Biofuel Industries Pte Ltd v V8 Environmental Pte Ltd

• Jurisdiction: Singapore
• Court: Court of Three Judges (Singapore)
• Judge: Steven Chong JA,Andrew Phang Boon Leong JA
• Judgment Date: 25 June 2018
• Neutral Citation: [2018] SGCA 28
• Citation: [2018] SGCA 28
• Published date: 29 June 2018
• Plaintiff Counsel: G Radakrishnan and Ramachandran Shiever Subramanium (Grays LLC)
• Defendant Counsel: Kok Chee Yeong Jared and Jared Ravin Dass (Rajah & Tann Singapore LLP)
• Docket Number: Civil Appeals Nos 155 and 157 of 2017
• Hearing Date: 15 May 2018
• Date: 25 June 2018
• Subject Matter: Damages,Breach,Contract,Remedies

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

These are two appeals against the decision of the trial judge (“the Judge”) in Biofuel Industries Pte Ltd v V8 Environmental Pte Ltd [2017] SGHC 184 (“the Judgment”).

The plaintiff in the court below was Biofuel Industries Pte Ltd (“BFI”). BFI is in the business of wood disposal and of processing waste wood into wood chips. It accepts waste wood or wood chips from suppliers in exchange for a disposal fee. Waste wood received by BFI is shredded into wood chips, and together with the rest of the wood chips received by BFI, is then sold by BFI to third parties.

The defendant in the court below was V8 Environmental Pte Ltd (“V8”). V8 is a waste management service provider. It collects waste wood from construction sites for a fee and eventually disposes such waste wood at facilities such as the one owned by BFI.

BFI is the appellant in Civil Appeal No 155 of 2017 (“CA 155/2017”) and the respondent in Civil Appeal No 157 of 2017 (“CA 157/2017”). V8 is the respondent in CA 155/2017 and the appellant in CA 157/2017. To avoid confusion, we refer to the two parties as BFI and V8, respectively.

Background

V8 has been disposing of waste wood with BFI since 2007. Initially, V8 agreed to dispose of its waste wood at $40 per metric ton (“pmt”), but there was no written agreement between the parties. Sometime in late 2010, Eugene Lee Shung Guan (“Eugene”), the Chief Executive Officer of BFI, informed Yu Jia Ru Derrick (“Derrick”), the Sales and Operations Director of V8, that he was distributing wood shredders through a separate company called Hammel (S) Pte Ltd (“Hammel”). Eugene suggested that V8 purchase a shredder from Hammel to shred the waste wood that V8 collects from its customers into wood chips. This would make it easier for V8 to transport the wood chips and V8 could enjoy the lower price for disposal that applied to wood chips. Derrick agreed and purchased a shredder from Hammel through Eugene. The parties then agreed that V8 could continue to dispose of waste wood at the price of $40pmt, or dispose of wood chips at the price of $15pmt.

Sometime in July 2013, the parties entered into negotiations for the appointment of BFI as V8’s exclusive disposal service provider. The parties eventually entered into the Biomass Supply Agreement (“BSA”). Under the BSA, it was agreed that BFI would be V8’s exclusive disposal service provider and that, in exchange, V8 would enjoy lower disposal fees, at $30pmt for waste wood and $13.50pmt for wood chips. It is unclear from the text of the BSA when the BSA was entered into. The Judge found the commencement date of the BSA to be 1 August 2013 (see the Judgment at [4]). This is not disputed on appeal.

On 10 April 2015, V8 terminated the BSA alleging that BFI had repudiated the agreement through its conduct. On 14 May 2015, BFI commenced this suit against V8 for wrongful termination of the BSA and for non-payment of invoices. V8 maintained that it was entitled to terminate the BSA because BFI had renounced it. In its Defence, V8 pleaded that BFI had (a) wrongfully rejected V8’s deliveries of waste wood and wood chips, and/or (b) wrongfully and unilaterally raised the prices for its services under the BSA. In particular, V8 relied on four occasions when BFI had attempted to unilaterally increase prices and eight occasions when BFI had allegedly rejected delivery of waste wood and wood chips either because its premises were full, or because the wood chips were oversized in that they were more than 100mm in length (“the 100mm requirement”).

We do not propose to outline the 12 occasions of the alleged rejections and the attempts by BFI to increase prices. These were set out in chronological order by the Judge: see the Judgment at [35]–[64]. We will only highlight two facts which are, in our view, germane to the two appeals before us: first, it is undisputed that after each alleged rejection of delivery, the deliveries would always resume thereafter; and second, it is undisputed that BFI issued credit notes to negate any price difference between the amounts charged to V8 and the amounts payable pursuant to the BSA, after V8 had protested the unilateral increase in prices by BFI. As a result, V8 never paid the higher prices that BFI attempted to impose.

The decision below

In summary, the Judge held that BFI did not repudiate the BSA and that V8’s termination of the BSA was therefore wrongful. The Judge awarded BFI damages in the sum of $1,074,615.26 resulting from the shortfall in delivery for the months of February 2015, April 2015, as well as the remaining 39 months of the BSA postdating V8’s wrongful termination on 10 April 2015 (ie, May 2015 to July 2018). The Judge also allowed BFI’s claim for payment for the outstanding invoices, which amounted to $186,326.92.

In determining whether BFI repudiated the contract, the Judge applied the objective test set out by this Court in San International Pte Ltd (formerly known as San Ho Huat Construction Pte Ltd) v Keppel Engineering Pte Ltd [1998] 3 SLR(R) 447 (“San International”) (at [20]) and considered whether BFI’s conduct was such as to lead a reasonable person to conclude that BFI no longer intended to be bound by the BSA. Considering BFI’s unilateral attempts at raising the price for the disposal of waste wood and wood chips, the Judge found that BFI had deliberately increased prices despite not being permitted to do so under the BSA in the hope that V8 would inadvertently pay (see the Judgment at [77]). While this was said to be poor behaviour on the part of BFI, the Judge nonetheless found that these attempts did not constitute repudiatory conduct because BFI later issued credit notes to negate the price difference, and consequently V8 did not in fact pay the higher prices but was charged according to the rates set out in the BSA (see the Judgment at [77] and [78]).

Proceeding next to consider the various alleged rejections of delivery, the Judge rejected at the outset BFI’s distinction between the turning back of a truck and the calling of V8 in advance to inform V8 that no deliveries would be accepted. The Judge treated both instances as rejections (see the Judgment at [34]). Although it was found that BFI did reject deliveries from V8 and that BFI had not discharged its burden to establish a valid reason for each rejection, the Judge ultimately held that these rejections did not constitute a repudiation of the BSA (see the Judgment at [127]). The Judge considered that, on each of the occasions where delivery had been rejected, delivery would resume sometime after the rejection (see the Judgment at [96]–[106]). The Judge also rejected V8’s allegation that BFI had informed V8 on 12 December 2014 that it would not accept future deliveries because of their oversized wood chips (“the 12 December 2014 incident”) (see the Judgment at [120]).

For the reasons set out above, the Judge held that V8 had failed to establish that a reasonable person would consider Biofuel’s overall conduct as amounting to a repudiation of the BSA. Consequently, the Judge found that V8 wrongfully terminated the BSA on 10 April 2015 as it was not entitled to do so (see the Judgment at [127]).

As for the reliefs sought, the Judge allowed BFI’s claim for damages for the shortfall in deliveries. Under the BSA, V8 had to deliver 2000 metric tons of waste wood and/or wood chips each month. The Judge accepted that there was a shortfall of 285.56 metric tons in the month of February 2015 and a shortfall of 1,315.57 metric tons in the month of April 2015 (see the Judgment at [130]). As V8 had terminated the BSA in April 2015, there was also a shortfall of 2000 metric tons each month from May 2015 to July 2018, which was the end date of the BSA, amounting to a total of 78,000 metric tons.

The Judge then considered the price that should apply to the shortfall. Based on the evidence before him, the Judge found it reasonable to assume that V8 would have delivered only waste wood from December 2014 onwards (see the Judgment at [135]). This would mean that the starting point for quantifying damages for the shortfall would be the price for disposing waste wood, ie, $30pmt. V8, however, argued that the costs savings enjoyed by BFI as a result of not having to perform its obligations under the BSA ought to be deducted...