Man B&W Diesel S E Asia Pte and Another v PT Bumi International Tankers and Another Appeal

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 09 March 2004
• Neutral Citation: [2004] SGCA 8
• Court: Court of Appeal (Singapore)
• Year: 2004
• Published date: 05 May 2004
• Plaintiff Counsel: N Sreenivasan, Collin Choo (Straits Law Practice LLC) and Charles Lin Ming Khin (Donaldson and Burkinshaw)
• Defendant Counsel: Philip Tay Twan Lip (Rajah and Tann)
• Subject Matter: Contract,Breach,Main contract between ship owner and shipbuilder -Subcontractors contracted with shipbuilder,No contract between ship owner and subcontractors,Whether ship owner could seek redress from subcontractors for defects,Whether subcontractors assumed duty of care to ship owner,Contractual terms,Exclusion clauses,Warranties,Whether ship owner should have altered limited warranty and limitation clauses to cover economic losses,Whether court should assist ship owner when contract already in place,Damages,Pure economic loss,Whether pure economic loss recoverable,Two-stage test,Whether recovery for economic loss in tort extended to chattels,Tort,Negligence,Duty of care
• Citation: [2004] SGCA 8

9 March 2004 Judgment reserved.

Chao Hick Tin JA (delivering the judgment of the court):

1 There are two appeals before us and they arose out of the same decision of the High Court (reported at [2003] 3 SLR 239). The first appeal raises a point of considerable importance, namely, whether the owners of a specially-built vessel are entitled to sue the sub-contractors, the engine manufacturers, for economic losses under the tort of negligence when there were express clauses in the main contract between the owners and the vessel builder limiting the remedies available to the owners for any defect. The second appeal relates to the quantum of damages which the owners are entitled to, following the judge’s disallowance of certain items of claim of the owners.

The background

2 By way of a contract made in October 1991 (“main contract”) the Malaysian Shipyard and Engineering Sdn Bhd (“MSE”) agreed to build an oil tanker for PT Bumi International Tankers (“Bumi”), the respondent in Civil Appeal No 75 of 2003 (“CA 75/2003”). The tanker, upon completion, was named Bumi Anugerah. The vessel was required by Bumi to fulfil the needs of a long-term charter which it had entered into with the Indonesian oil company, Pertamina. The main contract set out the specifications of the engine. It was clearly contemplated in the main contract that MSE would be sourcing the engine from a third party. Thus, MSE in turn obtained the engine from the first appellant in CA 75/2003, Man B&W Diesel S E Asia Pte Ltd (“MBS”), a Singapore company, which sold and serviced engines manufactured by its UK parent company, Mirrlees Blackstone Ltd (“MBUK”), the second appellant in CA 75/2003. There was no direct contractual relationship between Bumi and MBS or MBUK.

3 In March 1994, the engine was delivered to MSE. In December 1994, the completed vessel was delivered by MSE to Bumi. From the evidence tendered in court, the engine gave trouble within a few weeks of the delivery of the vessel and the problems persisted. In February 1996, major repairs of the engine took place, which included the replacement of the turbocharger and fuel injection pumps. Finally, the engine broke down completely in September 1997.

4 Bumi commenced the present action in tort against MBS and MBUK on the ground that both MBS and MBUK had breached their duty of care which they owed to Bumi. Bumi claimed for its losses, including the cost of the engine and the loss of rental income which it would have earned from the charter.

The decision below

5 The judge below listed the issues which she had to decide under the following three heads:

(1) did MBS and/or MBUK owe Bumi a duty of care to provide an engine that would be suitably manufactured and free from defect, built for the safe and proper operation of the vessel so that Bumi could have avoided the type of losses that [it] sustained;

(2) if such a duty of care was owed, was there a breach of the duty in that the engine was defectively and/or negligently designed; and

(3) if there was breach, what damages did Bumi suffer and [is it] entitled to recover all such damages?

6 Relying on two decisions of this court, namely, RSP Architects Planners & Engineers v Ocean Front Pte Ltd [1996] 1 SLR 113 (“Ocean Front”) and RSP Architects Planners & Engineers (Raglan Squire & Partners FE) v Management Corporation Strata Title Plan No 1075 [1999] 2 SLR 449 (“Raglan Squire”), the judge held (at [22]) that in Singapore “there can in certain circumstances be a tortious duty imposed on one party to avoid negligently causing another party to sustain pure economic loss”. The judge then went on to state (at [28]) that:

The principles laid down by the Court of Appeal as to when one party owes a duty of care to another to avoid causing economic loss to that other are capable of application in a wide variety of circumstances. They are not confined to the types of factual situations that were seen in the Ocean Front and [Raglan Squire] cases. There are substantial differences between the facts of the present case and those of the cases cited. That in itself is not decisive of the issue. The differences must be examined in the context of an investigation into whether the application of the principles to the existing facts provides a sound basis for the imposition of a tortious duty on the defendants. One cannot simply brush aside any suggestion of the existence of a duty by saying airily “the facts are different”.

7 The judge noted that as MBUK was a specialist designer and manufacturer of engines for marine use and had knowledge that the vessel was custom-built to meet Bumi’s specific requirements, there was sufficient proximity between Bumi and MBUK to give rise to a duty of care on the part of MBUK to exercise due diligence in the design and manufacture of the engine so that the engine would, upon delivery, be fit for the operation of the vessel.

8 While the judge recognised that the position vis-à-vis MBS was more difficult, as MBS was neither the designer nor the maker of the engine, she nevertheless held that there was sufficient proximity between Bumi and MBS because the latter had, by asserting that the engine was reliable and by actively marketing it at various meetings with MSE and Bumi, assumed responsibility for the delivery of an engine which would meet Bumi’s requirements.

9 The judge then went on to consider whether there was any reason why the duty should not be imposed. On this, she considered whether it would result in “imposing liability in an indeterminate amount for an indeterminate time to an indeterminate class” or result “in an indefinitely transmissible warranty”. To both these points, she answered in the negative.

10 The judge next examined the relevant clauses (cll 14, 17 and 22) in the main contract which limited the liability of MSE to Bumi but she did not think Bumi should thereby be barred from making a claim against MBS and MBUK for Bumi’s economic losses.

11 Finally, the judge embarked on a very careful and detailed examination of the alleged faults of the engine and came to the conclusion that the engine supplied did not meet the standards prescribed in the specifications. While the expert witness could not pinpoint the exact cause, he felt it must have arisen from some defect in the design.

The development in the law

12 In order to better appreciate the scope of the decision in Ocean Front, we will briefly re-traverse some of the cases which were examined in Ocean Front to understand the development of the law in this area. A useful starting point is the case of Dutton v Bognor Regis Urban District Council [1972] 1 QB 373 (“Dutton”) where a sub-purchaser of a house in an estate developed by one Mr Holroyd sued Mr Holroyd and the local authority for the cost of repair to the house or its diminution of value due to poor foundation. The judge found that the inspector of Bognor Regis UDC was negligent in approving the foundation. The sub-purchaser settled his claim with Mr Holroyd but pursued the claim against Bognor Regis UDC. This was the first case where a house owner sought to impute liability to a local authority for failing to discharge its functions diligently. The English Court of Appeal recognised that the principle in Donoghue v Stevenson [1932] AC 562 (“Donoghue”) was broad enough to cover the case and also came to the conclusion that there should not be any policy consideration which militated against the local authority, Bognor Regis UDC, being held liable. The approach which Lord Denning MR took was as follows (at 397):

In Rondel v Worsley [1969] 1 AC 191, we thought that if advocates were liable to be sued for negligence they would be hampered in carrying out their duties. In Dorset Yacht Co Ltd v Home Office [1970] AC 1004, we thought that the Home Office ought to pay for damage done by escaping Borstal boys, if the staff was negligent, but we confined it to damage done in the immediate vicinity. In SCM (United Kingdom) Ltd v W J Whittall & Son Ltd [1971] 1 QB 337, some of us thought that economic loss ought not to be put on one pair of shoulders, but spread among all the sufferers. In Launchbury v Morgans [1971] 2 QB 245, we thought that as the owner of the family car was insured she should bear the loss. In short, we look at the relationship of the parties: and then say, as a matter of policy, on whom the loss should fall.

13 The decision in Dutton came under review in Anns v Merton London Borough Council [1978] AC 728 (“Anns”) where the issue before the court was whether a local authority was under any duty of care towards lessees for defects in dwellings. The plaintiffs were long-term lessees of certain flats. The owners of the block were the owners as well as the builders. Cracks appeared in the walls and floors due to inadequate foundation. The owners/builders were cited as the first defendants and the claim was based on, inter alia, breach of contract. The Merton London Borough Council was sued as the second defendant for negligence on the part of their servants or agents in approving the foundation when the latter was not erected up to a sufficient depth. The matter came before the House of Lords on certain preliminary points of law. In this case, Lord Wilberforce, who delivered the leading judgment, and with which three other Law Lords concurred, set out a two-step test to determine whether a duty of care arose in a particular situation (at 751–752):

First one has to ask whether, as between the alleged wrongdoer and the person who has suffered damage there is a sufficient relationship of proximity or neighbourhood such that, in the reasonable contemplation of the former, carelessness on his part may be likely to cause damage to the latter – in which case a prima facie duty of care arises. Secondly, if the first question is answered affirmatively, it is necessary to consider whether there are any considerations which ought to negative, or to reduce or limit the scope of the duty or...