Seraya Energy Pte Ltd v Denka Advantech Pte Ltd and another suit (YTL PowerSeraya Pte Ltd, third party)

• Jurisdiction: Singapore
• Judge: Woo Bih Li J
• Judgment Date: 02 January 2019
• Neutral Citation: [2019] SGHC 2
• Court: High Court (Singapore)
• Docket Number: Suit Nos 1328 and 1329 of 2014
• Published date: 22 March 2019
• Year: 2019
• Hearing Date: 21 November 2017,15 November 2017,08 November 2017,10 November 2017,22 November 2017,10 July 2018,20 November 2017,09 November 2017,07 November 2017,16 November 2017,23 November 2017,14 November 2018,14 November 2017
• Plaintiff Counsel: Thio Shen Yi SC, Chan Kah Keen Melvin, Koh Li Qun, Kelvin and Hannah Tjoa Kai Xuan (TSMP Law Corporation)
• Defendant Counsel: Tay Twan Lip Philip and Yip Li Ming (Rajah & Tann Singapore LLP)
• Subject Matter: Contract,Breach,Formation,Discharge,Remedies,Damages,Liquidated damages,Mitigation of damage
• Citation: [2019] SGHC 2

Woo Bih Li J: Introduction

The plaintiff, Seraya Energy Pte Ltd (“SE”), is a wholly owned subsidiary of the third party, YTL PowerSeraya Pte Limited (“YTL”). YTL is in the business of generating electricity, which it sells to the National Electricity Market of Singapore (“NEMS”). SE is a retailer which buys electricity from NEMS and sells it to contestable customers which excludes customers residing in residential properties.¹ I will elaborate later on the electricity market in Singapore.

The present consolidated suit is a consolidation of two actions, Suit Nos 1328 and 1329 of 2014 by SE against two of its customers, the defendants, Denka Advantech Private Limited (“DAPL”) and Denka Singapore Private Limited (“DSPL”). In late 2012, SE entered into three electricity retail agreements (“ERAs”) – two were with DSPL and one was with DAPL. As nothing material turns on the distinction between DAPL and DSPL for present purposes, I will refer to DAPL and DSPL collectively as “Denka”. I will also occasionally use “Denka” to refer to either DAPL or DSPL in respect of the individual ERAs where there is no good reason to draw a distinction between DAPL and DSPL for present purposes.

The consolidated suit arises from SE’s termination of the three ERAs due allegedly to wrongful conduct of Denka. SE’s claim was for liquidated damages (“LD”) under the provisions of the three ERAs. Alternatively, SE claimed damages.

Denka denied liability primarily on the basis that the three ERAs were part of an un-severable bundle or package deal in which YTL had agreed to re-negotiate a steam supply agreement dated 16 January 2012 with DSPL (“SSA”) to grant certain concessions to DSPL of its obligations under the SSA, and also to enter into an ancillary supplemental agreement (“ASA”) containing the concessions, failing which the parties could part company under the three ERAs. As YTL and DSPL did not eventually enter into the ASA, Denka alleged that it was entitled to give notice that it would not continue with the three ERAs and that DSPL would revert to the SSA with effect from 1 September 2014.

Alternatively, Denka disputed the enforceability of the LD provisions in the three ERAs and put SE to strict proof of the damages it has otherwise suffered.

Denka also relied on an offer it had made to SE which Denka alleged SE should have accepted to mitigate its damages.

Denka’s counterclaim against SE was for: declarations of the validity of various defences; damages in respect of extra electricity charges which Denka had to pay SE as a result of SE’s alleged delay in transferring Denka’s account to the Market Support Services Licensee (“MSSL”) after Denka had given notice that it would not continue with the three ERAs; and damages for amounts which SE had received under three bank guarantees issued to cover Denka’s obligations under the three ERAs.²

Denka also claimed against YTL, as the third party, a declaration of non-liability under the three ERAs, or for YTL to indemnify and/or pay damages to Denka for breach of contract and/or fraudulent or negligent misrepresentation in respect of the package deal. The indemnity or claim for damages sought against YTL was in respect of a collateral contract or misrepresentations pertaining to the package deal. Denka claimed a declaration of non-liability and an indemnity against YTL for whatever Denka might be ordered to pay SE and amounts already paid by Denka to SE due to the delay in transferring Denka’s account to MSSL and amounts paid under the three bank guarantees to SE as mentioned above.

YTL’s position was that YTL did in fact enter into a contract with DSPL to grant DSPL certain concessions with respect to the SSA even though the ASA was not signed by YTL and DSPL. However, YTL counterclaimed that if there was no such contract on the concessions, then it was entitled to claim from DSPL payment for steam under the initial SSA from the date when YTL had in fact granted concessions to DSPL.

Background

I elaborate on the electricity market based on the undisputed background information from the closing submissions of SE and YTL dated 28 February 2018.

NEMS commenced operations in 2003 and is where electricity is bought and sold in Singapore. NEMS is operated by the Energy Market Company and regulated by the Energy Market Authority.

Electricity generators, such as YTL, can only sell electricity to NEMS. In the current market, electricity generators are not allowed to sell electricity that they generate directly to end-users, ie, consumers.

The price of the electricity that is sold to NEMS is the Uniform Singapore Energy Price (“USEP”). USEP is based on the weighted average of all the nodal prices of nodes at which electricity is deemed to be withdrawn.³ It is determined every 30 minutes by a computer model, known as the “Market Clearing Engine” (“MCE”).⁴ Electricity generators may submit bids every 30 minutes in “price-quantity” pairs, meaning they will indicate: how much electricity they are willing and able to supply to NEMS; and the price they wish to charge for such quantity of electricity.⁵

MCE will then collate all the bids submitted by the generation companies and map them against the forecast of the expected electricity demand for that half-hour period. USEP at any one time is a fixed price (as opposed to a range of prices) determined by the intersection of the supply curve and the expected demand.⁶ Once USEP is determined, bids by electricity generators that are equal to or below USEP are accepted, whereas bids above USEP are rejected.⁷ Regardless of their actual bid prices (whether equal to or below USEP), all electricity generators that are called upon to generate in that half-hour will be paid for the electricity supplied to NEMS based on USEP. For example, if the price is $55/MWh (where “MWh” stands for “megawatt hour”), an electricity generator that submitted a bid at $30/MWh will still be paid $55/MWh for the electricity it supplies to NEMS in that half-hour.

The price of electricity paid by a retailer encompasses USEP, as well as the Hourly Energy Uplift Charge (“HEUC”). HEUC captures any differences between the total amounts received from retailers and the total amounts paid to electricity generators for energy, reserve and regulation products. The actual price paid for electricity from the wholesale market will typically be slightly higher than the aggregate sum of USEP and HEUC, as there are some additional charges such as the Energy Market Company administrative charges. However, these additional charges are relatively low, and therefore it is common for industry players to equate the aggregate sum of USEP and HEUC with the “Pool Price”.⁸

In general, consumers of electricity fall into two categories: Contestable consumers: Consumers who have an average monthly electricity consumption of at least 2,000 kWh (where “kWh” stands for “kilowatt hour”). Non-contestable consumers: Consumers who have less than an average monthly electricity consumption of 2,000 kWh. Non-contestable consumers are only entitled to buy electricity from MSSL, which is SP Services Ltd.

On the other hand, contestable consumers can choose between purchasing electricity from MSSL or from retailers, such as SE. If such consumers purchase electricity from MSSL, they will pay the Pool Price for the electricity they consume. If instead such consumers purchase electricity from retailers in the market, they may negotiate the price of electricity, as well as the duration of the contract with the retailers. Regardless of whether electricity is purchased from MSSL or from a retailer, electricity is supplied to the consumer from the pool. It was undisputed that a consumer can only purchase electricity for a specific location from one retailer or MSSL at any one point in time. A consumer cannot buy electricity concurrently from two sources for the same location.

YTL and SE taken together form what is known as a “gentailer”. This essentially refers to a vertical integration of the generation and retail of electricity. This is the predominant structure in NEMS. In Singapore, eight of the 15 electricity generators and seven of the 22 retailers are related to each other.⁹ In 2015, seven out of these eight electricity generators produced a total of 90.5% of the electricity generated in Singapore,¹⁰ while the seven corresponding retailers (which have a related generation arm) accounted for more than approximately 96% of the contestable market.¹¹ The remaining seven electricity generators that do not have related retail entities are not in the primary business of generating electricity. They produce electricity as a by-product of their main business, or primarily generate electricity for their own consumption.¹²

While there are 22 retailers in Singapore, only 11 have managed to capture a market share. Of these 11 retailers, the market is dominated by the seven retailers which have a related generation arm. The remaining four retailers are also not big players in the market. From 2014 to 2016, these four retailers did not even capture 1.5% of the market share.¹³

According to SE and YTL, the reason for this structure is that it helps mitigate the gentailer’s exposure to the Pool Price given that the price that the electricity generator receives from selling electricity into the pool is the price that the retailer pays for the electricity it purchases from the pool. With the gentailer structure, the gentailer’s retailing arm would then be paid by the consumer at the agreed contract price or pricing plan.

By an agreement dated 16 January 2012 between PowerSeraya Limited (“PowerSeraya”) and DSPL, PowerSeraya agreed to supply steam to a site of DSPL designated in the agreement. At [4] above, I have defined this steam supply agreement as “SSA” for convenience. The SSA was subsequently novated by PowerSeraya to YTL with effect from 1 April...