Aero-Gate Pte Ltd v Engen Marine Engineering Pte Ltd

• Judge: Vinodh Coomaraswamy JC (as he then was)
• Judgment Date: 31 July 2013
• Neutral Citation: [2013] SGHC 148
• Citation: [2013] SGHC 148
• Court: High Court (Singapore)
• Published date: 21 August 2013
• Docket Number: Suit No 373 of 2012
• Plaintiff Counsel: Navinder Singh (Navin & Co LLP)
• Defendant Counsel: Palaniappan Sundararaj and Ramesh Bharani (Straits Law Practice LLC)
• Subject Matter: Contract,Breach,Termination,Waiver,Personal Property,Ownership
• Hearing Date: 16 October 2012,22 January 2013,25 October 2012,18 October 2012,24 October 2012,28 March 2013,19 October 2012,15 October 2012,22 October 2012,17 October 2012

Vinodh Coomaraswamy J: Introduction

The plaintiff engaged the defendant to fabricate and deliver ten containerised diesel generators to the plaintiff under two purchase orders. The defendant delivered these generators either late or not at all. The plaintiff therefore commenced this action seeking a number of heads of relief in respect of the defendant’s breach of contract. The defendant in its counterclaims alleges that it was the plaintiff who breached the two purchase orders as well as a separate contract unrelated to these two purchase orders.

Having heard and considered the evidence and the parties’ submissions, I found the defendant to have been in breach of contract. I therefore granted the plaintiff most of the heads of relief it claimed and dismissed the defendant’s counterclaim. The defendant has appealed against my decision. I therefore set out now the grounds of my decision.

Factual background Parties and personnel

The plaintiff is a Singapore company. Its principal business is to provide engineering services for rotating equipment in the oil and gas industry. Edward Law (“Mr Law”) is its managing director. James Stephenson (“Mr Stephenson”) is a director. Hener Oblenida Oracion (“Mr Oracion”) and Edwin Sarsale Podador (“Mr Podador”) are electrical engineers employed by the plaintiff. The plaintiff called all four men as witnesses at the trial.

The defendant is also a Singapore company. Its business is to design and fabricate containerised generators as well as to manufacture and repair marine engines and ship parts. Its general manager is Ramasamy Tanabalan (“Mr Tanabalan”). His wife Selvarajoo Mageswari is its sole director. Selvakumar s/o Ramasamy (“Mr Selvakumar”), Mr Tanabalan’s brother, is its project engineer. The defendant called all three of them as witnesses at the trial. The defendant called, in addition, two other witnesses to give what was said to be expert evidence at trial. I address the evidence of these two persons at [112] below.

The purchase orders

On 9 March 2011, the Iran Offshore Engineering and Construction Company (“IOEC”) awarded the plaintiff a contract. Under this contract, the plaintiff was to supply four containerised diesel generators to IOEC.¹ The plaintiff subcontracted the work to the defendant under purchase order AG65-20110065-REV00 (“PO 1”). Although PO 1 was dated 22 March 2011, the plaintiff and the defendant executed it in April 2011.² Under PO 1, the defendant was to procure four “Caterpillar Diesel Generator package[s]” (“Caterpillar Generators”), incorporate them into containerised diesel generators to be fabricated to the plaintiff’s requirements and thereafter deliver the completed containerised diesel generators (“Completed Generators”) to the plaintiff. Delivery was to be no later than 1 October 2011. As consideration, the plaintiff agreed to pay the defendant US$315,000 per Completed Generator. For PO 1, therefore, the total consideration was US$1.26m in all.

On 3 May 2011, IOEC awarded the plaintiff another contract. Under this second contract, the plaintiff was to supply six additional containerised diesel generators to IOEC.³ The plaintiff again subcontracted the work to the defendant under purchase order AG65-20110068-REV00 (“PO 2”). PO 2 was dated 31 May 2011 and was signed by both parties on 2 June 2011.⁴ Under PO 2, the defendant was to procure six Caterpillar Generators, incorporate them into containerised diesel generators to be fabricated to the plaintiff’s requirements and thereafter deliver the Completed Generators to the plaintiff. The defendant was to deliver four of the Completed Generators no later than 1 November 2011 and the remaining two Completed Generators no later than 1 January 2012. As consideration, the plaintiff again agreed to pay the defendant US$315,000 per Completed Generator. For PO 2, the total consideration was therefore US$1.89m.

PO 2 was attached to an e-mail dated 31 May 2011 from Mr Law to Mr Tanabalan.⁵ In this covering e-mail, Mr Law informed Mr Tanabalan of a change to the delivery deadline specified in PO 1. The four Completed Generators under PO 1 were to be delivered no later than “end January 2012” instead of 1 October 2011. PO 1 was amended accordingly.⁶ I should note that, a few paragraphs later in the same e-mail, Mr Law wrote of PO 1, “delivery date end January 2012 (final date to be advised but not before end January 2012)”. I discuss later the effect of these words.

In summary, under PO 1 and PO 2 the defendant was to supply the plaintiff with a total of ten Completed Generators, which the plaintiff would then deliver to IOEC in performance of its own contract with IOEC. The deadline for delivery under PO 2 was earlier than the delivery deadline in PO 1, even though the parties entered into PO 2 after PO 1.

At this juncture, I make two points about the two purchase orders. First, under both PO 1 and PO 2, the plaintiff was to pay the defendant in stages in accordance with a schedule (“the Payment Schedule”). The Payment Schedule provided as follows:

Payment shall be made on the next Banking Day after receipt of the payment from [the plaintiff’s] Client (IOEC) following receipt of invoice and achievement of the following milestone(s): • 20% - On submission of applicable SUPPLIER Documentation / Data and certification requirements as detailed hereinafter. • 30% - On arrival of the Caterpillar Diesel Generator packages and submission of proof of ownership • 40% - Upon completion and prior to shipment of the packages. • 10% - On submission of all PURCHASER approved final documentation.

The second point is that the defendant’s work involved removing the standard factory-installed alternators in Caterpillar Generators (“SR4 Alternators”), and replacing them with alternators manufactured by Leroy-Somer (South East Asia) Pte Ltd (“LS Alternators”). The LS Alternators met IOEC’s specifications but the SR4 Alternators did not. I note that there is a dispute as to when the defendant learnt that its work would involve this task of replacing the alternators. Initial downpayments

On 4 May 2011, the plaintiff paid the defendant a sum of US$252,000, being 20% of the contract price of US$1.26m under PO 1. On 2 June 2011, the plaintiff paid the defendant US$378,000, being 20% of the contract price of US$1.89m under PO 2. Each payment was expressly made pursuant to the first stage of the Payment Schedule in each of PO 1 and PO 2. The plaintiff alleged that it made the payments even though the defendant had not, at the time, done what it was obliged to do in order to trigger its entitlement to the payments, ie, to submit the required documentation (see [9]) above. Not surprisingly, the defendant argued that the plaintiff’s payments indicated its acknowledgment that the defendant had fulfilled its obligations as to documentation.

Deferment of PO 1 until completion of PO 2

The plaintiff’s pleaded case is that it “requested” that work under PO 1 be “deferred” until the completion of work under PO 2.⁷ The prioritisation of PO 2 over PO 1 was apparent from, at the latest, 31 May 2011, when Mr Law informed Mr Tanabalan by e-mail that the delivery deadline for PO 1 would be pushed back to end-January 2012 (see [7] above).

Arrival of six Caterpillar Generators under PO 2

The defendant says that it purchased six Caterpillar Generators from a supplier in China for US$106,870.50 per Caterpillar Generator on 16 June 2011.⁸ On or around 21 July 2011, the defendant received delivery of these six Caterpillar Generators.⁹

On 27 July 2011,¹⁰ Mr Tanabalan sought the second staged payment under PO 2 on the basis that the defendant had received delivery of six Caterpillar Generators. This payment amounted to US$567,000, being 30% of the contract price of US$1.89m. Mr Law replied on 1 August 2011¹¹ and informed Mr Tanabalan that the second staged payment required a “transfer of ownership to IOEC” of the six Caterpillar Generators. Mr Tanabalan responded on the same day,¹² querying how he could make such a transfer of ownership when the 20% of the contract price received by the defendant under the first stage of payment was insufficient to make full payment for the Caterpillar Generators. Mr Law then replied, also on the same day. This reply reiterated the need to transfer ownership of the Caterpillar Generators to IOEC and assured the defendant that such a transfer of ownership would not be a “big problem”¹³.

On 11 August 2011,¹⁴ Mr Law sent Mr Tanabalan by e-mail a draft “Transfer of Ownership” document. He asked Mr Tanabalan to review it and send it back with comments. Instead, Mr Tanabalan signed it¹⁵ and sent it back to Mr Law by e-mail on 14 August 2011. This document was in the form of a letter addressed to the plaintiff (“the Letter of Transfer”). It was dated 15 August 2011 and indicated that it had been signed on the same day. I will consider the Letter of Transfer more closely later in these grounds of decision.

The plaintiff then released the second staged payment to the defendant under PO 2 in two payments. It paid US$100,000 on 1 September 2011 and paid the remaining US$467,000 on 27 September 2011.¹⁶

Progress on PO 2 and eventual termination of purchase orders

The defendant’s progress under PO 2 was slower than originally envisaged. The defendant faults the plaintiff for the delay while the plaintiff blames the defendant. I deal with this dispute later; for present purposes it suffices to note that such a dispute exists.

On 15 September 2011, the plaintiff informed the defendant that IOEC had agreed to grant an extension of time under PO 2. As a result, the defendant was now to deliver two Completed Generators (which I will refer to as “the First and Second Units”) to the plaintiff no later than 14 November 2011, and the remaining four Completed Generators no later than 1 January 2012.¹⁷

On 27 October 2011, the plaintiff informed the...