong as what the P was seeking was a return of the Vessels, ie a claim that was technically founded in detinue.

In the light of the findings above, Ailan Sulaiman J gave judgment in favour of the P, despite the fact that for most of the judgment, the P's case was not made out. His Lordship made the following declarations at Para [82]:

[1] The P remained the lawful owners of the Vessels;

[2] D3 is not and has never been the legal and/or beneficial owner of the Vessels;

[3] D3 had to pay the P RM8,314,486.46 for the Vessels;

[4] Interest was payable on the sum above at a 5 percent rate from 1 November 2016 until full payment;

[5] D3 to pay the P costs of RM50,000.

Concluding Final Thoughts

This is a surprising turnaround in Ailan Sulaiman J's judgment. His Lordship's entire conclusion appears to be found on this finding: D3 had received the Vessels without making any payment, see Para [82]. His Lordship was therefore 'compelled to make judgment in favour of the P against D3', see Para [82].

With the greatest respect, there are several questions that are raised by his Lordship's final ruling:

First, if the P was still the lawful owners of the Vessels, this means that the transfer was either unlawful or ineffective. No reasons were given for this during the course of his Lordship's judgment.

Second, the Vessels are currently registered with D3, so even if all the processes and procedures regarding registration were correct, why should the registration be ineffective?

Third, was detinue the basis of the P's action for recovery of the Vessels? But this was not the original basis of P's claim, which was in reality founded on conversion.

Fourth, if a tort was being committed on the Vessels, this was being committed in another jurisdiction. Should a Malaysian Court have jurisdiction over a tort committed in Indonesia? Just a reminder of the principle of 'Lex Loci Delicto', ie a tort is only actionable in the jurisdiction where it was committed. Hence, perhaps the North Jakarta Action was arguably the right forum for these claims in tort, not the Kuala Lumpur High Court. However, in that former action in Indonesia, the P chose to proceed via a standard breach of contract action.

Fifth, a reading of Ailan Sulaiman J's awards suggest that his Lordship is treating the dispute between the P and D3 as a straightforward sale of ship transaction, followed by a breach of that sale contract due to non-payment of the purchase price by D3. After all, his Lordship had himself pointed out that the dispute between the P and D3 was essentially frustration stemming from the JV arrangement not kicking off. How is the award made by his Lordship consistent with earlier statements that the dispute here actually encompassed an alleged failure of under investment by the P in the Indonesian JV?

Anyway, reading Ailan Sulaiman J's judgment has been a pleasure. His Lordship meticulously dealt with all the evidence put before the High Court and dealt with each document comprehensively. It is the just the award at the end which has left writer puzzled. I shall be scanning the LexisNexis database to see whether an appeal for this case is eventually heard.

Thank you for reading IMSML Website Article 10/2024

Stay tuned for the next IMSML Website Article 11/2024: Jumsar (Sarawak) Sdn Bhd v Robin Dockyard & Engineering Sdn Bhd and another appeal [2023] MLJU 413

Signing-off for today,

Dr Irwin Ooi Ui Joo, LL.B(Hons.)(Glamorgan); LL.M (Cardiff); Ph.D (Cardiff); CMILT

Professor of Maritime and Transport Law

Head of the Centre for Advocacy and Dispute Resolution

Faculty of Law

Universiti Teknologi MARA Shah Alam

Selangor, Malaysia

Thursday, 1 February 2024

Note that I am the corresponding author for the IMSML Website Articles. My official email address is: uijoo310@uitm.edu.my