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

• Jurisdiction: Singapore
• Judge: Chan Sek Keong CJ
• Judgment Date: 18 September 2006
• Neutral Citation: [2006] SGCA 35
• Citation: [2006] SGCA 35
• Date: 18 September 2006
• Year: 2006
• Plaintiff Counsel: Alvin Yeo Khirn Hai SC, Chua Sui Tong (Wong Partnership) and Chong Siew Nyuk Josephine and Aqbal Singh A/L Kuldip Singh (UniLegal LLC)
• Docket Number: Civil Appeal No 8 of 2006
• Defendant Counsel: Giam Chin Toon SC (Wee Swee Teow & Co) and Richard Lai (Lai Mun Onn & Co)
• Court: Court of Appeal (Singapore)
• Published date: 20 September 2006

18 September 2006 Judgment reserved.

Andrew Phang Boon Leong JA (delivering the judgment of the court):

Introduction

1 The appellant, Panwah Steel Pte Ltd (“Panwah”), is a stockist and trader who buys steel reinforcing bars used in construction (“rebars”) from suppliers and resells the same to building contractors like the respondent, Koh Brothers Building & Civil Engineering Contractor (Pte) Ltd (“Koh Brothers”). Panwah entered into an agreement, Contract No KBCE/084/RT/2002 to supply rebars to Koh Brothers dated 26 April 2002 and signed by Panwah on 31 May 2002 (“the KB Agreement”). Under the KB Agreement, Panwah agreed to supply rebars to Koh Brothers for a two-year period (30 June 2002 to 30 June 2004). The quantity involved was stated in the contract as “Actual 39,000 Tons (-10% tolerance or actual)”. Koh Brothers was at that time the main contractor for a proposed Changi Water Reclamation Plant C3A at Tanah Merah Coast (“the C3A project”).

2 Panwah’s supplier was Burwill Trading Pte Ltd (“Burwill”). On 23 May 2002, Burwill had contracted with Panwah to supply 39,000mt (metric tonnes) of rebars to it (“the Changi Agreement”). Panwah intended to then re-supply those rebars to Koh Brothers under the KB Agreement. However, the supply of rebars under the Changi Agreement was for the duration of one and a half years from 1 June 2002 to 31 December 2003, which was six months shorter than the supply duration of the KB Agreement.

3 In order to make the durations of the two contracts the same, Panwah asked Burwill for a six-month extension to the Changi Agreement up to 30 June 2004. This request was granted by Burwill in December 2003, but with the additional stipulation that the supply “shall be as per the progress requirement of the project” (“the Condition”). This Condition was included because Burwill wanted to ensure that all the rebars ordered by Panwah would be used in the C3A project and that Panwah could not take advantage of the soaring prices of steel and resell the rebars for a profit on the open market.

4 As it turned out, Koh Brothers did not use all of the rebars obtained from Panwah for the C3A project, and the ordered rebars began to pile up at the worksite. When Burwill’s representatives visited the C3A site, they noticed that unused rebars were being stored. Burwill began to suspect that Panwah was attempting to stockpile the rebars in contravention of the Condition and consequently ceased delivery of the rebars on 25 June 2004. This was followed by a formal notification of cessation dated 1 July 2004. At that time, Panwah had delivered 30,874mt of rebars, and the undelivered balance was about 8,100mt (“the Shortfall”). Panwah’s suit against Burwill and Burwill’s counterclaim for non-payment under the Changi Agreement was the subject of the appeal in Panwah Steel Pte Ltd v Burwill Trading Pte Ltd [2006] SGCA 34 against the decision rendered in Burwill Trading Pte Ltd v Panwah Steel Pte Ltd [2005] SGHC 234.

5 Koh Brothers nonetheless continued to demand that Panwah deliver the Shortfall despite Burwill’s cessation of delivery. The Shortfall was, however, not required for the C3A project itself, because Koh Brothers had earlier redeployed a surplus of 11,000mt of rebars from another site to the C3A project. Koh Brothers still wanted Panwah to deliver the Shortfall under the KB Agreement because it wanted to replenish its own stocks. As a result, Koh Brothers withheld payment of about $1.4m for the rebars already delivered and claimed damages of $3m against Panwah. Panwah’s claim for the withheld payment was not disputed.

6 The learned trial judge (“the judge”) held, in Panwah Steel Pte Ltd v Koh Brothers Building & Civil Engineering Contractor (Pte) Ltd [2006] 1 SLR 788 (hereafter referred to as “GD”), both that Panwah was entitled to succeed in its claim and that Koh Brothers was entitled to succeed in its counterclaim under the KB Agreement. Indeed, Panwah’s claim was not disputed and the issues at first instance centred on the counterclaim by Koh Brothers against Panwah.

7 There was only one issue canvassed before the present court. This centred around the judge’s rejection of Panwah’s argument to the effect that it was not liable to Koh Brothers for the Shortfall by virtue of the fact that the contract concerned was “project-specific” – in other words, that the rebars were to be used for the C3A project only and that as it was clear on the evidence that Koh Brothers did not require this balance of the rebars for the C3A project (see [5] above), Panwah was not liable to Koh Brothers for the Shortfall.

New point on appeal

8 Counsel for Panwah, Mr Alvin Yeo SC, stated clearly at the outset that he was not relying on the argument proffered at first instance, which centred on an implied term to the effect that the contract was “project-specific”. This is not surprising as that particular argument was rejected by the judge. This result is itself also not surprising in view of the fact that an argument centring on an implied term is frequently, as R E Megarry aptly put it, “so often the last desperate resort of counsel in distress” (see R E Megarry, Miscellany-at-Law (Stevens & Sons Limited, 1955) at p 210). By its very nature, an implied term is, in contrast to an express term, one that is allowed by the court based on the presumed – as opposed to the actual – intention of the contracting parties. Given the fact that court will not rewrite the contract for the parties based on its own sense of what ought to be just and fair, the test for an implied term is strict. It is based on the criterion of necessity.

9 There are at least two broad categories of implied terms – “terms implied in fact” and “terms implied in law”, respectively. The latter is of relatively recent vintage and is based, in the final analysis, on considerations of public policy (see generally Jet Holding Ltd v Cooper Cameron (Singapore) Pte Ltd [2006] SGCA 20 at [90]). Terms under this particular category are of a broader cast:

In other words, the decision of the court concerned to imply a contract “in law” in a particular case establishes a precedent for similar cases in the future for all contracts of that particular type, unless of course a higher court overrules this specific decision. [emphasis in original]

(See Forefront Medical Technology (Pte) Ltd v Modern-Pak Pte Ltd [2006] 1 SLR 927 (“Forefront Medical Technology”) at [44].)

10 The former category (relating to “terms implied in fact”) is the traditional category. It is narrower in nature. Unlike “terms implied in law”, the implication of a term does not create a precedent for future cases. As was stated in Forefront Medical Technology (at [41]):

In other words, the court is only concerned about arriving at a just and fair result via implication of the term or terms in question in that case – and that case alone. The court is only concerned about the presumed intention of the particular contracting parties – and those particular parties alone. [emphasis in original]

11 The tests for “terms implied in fact” are embodied in the oft-cited “business efficacy” and “officious bystander” tests, respectively – both of which are complementary in nature (see generally Forefront Medical Technology at [29]–[40]).

12 The focus by Panwah at first instance in the present proceedings was on the narrower category of “terms implied in fact”. As already mentioned, Panwah is no longer relying on this particular argument. Instead, Mr Yeo argued that a purposive construction of the contract between the parties should be adopted instead and that such an approach would establish that the contract was indeed “project-specific”. However, before this court could even begin to consider this argument, Panwah had to surmount major procedural hurdles.

13 Put simply, was the argument the same (in substance, at least) as the argument centring on the implied term? It will be recalled that Mr Yeo had expressly disavowed any reliance on this argument (based on an implied term) which had failed at first instance. Although, as we shall see, there was an overlap between this particular argument and the argument Mr Yeo was seeking to tender now before this court, it is our view that they are not the same. The argument centring on an implied term must be based on the criteria mentioned above, whereas the argument that Mr Yeo presently seeks to rely upon (which, for...