Energy Shipping Co Ltd v UDL Shipping (Singapore) Pte Ltd

JurisdictionSingapore
JudgeKarthigesu JA
Judgment Date05 July 1995
Neutral Citation[1995] SGCA 57
Date05 July 1995
Subject MatterWhether payments could be recovered,Variation,Necessity,Contractual terms,Express terms,Estoppel,Extension of time subsequent to variation of contract,Implied terms,Whether negotiations for variation undertaken with common understanding that time prescribed in original agreement would be suspended,Contract,Whether a necessary term due to variation of contract,Remedies,Whether agreement to vary contract concluded,Negotiations undertaken to substitute standby letter of credit for revolving letter of credit,Payment of instalments during subsistence of contract,'Business efficacy' and 'officious bystander' tests,Whether there was total failure of consideration,Extension of time to carry out obligations,Whether partial work performed under contract provided consideration for instalments paid,Promissory estoppel,Restitution,Equity
Docket NumberCivil Appeal No 148 of 1993
Published date19 September 2003
Defendant CounselAlvin Yeo and Steven Loh (Wong Partnership)
CourtCourt of Appeal (Singapore)
Plaintiff CounselPrem Gurbani and Tan Siew Tiong (Gurbani & Co)

Cur Adv Vult

The facts

The material facts that gave rise to the dispute between the parties are as follows.
On 5 December 1989, the appellants entered into a shipbuilding contract (original contract) with a company, Argos Engineering Pte Ltd (Argos), whereby the latter undertook to construct a vessel at the cost of US$7,460,000. Argos` performance of the contract was guaranteed by its parent company, Chung Wah Shipbuilding and Engineering (Holdings) Co Ltd (Chung Wah), which is a public listed company in Hong Kong. Under the contract, the construction cost of US$7,460,000 was payable in Singapore dollars at the fixed rate of exchange of US$1 to S$1.98, and was payable by five instalments, of which the last instalment being 80% thereof was payable upon delivery of the vessel. The vessel was to be delivered by a date not later than 31 December 1991. The original contract required a letter of credit to be issued by a bank to effect payment of the final instalment. However, instead of the letter of credit, the appellants obtained a letter of guarantee in the sum of US$5,968,000 issued by the Bank of Communications (BOC) in favour of Argos which was accepted; it was issued on 1 June 1990 and was called `a payment guarantee`.

In pursuance of the original contract, the appellants paid Argos the first two instalments of US$373,000 each.
Subsequently no further payment was made, and there was no progress in the construction of the vessel by Argos. The reason was that by March 1991, Argos had a liquidity problem and was unable to proceed further with the construction of the vessel. This problem brought about the intervention of a third party, UDL Holdings Ltd (UDL), another Hong Kong public company. Negotiations then followed between the plaintiffs, UDL, Chung Wah and Argos culminating in a novation agreement dated 7 March 1992 and made between the appellants, Argos, Chung Wah and UDL (novation agreement). Under this agreement, among other things, the original contract was to be undertaken by the respondents, which were a wholly-owned subsidiary of UDL; the respondents, however, was not joined as a party to this agreement. Subsequently, a formal deed of novation was made between Argos, UDL, the appellants and respondents on 12 March 1992 whereby the respondents assumed all the liabilities and obligations of Argos under the original contract, and concurrently, the appellants released Argos from all liabilities thereunder. The material terms of the novation agreement were as follows:

5 The purchase price referred to in the contract [the original contract] shall be changed from `United States Dollars Seven Million Four Hundred And Sixty Thousand Only (US$7,460,000)` to `United States Dollars Eight Million Four Hundred and Seventy Thousand And One Hundred Only (US$8,470,100)`. The difference between the original and the new contract prices in the amount of United States Dollars One Million Ten Thousand and One Hundred Only (US$1,010,100) shall be added to the fifth instalment and be payable upon delivery of the vessel.

...

7 Energy shall establish a revolving letter of credit of up to the limit of Singapore Dollars Eight Million (S$8m) in favour of UDL or the assignee [ie the respondents] to be drawn down by UDL or the assignee according to the terms of purchase orders issued by UDL or the assignee for the purchase of material and equipment required for the completion of the vessel. Details of the purchases shall be supplied to Energy by UDL or the assignee. In the event that this letter of credit is not established within 45 days of execution of this agreement, the new delivery date shall be extended accordingly. If this letter of credit is not established within 60 days of the execution of the agreement, the contract shall become null and void.

8 Energy shall pay the assignee or UDL Singapore Dollars One Million within seven days of the execution of this agreement and a further Singapore Dollars One Million within 14 days of the execution of this agreement.

9 The total amount disbursed under cll 7 and 8 herein shall be offset against the fifth instalment as an adjustment to the contract price pursuant to art II 5(e) of the contract.



Following the execution of the novation agreement and the deed there were negotiations between the appellants and respondents on the substitution of a standby letter of credit for the revolving letter of credit as provided in cl 7 of the novation agreement.
There were a series of letters written in exchange between the parties, of which more will be said very shortly. Suffice it to say at the moment that the appellants claimed that, at the request of the respondents, cl 7 of the novation agreement was amended to provide for the issue of a standby letter of credit in lieu of the revolving letter of credit as therein provided. The respondents disputed this. They contended that they had only agreed to an alternative means of financing in the form of a standby letter of credit. The dispute therefore centred on the provisions of cl 7, which required the appellants to establish the revolving letter of credit within 60 days of the execution of the novation agreement, ie by 6 May 1992. This the appellants did not do: no revolving letter of credit or standby letter of credit for that matter was established by them by that date or any subsequent date. On 15 May 1992, the respondents wrote to the appellants treating the original contract as null and void and terminated it. In their letter, the respondents said:

The agreement required the precise compliance by you of the provisions of cl 7 by the time stipulated in cl 7 and as you have failed or refused to furnish us with the revolving or standby letter of credit within the time stipulated therein, the construction contract dated 5 December 1989 in respect of the above hull has been repudiated by you, which repudiation we accept and, by the provisions of cl 7 of the agreement, the contract is null and void.



Decision below

Consequent on such termination, the appellants instituted proceedings against the respondents claiming damages for breach of contract and delivery of the hull, machinery, material and equipment. The respondents counterclaimed a declaration that the contract was null and void and damages for breach of contract. GP Selvam J heard the case, and he dismissed the claim and allowed the counterclaim. Against his decision, this appeal has been brought.

The appeal

Before us the following issues were raised:

(i) whether there was a concluded agreement to amend cl 7 of the novation agreement by substituting a standby letter of credit for a revolving letter of credit;

(ii) whether the appellants were entitled to an extension of time to fulfil their obligation (whether as originally contemplated or as amended) under cl 7 of the novation agreement;

(iii) if the answer to (ii) above is in the affirmative, whether the respondents were in breach of contract when they gave notice on 15 May 1992 to terminate the original contract; and

(iv) whether the learned trial judge erred in failing to give credit to the appellants for the moneys paid to Argos.



The nature of the credit agreed

On the first issue, it is necessary to refer in some detail to the relevant correspondence in exchange between the parties. Following the execution of the deed of novation a meeting took place on 25 March 1992 between YK Leong and Simon Lim representing the respondents and Paul Cheng and Vincent Wong representing the appellants. What actually transpired at the meeting was in dispute; but what the respective parties subsequently wrote to each other was not. For our purpose, it is sufficient to refer only to the letters or faxes in exchange between the parties. On 10 April 1992, the appellants wrote to the respondents stating, inter alia, the following:

In the meeting, we understood that your good office preferred a standby letter of credit up to S$8m from our side as guarantee for your bank to establish a facility of same for you to open letter of credit to makers directly. We agreed. As there is discrepancy between the agreement and the cl 7, we want to have your written confirmation of same, for which please take note and oblige accordingly. [Emphasis added.]



In response, the respondents replied on 11 April 1992 as follows:

We refer to your letter dated 10 April 1992 and the novation agreement dated 7 March 1992.

We hereby confirm that for the purpose of providing finance for the purchase of equipment and material for the completion of Hull 8629, we are prepared to accept a `standby letter of credit` issued by the Bank of Communication Co Ltd, Taiwan instead of a `revolving letter of credit` as specified under cl 7 of the novation agreement. [Emphasis added.]



On the same day the respondents also despatched a fax to the appellants saying, in so far as material, the following:

We refer to the novation agreement dated 7 March 1992 in relation to Hull No 8629 and hereby advise you that we have already in place the necessary arrangements with our bankers, The Hongkong & Shanghai Banking Corp Ltd, Collyer Quay Branch, for L/C facilities for expenditure in respect of Hull No 8629 up to the limit of Singapore Dollars Eight Million Only (S$8m).

...

We further understand that the above facility shall only be available upon the execution of an irrevocable and unconditional standby letter of credit from the Bank of Communication Co Ltd, Taiwan for Singapore Dollars Eight Million only ($8,000,000.00).

We enclose a specimen of the standby letter of credit to be issued by the Bank of Communication Co Ltd which is self explanatory. [Emphasis added.]



The specimen of the standby letter of credit was from their bank, The Hongkong and Shanghai Banking Corp Ltd (HSBC), which was also faxed to the appellants.
The specimen was expressed to be an irrevocable standby letter of credit for S$8m and...

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7 cases
2 books & journal articles
  • Restitution
    • Singapore
    • Singapore Academy of Law Annual Review No. 2007, December 2007
    • 1 December 2007
    ...1 KB 724, both cited with approval though distinguished on the facts in Energy Shipping Co Ltd v UDL Shipping (Singapore) Pte Ltd[1995] 3 SLR 25 (CA) at [36]—[40]. See also Mayson v Clouet[1924] 1 AC 980 (PC Singapore)). 20.7 Perhaps more interesting is the observation that in appropriate c......
  • EMPLOYERS’ RESPONSIBILITY FOR ARCHITECTS’ CERTIFICATIONS: THE IMPLIED TERM THAT NEVER WAS HONG HUAT AND BEYOND
    • Singapore
    • Singapore Academy of Law Journal No. 2002, December 2002
    • 1 December 2002
    ...Court of Appeal had in fact previously cited this passage with approval: see Energy Shipping Co Ltd v UDL Shipping (Singapore) Pte Ltd[1995] 3 SLR 25 and Miller Freeman Exhibitions Pte Ltd v Singapore Industrial Automation Association[2000] 4 SLR 137. 33 See para 20 of the Hong Huat Case. 3......

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