City Ken Pte Ltd v Comfortdelgro Engineering Pte Ltd

• Jurisdiction: Singapore
• Judge: Kan Ting Chiu J
• Judgment Date: 22 January 2010
• Neutral Citation: [2010] SGHC 29
• Court: High Court (Singapore)
• Hearing Date: 02 April 2009,18 November 2008,25 August 2008,19 November 2008,30 January 2009,22 April 2009,21 November 2008,14 November 2008,17 November 2008,28 August 2008,20 November 2008,03 September 2008,02 February 2009,02 September 2008,27 August 2008,29 August 2008,25 March 2009,13 November 2008,01 September 2008,26 August 2008
• Docket Number: Suit No 62 of 2006
• Plaintiff Counsel: Deborah Barker SC and Audra Balasingam (KhattarWong)
• Defendant Counsel: Indranee Rajah SC, Kirpalani Rakeshgopal and Samuel Lee (Drew & Napier LLC)
• Subject Matter: Contract,Breach,Contractual terms,Implied terms
• Published date: 01 February 2010

Kan Ting Chiu J:

This is action arises out of a contractual relationship between the parties. The plaintiffs City Ken Pte Ltd are motor vehicle repairers. The defendants Comfortdelgro Engineering Pte Ltd, who are also engaged in motor vehicle repairs, had a contract to repair the taxis of CityCab Pte Ltd (“CityCab”), but instead of undertaking the repairs themselves, they sub-contracted the repairs out to the plaintiffs.

The dispute between the parties arose out of an arrangement they termed a profit-sharing arrangement. The arrangement, as described by the plaintiffs, was that: (i) The Plaintiffs will invoice the Defendants 80% of the costs of the accident damage repairs to the CityCab Taxis; (ii) The Defendants will pay the amount invoiced to the Plaintiffs within 30 days of the Plaintiffs’ invoices; (iii) In the event the driver (or his/her insurers) of the other vehicle involved in the accident offers the Defendants a settlement of the claim for repair costs at a sum below the amount so claimed, the Defendants will be able to recover from the Plaintiffs any over-payment under the revenue sharing scheme agreed, described in the aforesaid minutes as the “over-payment of profit sharing for the difference between the claim amount and the settlement received” (“Over Payment Return”).¹ The overall scheme was that the defendants were to pay the plaintiffs 80% of the repair amounts, and issue invoices to CityCab for the full sums, but CityCab did not pay the invoices, and the defendants would make claims in CityCab’s name against the third parties and retain the amounts received from them.

In cases where the defendants were not able to recover the full claim from a third party, they were entitled to a refund or clawback from the plaintiffs, initially through credit notes issued by the plaintiffs and subsequently through debit notes issued by the defendants. It was recorded in the minutes of a meeting between the parties that:²

Basis of Profit Sharing

1. 20% for [the Defendants] and 80% for [the Plaintiffs] based on all repair bills for labour and spare parts sales but not applicable to excess cases. 2. The term of payment for works order reflecting the 80% share for [the Plaintiffs] shall be 30 days. 3. In the event that [the Defendants] be offered to settle the claim in partial and/or incurred legal costs, [the Defendants] would be able to recover from [the Plaintiff] for the over-payment of profit sharing for the difference between claim amount and settlement received.

The parties maintained the working relationship between 1997 and 2003. During this period, the corporate identity of the defendants went through several transformations and the contract went through several revisions, but nothing turned on that.

It was apparent that the parties were more familiar and concerned with vehicular repairs than paperwork. They did not engage lawyers to draft formal agreements. They were not careful to monitor the records and the accounts between themselves when the contractual relationship was on-going. When the relationship was terminated in September 2003, both were unclear about the state of the records and the accounts. The plaintiffs started by demanding $15,370,697.51 from the defendants. After the action was filed, the amount was reduced to $2,208,716.63, made up of two components, $740,602.33 for unpaid invoices, and $1,468,114.30 deducted by the defendants through their disputed debit notes they had issued, and the amount for the unpaid invoices was reduced to $11,053.24 and the amount for the disputed debit notes rose to $1,785,786.72.

The defendants also took changing positions. They initially contended that there was no sum due to the plaintiffs at the termination of relationship. Subsequently, they paid $123,652.57 to the plaintiffs. After the plaintiffs commenced the action, they made a further payment of $90,816.60, and in the course of the hearing, they made further payments on two occasions amounting to $1,935.57 and $2,158.28.

These difficulties arose because the parties disagreed over the effect and the implementation of the arrangement, in particular with reference to the defendants’ handling of the claims, the issuance of their debit notes, and the payment of the plaintiffs’ invoices.

The plaintiffs’ claim in the action

The plaintiffs claimed against the defendants: $1,785,786.72 being the sum of the plaintiffs’ invoices with no set offs for debit notes issued after January 2002; or (i) $11,053.24 being the unpaid balance of the plaintiffs’ invoices after setting off the defendants’ debit notes, and (ii) damages; or an account of all sums due from the defendants to the plaintiffs.

The defendants did not admit any part of the plaintiffs’ claims. They maintained that their debit notes were valid, that they had dealt with the claims and settlements properly, and that there were no further payments due to the plaintiffs.

The plaintiffs pleaded in their statement of claim that: 3(c) It is a term of the Taxi Agreement that: (i) The Plaintiffs will invoice the Defendants 80% of the costs of the accident damage repairs to the CityCab Taxis; (ii) The Defendants will pay the amount invoiced to the Plaintiffs within 30 days of the Plaintiffs’ invoices; (iii) In the event the driver (or his/her insurers) of the other vehicle involved in the accident offers the Defendants a settlement of the claim for repair costs at a sum below the amount so claimed, the Defendants will be able to recover from the Plaintiffs any over-payment under the revenue sharing scheme agreed, described in the aforesaid minutes as the “over-payment of profit sharing for the difference between the claim amount and the settlement received” (“Over Payment Return”). 3(d) [I]t was an implied term of the Taxi Agreement that the Defendants would use all reasonable efforts to pursue the claims for repair costs and other claims, would use due diligence in pursuing such claims, would keep the Plaintiffs informed of such efforts and would consult the Plaintiffs and would obtain the Plaintiffs’ approval with respect to any settlement proposed.³

[emphasis added]

The handling of the claims

The plaintiffs alleged that between 1997 and 1998 the defendants consulted and sought their approvals on the settlement of the claims, and in cases where settlement fell below 80% of invoiced amounts, the plaintiffs would issue credit notes to the defendants which the latter would use to set off against any sums due to the defendants. In 1999, the procedure was changed whereby the defendants issued debit notes to the plaintiffs instead of the plaintiffs issuing credit notes to the defendants. The plaintiffs did not state whether the change from the use of debit notes in place of credit notes was made with their agreement. Nevertheless, the defendants continued to provide information to and seek the approval of the plaintiffs on settlements up to 2002.⁴

The procedure changed further in January 2002. The defendants did not inform or consult the plaintiffs on the claims or to seek their approval. When claims were settled below the 80% level, the defendants issued debit notes to the plaintiffs on the shortfalls and set off the amounts from payments due to the plaintiffs. The plaintiffs alleged that the debit notes the defendants issued did not contain sufficient particulars to match them to the plaintiffs’ invoices, and did not contain any information on the settlements.⁵

The defendants admitted in their pleaded defence that they had consulted and sought the plaintiffs’ approval on settlements up to January 2002 but they denied that they were obliged to do that.⁶ Subsequently they tried to change their position without amending their defence, and denied that they had consulted the plaintiffs or sought their consent before 2002.⁷. The defendants also denied that their debit notes were lacking in content.

The debit notes

The plaintiffs had two primary complaints over the debit notes, that the debit notes issued from January 2002 and the consequential clawbacks set off against the plaintiffs’ invoices were invalid because the defendants did not consult and seek the plaintiffs’ approval for the settlement of claims; and the defendants had not dealt with the claims reasonably and diligently.

Whether the terms pleaded in para 3(d) of the Statement of Claim can be implied

There was little evidence on the circumstances in which the agreement between the parties was arrived at. Tee Swee Kiong, the founder and former director of the plaintiffs filed an affidavit of evidence-in-chief in which he asserted that the parties agreed that it was agreed that the plaintiffs would be involved in any decision on the settlement or dropping of any claim (which meant that this was an express term of the agreement rather than an implied term as the plaintiffs pleaded). However, he did not give evidence during the trial on medical grounds that he had pulmonary fibrosis, bronchiectasis, chronic bronchitis and emphysema, although he was recorded on video in apparent good health meeting with other persons for a meal at a coffee shop and doing shopping at a supermarket. I was prepared to allow for medical facilities to be made ready and available when he gave his evidence, but he decided that he would not attend court to testify. In the circumstances, his affidavit was not admitted in evidence as there was no reason for it to be admitted under O 38 r 2(1) of the Rules of Court (Cap 322, R5, 2006 Rev Ed) (“Rules of Court”) if he could not be cross-examined on the disputed contention.

The plaintiffs’ assertion that the defendants consulted them and sought their approval from the time the agreement came into force in 1997 till January 2002 was accepted by the defendants with the qualification that they were not obliged to do that under the terms of the agreement.

There...