IM Skaugen SE and another v MAN Diesel & Turbo SE and another

• Jurisdiction: Singapore
• Judge: Zhuang WenXiong AR
• Judgment Date: 18 April 2016
• Neutral Citation: [2016] SGHCR 6
• Court: High Court (Singapore)
• Hearing Date: 04 March 2016,26 February 2016,12 February 2016
• Docket Number: Suit No 96 of 2015 (Summons No 3879 of 2015 and Summons No 5334 of 2015)
• Plaintiff Counsel: Lawrence Teh and Khoo Eu Shen (Rodyk & Davidson)
• Defendant Counsel: Danny Ong, Yam Wern-Jhien and Ms Eunice Wong (Rajah & Tann Singapore LLP)
• Subject Matter: Choses in Action,Assignment,Civil Procedure,Transfer to SICC,Conflict of Laws,Choice of Law,Tort,Jurisdiction,Discretionary,SICC,Natural Forum,Presumption of similarity,Evidence,Proof of evidence,Presumptions,Misrepresentation,Alteration of position,Fraud and deceit,Inducement,Negligent
• Published date: 20 April 2016

Zhuang WenXiong AR:

A marine diesel engine manufacturer allegedly tampered with fuel consumption test results for a certain class of engines that were installed in the ships of a multi-national shipping conglomerate. The manufacturer authored promotional material in Germany, had sales meetings with the Norwegian holding company of the shipping conglomerate either in Denmark or Norway, provided fuel specifications to a Chinese builder, which installed the engines in China, and the fuel consumption tests were conducted in Germany. The ships, equipped with the engines, pass through the hands of various subsidiaries of the shipping conglomerate, some of which were incorporated in Singapore; their claims are assigned to a Norwegian company and a Singaporean company within the shipping conglomerate. The German manufacturer and a wholly-owned Norwegian subsidiary are sued in Singapore. What law governs the claim? Should the Singapore High Court assume long-arm jurisdiction? How would the recent establishment of the Singapore International Commercial Court affect the assumption of long-arm jurisdiction?

The facts

IM Skaugen SE, incorporated in Norway (hereinafter “Skaugen Norway”), and IM Skaugen Marine Services Pte Ltd, incorporated in Singapore (hereinafter “Skaugen Singapore”; collectively, Skaugen Norway and Skaugen Singapore shall be referred to as the plaintiffs), are part of the IM Skaugen group of companies (“the Skaugen Group”). Skaugen Norway is the principal holding company of the Skaugen Group. The Skaugen Group is in the business of providing marine transportation services in the oil and gas industry.

MAN Diesel & Turbo SE, incorporated in Germany (hereinafter “MAN Germany”), is a manufacturer of marine diesel engines. MAN Diesel & Turbo Norge AS, incorporated in Norway (hereinafter “MAN Norway”; collectively MAN Germany and MAN Norway shall be referred to as the defendants), is a wholly-owned subsidiary of MAN Germany. MAN Norway provides sale support to MAN Germany.

Skaugen Norway entered into four shipbuilding contracts with China Shipbuilding Trading Company Limited and Zhonghua Shipyard (“the Chinese shipbuilders”) in July 2000 for the design, building, sale and delivery of four 8,400 m3 gas carriers. Skaugen Norway had the contractual right to choose the engine. The contracts contained London Maritime Arbitration Association arbitration clauses and were governed by English law.¹ Skaugen Norway entered into discussions with several manufacturers of marine diesel engines, including MAN Germany and MAN Norway, for the supply of an engine and was assisted in this regard by Norgas Carriers AS, the Skaugen Group’s Norwegian management company.

In the course of negotiations in or around July 2000, MAN Germany and/or MAN Norway provided Skaugen Norway with a copy of a project planning manual (“PPM”) for a “Four-stroke Diesel Engine L+V 48/60” (“the MAN Engine”). The plaintiffs say that the negotiations took place in Norway while the defendants say that negotiations took place in Copenhagen, Denmark. The PPM “provide[d] customers and consultants with information and data for planning plants incorporating four-stroke engines from the current MAN B&W programme”; “[f]or concrete projects you will receive the latest editions in each case with our quotation specification or with the documents for order processing.”² The PPM stated that the fuel consumption of the Man Engine under ISO conditions at a load of 85% was 180 g/kWh.

In August 2000, Skaugen Norway entered into four novation agreements with Somargas Limited (“Somargas Cayman”), a company incorporated in the Cayman Islands which was 50% owned by Skaugen Norway and 50% owned by GATX Third Aircraft Corporation (“GATX”). The novation agreements transferred Skaugen Norway’s rights, benefits, obligations and liabilities under the four shipbuilding contracts to Somargas Cayman. Skaugen Norway, purportedly acting on behalf of Somargas Cayman in September 2000, opted for the MAN Engine to be installed in the four vessels.

The Chinese shipbuilders entered into four sales contracts with MAN Germany on 26 September 2000 for the provision of four MAN engines.³ An arbitration clause provided for arbitration under the auspices of The China International Economic and Trade Arbitration Commission. These sales contracts explicitly stated that “[t]he technical specification and the scope of supply as per the technical agreement signed on Aug.24,2000”. Zhonghua Shipyard and MAN Germany entered into the aforementioned technical agreement, dated 24 August 2000,⁴ with an attached technical specification dated 23 August 2000 stating that the fuel consumption level under ISO Standards 3046/1 at a load level of 85% without attached pumps was 180 g/kWh.⁵ The technical specification was in turn subject to MAN Germany’s General Conditions of Delivery, which stated that the jurisdiction for all disputes arising out of the contract was Augsburg (in Germany) with MAN Germany also having the right to bring an action at the place of the purchaser’s registered office; and that the contract was governed by German law.

MAN Germany and MAN Norway delivered to the Chinese shipbuilders a document on 24 November 2000 entitled “6. Kraftstoffsystem Fuel System” (“FSI”).⁶ This document represented that the fuel consumption of the MAN Engine at a load of 100% under ISO conditions with attached pumps and a tolerance of +3% was 193.64 g/kWh.⁷ The document was then transmitted by the Chinese shipbuilders to Skaugen Norway.

Vintergas Limited (“Vintergas”) and the Chinese shipbuilders entered into two further shipbuilding contracts in May 2001 for the construction of two 10,000 m3gas carriers. Vintergas is a company incorporated in the Cayman Islands and is 50% owned by Skaugen Norway and 50% owned by GATX. These contracts likewise contained London Maritime Arbitration Association arbitration clauses and were governed by English law.⁸ Skaugen Norway purported to act on behalf of Vintergas in all matters relating to the 10,000 m3 carriers and instructed the Chinese shipmakers to install MAN engines. The Chinese shipbuilders entered into two sales contracts with MAN Germany on 20 June 2001 for the provision of two MAN engines. These contracts also explicitly stated that “[t]he details of the specification, the scope of supply as well as Commissioning as per the Technical Agreement dated Aug.24,2000”.⁹

The six MAN Engines were manufactured and delivered in 2001 and 2002. Prior to delivery, the engines were put through factory acceptance tests (“FATs”) conducted in MAN Germany’s Augsburg factory. The six engines were tested in May 2001, August 2001, November 2001, February 2002, May 2002 and June 2002. During a FAT, an engine is mounted on a test stand, also termed a test bed. The engine is operated at various settings and the performance and consumption data is collected and recorded. At the end of each FAT, a “Shop Test Protocol” would be prepared, which recorded inter alia the performance data. Representatives of MAN Germany conducted the FATs, all of whom are allegedly German nationals residing in Germany. The documentary evidence discloses that: MAN Norway had representatives present at five of the FATs, but according to the defendants they were not involved in conducting the FATs; Representatives from the Chinese shipbuilders were present at the very first FAT in May 2001; Representatives expressed to be from Skaugen were present at three tests; For those tests where Skaugen was absent, representatives from “Norwegian Gas Carriers” (one test); “Norgas Carriers A/S” and “Det Norske Veritas” (one test); and “Norgas” (one test) were present.

The results of the FATs purported to show that the rate of fuel consumption of the MAN engines was below the values stated in the PPM and the FSI.

The engines were installed in six vessels (“the Vessels”); the first four are the subject of the first tranche of contracts in July 2000 while the fifth and sixth are the subject of the second tranche of contracts in September 2000: they are the Norgas Orinda, Norgas Shasta, Norgas Napa, Norgas Sonoma; Norgas Petaluma and Norgas Alameda. The Vessels were delivered between October 2002 and October 2003.

MAN Germany issued a press release in May 2011 stating that there were indications of possible irregularities during the handover of four-stroke marine diesel engines and it was possible to externally influence fuel consumption values to display results that deviated from those actually measured. MAN Germany also said that it had informed the public prosecutor’s office in Munich of this and would co-operate closely.¹⁰ MAN Germany was eventually fined 8.2 million euros in March 2013 by the Local Court of Augsburg.

MAN Germany then wrote to Skaugen Norway on 31 January 2012 about the possibility that fuel consumption values displayed and recorded during handover were externally influenced and incorrect.¹¹ Subsequently on 3 April 2012 MAN Germany wrote to Norgas Carriers AS (the then managers of the Vessels) conceding that there were indications that the fuel consumption values for three engines were “externally influenced in an improper manner during [FATs]”.¹² On 22 June 2012 MAN Germany wrote to Skaugen Norway, this time conceding that there were indications that the fuel consumption values for three engines were “externally influenced in an improper manner during [FATs]”.¹³

The parties thereafter attempted to settle but negotiations broke down in September 2013 and there was a dispute over whether a binding settlement was reached. While Skaugen and MAN Germany did not enter into a direct contractual relationship for the MAN engines installed in the Vessels, they did enter into such a direct contractual relationship for three other batches of engines that are not the subject of the current suit. This suit is not the first time that the parties have found...