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

• Jurisdiction: Singapore
• Judge: Chan Seng Onn J
• Judgment Date: 30 November 2015
• Neutral Citation: [2015] SGHC 307
• Year: 2015
• Date: 30 November 2015
• Published date: 19 April 2017
• Hearing Date: 29 May 2015,30 July 2015,08 July 2014,05 August 2015,20 March 2015,17 July 2014,29 July 2015,17 March 2015,10 July 2014,31 July 2015,18 March 2015,27 May 2015,04 August 2015,19 March 2015,06 August 2015,28 May 2015,16 July 2014,15 October 2015,09 July 2014,15 July 2014
• Plaintiff Counsel: Tan Chuan Thye SC, Avinash Pradhan, Alyssa Leong and Arthi Anbalagan (Rajah & Tann Singapore LLP)
• Citation: [2015] SGHC 307
• Defendant Counsel: Daniel John and Kevin Cheng (Goodwins Law Corporation)
• Court: High Court (Singapore)
• Docket Number: Suit No 219 of 2013

Chan Seng Onn J: Introduction

The Plaintiff is a company incorporated in the Special Administrative Region of the People’s Republic of China, Hong Kong. The Defendant is a company incorporated in Singapore and is an established supplier, designer and manufacturer of heavy machinery (including tensioners and winches) for offshore use in the marine and oil and gas industry.

In 2007, the Plaintiff purchased a 300 tons reel drive unit (“RDU”) from the Defendant. Attached below is a photograph of the RDU that was fabricated by the Defendant. The photograph shows a 300 tons reel (brown in colour) sandwiched between the two towers of the RDU (blue in colour) mounted on skids (blue in colour) on the deck at the aft of the ship, the “Maersk Responder”.

For a better understanding of the overall structure of the RDU, I have also attached below a colour schematic diagram of the RDU.

The RDU was delivered to the Plaintiff on 10 April 2008 and thereafter mounted on board the “Maersk Responder” for the laying of undersea umbilical for Nexus Energy at the Longtom field in the Bass Straits of Australia. After having laid one complete reel of umbilical and in the course of laying the second reel, a major failure of one of the gearbox assemblies occurred. The hydraulic drive motor and gear assembly on one of the towers of the RDU (ie, Tower A) came off its mounting and fell down. This incident caused the Plaintiff to investigate into whether there were any inherent manufacturing or design defects in the RDU.

In this action, the Plaintiff claims that the RDU already suffered from manufacturing and design defects at the time of delivery. Broadly, these defects pertain to the following: bolts; gears; bearings; structural strength of the two RDU towers and other structural components; excessive deflection under load of the sub-frame carrying the drivetrain; brakes; and the failure to manufacture the RDU according to the specifications and drawings.

The parties have agreed that the court is to determine this claim under Singapore law notwithstanding the choice of Western Australian law in cl 21 of the Sale and Purchase Agreement (“Sale and Purchase Agreement”) for the RDU.

As the trial progressed and with fresh evidence emerging, the parties felt that amendments to their pleadings were needed. Instead of piecemeal amendments, the parties waited until the completion of the trial to consolidate all their intended amendments and attached them to their closing submissions. I think this is an efficient and cost-effective approach. No party has been prejudiced as the parties were clearly aware from the beginning of the trial what the main issues and areas of dispute were and they were not taken by surprise. Accordingly, I grant them leave to amend their pleadings.

After a technically challenging trial over several days where 17 factual witnesses testified and seven expert witnesses from different fields of engineering gave their expert opinion as a group in a “hot-tub” instead of sequentially, and after having carefully considered all the relevant evidence and the detailed and comprehensive submissions from both parties, I find on a balance of probabilities, for the reasons stated in this judgment based on the pleadings as amended, the facts that I have found and the totality of the factors that I have evaluated and taken into consideration, that the RDU: is not of merchantable quality; is not fit for the purpose for which it is intended to be used; is not free from defects in design, manufacture or workmanship; and does not meet the relevant industry standards and certifications, or the specifications and certifications stipulated in the contract between the Plaintiff and the Defendant.

For ease of reference, I have attached at Appendix 1 a “Glossary of Witnesses” with a brief summary of the focus of their evidence at the trial. In the course of this judgment, I shall refer to the evidence of some of these witnesses.

Sale and Purchase Agreement

It is not disputed that the Defendant was aware that the RDU was purchased by the Plaintiff specifically for lease to Trident Offshore Services (“Trident”) for the laying of undersea umbilical in the Bass Straits of Australia for Nexus Energy in the Longtom Project.

The Plaintiff and Defendant entered into the Sale and Purchase Agreement dated 7 September 2007 which provides, inter alia, that: the Defendant was to sell a 300 tons RDU and deliver it on 14 January 2008 to the Plaintiff; the total purchase price of the RDU was $895,000 inclusive of “ABS [American Bureau of Shipping] Full Certification” which was itemised at a cost of $20,000 (See Schedule 1 of the Sale and Purchase Agreement at paragraph 2 - Scope of Supply); the RDU was to be fully certified by ABS; the RDU would be of merchantable quality, fit for the purpose for which it was intended and free from any latent or apparent defect in material or workmanship (See cl 15 of the Sale and Purchase Agreement); and the Defendant would perform all work diligently, carefully, in a good and workmanlike manner and in accordance with accepted industry standards (See cl 24 of the Sale and Purchase Agreement).

When it transpired that ABS does not provide certification for machinery such as the RDU, the Defendant suggested in an email dated 12 October 2007 that ABSG Consulting Inc (“ABSG”), an entity related to ABS, carry out the “design review, site survey and final testing, same as what [the Defendant] did for the Acergy 100 Ton reel drive system” instead. The certificate from ABSG for the Acergy 100 Tons spooler tower was attached for the Plaintiff’s consideration. Mr Terry Griffiths, the Principal Pipeline Engineer of Trident (“Mr Terry Griffiths”), replied on behalf of the Plaintiff vide an email dated 17 October 2007 that “the use of ABS Consulting for design review of the reel towers is appropriate given there is no Class applicable, however can you please ensure the design/structural codes selected are appropriate” [emphasis added in bold]. The Defendant’s project manager, Dr Yang Ting, clarified during cross-examination that the certification for the RDU, now agreed to be performed by ABSG instead of ABS, remained a “full certification”.

It is not disputed that the Defendant was solely responsible for designing the entire RDU although this obligation was not expressly stated in the Sale and Purchase Agreement. In fact, the Defendant’s Confidential Bundle of Documents (“Confidential Bundle”), containing inter alia the design drawings and calculations submitted to ABSG for the purpose of obtaining certification from ABSG for the RDU design, was never provided or shown to the Plaintiff at that time. Basically, the Defendant kept the design of the RDU confidential. The Plaintiff was unaware of the engineering details and the design calculations in relation to the design of the RDU.

After the Defendant had designed and fabricated the RDU, a factory acceptance test (“FAT”) was carried out and signed off by Mr Terry Griffiths on behalf of the Plaintiff on 26 February 2008 and counter-signed by Mr Chong, the then ABSG surveyor with ABSG, and Mr Steven Gan, the Assistant Manager-After Sales of the Defendant. ABSG issued certificates for the design reviews it carried out, as well as the manufacturing processes and the FAT.

Inadequate design of the RDU

I will deal with the design inadequacies first and there are several alleged by the Plaintiff. I will address them seriatim.

Failure to take the vessel roll into account

The Plaintiff submits that the Defendant failed to take vessel roll into account in the RDU design. It is not disputed that the inertial forces arising out of the vessel’s accelerations must form part of the design considerations for the RDU. The input design parameters for any computer program (eg, the STAAD.Pro analysis) using a finite element method (ie, Finite Element Analysis or “FEA”) to perform the stress calculations for the various components of the RDU structure mounted on board a vessel must therefore take into account the expected motions of the vessel due to current, wind and wave action.

I accept the explanation of Dr Yang Ting that there are basically two acceptable methods of specifying such input design parameters for the inertial forces due to the vessel’s motions for the purpose of stress calculations: Specifying the equivalent accelerations that the equipment mounted on a vessel would be subjected to in the X, Y and Z directions corresponding to the ship’s transverse, vertical and longitudinal directions, which are to account for pitch, sway, yaw, heave, roll and surge motions of the ship out at sea; or Specifying the maximum pitch, yaw and roll angles of the vessel and their respective periods of oscillation, the maximum sway, heave and surge and also the specific location of the equipment installed on the vessel, so that calculations can be performed to translate and resolve them into their corresponding accelerations in the respective X, Y and Z directions.

In either case, those equivalent accelerations arising from the vessel’s motions can be used for computing the inertial forces in the X, Y and Z directions for the structural and stress analysis.

But if in either case the maximum roll angle of the vessel for example is expected to be large, then the weight of the equipment itself (which is a gravitational force and not an inertial force) must be resolved into the X and Y components because of the large roll angle and then added to the inertial forces in the respective X and Y directions (which arise separately from the equivalent accelerations due to the ship’s roll) in order to perform the structural and stress analysis. If that is not done, there can be a serious underestimate of the expected total force (due both to inertia and gravity) in the X direction when the vessel is at an...