BR Energy (M) Sdn Bhd v KS Energy Services Ltd

• Jurisdiction: Singapore
• Judgment Date: 20 March 2013
• Date: 20 March 2013
• Docket Number: Suit No 900 of 2009
• Court: High Court (Singapore)

BR Energy (M) Sdn Bhd

Plaintiff

and

KS Energy Services Ltd

Defendant

[2013] SGHC 64

Belinda Ang Saw Ean J

Suit No 900 of 2009

High Court

Contract—Breach—Causation—Whether causation relevant to issue of liability for breach of joint venture agreement in a bifurcated trial

Contract—Breach—Obligation in joint venture agreement to use ‘all reasonable endeavours’ to procure construction of rig—Whether test for ‘all reasonable endeavours’ obligation as onerous as that for ‘best endeavours’—Whether conduct discharging ‘all reasonable endeavours’ obligation

Contract—Contractual terms—Rules of construction—Indemnity clause—Plaintiff agreeing to indemnify defendant against losses in joint venture agreement—Whether indemnity clause applicable to losses arising from defendant's own breach of joint venture agreement

Contract—Discharge—Breach—Delays in construction resulting in non-delivery of rig—Whether defendant in repudiatory breach of joint venture agreement

BR Energy (M) Sdn Bhd (‘BRE’), an oil and gas service provider, was awarded a contract (‘the PCSB Contract’) to charter a customised rig known as a workover pulling unit (‘WPU’) to Petronas Carigali Sdn Bhd (‘PCSB’). BRE then entered into a joint venture agreement (‘the JVA’) with the defendant, KS Energy Services Limited (‘KSE’), to provide the WPU for the PCSB Contract. Under the JVA, a joint venture company, BR Offshore Services Limited (‘BRO’), was to be incorporated. KSE was to arrange for the construction of the WPU and sell it to BRO, which would in turn charter the WPU to BRE for BRE to fulfil the PCSB Contract. Clause 6.2 of the JVA stated that KSE was to use ‘all reasonable endeavours’ to procure the construction and delivery of the WPU within the specified time.

The initial intention was for all the contracts required under the JVA, including a rig building contract with a rig builder called Oderco Inc (‘Oderco’), to be signed at the same time as the JVA itself. However, BRO was not yet incorporated at that time. KSE thus put itself forward as a party to the rig building contract with Oderco (‘the Oderco Contract’).

There were massive delays in the construction of the WPU and the WPU was not delivered despite extensions of time granted by PCSB. PCSB eventually terminated the PCSB Contract for late delivery. BRE then terminated the JVA for KSE's failure to deliver the WPU and for the loss of the PCSB Contract.

BRE subsequently sued KSE for repudiatory breach of the JVA, alleging that KSE had not discharged its ‘all reasonable endeavours’ obligation in cl 6.2 of the JVAM by, inter alia, failing to take reasonable steps to monitor Oderco. In response, KSE argued that it was not obligated to procure the WPU at all costs, as the legal test for ‘all reasonable endeavours’ was less stringent than that for ‘best endeavours’. KSE claimed that it had used all reasonable endeavours to procure the WPU by extending financial assistance to Oderco and by paying for certain change orders approved by PCSB, which bought more time for delivery of the WPU. Further, KSE argued that there was no causal link between its conduct and BRE's loss of the PCSB Contract, and that an indemnity clause in the JVA absolved KSE from liability. KSE also counterclaimed for damages for wrongful termination of the JVA and BRE's failure to contribute a shareholder's loan of US$400,000 to BRO.

As the trial was bifurcated by an earlier order, the present trial was only on issues of liability, with damages to be determined another time.

Held, allowing the claim and dismissing the counterclaim:

(1) The phrases ‘reasonable endeavours’, ‘all reasonable endeavours’ and ‘best endeavours’ were various formulations of non-absolute obligations. Generally, an obligation to use ‘best endeavours’ denoted a higher standard than one requiring ‘reasonable endeavours’. The ‘reasonable endeavours’ formulation was also different from the ‘all reasonable endeavours’ formulation in that the former only required the obligor to take one reasonable course of action and not all of them, unlike the latter: at [39] and [40] .

(2) A ‘best endeavours’ clause obliged the obligor to take all those reasonable steps in good faith which a prudent and determined man, acting in his own interests and anxious to obtain the required result within the time allowed, would have taken: at [41] and [42] .

(3) Whether an ‘all reasonable endeavours’ obligation was as onerous as a ‘best endeavours’ obligation had to be decided on a case-to-case basis. The emphasis should be on the objective of the ‘endeavours’ clause in question, as gathered from the clause itself, the contractual context (ie,the circumstances in which the obligation was undertaken) and other relevant terms in the contract: at [51] .

(4) In this case, there was little or no difference in standard between the ‘all reasonable endeavours’ formulation and the ‘best endeavours’ formulation, given that the JVA was entered into to fulfil the specific requirements of the PCSB Contract within known time constraints. The use of three different formulations of non-absolute obligations in the JVA was not in itself determinative of the standard imposed by cl 6.2 of the JVA. Thus, the test for a ‘best endeavours’ obligation was directly applicable to KSE's obligation to use ‘all reasonable endeavours’ under cl 6.2 of the JVA: at [54] and [55] .

(5) The evidence cumulatively showed that KSE failed to discharge its obligation to use all reasonable endeavours to procure the construction and delivery of the WPU. KSE had entered into the Oderco Contract as the buyer of the WPU because it wanted control over the process. KSE was also aware of the time pressure, seeing that time had already started to run under the PCSB Contract. In these circumstances, the discharge of ‘all reasonable endeavours’ required KSE, as a prudent and determined buyer, to closely monitor and put pressure on Oderco in order to have the WPU delivered on time. Yet, KSE was content to limit its efforts to sending e-mail chasers and making telephone calls to Oderco, despite ostensible signs that the PCSB project was not progressing well: at [71] to [123] .

(6) As a result of KSE's failure to use all reasonable endeavours, construction of the WPU was already irremediably delayed by the time of the original deadline under the PCSB Contract, such that KSE's subsequent efforts to catch up on delays (including paying for the change order in respect of the multi-tier modular system which allowed for a time extension) were belated and futile: at [71] , [100] , [125] , [138] and [142] .

(7) KSE's argument on causation and ‘inevitable failure’ was relevant towards damages for breach of contract but not to the issue of liability. As the present trial had been bifurcated, causation in the context of damages was for another day: at [144] and [145] .

(8) BRE was entitled to rescind the JVA as KSE's breach of cl 6.2 of the JVA had acquired a repudiatory character. The delays resulting in the non-completion of the WPU deprived BRE of substantially the whole benefit of the JVA. Accordingly, KSE's counterclaim for wrongful repudiation and for the unpaid shareholder's loan of US$400,000 was dismissed: at [146] to [148] and [150] .

(9) KSE's argument that the JVA required BRE to indemnify KSE for losses arising in connection with the PCSB Contract was untenable. First, the indemnity in the JVA only applied to third party claims against KSE. Second, KSE was not entitled to an indemnity for loss arising from BRE's breach of the PCSB Contract as this latter breach was the result of KSE's own wrongdoing: at [149] .

Atmospheric Diving Systems Inc v International Hard Suits Inc [1994] 5 WWR 719 (folld)

Centennial Coal Co Ltd v Xstrata Coal Pty Ltd (2009) 76 NSWLR 129 (refd)

Chan Ah Beng v Liang and Sons Holdings (S) Pte Ltd [2012] 3 SLR 1088 (folld)

CPC Group Ltd v Qatari Diar Real Estate Ltd [2010] All ER (D) 222 (Jun) (refd)

Jet2.com Ltd v Blackpool Airport Ltd [2012] 2 All ER (Comm) 1053 (refd)

Jolley v Carmel Ltd [2000] 2 EGLR 153 (folld)

Jolley v Carmel Ltd [2000] 3 EGLR 68 (folld)

Rhodia International Holdings Ltd v Huntsman International [2007] 2 All ER (Comm) 577 (refd)

Sheffield District Railway Co v Great Central Railway Co (1911) 27 TLR 451 (refd)

Travista Development Pte Ltd v Tan Kim Swee Augustine [2008] 2 SLR (R) 474; [2008] 2 SLR 474 (folld)

Universal Cargo Carriers Corp v Citati [1957] 2 QB 401 (folld)

Waters Lane v Sweeney [2007] NSWCA 200 (refd)

Ling Tien Wah, Koh Kia Jeng, Ng Hui Min and Germaine Tan (Rodyk & Davidson LLP) for the plaintiff

Chan Hock Keng, Jiang Ke-Yue, Alma Yong, Sim Hui Shan and Benjamin Fong (Wong Partnership LLP) for the defendant.

Judgment reserved.

Belinda Ang Saw Ean J

Introduction

1 In this action, the plaintiff, BR Energy (M) Sdn Bhd (‘BRE’), claims damages against the defendant, KS Energy Services Limited (‘KSE’), for breach of a joint venture agreement made on 13 December 2005 that was subsequently amended on 28 April 2006 (‘the JVA’).

2 BRE had been awarded a contract to charter to Petronas Carigali Sdn Bhd (‘PCSB’) a type of rig known as a Workover Pulling Unit (‘WPU’) that was to be custom-built to fit the technical requirements and platform drawings of PCSB (‘the PCSB project’). As BRE's joint venture partner, KSE was to procure the construction and delivery of the WPU for the purposes of the PCSB project. Accordingly, KSE contracted with a rig builder, Oderco Inc (‘Oderco’), to custom-build the WPU. There were massive delays in the construction of the WPU, with the consequence that no WPU was delivered to PCSB at all and the charter arrangement was called off.

3 It was in these circumstances that the dispute between the parties arose. BRE terminated the JVA on 26 December 2007 on the basis of KSE's repudiatory breach. BRE blamed KSE for the loss of the contract to charter the WPU to PCSB. KSE denied...