Sato Kogyo (S) Pte Ltd v RDC Concrete Pte Ltd

• Jurisdiction: Singapore
• Judge: Lai Siu Chiu J
• Judgment Date: 24 November 2006
• Neutral Citation: [2006] SGHC 213
• Court: High Court (Singapore)
• Year: 2006
• Published date: 28 January 2014
• Plaintiff Counsel: Tan Yew Cheng (Leong Partnership)
• Defendant Counsel: Por Hock Sing Michael (Tan Lee & Partners)
• Subject Matter: Contract,Contractual terms,Exclusion clauses,Clause excluding liability for "consequential and/or other damages",Whether exclusion clause precluding plaintiff's claim for loss that arose from stop order,Whether requisite actual knowledge existing on part of defendant of loss,Force majeure clause,Whether defendant liable for non-supply due to shortage of raw materials, plant breakdown and truck breakdown,Whether plaintiff entitled to withhold payment,Whether defendant entitled to suspend supply of concrete,Discharge,Stipulated event,Whether plaintiff entitled to terminate the contract,Whether defendant continually falling short in supply of concrete,Whether defendant's supply unable to meet requirement,Remedies,Damages,Clause allowing plaintiff to claim for "any direct cost",Whether delay in construction schedule amounting to "direct cost",Whether price differential of alternative supplier amounting to "direct cost"
• Citation: [2006] SGHC 213

24 November 2006 Judgment reserved.

Lai Siu Chiu J

Facts

1 This was a claim for non-delivery of ready-mixed concrete (“the concrete” or “concrete”) ordered by the plaintiff from the defendant and a counterclaim by the defendant for the price of concrete it had already delivered to the plaintiff.

2 The plaintiff Sato Kogyo (S) Pte Ltd was and still is the main contractor for the construction of the Lorong Chuan station (“the project”), on the new Circle Line of the Mass Rapid Transit (“the MRT”) subway system. The plaintiff was awarded the contract by the Land Transport Authority (“LTA”) in June 2003. The plaintiff required a huge volume of concrete estimated at 70,000 cubic metres and of various grades, to be supplied and delivered to the site.

3 The defendant RDC Concrete Pte Ltd was the plaintiff’s supplier of concrete for the project. After receiving quotations from various suppliers, the plaintiff accepted the defendant’s revised quotation dated 1 September 2003 and issued the defendant a letter of intent dated 16 September 2003. The plaintiff’s award of the contract to the defendant was subject to approval by the LTA which was subsequently given.

4 It is common ground that the defendant’s revised quotation dated 1 September 2003 (at 1AB1-3) and the plaintiff’s letter of intent dated 16 September 2003 (at 1AB4-5) formed the contract between the parties.

5 On 5 April 2005, the defendant suspended supply of the concrete to the plaintiff citing non-payment. On 30 May 2005, the plaintiff terminated the contract because the concrete supplied by the defendant failed to meet the LTA requirements and delivery was not prompt when the plaintiff placed its orders.

6 The trial before me was confined to liability. In the event that I rule in favour of the plaintiff on its claim, damages if any, will be assessed by the Registrar.

The issues

7 The issues which called for determination were:

(a) Was the contract an exclusive contract?

(b) Would the failure of cube tests allow the plaintiff to claim the price differential of an alternative supplier of the concrete, if the plaintiff did not terminate the contract?

(c) Would the defendant be liable to the plaintiff in circumstances of force majeure?

(d) Was the defendant entitled to suspend the contract?

(e) Was the plaintiff entitled to terminate the contract?

Was the contract an exclusive contract?

8 I start by looking at the relevant clause viz cl 2 of the defendant’s revised quotation, it states:

Contract period and concrete quality

The above quoted prices shall be held firm from 1 September 2003 to 30 June 2006 and the concrete quality to be supplied to the project is estimated to be approximately 70,000 m³. This contract shall cease to be valid upon the expiry of the contract period or the supplied concrete quality, whichever is earlier.

There was no specific provision in the contract stipulating that the contract between the parties was an exclusive arrangement.

9 Yew Eng Piow[note: 1] (“Yew”), the project manager was the plaintiff’s main witness. In cross-examination, he maintained that the exclusive clause was “not stated but it’s implied” in the contract. He also agreed that in contrast, the quotation from another supplier of the plaintiff Island Concrete Pte Ltd (“Island Concrete”) clearly stipulated that it would be the sole supplier.

10 Yew opined that the plaintiff was not contractually bound to take more than 70,000 cubic metres of concrete from the defendant. If the plaintiff wanted more than that quantity, the parties would renegotiate for the additional supply. The defendant’s obligation was thus to supply 70,000 m³ of concrete over the entire contract period (NE 54).

11 Yew said that there was only one supplier in all of the plaintiff’s projects and in this case, the sole supplier was the defendant. As long as the plaintiff’s supply was not disrupted, the defendant could supply to other people. He acknowledged that the plaintiff was aware that the defendant would be supplying concrete to other customers during the contract period as well and therefore the plaintiff would not be the sole customer. He also accepted that there was no priority term in the contract that entitled the plaintiff to priority supply at the expense of other customers of the defendant.

12 Yew accepted that the overall schedule as to when the defendant had to supply concrete was not found in the contract. Neither did the contract say that the defendant had to supply to the plaintiff as and when the plaintiff called for the concrete (NE 78).

13 According to Yew, the plaintiff appointed Pan United Concrete Pte Ltd (“Pan United”) on an ad hoc basis when the defendant was unable to supply concrete. From 2 to 21 December 2004, the defendant was able to supply and the plaintiff did not use Pan United. However and which Yew conceded, there was no evidence that the defendant was unable to supply concrete between 16 and 22 November 2004. Yet, the plaintiff continued to use Pan United (NE 65/67).

14 When Ho Seow Phuan[note: 2] (“Ho”), the defendant’s former assistant general manager was cross-examined, he acknowledged that the contract did not contain an express term to the effect that the defendant was to be the sole supplier of concrete for the project. The reasons Ho gave for the absence of such a term included the fact that there was no guarantee that the defendant could supply on a particular day due to unforeseen factors and the defendant had friendly arrangements with other suppliers to assist the defendant in the event of the defendant’s inability to supply (NE 119).

15 Jonathan Seow Swee Leng[note: 3] (“Seow”), the plaintiff’s project engineer, testified that the plaintiff had no priority in its orders and “takes its place in its queue” together with the defendant’s other customers. He conceded that although the defendant was the “only one supplier”(NE 175), “this was not an exclusive contract solely to supply the plaintiff as and when orders are placed” (NE 171).

16 The plaintiff’s stand was that the contract was exclusive and therefore it could (and did) claim for the costs incurred in obtaining supply from alternative sources, at the time when the defendant could not fulfil the plaintiff’s orders due to the defendant’s suspension by LTA.

17 Kevin Paul Nobes[note: 4] (“Nobes”) was the defendant’s general manager and the President of the Ready Mix Concrete Association (“RMCA”) at the material time. He said that if the contractual quantity was less than or equal to 70,000 m³, the plaintiff was obliged to obtain all the concrete it required from the defendant (NE 244).

18 In his affidavit of evidence-in-chief, Nobes said (at para 23):

“[T]he contract was not on an “exclusive” basis. Hence, whilst the Plaintiffs would be free to procure supply from any RMC supplier [Ready Mix Concrete] without breaching the Contract, the Defendants could similarly supply other customers besides the Plaintiffs. There was also no “Priority Term” expressly set out in the contract whereby the Plaintiffs would be accorded priority in supply when compared to other customers of the Defendants.”

19 The defendant at the time had a main plant at Kaki Bukit and two back-up plants at Gay World and Kallang. Nobes explained that the Gay World and Kallang plants were project plants that were erected to “supply only one customer”(NE 282). More significantly Nobes added, an exclusive contract was characterised by (i) a project plant and (ii) the contract expressly stating that the plant only supplied concrete for that particular project. A project plant was only allowed to supply to other customers after the project customer had been fully serviced or at the commission of the project customer. He also emphasised that the contract between the plaintiff and the defendant did not contain a priority term (NE 341). The two characteristics of exclusivity were absent in the contract.

20 James Lee Eng Kiat[note: 5] (“Lee”), the defendant’s sales manager, reiterated the lack of a priority term in the contract. He understood a priority term to mean “a project with a site plant”(NE 363) in which the customer had priority of supply. Clearly, this was not the case here as the defendant could supply to other customers besides the plaintiff.

21 The defendant’s position was that the non-exclusive nature of the contract allowed the plaintiff to engage alternative suppliers at its own expense to supply concrete when the defendant failed to supply as and when required by the plaintiff. As long as the plaintiff obtained 70,000 m³ of concrete from the defendant by the end of the contract period, the defendant was not in breach. In addition the defendant submitted, “supply by the defendant, under the contract, was subject to any scheduling clashes between the plaintiff’s orders and those from the defendant’s other customers.”(NE 78).

22 In Nam Kee Asphalt Pte Ltd v Chew Eu Hock Construction Co Pte Ltd [2000] SGHC 45, the aggregates contract contained the following terms:

(a) the Defendants must purchase at least 40,000 tonnes of graded aggregates from the Plaintiffs [the plaintiffs alleged that this was "the minimum quantity clause"]; and

(b) the Defendants must purchase all the graded aggregates that they require in respect of the MRT contract from the Plaintiffs [the plaintiffs alleged that this was "the exclusivity clause"].

23 Lee Seiu Kin JC held (at [15]) that:

Considering the factors above, firstly there is nothing in the language of the contract nor in the circumstances under which it was entered into that raises an inference that the parties had intended that there be an exclusivity clause. Such a clause is neither necessary to give business efficacy to the contract nor does it represent the obvious intention of the parties. It is common for a vendor to give an open quotation to a purchaser for the latter to make orders as he deems necessary. Implying the exclusivity clause does not make the contract any...