Btech Engineering Pte Ltd v Novellers Pte Ltd

• Jurisdiction: Singapore
• Judge: Quentin Loh J
• Judgment Date: 23 July 2019
• Neutral Citation: [2019] SGHC 171
• Court: High Court (Singapore)
• Docket Number: Suit No 981 of 2016
• Published date: 26 July 2019
• Year: 2019
• Hearing Date: 09 May 2018,11 May 2018,10 May 2018,27 June 2018
• Plaintiff Counsel: Wong Hong Weng Stephen and Sankar s/o Kailasa Thevar Saminathan (Sterling Law Corporation)
• Defendant Counsel: Sunil Nair and Kevin Koh (Eversheds Harry Elias LLP)
• Subject Matter: Contract,Discharge,Breach,Tort,Conversion,Civil Procedure,Discovery of documents,Striking out,Confidence,Remedies,Delivery up and destruction
• Citation: [2019] SGHC 171

Quentin Loh J: Introduction

The plaintiff, Btech Engineering Pte Ltd (“Btech”), claims in these proceedings several sums allegedly owing under an oral agreement between the parties. The defendant, Novellers Pte Ltd (“Novellers”), denies that such a term existed. Novellers also counterclaims for damages and various reliefs in respect of Btech’s repudiation of the oral agreement and unlawful detention of Novellers’ property.

The trial was bifurcated by consent of the parties.¹ This judgment deals with both liability and quantum for Btech’s claim but only liability for Novellers’ counterclaim. Determination of loss suffered and quantification of damages for the counterclaim were reserved to the next tranche.²

The facts

Btech is a general wholesale distributor of engineering products. Its director is Mr Ang Tuan Beng (“Mr Ang”).³ Novellers was incorporated on 5 July 2012 and is a manufacturer of engineering products, in particular elastomer seals. Its current director is Dr Ng Soo Yeng (“Dr Huang”).⁴

Mr Ang and Dr Huang first met sometime in 2003. At the time, Btech was the sole distributor (in Singapore) of elastomer seals manufactured by Precision Polymer Engineering Limited (“PPE”), which was based in the United Kingdom. Dr Huang was PPE’s Head of Material Technology and Business Manager for the Asia-Pacific region.⁵ As Head of Material Technology, Dr Huang was involved in the development and manufacture of elastomer seals for PPE’s clients, and his responsibilities included selection of raw ingredients and determination of the appropriate manufacturing process.⁶

From time to time, both men would discuss the possibility of setting up an entity in Singapore to manufacture elastomer seals as an alternative to those supplied by PPE to Btech. Nothing came of the idea when it was first mooted sometime in 2007,⁷ but, by 31 May 2011, detailed discussion on equipment lists and projected timelines had begun in earnest.⁸ Sometime in December 2011, Dr Huang resigned from PPE to pursue this new venture.⁹

The Oral Agreement

In February 2012,¹⁰ the structure of the proposed venture was finalised and orally agreed between Mr Ang and Dr Huang (“the Oral Agreement”). The arrangement was essentially as follows: Mr Ang would, through facilities available to Btech, obtain the starting capital and financing for the set-up of a factory for the manufacture of elastomer seals, whereas Dr Huang would be responsible for the technical direction and development of manufacturing operations. A new entity – Novellers – would be incorporated by Mr Ang and Dr Huang for the purpose of operating the manufacturing facility. Customers would place orders with Btech, which would cause one of its intermediary companies, Systemaz International Pte Ltd (“Systemaz”) or Preseal Engineering Pte Ltd (“Preseal”), both of which were wholly owned by Mr Ang’s wife,¹¹ to place orders with Novellers. Novellers would then manufacture the goods and sell them to Preseal and/or Systemaz at a price which would enable Novellers to turn a profit.¹² Preseal and/or Systemaz would arrange with Btech to send goods to the customer. Btech would then be paid by the customer at a profit margin.¹³ I note here that parties disagree over what exactly this margin was, but nothing turns on this. The long term goal was that Novellers would one day be sufficiently successful and attractive enough to be acquired by an investor so that both Mr Ang and Dr Huang could profit from the sale.¹⁴

The detailed terms of the Oral Agreement are, however, disputed by the parties. The terms, as alleged by Btech, were as follows: Btech would grant Novellers a contractual licence for use of 128 Tuas South Avenue 2, Singapore 637169 (“the Premises”) for the manufacture of elastomer seals (“the contractual licence”).¹⁵ As regards distribution of the goods manufactured by Novellers, Systemaz and Preseal would act as intermediaries between Novellers and the ultimate customers. Customers (including Btech) would place their orders with either Systemaz or Preseal, which would in turn place identical orders for the goods with Novellers. The goods would be sold and delivered to the ultimate customers by Systemaz or Preseal (“the distribution arrangement”).¹⁶ Novellers would accept and process all orders placed by Systemaz and Preseal (“the acceptance obligation”).¹⁷ Novellers would pay or reimburse Btech, on a monthly basis, for the following costs and expenses (“the payment obligation”):¹⁸ monthly mortgage instalments, property tax, maintenance and sinking fund charges, utilities, telephone and broadband bills and any other outgoings and expenses payable in respect of the Premises; monthly hire-purchase instalments, repairs, maintenance, insurance and any other outgoings and expenses payable in respect of the manufacturing tools and equipment at the Premises; monthly hire-purchase instalments, repairs, maintenance, insurance, road tax and any other outgoings and expenses payable in respect of the vehicle bearing registration number SGV9770C; salaries, foreign worker levies, insurance and any other remuneration or expenses incurred by Btech in respect of Btech’s employees stationed at the Premises; and materials purchased by Btech for Novellers’ use.

The terms enumerated at [7(a)] and [7(b)] (ie, the contractual licence and the distribution arrangement) are undisputed,¹⁹ but Novellers denies the terms at [7(c)] and [7(d)] (ie, the acceptance obligation and the payment obligation). Instead, Novellers’ position was that any financial contributions to Btech’s running costs would be subsequently agreed on a case-by-case basis.²⁰

On 5 July 2012, Novellers was incorporated by Dr Huang and Mr Ang, both of whom were directors and 51% and 49% shareholders respectively.²¹ Mr Ang voluntarily resigned his directorship on 15 December 2012,²² and subsequently transferred his shares in Novellers to Dr Huang on 26 May 2015, making Dr Huang the sole shareholder as of that date, though nothing turns on this.²³ Meanwhile, as planned, Novellers began manufacturing elastomer seals, which were then sold to various customers.

The paid invoices

On 2 March 2015, Mr Ang emailed Dr Huang and one Lim Meng Heng (“Brian Lim”), Novellers’ Finance Manager, who had joined Novellers sometime in September 2014.²⁴ The text of the email simply read “FYI”, and contained as attachments two invoices (Invoice Nos 20150097 and 20150098) issued by Btech to Novellers for “Miscellaneous Expenses”, “Property & Equipment Leasing” and “Remuneration Expenses” allegedly incurred between July 2014 to January 2015. The invoices were dated 10 February 2015, and totalled $200,687.46.²⁵ Also attached to the email were bank statements showing that Mr Ang had transferred the sums invoiced from Novellers’ bank account to Btech.²⁶

In the same way, invoices dated 16 March 2015, 1 April 2015, 1 May 2015, 1 June 2015 and 1 July 2015 (Invoice Nos 20150168, 20150220, 20150383, 20150384 and 20150454 respectively)²⁷ were issued by Btech to Novellers in respect of expenses purportedly incurred from February 2015 to June 2015, totalling $116,327.13. Payment was similarly made from Novellers’ bank account and effected by Mr Ang.²⁸ The invoices and the various proofs of payment were attached to cover emails addressed to Brian Lim and copied to Dr Huang.²⁹ I refer to the invoices dated between 10 February 2015 and 1 July 2015 collectively as the “paid invoices”.

Meanwhile, beginning in January 2016, Btech’s distributorship network in Asia had begun to unravel. First, Btech’s affiliate in Taiwan, Btech Taiwan, began to place orders directly with PPE, cutting out Btech.³⁰ In February 2016, Btech’s Malaysian sub-agent, SKN Industrial Supplies Sdn Bhd, realised that the goods it was receiving from Btech had been produced by Novellers, and not PPE, alerting PPE to the fact that Btech had been distributing products manufactured by Novellers, which product PPE claimed comprised materials with an almost identical chemical composition to those produced by PPE.³¹ PPE subsequently terminated its distributorship arrangement with Btech, and contacted major customers of Btech to inform them of the same. Both Btech and Novellers suffered heavy falls in sales revenue as a result.³² Amidst these troubles in Btech and Novellers’ Asian markets, it was decided that Dr Huang would relocate to the United Kingdom and pursue business opportunities in Europe.³³ In his absence, Dr Huang would continue to retain oversight over the factory operations by way of reports from Novellers’ employees as well as closed circuit television footage of the Premises.³⁴ Dr Huang eventually left for the UK on 28 July 2016.

The China purchase orders

On 19 August 2016 at 10.43am, Mr Ang placed two purchase orders for a Chinese customer with Novellers via Preseal (“the China POs”).³⁵ The China POs were sent to Brian Lim and to Sharon Tan, Novellers’ product engineer. Sharon Tan was not called as a witness by either party. As the China POs had not been copied to Dr Huang, he first found out that the China POs had been placed when Sharon Tan contacted him to enquire about the acquisition of additional raw material and ingredients due to the size of the order. It was at this point that Dr Huang realised that the proposed price for the China POs was too low, and would result in Novellers making a loss of about 15%.³⁶ On the same day, at around 5.48pm, Dr Huang instructed Sharon Tan to stop processing the order. Sharon Tan then relayed the message to Brian Lim by forwarding him a picture of Dr Huang’s messages to her with his instructions.

According to Mr Ang, he found out that Dr Huang had stopped production of the China POs from Brian Lim. Although Dr Huang subsequently called Mr Ang to discuss the pricing of the China POs, no agreement was reached, and the conversation ended after Mr Ang warned Dr Huang that if he did not process this...