UTOC Engineering Pte Ltd v ASK Singapore Pte Ltd

• Jurisdiction: Singapore
• Judge: Lee Seiu Kin J
• Judgment Date: 19 October 2017
• Neutral Citation: [2017] SGHC 259
• Court: High Court (Singapore)
• Docket Number: Suit No 449 of 2013 (Assessment of Damages No 8 of 2017)
• Published date: 26 October 2017
• Year: 2017
• Hearing Date: 11 April 2017,12 April 2017,24 May 2017
• Plaintiff Counsel: M K Eusuff Ali, Chan Xian Wen Zara, and Yap En Li (Tan Rajah & Cheah)
• Defendant Counsel: Lee Hwee Khiam Anthony and Clement Chen (Bih Li & Lee LLP)
• Subject Matter: Damages,Assessment,Measure of damages,Settlement sum
• Citation: [2017] SGHC 259

Lee Seiu Kin J: Introduction

This is assessment of damages no 8 of 2017 (“AD 8”) in suit no 449 of 2013 (“Suit 449”). The trial was bifurcated with the trial on liability heard in January 2016. On 27 April 2016, I gave judgment on liability in favour of the plaintiff and ordered damages to be assessed. The defendant’s appeal against this finding was dismissed by the Court of Appeal on 1 December 2016. The trial in AD 8 was heard on 11 and 12 April 2017. On 24 May 2017, after hearing submissions from both counsel, I assessed the damages at $5,024,732.85 and gave judgment for that sum. I now give my reasons.

Facts leading up to AD 8

The plaintiff is a Singapore company with its principal business in plant construction for petrochemical, chemical, and pharmaceutical industries. The defendant is also a Singapore company and its principal business is the installation of thermal insulation and refractories. The plaintiff was engaged by Shell Eastern Petroleum Pte Ltd (“Shell”) as main contractor to carry out mechanical, piping and equipment works for ten furnaces at Shell’s complex in Pulau Utar, Singapore (“the ten furnaces”). As part of its works, Shell required the plaintiff to install the refractory lining in the ten furnaces (“the Refractory Works”). This required the plaintiff to lay refractory bricks on the inside walls of the furnaces in order to allow the furnace to be heated up to 1,000 degrees Celsius. Because the bricks would expand due to the heat, pins were attached to the furnace walls to prevent the bricks from shifting inwards. The pins were hooked to grooves in the bricks at several levels of the walls.

The plaintiff engaged the defendant as a specialist contractor to carry out the Refractory Works in around July 2008. After the works were completed in around July 2009, the furnaces were fired in 2010 and failures were found in all ten furnaces. Various panels of bricks were separated from the furnace walls and from their pins, and as a result, those walls were no longer insulated. Rectification works on all ten furnaces were completed by November 2013.

As a result of the need for rectification works, Shell claimed against the plaintiff for costs and expenses that it incurred. The plaintiff negotiated with Shell to reduce its claim and eventually reached a settlement with Shell in December 2011 (“the Settlement Agreement”).

Parties’ submissions

The plaintiff’s claims and the defendant’s response to each head of claim are encapsulated in the following table:

Description of claim	Plaintiff’s position	Defendant’s position
Payment to Shell under Settlement Agreement	$3,738,834.37	Reduce plaintiff’s claim by $467,794.89 as it falls outside the scope of the Settlement Agreement
Manpower costs for nine furnaces	$560,068.55	Disallow claim for lack of evidence
Other expenses (non-manpower) for nine furnaces	$814,031.87	Reduce plaintiff’s claim by $131,289.74 because the expenses were not incurred for rectification works
Expenses for furnace F-10400	$30,293.31	Disallow claim for lack of evidence
Additional overall reduction	-	Reduce plaintiff’s overall claim by $61,823.25 for money spent on design enhancements during rectification works
Total allowable claim	$5,143,228.10	$3,891,958.36

Settlement Agreement

Both parties agreed that the Settlement Agreement was reasonably reached and reasonable in nature. But they disagreed as to whether this meant that the court could take a line-by-line analysis of the sums the plaintiff claimed against the defendant pursuant to the Settlement Agreement the plaintiff reached with Shell.

The plaintiff submitted that the court could not do so and was bound by the settlement sum that Shell had quantified by applying the formula in the Settlement Agreement. It relied on the Court of Appeal decision in Britestone Pte Ltd v Smith & Associates Far East, Ltd [2007] 4 SLR(R) 855 (“Britestone”) which was affirmed by the subsequent Court of Appeal decision in Anwar Patrick Adrian and another v Ng Chong & Hue LLC and another [2015] 5 SLR 1071 (“Anwar Patrick”). Both cases established that where a settlement agreement between a plaintiff and a downstream claimant (in this case, Shell) was reasonably reached and reasonable in nature, the settlement sum would be regarded as accurately reflecting the loss that the plaintiff could claim against the defendant (Britestone at [41]; Anwar Patrick at [44]-[50]). The plaintiff submitted that even though there was no settlement sum that was fixed in the Settlement Agreement, Britestone nevertheless applies such that the court is bound by the settlement sum quantified by Shell.

The defendant agreed that Britestone and Anwar Patrick applied, but not in the manner that the plaintiff contended. In Britestone, the settlement agreement involved a fixed sum which was arrived at after a negotiating process between the plaintiff and the downstream claimant, and in which the defendant was invited to participate. The defendant submitted that in those circumstances, the court could refer to the settlement sum as it was part of the terms of the settlement agreement. But in this case, where the terms of the Settlement Agreement do not provide for a specific settlement sum, then the defendant is not bound by the settlement sum quantified by the downstream claimant because it is not part of the agreement. Instead, the defendant’s position was that what the plaintiff and Shell had agreed to was a formula for determining the damages. The defendant contended that the Britestone principle applied to that formula and the defendant was not entitled to challenge it. However, the defendant submitted that it was entitled to challenge any misapplication of the formula by the plaintiff and Shell, such that the defendant would not be liable for any payment made by the plaintiff to Shell that the court finds does not comply with the formula.

Accordingly, the defendant submitted that three invoices fell outside the scope of the formula in the Settlement Agreement (totalling $467,794.89): Invoices issued by DHL Global Forwarding (Singapore) Pte Ltd to Shell for transporting and storing bricks for the rectification works, totalling $199,907.73 (“DHL Invoices”). The defendant said that these invoices fell outside the Settlement Agreement, which only permitted “material cost for the re-lining of the furnace walls” and not the costs of transporting materials for the re-lining. Invoices issued by Mun Siong Engineering Ltd to Shell for welding cleats, totalling $98,561.00 (“Mun Siong Invoices”). The defendant said that the invoices were for welding additional cleats, which was expressly not allowed under para 4 of the Settlement Agreement. To establish this, the defendant relied on the Mun Siong Invoices themselves, which stated that they were for “welding cleats”, and the fact that under cross-examination, the plaintiff’s construction manager, Lim Teng Liang Nelson (“Nelson Lim”), could not say which Mun Siong Invoices were for welding damaged cleats and which were for welding additional cleats. Invoices for blankets (from France and USA) and refractory anchor pins, totalling $169,326.16. The defendant said that the plaintiff did not show how they were used for the rectification works. Specifically in relation to the anchor pins, Nelson Lim conceded under cross-examination that he could not remember how many of the existing anchor pins were used. The defendant submitted that if the existing anchor pins could be used then there was no reason to charge the cost of new anchor pins to the defendant as they were not used for rectification.

The plaintiff’s response to the three invoices was that the defendant should have raised these objections when the plaintiff negotiated the Settlement Agreement with Shell. The defendant was invited to participate in the negotiations and indeed had participated initially, before pulling out subsequently. Having refused to participate, it could not now complain. As for Nelson Lim’s concessions in cross-examination, the plaintiff said that Nelson Lim was not a refractory specialist and his task was only to ensure that Shell charged the plaintiff for matters pertaining to the rectification works. If the defendant, a refractory specialist, wanted to challenge the specifics, it should have done so during the negotiation process.

The plaintiff said that since the defendant refused to participate, it could not use its expertise as a refractory specialist with the benefit of hindsight to assess whether the plaintiff should have accepted the invoices. The plaintiff relied on the English cases of General Feeds Inc Panama v Slobodna Plovidba Yugoslavia [1999] 1 Lloyd’s Rep 688 and Siemens Building Technologies FE Ltd v Supershield Ltd [2009] EWHC 927 for the proposition that the relevant facts are those that the plaintiff could have been expected to rely on at the time it entered into the Settlement Agreement.

Manpower costs for nine furnaces

The plaintiff tendered a Table of Manpower Costs which showed that this sum was for the salaries of nine of the plaintiff’s staff. The nine staff were involved during the rectification works as supervisors. Hence, the plaintiff claimed for both their supervision of the rectification works as well as the equipment which they had to wear to do so.

The defendant said that the plaintiff’s Table of Manpower Costs was not sufficient evidence to support the plaintiff’s claim because it did not specify precisely what work was done by each staff member and how their shift to the rectification works from their normal jobs was a “significant disruption” to the plaintiff’s business [emphasis in original]. The defendant derived these requirements from the English Court of Appeal decision in Aerospace Publishing Ltd & anor v Thames Water Utilities Ltd [2007] EWCA Civ 3 (“Ae...