Panwah Steel Pte Ltd v Koh Brothers Building & Civil Engineering Contractor (Pte) Ltd

• Jurisdiction: Singapore
• Judge: Woo Bih Li J
• Judgment Date: 27 December 2005
• Neutral Citation: [2005] SGHC 235
• Citation: [2005] SGHC 235
• Defendant Counsel: Lai Kwok Seng (Lai Mun Onn and Co)
• Published date: 27 December 2005
• Plaintiff Counsel: Josephine Chong and Aqbal Singh (UniLegal LLC)
• Date: 27 December 2005
• Docket Number: Suit No 746 of 2004
• Court: High Court (Singapore)
• Subject Matter: Remedies,Seller failing to deliver expected quantity of goods to buyer,Interpretation of minus 10% tolerance provision as to quantity of goods to be delivered,Express terms,Remoteness of damage,Implied terms,Buyer seeking damages based on difference between cost of replacing undelivered goods and contract price,Whether implied term that agreement "project-specific" existing,Whether damages too remote to be claimable,Contract,Contractual terms,Seller contracting to supply goods to buyer,Whether option may be exercised by buyer or by both buyer and seller

27 December 2005 Judgment reserved.

Woo Bih Li J:

Introduction

1 In this action, the plaintiff, Panwah Steel Pte Ltd (“Panwah”), claims $1,447,833.83 for the supply of reinforcing steel bars (“rebars”) to the defendant, Koh Brothers Building & Civil Engineering Contractor (Pte.) Ltd (“Koh Brothers”), under an agreement between the parties dated 26 April 2002 but signed by Panwah on 31 May 2002 (“the KB Agreement”). Panwah’s claim is not disputed.

2 The dispute centres on Koh Brothers’ counterclaim for Panwah’s omission to deliver 8,126.459mt being the balance of the contractual quantity of 39,000mt under the KB Agreement. Panwah had in turn entered into a contract to obtain rebars from Burwill Trading Pte Ltd (“Burwill”) and as Burwill declined to deliver the balance, Panwah did not deliver the same to Koh Brothers. There are also disputes between Panwah and Burwill which are the subject of Suit No 928 of 2004 (“Suit 928/2004”), the primary dispute being on Burwill’s refusal to deliver the balance to Panwah under their own agreement dated 23 May 2002 which I have referred to in my judgment for Suit 928/2004 as “the Changi Agreement”.

3 There were two primary issues as between Panwah and Koh Brothers:

(a) Was the KB Agreement “project-specific” in the sense advocated by Panwah, ie, that the rebars must be used only for the intended project, ie, Changi Water Reclamation Plant C3A at Tanah Merah Coast (“C3A”)? Put in another way, was Koh Brothers precluded from using rebars supplied under the KB Agreement for other projects? This issue arose because the evidence was that Koh Brothers did not require the balance of the rebars for C3A. As between Burwill and Panwah, Burwill had refused to deliver the balance.

(b) Was Panwah entitled to deliver 10% less than 39,000mt? I should elaborate that although I initially mentioned above that the contractual quantity was 39,000mt, the KB Agreement referred to a “-10% tolerance” as well. I will elaborate on the actual words used and this issue later.

4 At the trial, the following witnesses gave evidence:

For Panwah
Lim Seow Yi (“Lisa Lim”)	Manager
For Koh Brothers
Choo Siew Meng (“Mr Choo”)	Executive Director
Tan See See (“Rina Tan”)	Purchasing Manager

The “project-specific” issue

5 It was not in dispute that the supply of rebars under the Changi Agreement and under the KB Agreement was intended to be used for the C3A project. However, while Panwah had conceded vis-à-vis Burwill that the Changi Agreement was “project-specific”, Koh Brothers did not concede the same. In addition, when Burwill agreed to extend the Changi Agreement in the circumstances I have stated in my judgment for Suit 928/2004, Panwah had agreed that the supply under the extension would be “as per the progress requirement of the project”. I referred to this as “the Condition” in my judgment for Suit 928/2004 and I will do likewise here. The KB Agreement did not have the Condition. However, Panwah submitted that it was implied that the KB Agreement was project-specific.

6 Before I deal with the arguments on the implied term, I will set out the principles regarding the interpretation of documents and the imposition of an implied term.

7 In United Lifestyle Holdings Pte Ltd v Oakwell Engineering Ltd [2002] 2 SLR 308, Lee Seiu Kin JC referred to Prenn v Simmonds [1971] 1 WLR 1381, Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989, Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 and Tan Hock Keng v L & M Group Investments Ltd [2002] 2 SLR 213. He concluded at [7]:

Those authorities hold that evidence may be admitted of the factual background known to the parties at the time of contracting, including the genesis and purpose of the transaction, but not of the negotiations or intentions of the parties.

8 In James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 (“Miller”), Lord Reid said at 603:

I must say that I had thought that it is now well settled that it is not legitimate to use as an aid in the construction of the contract anything which the parties said or did after it was made. Otherwise one might have the result that a contract meant one thing the day it was signed, but by reason of subsequent events meant something different a month or a year later.

I would add that the principle in Miller has been applied in Singapore in many cases, although subsequent conduct can constitute a variation or an estoppel in appropriate circumstances.

9 In Telestop Pte Ltd v Telecom Equipment Pte Ltd [2004] SGHC 267, Judith Prakash J said at [68]:

The courts do not lightly imply a term into a written contract. They only do so if, objectively, it is considered necessary for the “business efficacy” of the contract and so obvious that there would be no doubt of the parties’ joint answer to the query of the “officious bystander” as to whether that term was part of the contract. Chitty on Contracts (29th Ed, 2004) states at (13-004):

An implication of this nature may be made in two situations: first, where it is necessary to give business efficacy to the contract, and, secondly, where the term implied represents the obvious, but unexpressed, intention of the parties. These two criteria often overlap and, in many cases, have been applied cumulatively, although it is submitted that they are, in fact, alternative grounds. Both, however, depend on the presumed intention of the parties.

In Hiap Hong & Co Pte Ltd v Hong Huat Development Co (Pte) Ltd [2001] 2 SLR 458, the Court of Appeal (per Chao J at [18]) held that the relationship between the two tests was “probably” correctly summarised in the above passage. Andrew Phang has, however, to my mind, persuasively argued on the basis of the historical development of the tests that they are not alternatives but complementary in as much as the “officious bystander” test is the practical mode by which the theoretical guideline encompassed within the “business efficacy” test is fulfilled: see Phang, “Implied Terms, Business Efficacy and the Officious Bystander – A Modern History” [1998] JBL 1. One highly distinguished authority that gives rise to that view is the oft-quoted statement of Scrutton LJ in Reigate v Union Manufacturing Company (Ramsbottom), Limited [1918] 1 KB 592 at 605 that:

[a] term can only be implied if it is necessary in the business sense to give efficacy to the contract; that is, if it is such a term that it can confidently be said that if at the time the contract was being negotiated some one had said to the parties, “What will happen in such a case,” they would have both replied, “Of course, so and so will happen; we did not trouble to say that; it is too clear.”

It is also worth repeating the strictures of the Court of Appeal in the Hiap Hong case to the effect that the “business efficacy” test is a convenient means of repairing an obvious oversight, but that the principle should not be overstretched or used indiscriminately; and that the touchstone for the implication of terms is necessity and not merely reasonableness, but that a necessary term to be implied must always be equitable and reasonable. The court further declared that a term would be implied, if, from the language of the contract and the surrounding circumstances, an inference should be made that the parties must have intended the stipulation in question. Finally, the term to be implied must be capable of clear expression and it must not contradict any express term of the contract: see Phillips Electronique Grand Public SA v British Sky Broadcasting Limited [1995] EMLR [Entertainment & Media Law Reports] 472.

10 As I mentioned, it was not disputed that the supply of rebars under the KB Agreement was intended for the C3A project. However, it is quite a different kettle of fish to say that this necessarily means that it is “project-specific” in the sense advocated by Panwah. During the trial, this expression was bandied about by Panwah as though it was a term of art. However, para 50 of Panwah’s Closing Submissions accepted that it was not a term of art.

11 Panwah relied on industry practice to assert that Koh Brothers could not resell the rebars or deploy the rebars for use in other projects as Koh Brothers is not a stockist or seller of rebars but a building contractor. I would add that Koh Brothers was apparently the main contractor for the C3A project. However, Panwah did not adduce any evidence from an independent party in the industry of building contractors or of steel suppliers to support this assertion. Indeed, although the parties in this action were granted leave to cross-examine any of the witnesses in Suit 928/2004 and to make use of evidence adduced there for the present action and vice versa, Panwah also failed to seize the opportunity to try and establish its assertion from Burwill’s witnesses, beyond accepting Burwill’s position that the Changi Agreement was project-specific.

12 Panwah also submitted that to allow Koh Brothers to resell rebars would be to defeat the business of stockists like Panwah. Yet, Panwah itself could buy from other stockists. Would that defeat the business of those other stockists? I do not think so. Also, Koh Brothers had said they wanted to deploy the rebars, if supplied by Panwah, to other projects and not to resell the same.

13 In her Affidavit of Evidence-in-Chief (“AEIC”) for the present action, Lisa Lim pointed out that Panwah’s quoted prices for rebars varied for different projects to support the “project-specific” assertion. However, I note that the difference in prices as quoted by Panwah for different projects could easily be attributed to:

(a) the different quantities required for each project; and

(b) the different durations of supply for each project.

In my view, while the prices quoted were for specific projects, this fell short of establishing that the KB Agreement was “project-specific”.

14 Panwah also submitted that if...