Salcon Ltd v United Cement Pte Ltd

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 07 September 2004
• Neutral Citation: [2004] SGCA 40
• Docket Number: Civil Appeal No 3 of 2004
• Date: 07 September 2004
• Published date: 10 September 2004
• Year: 2004
• Plaintiff Counsel: Jimmy Yim SC (Drew and Napier LLC)
• Citation: [2004] SGCA 40
• Defendant Counsel: Andrew Phang SC, amicus curiae,Philip Jeyaretnam SC, Paul Wong and Goh Peng Fong (Rodyk and Davidson)
• Court: Court of Appeal (Singapore)
• Subject Matter: Third party's novus actus interveniens causing silo to collapse before repairs could be made,Measure of damages,Whether respondent entitled to claim for diminution in value of notionally repaired silo,Whether respondent entitled to claim for consequential losses during notional repair period,Damages,Appellant engaged to construct concrete silo,Appellant's negligence and breach of contract resulting in various defects,Whether respondent entitled to claim alternative measure of damages

7 September 2004 Judgment reserved.

Tan Lee Meng J (delivering the judgment of the court):

1 This appeal relates to an arbitrator’s ruling that the appellant, Salcon Limited (“Salcon”), a construction company, was liable to the respondent, United Cement Pte Ltd (“UCL”), for certain heads of consequential losses resulting from the former’s negligence and breach of contract regarding the construction of a cement silo.

Background

2 The facts in this case, shorn of details, are as follows. UCL, a Singapore company in the cement business, wanted to build a reinforced concrete silo (“the silo”) at Pulau Damar Laut to store cement that was to be packed for sale. On 18 August 1993, UCL appointed Cheang Jen Boon (“Cheang”), a professional engineer, to design the silo, which comprised seven cells within two concentric cylindrical walls, with the central cell (“Cell 1”) surrounded by six smaller cells (“Cells 2 to 7”) of varying sizes. Cheang’s task was also to supervise the construction of the silo.

3 On 16 November 1994, UCL appointed Salcon as the main contractor for the construction of the silo for a sum of $7,796,123.22. By December 1995, the construction work was substantially completed and by March 1996, the silo was fully operational.

4 The silo was neither well designed nor well constructed. By March 1997, a number of defects appeared. After these defects were rectified, Cheang issued the Certificate of Completion of Work and the Defects Liability Certificate on 26 June 1997. However, UCL continued to face problems with the silo. Between November 1997 and February 1998, chunks of concrete and rebars were flushed through the discharge valves of Cell 4, which had to be emptied for repairs. Cracks and spalling along the inner wall of the silo were also discovered.

5 On 3 February 1999, a site inspection was carried out by officers from the Building Control Division in the presence of all the parties. After this inspection, Cheang advised in his evaluation report of 13 February 1999 that the silo should not be operated beyond 70% of its capacity. This meant that each of the cells was not to be loaded beyond 70% of its capacity. By then, UCL had appointed Mr Tan Ee Ping of M/s Tan Ee Ping & Partners (“TEPP”) as its consultant. In two reports dated 4 May 1999 and 17 May 1999, TEPP recommended that the silo be shut down for repairs to be carried out. The silo ceased operating by 7 June 1999.

6 Although TEPP knew that Cheang had advised that the silo should not be operated beyond 70% of its capacity, orders were given for Cell 4 to be loaded to full capacity on 24 June 1999 so that stresses could be monitored by strain gauges. Some 6,000 tons of cement were poured into Cell 4. This resulted in Cell 4 being filled up to 97% of its storage capacity. On the following day, while cement was being discharged from Cell 4 between 3.30pm and 4.00pm, a large vertical crack appeared around Cells 3 and 4, after which the whole silo collapsed. As a result, rectification work was no longer possible as the silo had to be demolished and entirely reconstructed. Reconstruction work has since been completed.

7 UCL instituted proceedings in the High Court against Cheong and Salcon for negligence and/or breach of contract. UCL asserted that the silo was wholly defective, unfit for its purpose and/or unsafe. By an order made on 2 March 2000 pursuant to s 22 of the Arbitration Act (Cap 10, 1985 Rev Ed), the dispute was referred to a panel of three arbitrators. The arbitrators were Mr C R Rajah SC, Mr Teh Hee Seang and Mr Tan Chee Meng.

The arbitration proceedings

8 Cheang and Salcon did not seriously dispute UCL’s right to damages for defective design and workmanship. However, they submitted that TEPP’s negligent advice to load Cell 4 to full capacity on 24 June 1999 was a novus actus interveniens that broke the chain of causation and that, as such, the damages payable by them should be based on the cost of rectifying the defects resulting from the design and construction of the silo before it collapsed.

9 In their Interim Award I, the arbitrators found as follows:

(a) Cheang was negligent and had breached his design and supervision contract with UCL.

(b) Salcon was negligent and in breach of its construction contract with UCL.

(c) TEPP’s advice to UCL to load Cell 4 on 24 June 1999 to full capacity was a novus actus interneniens which broke the chain of causation.

(d) UCL was not guilty of contributory negligence or of a failure to mitigate its losses.

(e) Both Cheang and Salcon were liable to UCL for “damages arising from their negligence and breach of contract for the design and construction deficiencies in the silo prior to 24 June 1999”.

(f) The liability of Cheang and Salcon was apportioned at 30% and 70% respectively.

10 In para 243 of their Interim Award I, the arbitrators directed as follows:

[Cheang] and [Salcon] are jointly and severally liable to [UCL] in damages for the cost of rectification of all design and construction defects in the silo in its state prior to the loading of Cell 4 on 24 June 1999 and consequential loss arising therefrom, in the proportion of 30% and 70% respectively, such damages and loss to be assessed at a separate hearing, if not agreed.

11 Salcon and UCL appealed against the findings of the tribunal. After both appeals were dismissed by this court, the assessment of damages was, for the purpose of saving costs, fixed before a single arbitrator, Mr Tan Chee Meng.

Assessment of damages

12 That UCL is entitled to claim damages for the actual expenses incurred on or before 24 June 1999 (“Claim A”) to rectify defects as well as the cost of rectification works for the remaining defects in the silo in its state prior to 24 June 1999 (“Claim B”) was not in doubt and these two claims need not be further considered. The present appeal arose because UCL also claimed for other losses that would have arisen during the notional period of repair after the silo’s collapse. The term “notional” is used because the contemplated rectification works necessitated by Cheang’s defective design and Salcon’s defective construction work could no longer be carried out after the collapse of the silo. As a question arose as to whether UCL was entitled in law to claim for losses during the notional repair period because the tribunal had found that the silo collapsed as a result of TEPP’s novus actus interveniens, the parties jointly framed the following preliminary questions of law on 3 November 2003 for the arbitrator’s decision:

Preliminary Question 1

In addition to [Claims A and B] …, whether the Plaintiffs are entitled to recover damages for:

(C) consequential loss incurred during the rectification period … [“Claim C”] and/or

(D) consequential loss due to the loss of capacity of the silo so rectified … [“Claim D”].

Preliminary Question 2

In addition to [Claim A] … and as an alternative to claim (B), whether the Plaintiffs are entitled to recover damages for:

(E) consequential loss measured by discounted cash flow of the defective silo as compared to a sound silo (see Item No 23 of the 2^nd Statement of Claim) [“Claim E”]

Preliminary Question 3

In addition to [Claims A and B] above, whether the Plaintiffs are entitled to recover damages for:

(F) consequential loss measured by the depreciated replacement cost to reinstate the silo (see Item No 24 of the 2^nd Statement of Claim) [“Claim F”]

13 The arbitrator made the following findings in his Interim Award II:

i. Preliminary Question 1 - CLAIM C:

UCL is entitled to claim for consequential losses during the notional period of repairs;

ii. Preliminary Question 1 - CLAIM D:

UCL is not entitled to claim for consequential losses due to the loss of capacity of the silo so rectified.

iii. Preliminary Question 2 - CLAIM E:

UCL is entitled to be compensated for the diminution in value of the silo measured by the “Discounted Cash Flow” method.

iv. Preliminary Question 3 - CLAIM F:

UCL is entitled to be compensated for the diminution in value of the silo measured by the “Depreciated Replacement” Cost method.

14 Salcon appealed against the arbitrator’s findings in relation to Claims C, E and F.

The appeal

15 The main issue in this appeal by Salcon against the arbitrator’s findings in relation to Claims C, E and F concerns the effect of TEPP’s negligent advice on 24 June 1999 to load Cell 4 to full capacity, which was regarded by the arbitrators as a novus actus interveniens that broke the chain of causation. Salcon contended that as the novus actus interveniens caused the silo to collapse, it is not liable to UCL for any consequential loss during the period of notional repairs to the silo (Claim C) or any hypothetical diminution in the value of the silo measured by the two methods of assessment of loss referred to in Claims E and F. In coming to his decision in favour of UCL’s Claims C, E and F, the arbitrator relied on two English authorities, The Haversham Grange [1905] P 307 and Baker v Willoughby [1970] AC 467. If both cases are examined, it will be found that they do not lend any support to UCL’s case.

16 The first case, The Haversham Grange, must be viewed in the context of a number of other shipping cases. To begin with, in The Glenfinlas [1918] P 363, the plaintiff’s vessel was involved in a collision as a result of the negligence of the defendant’s vessel. Before permanent repairs could be effected, the plaintiff’s vessel sank after hitting a mine. Apart from the repair costs, the plaintiff also made a claim for consequential losses, namely damages for detention that would have resulted had the vessel been repaired. The registrar, who dismissed the claim for damages for detention during the notional period of repair, said that this purely consequential loss stood on a different footing from the cost of repairs to the plaintiff’s chattel. In his view, the principle to be applied was restitutio in integrum, and the question of awarding damages for loss of time when...