Alliance Concrete Singapore Pte Ltd v Sato Kogyo (S) Pte Ltd

• Court: Court of Appeal (Singapore)
• Judge: Chao Hick Tin JA
• Judgment Date: 30 May 2014
• Neutral Citation: [2014] SGCA 35
• Citation: [2014] SGCA 35
• Defendant Counsel: Cavinder Bull SC, Chia Voon Jiet, Colin Liew and Rajaram Vikram Raja (Drew & Napier LLC)
• Published date: 23 June 2014
• Plaintiff Counsel: Francis Xavier SC, Muthu Arusu, Winston Kwek Choon Lin, Avinash Pradhan, Istyana Ibrahim and Tng Sheng Rong (Rajah & Tann LLP)
• Hearing Date: 10 March 2014,15 January 2014,17 March 2014,20 February 2014,06 February 2014
• Docket Number: Civil Appeal No 82 of 2013
• Date: 30 May 2014
• Subject Matter: Contract,Frustration

Andrew Phang Boon Leong JA (delivering the judgment of the court): Introduction

This is an appeal against the decision of the judge (“the Judge”) in Alliance Concrete Singapore Pte Ltd v Sato Kogyo (S) Pte Ltd [2013] SGHC 127 (“the Judgment”). This constitutes yet another case in the long series of “sand ban” cases which have come before the Singapore courts. The Appellant is Alliance Concrete Singapore Pte Ltd (“ACS”), a supplier of ready-mixed concrete (“RMC”). The Respondent is Sato Kogyo (S) Pte Ltd (“SK”), a contractor in the construction industry. The main issues to be decided in this appeal are whether ACS was discharged from its contractual obligation to supply RMC to SK by way of the doctrine of frustration and whether ACS was in breach of the relevant contracts.

The background

In January 2007, SK was engaged as the main contractor for three construction projects (“the Projects”), namely: (a) an extension to the Boon Lay MRT Station (“the Boon Lay Project”); (b) a facility at Nanyang Technological University (“the NTU Project”); and (c) a six-storey development at Harbourfront (“the Harbourfront Project”). ACS agreed to supply RMC to SK in respect of each of the Projects, pursuant to three separate contracts, namely, “the Boon Lay Contract”, “the NTU Contract” and “the Harbourfront Contract” (collectively, “the Contracts”).

The documentation and the exact terms of the NTU Contract and the Harbourfront Contract are disputed. SK argues that the parties entered into the NTU Contract and the Harbourfront Contract by way of two purchase orders (“the Purchase Orders”). On the other hand, ACS argues that the NTU Contract and the Harbourfront Contract were embodied in two quotations (“Quotation 109” and “Quotation 980”, respectively). The Judge agreed with SK that the NTU Contract and the Harbourfront Contract were embodied in the Purchase Orders since they were signed by both parties, whereas Quotation 109 and Quotation 980 were not signed by SK (see the Judgment at [61]).

In general, whenever SK required RMC for each of the Projects, it would place an order with ACS one day in advance of the day that the RMC was required to be delivered. The orders would be confirmed by telephone calls from SK’s construction managers or site supervisors on the morning of the day of delivery. In the telephone calls, SK’s representative would communicate to ACS the volume of RMC required and the times at which the RMC was required for that day.

On 23 January 2007, the Indonesian government announced a ban on the export of concreting sand (“the Sand Ban”), such that sand exporters in Indonesia could no longer export sand to Singapore. However, the Indonesian government provided a grace period up to 5 February 2007 for sand exporters to honour existing sand export contracts. As the Judge noted, sand is one of the main ingredients for the production of RMC. At the relevant time, Singapore was one of the largest importers of sand from Indonesia.

To alleviate any shortfall in the supply of sand arising from the Sand Ban, the Building and Construction Authority (“the BCA”) announced on 31 January 2007 that sand would be released from its stockpile (“the BCA Stockpile”) with effect from 1 February 2007. However, only main contractors with ongoing projects such as SK could draw on the BCA Stockpile, and not RMC suppliers such as ACS. The contractors could then pass on the sand to their RMC suppliers to produce RMC for their building projects. The cost of sand obtained from the BCA Stockpile was fixed at $25 per tonne for February 2007. This was an increase from the cost of sand prior to the Sand Ban, which was about $20 per tonne.

Although SK procured sand from the BCA Stockpile and passed it on to ACS to produce RMC, by end-February 2007, there was a significant shortfall between the amount of sand required by ACS to meet SK’s orders and the sand supplied by SK from the BCA Stockpile. SK argued that ACS had failed to take delivery of the sand which it had procured from the BCA Stockpile. On the other hand, ACS argued that SK had failed to deliver the sand in a reasonable manner.

During this period in February 2007, ACS sent several letters and new quotations to SK indicating that the original contract prices should not apply because the Sand Ban gave rise to a force majeure event, and that there ought to be higher prices for the supply of RMC. SK’s position was that the original contract prices applied, but it was prepared to enter into a cost-sharing framework with ACS. SK also informed ACS that if the supply of RMC to the Projects was suspended, SK would source for alternative sources of supply and would hold ACS accountable for the price difference.

ACS’s supply of RMC to SK stopped from 25 February 2007 onwards, and SK begun ordering RMC from other RMC suppliers from 27 February 2007. From 1 March 2007, SK ceased all supply of sand to ACS. On 6 March 2007, representatives from both parties had a meeting in an attempt to break the deadlock on new prices for RMC, but no resolution was reached.

On 28 March 2007, SK wrote to ACS to acknowledge that there had been a sand shortfall of 585 tonnes arising out of SK’s February 2007 orders of RMC, and SK offered to deliver the sand that was in shortfall. The sand shortfall was made up on 13 April 2007, and ACS informed SK that it was able to resume the supply of RMC to SK. In its letter dated 19 April 2007, SK acknowledged ACS’s intention to resume RMC supply, and referred to a telephone conversation where ACS allegedly agreed to supply RMC based on the original contract prices.

On 20 April 2007, ACS sent a quotation to SK, revising the prices of RMC for the Boon Lay Project and the Harbourfront Project. SK’s project manager for the Harbourfront Project objected to what he perceived to be ACS’s unilateral revision of its RMC prices, and informed ACS that he would be ordering RMC from alternative sources and holding ACS responsible for the damages. Thereafter, SK stopped ordering RMC from ACS for the Harbourfront Project, but ordered from another RMC supplier instead.

On the other hand, in his letter dated 27 April 2007, SK’s project manager for the Boon Lay Project, whilst not making any reference to the quotation dated 20 April 2007, acknowledged ACS’s intention to resume RMC supply and reiterated that the original contract prices applied. The letter also stated that the Land Transport Authority (“the LTA”), which was SK’s employer for the Boon Lay Project, had agreed to bear 75% of the increased cost of sand for the Boon Lay Project, and that SK had agreed to share the remaining 25% of the increase in sand costs with ACS.

Throughout the month of May 2007, SK ordered and received RMC from ACS for the Boon Lay Project. SK delivered some sand to ACS, but there was still a sand shortfall.

On 16 May 2007, representatives from both parties met again. During that meeting, ACS made a proposal for increased RMC prices for all three projects in respect of the months of May to July 2007. SK mentioned that it needed to review the proposal and agreed to revert in a week’s time.

On 29 May 2007, ACS informed SK that it was temporarily unable to supply RMC to SK for the Boon Lay Project because SK’s credit limit had been exceeded. ACS also requested that SK make some payment soon. Thereafter, SK stopped placing orders for RMC from ACS.

On 4 June 2007, SK sent ACS a proposal which included how the increased costs should be shared and claimed the additional cost of obtaining RMC from alternative suppliers from March 2007 to May 2007. On 21 June 2007, ACS replied that it was unable to accept SK’s claim for the additional cost of obtaining RMC from alternative suppliers, and that ACS would commence legal action.

On 27 July 2007, ACS commenced the present proceedings against SK for the price or value of RMC supplied and delivered to SK for the Projects. SK disputed ACS’s claim and counterclaimed for the losses incurred because of ACS’s alleged failure to supply RMC to it.

The decision in the court below

As the trial below was bifurcated, the decision of the Judge was only concerned with the question of liability.

The Judge held, among other things, that the Contracts were not frustrated by the Sand Ban because: It was not a term of the Contracts that sand for the RMC required for the Projects had to come from Indonesia. What mattered was whether the sand met the requisite specifications and not where the sand came from (see the Judgment at [27]–[28]). ACS had surplus stocks of sand as seen from the fact that it initially agreed to supply RMC to SK on the basis that SK would subsequently return the quantities of sand used (see the Judgment at [33]). Moreover, ACS’s quotation to its clients in early February 2007 stated that if its clients failed to provide sufficient quantities of sand for the production of RMC, the cost of procuring additional sand would be borne by them. ACS did not state in the said quotation that RMC would not be supplied if insufficient sand was supplied to ACS. By late April 2007, there was no need for a contractor to supply sand to ACS before RMC could be supplied (see the Judgment at [38]). ACS could have sourced for sand from other countries. ACS was offered Vietnamese sand in May 2007, but it rejected the offer because it thought that the price was not competitive. Moreover, that sand was available from other sources was evidenced by the dwindling number of applications for the release of sand from the BCA Stockpile after February 2007 (see the Judgment at [39]). In considering the demands of justice of the case, it was noteworthy that ACS, unlike SK, was unwilling to follow the BCA’s cost-sharing arrangement to cope with the increased price of sand. In February 2007, ACS sought to impose a surcharge of $24 for 1m3 of RMC when the corresponding increase in cost of sand was only $4. The very high...