Airtrust (Hong Kong) Ltd v PH Hydraulics & Engineering Pte Ltd

• Jurisdiction: Singapore
• Judge: Chan Seng Onn J
• Judgment Date: 23 August 2016
• Neutral Citation: [2016] SGHC 167
• Citation: [2016] SGHC 167
• Defendant Counsel: Tan Chee Meng SC, Josephine Choo and Wilbur Lim (WongPartnership LLP)
• Published date: 18 April 2017
• Hearing Date: 18 May 2016
• Plaintiff Counsel: Tan Chuan Thye SC, Avinash Pradhan, Alyssa Leong and Arthi Anbalagan (Rajah & Tann Singapore LLP)
• Date: 23 August 2016
• Court: High Court (Singapore)
• Docket Number: Suit No 219 of 2013
• Subject Matter: Civil procedure,Indemnity basis,Costs,Principles

Chan Seng Onn J:

These grounds pertain to my decision on the costs order for Suit No 219 of 2013 (“S 219/2013”). The trial for S 219/2013 was heard between July 2014 and August 2015. After hearing and considering the parties’ evidence and submissions, I gave judgment for the plaintiff, finding that the defendant was in breach of a sale and purchase agreement between the parties. The judgment is reported as Airtrust (Hong Kong) Ltd v PH Hydraulics & Engineering Pte Ltd [2016] 1 SLR 1060 (“the Judgment”).

The plaintiff sought to recover costs on an indemnity basis, arguing that the defendant’s conduct of the case was so morally reprehensible and worthy of moral condemnation that indemnity costs were justified. I rejected the plaintiff’s submission and ordered the defendant to pay the plaintiff costs of and incidental to the action on the standard basis, to be taxed if not agreed. The plaintiff has appealed against my decision on costs, and I therefore set out the grounds for my decision.

During the course of oral and written submissions on costs, the parties referred me to a number of Singapore and English cases. In these grounds, I will discuss the authorities, summarise the relevant principles and explain the approach that I adopted to determine whether an order of indemnity costs was appropriate.

Background facts The dispute

The detailed facts of the dispute are set out in the Judgment. It suffices for me to briefly summarise the events leading up to the commencement of S 219/2013.

In 2007, the plaintiff entered into a sale and purchase agreement (“the Agreement”) with the defendant, which is a supplier, designer and manufacturer of heavy machinery for offshore use in the marine and oil and gas industry.¹ The Agreement was for the purchase of a 300 ton reel drive unit (“RDU”) by the plaintiff from the defendant. Under the Agreement, the defendant was to ensure that the RDU was of merchantable quality, fit for the purpose for which it was intended and free from any latent or apparent defect in material or workmanship.² The defendant was also contractually required to perform all work diligently, carefully, in a good and workmanlike manner and in accordance with accepted industry standards.³ The defendant was aware that the RDU was to be leased by the plaintiff to Trident Offshore Services, for the laying of undersea umbilical in the Bass Straits of Australia.⁴

The RDU was delivered to the plaintiff in April 2008 and thereafter mounted on board the “Maersk Responder”. On 20 May 2009, after one complete reel of umbilical was laid, a major failure of one of the gearbox assemblies occurred during the laying of a second reel. The hydraulic drive motor and gear assembly on one of the two towers of the RDU became detached from its mounting and fell off.⁵

The plaintiff commenced S 219/2013 against the defendant on 19 March 2013, seeking damages for breach of contract. The plaintiff also claimed that the defendant misrepresented that it had obtained full and proper certification of the RDU when it provided ABSG Consulting Inc (“ABSG”) with false input data.

The trial and my decision

The trial was concerned only with liability, with damages (if any) to be assessed at a later stage. It was a lengthy trial involving a total of 24 witnesses, including 7 expert witnesses who gave evidence on various aspects of the design and construction of the RDU. The length of the trial and its technicality were largely attributable to the fact that numerous design and manufacturing defects were alleged by the plaintiff. Much time was also consumed by debate between the experts on the cause of the catastrophic failure of the RDU.

I delivered judgment on 30 November 2015. I held that the plaintiff was entitled to damages on the basis that the defendant had breached the Agreement by not delivering to the plaintiff an RDU that was of merchantable quality and fit for its purpose. I summarise my primary findings: There were a number of design failures in the RDU. The plaintiff failed to take into account the effects caused by (i) vessel roll;⁶ (ii) fatigue;⁷ and (iii) wind loading on the RDU structure.⁸ The bolting arrangements, gears, braking system, sub-frame bearing housing and the bearing arrangement for the main shaft were inadequately designed for the purpose for which the RDU was to be used.⁹ Various components of the RDU suffered from poor manufacturing quality.¹⁰ The defendant also failed to perform any inspection or compliance checks to ensure that the grade of bolts was in accordance with the engineering drawings.¹¹ The defendant conceded that this was due to the poor training of its employees.¹² The defendant failed to perform the required design calculations for many critical components of the RDU.¹³ In addition, the defendant misrepresented to Ms Renuka Devi, Lead Structural Engineer of ABSG, that there was no need to consider wind load.¹⁴ Further, the defendant used an inaccurate model (based on the use of ball joints rather than fixed joints where the transverse struts were bolted to the main base, and pin joints where the reel met the towers) for the purposes of the analysis conducted using the “STAAD.Pro” programme (“the STAAD.Pro analysis”). In so doing, the defendant deliberately and dishonestly misled ABSG into giving certification for the defendant’s structural design of the RDU.¹⁵ The defendant never obtained full certification of the design from ABSG, as mechanical and hydraulic design reviews were not carried out. But the defendant dishonestly misrepresented to the plaintiff that such full certification was obtained.¹⁶ Clause 25 of the Agreement did not exclude the defendant’s liability to pay damages to the plaintiff, given that the ABSG certification was fraudulently or dishonestly obtained and that the defendant had dishonestly misrepresented to the plaintiff that full ABSG certification had been obtained.¹⁷

Given the circumstances, I found that this was a case in which the defendant’s behaviour was of such an outrageous and reprehensible nature as to call for the imposition of punitive damages.¹⁸ I therefore awarded the plaintiff damages for breach of contract and punitive damages to be assessed.¹⁹

The defendant’s appeal

The defendant has filed an appeal only against the following aspects of my decision in S 219/2013: That the defendant had acted recklessly, dishonestly and/or fraudulently; That the defendant pay punitive damages to be assessed; and That clause 25 of the Agreement could not be construed to limit the extent of the damages payable by the defendant to the plaintiff.

I have set out the reasons for my decision in the Judgment. I will now explain my decision on costs, against which the plaintiff has taken up an appeal.

Submissions on costs

On 18 May 2016, I heard the parties’ oral submissions on the basis on which costs were to be awarded. The plaintiff sought costs on an indemnity basis, claiming that there were exceptional circumstances which warranted a departure from the usual cost basis.²⁰ It argued that the defendant’s conduct of the case was “so morally reprehensible and warranting of moral condemnation” that costs on an indemnity basis was justified, citing PT Sandipala Arthaputra v STMicroelectronics Asia Pacific Pte Ltd and others [2016] 1 SLR 748 (“Sandipala”) and Wong Meng Cheong and another v Ling Ai Wah and another [2012] 1 SLR 549 (“Wong Meng Cheong”).

The plaintiff’s submissions can be summarised as follows: The defendant failed to give full and proper disclosure of all relevant documents and materials, despite being the only party who had access to direct evidence of the design and manufacture of the RDU. The defendant’s disclosure of documents regarding the STAAD.Pro analysis carried out by Dr Liu Li (“Dr Liu”) was made belatedly. The defendant suppressed important facts, which came to light only in the midst of trial, prejudicing the expeditious disposal of the matter. The defendant sought to keep away the individuals most connected with the design of the RDU. It called further witnesses in the midst of trial, and one of the witnesses on the defendant’s List of Witnesses did not appear at trial. The defendant consistently maintained plainly unsustainable, unmeritorious or unreasonable arguments, notwithstanding concessions by the defendant’s witnesses and the lack of evidentiary basis for such arguments.

The defendant emphasised that following Sandipala and Tan Chin Yew Joseph v Saxo Capital Markets Pte Ltd [2013] SGHC 274 (“Tan Chin Yew Joseph”), the burden on a party who seeks an order for indemnity costs is a high one. The defendant pointed out that the plaintiff had amended its pleadings five times, and the third amended Statement of Claim was only given to the defendant after the plaintiff had filed its closing submissions.²¹ Thus the plaintiff’s case was not crystallised until the trial was over and the plaintiff was ready to file its closing submissions. Disclosure of documents by the defendant was based on the plaintiff’s pleaded position, which was in a state of flux. The plaintiff had not shown that the defendant’s conduct of the trial crossed the threshold for an award of indemnity costs to be made.

I will describe the parties’ submissions in greater detail later in these grounds. After considering the parties’ oral and written arguments, I rejected the plaintiff’s submission that this was an appropriate case for costs on an indemnity basis to be ordered, and awarded costs to the plaintiff on the standard basis, to be taxed if not agreed.

The law on indemnity costs

When costs are taxed on the indemnity basis, all costs are allowed except insofar as they are of an unreasonable amount or have been unreasonably incurred, and any doubts in these respects will be resolved in favour of the receiving party: O 59 r 27(3) of the Rules of Court (Cap 322, R 5, 2014 Rev Ed) (“Rules...