Britestone Pte Ltd v Smith & Associates Far East Ltd

JurisdictionSingapore
CourtCourt of Three Judges (Singapore)
Judgment Date28 September 2007
Date28 September 2007
Docket NumberCivil Appeal No 144 of 2006

[2007] SGCA 47

Court of Appeal

Chan Sek Keong CJ

,

Andrew Phang Boon Leong JA

and

V K Rajah JA

Civil Appeal No 144 of 2006

Britestone Pte Ltd
Plaintiff
and
Smith & Associates Far East, Ltd
Defendant

Sham Chee Keat (Ramdas & Wong) for the appellant

Andy Leck and Li Yuen Ting (Wong & Leow LLC) for the respondent.

Arts Niche Cyber Distribution Pte Ltd v PP [1999] 2 SLR (R) 936; [1999] 4 SLR 111 (refd)

Atico International (HK) Ltd v Sparko (Far East) Ltd [2006] HKCU 1915; [2006] HKCFI 1025 (refd)

Bence Graphics International Ltd v Fasson UK Ltd [1998] QB 87 (refd)

Biggin & Co Ld v Permanite Ld [1951] 1 KB 422, HC (refd)

Biggin & Co Ld v Permanite Ld [1951] 2 KB 314, CA (folld)

Bodycote HIP Ltd v Vanguard Engineering Ltd (19 July 2000) (unreported) (refd)

BP plc v Aon Ltd [2006] 1 All ER (Comm) 789 (refd)

Brown Noel Trading Pte Ltd v Donald & McArthy Pte Ltd [1996] 3 SLR (R) 760; [1997] 1 SLR 1 (refd)

Browne v Dunn (1893) 6 R 67 (folld)

C A & M E C Mcinally Nominees Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2001) 188 ALR 439 (refd)

E & J Glasgow Limited v UGC Estates Limited [2005] CSOH 63 (refd)

Holland Hannen & Cubitts (Northern) Ltd v Welsh Health Technical Services Organisation (1985) 35 BLR 1 (refd)

Hop Fat Garments Factory Limited v Siber Hegner and Company (HK) Limited [1987] HKCU 93; [1987] HKCFI 214 (unreported) (refd)

Matsumoto Shipyards Limited v Forward Machine Shop Ltd (1984) 25 ACWS (2d) 114; [1984] BCWLD 981 (refd)

Onderlinge Verzekering Maatshcappij “Tegen Zeegevaar” v Hogg Robinson & Gardner Mountain Reinsurance Ltd (5 March 1990) (unreported) (refd)

P & O Developments Ltd v Guy's and St Thomas' National Health Service Trust (1998) 62 Con LR 38 (folld)

Pinnock Brothers v Lewis and Peat, Limited [1923] 1 KB 690 (refd)

Rivtow Straits Limited v B C Marine Shipbuilders Limited [1978] 2 ACWS 370 (refd)

Seven Seas Properties Ltd v Al-Essa (No 2) [1993] 1 WLR 1083 (refd)

Smith & Associates Far East, Ltd v Britestone Pte Ltd [2006] SGHC 186 (refd)

Unity Insurance Brokers Pty Limited v Rocco Pezzano Pty Limited (1998) 192 CLR 603 (refd)

Westcoast Transmission Co Ltd v Cullen Detroit Diesel Allison Ltd (1990) 70 DLR (4th) 503; 45 BCLR (2d) 296; 48 BLR 17 (refd)

Westcoast Transmission Company Limited v Cullen Detroit Diesel Allison Ltd (1986) 39 ACWS (2d) 267 (refd)

White Industries Qld Pty Ltd v Hennessey Glass & Aluminium Systems Pty Ltd [1999] 1 Qd R 210 (refd)

Wong v Hutchison (1950) 68 WN (NSW) 55 (refd)

Evidence Act (Cap 97,1997 Rev Ed)ss 103, 105

Sale of Goods Act (Cap 393, 1999 Rev Ed)s 13

Commercial Transactions–Sale of goods–Breach of contract–Damages for breach of contract–Distributor purchasing capacitors from sourcing company and reselling them to third party–Components causing third party to suffer damage–Distributor held responsible for damages and settling third party's claim–Whether sourcing company liable to pay distributor amount paid under settlement with third party–Whether damages claimed too remote as sourcing company not told of purpose for use of capacitors–Damages–Measure of damages–Whether settlement reached reasonable and reliable as reflecting actual loss suffered by distributor–Considerations to be taken into account in assessing reasonableness of settlement

The respondent purchased capacitors from the appellant and resold them to another company (“CTL”) which then installed the capacitors onto printed circuit boards for EMC Corporation (“EMC”). The capacitors were found to be counterfeit. EMC claimed expenses incurred in the purging exercise from CTL, who in turn claimed the same amount from the respondent. After negotiations, the respondent agreed to pay CTL a sum in a full and final settlement. The appellant refused to contribute to the settlement amount from the outset. The appellant admitted liability for the damage caused but argued that: (a) the damages claimed were too remote as the appellant was not told of the purpose for which the respondent would use the capacitors; and (b) the settlement reached between the respondent and CTL was not reasonable and thus could not be relied on as reflecting the actual loss suffered by the respondent.

Held, dismissing the appeal:

(1) The damages claimed were not too remote. The respondent's evidence, that the capacitors could only be used on printed circuit boards and not as stand-alone items, was unchallenged by the appellant. Further, it was within the appellant's reasonable contemplation that the capacitors would be used in such a manner by the respondent as this was not the first time both parties had transacted with each other: at [17], [18] and [21].

(2) The respondent had prima facie shown that the settlement figure was reasonable. It had provided adequate particularisation of the process and methodology in arriving at the settlement sum. It was open to the appellant, at an early stage, to object, but it failed to and refused to be involved in the settlement process. The fact that: (a) the negotiations were extended and carried out with legal advice from the respondent's in-house counsel; (b) the settlement figure was painstakingly verified; (c) the respondent had made full payment of the settlement sum to CTL; and (d) the settlement was conducted at arm's length, supported the conclusion that the settlement reached was reasonable: at [61] and [62].

[Observation: Whether a settlement was reasonable called for principled pragmatism. A survey of the United Kingdom, Australian, Hong Kong and Canadian case law revealed a consistent position, viz, that the courts deemed it permissible to refer to the amount reached in settlement between two downstream parties in deciding the amount to be awarded to one of these parties in a claim against an upstream defendant. The claimant must prove its actual loss and if the settlement was reasonably reached, the amount agreed therein would be regarded as accurately reflecting the actual loss suffered by the downstream client: at [1], [27] to [41].]

V K Rajah JA

(delivering the grounds of decision of the court):

Introduction

1 In the Australian High Court decision of Unity Insurance Brokers Pty Limited v Rocco Pezzano Pty Limited (1998) 192 CLR 603 (“Unity Insurance”), Hayne J compellingly summarised at [124] the broad philosophy supporting downstream settlements in the following terms:

If, without working injustice to the [ultimate payor], the settlement of disputes can be encouraged, the desirability (some may say the necessity) of doing so is obvious.

Indeed, in commercial matters, the desirability of settling disputes without recourse to the courts is to be actively encouraged as it is both convenient and pragmatic to do so. However, when a party intends to rely on a settlement as a basis to recover a claim in damages against an upstream defaulter in a liability chain, the courts have to strike an appropriate balance between upholding settlements and assessing the reasonableness of “imposing” a settlement on the ultimate payor, who may not strictly be privy to that settlement. It cannot be right for defaulting parties to be invariably bound by settlements which they are not privy to and have not been consulted about, particularly if liability is still an issue to be resolved.

2 Singapore is an international centre for outsourcing and contract manufacturing. There can be little doubt that the reliability of settlements is often the cornerstone of many commercial arrangements and transactions. The legitimacy that the law will accord to settlements is also of great importance in other multiparty transactions, especially in construction contracts. The resolution of satellite litigation in such a multiparty setting is often fraught with complexity and uncertainty. While the ideal situation will be to resolve all disputes and issues contemporaneously, commercial reality often dictates otherwise. Some claims cannot be crystallised until downstream parties have resolved their disputes. The courts must, therefore, engage in a cautious and scrupulous appraisal when reviewing settlements so as not to impede or deter the use of such a convenient and cost-effective extra-judicial mechanism for resolving commercial difficulties, while ensuring, at the same time, that contractual defaulters are neither unnecessarily nor unfairly penalised.

3 The present proceedings raise squarely an important issue as to the circumstances in which a court may uphold a settlement that a party is seeking to rely on against a third party who has not been directly involved in the earlier settlement process. Must the courts choose only between two stark choices, ie,the principle that a party must prove its losses by establishing through direct evidence what its precise losses are on the one hand and the pragmatism that encourages the courts to support the sensible extra-judicial resolution of disputes on the other? Is it not open to the courts to approach the resolution of such a conundrum with principled pragmatism? Can it not be said that the principle of proving loss finds expression in the courts' scrutiny of the downstream settlement contracts for reasonableness? Ultimately, if liability is not an issue, the true loss suffered by such claimants is in fact equivalent to the settlement amount. The courts, in examining the reasonableness of these settlements, are in effect confirming and ensuring that these settlement amounts reasonably reflect the quantum of loss suffered by the claimants. In this sense then, the twin concepts of reasonableness and proof of actual loss are intertwined and, in reality, represent different sides of the same coin. Before we proceed to discuss the applicable law, it would be appropriate to turn first to the facts of the present case.

The facts

4 Britestone Pte Ltd (“the appellant”) is a company incorporated in Singapore which sources electronic components from traders...

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