Pacific Marine & Shipbuilding Pte Ltd v Xin Ming Hua Pte Ltd

• Jurisdiction: Singapore
• Judge: Quentin Loh J
• Judgment Date: 26 May 2014
• Neutral Citation: [2014] SGHC 102
• Court: High Court (Singapore)
• Docket Number: Suit No 243 of 2012
• Published date: 03 June 2014
• Year: 2014
• Hearing Date: 16 January 2014,14 January 2014,24 February 2014,24 January 2014,08 January 2014,15 January 2014,10 January 2014,07 January 2014,09 January 2014,23 January 2014,22 January 2014,17 January 2014,17 February 2014
• Plaintiff Counsel: Ian Teo Ke-wei, Navin Anand and V Bala (Rajah & Tann LLP)
• Defendant Counsel: Dawn Tan Ly-Ru (Adtvance Law LLC)
• Subject Matter: Contract,breach
• Citation: [2014] SGHC 102

Quentin Loh J: Introduction

This is a dispute as to whether certain marine propulsion units supplied by Xin Ming Hua Pte Ltd (“the Defendant”) were defective. One part of the marine propulsion unit, namely the governor linkage, was observed to display erratic and excessive movements when the marine propulsion unit operated under certain conditions. The dispute centred on the cause of the erratic and excessive movements.

After hearing the evidence and deliberating over the issues, I allowed the claim on 31 March 2014 with brief reasons. The Defendant has filed an appeal against my decision and I now set out the grounds of my decision.

The facts

The salient facts of the case are not in dispute.¹

Pacific Marine & Shipbuilding Pte Ltd (“the Plaintiff”) carries on the business of shipbuilding. The Plaintiff entered into two shipbuilding contracts (“the Shipbuilding Contracts”) with its customer, PT Pelayaran Pandupasifik Karismaraya (“PPK”)² for the construction of two 31-metre twin-screw tugboats of identical design, named CALVIN I (Hull No PMT 1510) and CLEMENT I (Hull No PMT 1610) (collectively referred to as “the Vessels”) at $2,420,000 per vessel. The construction of the Vessels was subcontracted to PT Panbatam Island Shipyard (“PBIS”).³

The Plaintiff also entered into a contract (“the Sale Contract”), on or about 10 June 2010, with the Defendant, for the supply of four marine propulsion units (“the Propulsion Unit”) at ¥16,400,000 each, from the Defendant for installation onto the Vessels,⁴ making a total purchase price of ¥65,600,000. Each Propulsion Unit comprised: One Mitsubishi marine diesel engine, Model No S6R2-MTK3L; One Reintjes gearbox, Model No WAF562L; One Centa coupling (CENTAFLEX-R) which sat between the marine diesel engine and the gearbox; and Standard accessories. The Defendant is the sole distributor of the above marine diesel engines in Singapore and Indonesia and the sole distributor of the above gearboxes in Indonesia.

It is not disputed that the Plaintiff had previously bought eight identical propulsion units from the Defendant; four under a contract dated 30 October 2009 (“the 2009 Sale Contract”) and four under a contract dated 3 October 2007 (“the 2007 Sale Contract”). The propulsion units under the 2009 Sale Contract were installed on vessels built by the Plaintiff, called the CHIYADI I (Hull No PMT 1009) and the CHRISPIANTO I (Hull No PMT 1109). It is not disputed that the CALVIN I and the CLEMENT I are of identical design and specifications to the CHIYADI I and the CHRISPIANTO I.

At this point, I ought to correct a factual inaccuracy made when I rendered my brief grounds. Following the release of the decision with brief grounds on the 31 March 2014, counsel for the Plaintiff, in his letter dated 30 April 2014, pointed out that a particular finding set out in the brief grounds was not entirely accurate. In the brief grounds, I had stated (at [5]):

… The propulsion units under the 2007 Sale Contract were installed on vessels built by the Plaintiff for PPK (or for its associated company), called the BERKAH 38 (Hull No PMT 0807) and BERKAH 39 (Hull No PMT 0907).

It was brought to my attention by the counsel for the Plaintiff that only BERKAH 39 (now called CHESTER 1) was sold to PPK’s associated company, and that BERKAH 38 remains owned by the Plaintiff’s associated company. I should clarify that this factual correction does not, in any way, affect the outcome of the matter.

It is also not in dispute that the Vessels, including their propellers and propeller shafts, were built according to specifications and were certified by the Japanese classification society, Nippon Kaiji Kyokai (“NKK”), as designed and built according to NKK requirements.

The mechanical governor is an important part of each propulsion unit; it governs or controls the engine speed at a fixed value while power output changes to meet the demand by regulating the supply of fuel to the engine under different load conditions.

It is common ground that after the Propulsion Units were installed and commissioned on the CALVIN I and CLEMENT I, during sea trials on 3 May 2011 and 18 May 2011 respectively, and with PPK personnel on board for their familiarization exercise, the governor linkages were observed to display erratic and excessive movements when the Propulsion Units operated under certain conditions and after the engines had been operated for approximately one hour.

The Plaintiff called this phenomenon the “governor hunting defect”,⁵ while the Defendant described it as the “jiggling problem”.⁶ For present purposes, I shall refer to the phenomenon as the “jiggling problem” as that was most commonly used by the parties and their witnesses at trial. I have noted that the terms “hunt” and “jiggle” are defined in the Woodward Troubleshooting Manual (“the Manual”)⁷ and that Manual goes on to suggest, inter alia, the possible causes of hunting and jiggling.⁸ However, I should clarify that my choice of nomenclature should not be taken as an implicit acceptance or rejection of any possible cause(s) for these respective terms set out in that Manual.

It is common ground that the jiggling does not enable the proper amount of fuel to be delivered to the marine diesel engine under various load conditions, and the experts from both sides are in agreement, and I so find, that the Propulsion Units were not “operating normally” and that the Propulsion Units were “unsuitable for operations on board the Vessels” and rendered the Vessels unseaworthy.⁹

Over the ensuing months, many checks and tests were carried out to ascertain the cause of the jiggling. For example, the fuel injectors were removed and tested, the fuel pump was replaced and the alignment of the propellers and propeller shafts was re-checked, but the jiggling persisted. There were also many sea trials with various representatives from the interested parties in attendance as each component or group of components was checked and then tested at sea.

As a result of the jiggling problem, PPK refused to take delivery of the Vessels but continued to press the Plaintiff to rectify the defect; PPK eventually terminated the Shipbuilding Contracts on 5 July 2011.¹⁰ On 22 August 2011, the Plaintiff rejected the Propulsion Units and requested that the Defendant replace them under the warranty clause in the Sale Contract (“the Warranty Clause”), which provides:

Warranty

12 months from date of commissioning or 18 months from date of delivery, whichever is earlier.

The Defendant refused to do so. More tests were then carried out, which will be referred to later, and on or about 20 December 2011, the Plaintiff informed the Defendant that the Propulsion Units were held at the Defendant’s disposal at the shipyard.¹¹ In July 2012, the Defendant eventually took back the Propulsion Units.¹² On or about 21 May 2012, the Plaintiff sold the hulls of CALVIN I and CLEMENT I (ie, without their propulsion units) to PT Pelnas Fajar Marindo Raya (“PFMR”) for $1,200,000 per hull.¹³ The hulls were delivered to PFMR on or about 20 July 2012.¹⁴

On 21 March 2012, the Plaintiff commenced the present action, Suit No 243 of 2012 (“S 243/2012”), against the Defendant for the loss and damage incurred by the Plaintiff as a consequence of the Defendant’s alleged breaches and/or repudiation of the Sale Contract.

The Plaintiff bases its claim on a breach by the Defendant of s 14(2) of the Sale of Goods Act (Cap 393, 1999 Rev Ed) (“the SOGA”) in failing to supply goods of a satisfactory quality, and/or the Warranty Clause by failing to remedy the jiggling problem. The parties accept that the Sale Contract is subject to the implied condition of satisfactory quality by virtue of s 14(2), which reads:

Implied terms about quality or fitness

14.—

…

(2) Where the seller sells goods in the course of a business, there is an implied condition that the goods supplied under the contract are of satisfactory quality.

It should be noted that the Plaintiff abandoned its claim based on s 14(3) of the SOGA before the commencement of the trial, and communicated the same to the Defendant on 30 December 2013.¹⁵

In response, the Defendant contends that the Propulsion Units are not defective and that the jiggling problem can be attributed to external cause(s),¹⁶ie, cause(s) which does/do not emanate from the Propulsion Unit or any of its components but something external to it. As such, neither the Warranty Clause nor s 14(2) of the SOGA would apply. The Defendant counterclaims for the Plaintiff’s alleged wrongful rejection of the Propulsion Units and seeks to recover, inter alia, the expenses incurred in the investigation and the diminution in value of the Propulsion Units.

The issues

The issues before me are as follows: What caused the jiggling problem in the Propulsion Units? Whether the Defendant was in breach of the implied condition of satisfactory quality under s 14(2) of the SOGA and/or the Warranty Clause? If (b) is proven, what is the amount of damages payable by the Defendant? Whether the Plaintiff is liable for the counterclaim for wrongful rejection of the Propulsion Units?

The factual witnesses

A number of witnesses were called by the parties. However, given the narrowing of issues by the experts and their joint report which accepts that the vessels were unseaworthy with their Propulsion Units exhibiting the jiggling problem, the crux of this case boils down to the cause of the jiggling problem and accordingly the responsibility therefor.

For the sake of completeness, I shall nevertheless set out briefly the evidence given by the factual witnesses of both parties.

The Plaintiff’s factual witnesses

At the hearing, the Plaintiff called two factual witnesses, namely Samantha Teo Mong Ping (“Samantha”) and Shofchan Jamil (“Jamil”).

Samantha was the main representative from the Plaintiff who not...