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Grounds publishedDecided 20 Mar 2013
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High Court

BR Energy (M) Sdn Bhd v KS Energy Services Ltd

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[2013] SGHC 64Case no. Suit No 900 of 2009

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Grounds of decision

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  1. Belinda Ang Saw Ean J:

  2. Introduction

  3. [1] In this action, the plaintiff, BR Energy (M) Sdn Bhd (“BRE”), claims damages against the defendant, KS Energy Services Limited (“KSE”), for breach of a joint venture agreement made on 13 December 2005 that was subsequently amended on 28 April 2006 (“the JVA”).

  4. [2] BRE had been awarded a contract to charter to Petronas Carigali Sdn Bhd (“PCSB”) a type of rig known as a Workover Pulling Unit (“WPU”) that was to be custom-built to fit the technical requirements and platform drawings of PCSB (“the PCSB project”). As BRE’s joint venture partner, KSE was to procure the construction and delivery of the WPU for the purposes of the PCSB project. Accordingly, KSE contracted with a rig builder, Oderco Inc (“Oderco”), to custom-build the WPU. There were massive delays in the construction of the WPU, with the consequence that no WPU was delivered to PCSB at all and the charter arrangement was called off.

  5. [4] Tan Lee Meng J had earlier ordered the trial to be bifurcated on 20 September 2010. Hence, the trial before me is only on issues of liability, with the quantum of damages to be awarded (if liability is established) to be determined another time.

  6. The relevant contracts

  7. [5] The rig building contract made between KSE and Oderco, the letter of intent (“LOI”) dated 9 December 2005 made between KSE and BRE and the JVA made between KSE and BRE must be understood in the context of the underlying contract between BRE and PCSB described below (“the PCSB Contract”).

  8. The PCSB Contract

  9. [6] BRE is a company incorporated in Malaysia. At the material time, BRE was in the business of providing services to the oil and gas industry, and was licensed by Petroliam Nasional Berhad (“Petronas”) to provide such services in Malaysia.

  10. [7] PCSB is one of the corporate vehicles used by Petronas to award contracts for the exploitation of petroleum resources in Malaysia.

  11. [8] On 11 August 2005, BRE submitted a bid for the charter to PCSB of one custom-built WPU for PCSB’s use only. The duration of the charter of the WPU was for a fixed period of two years, with three options to extend the charter for one year each. BRE’s tender was supported by China Oilfield Services Limited (“COSL”), a public listed company in Hong Kong, which was described in BRE’s tender letter as “the leading and largest fully integrated oilfield services provider in the Asia Pacific region”. COSL was to provide all the relevant technical support services needed for the operation of the WPU. At that time, BRE nominated RG Petro-Machinery Co Ltd (“RG”) as the rig builder.

  12. [9] Unfortunately for BRE, both COSL and RG pulled out of their collaboration with BRE in October 2005. PCSB was not informed of the withdrawals at that stage. On 26 October 2005, BRE received unofficial news that its tender for the PCSB project was successful. It is common ground that there was no second-hand WPU that met PCSB’s technical requirements and platform drawings, and given the high demand for rigs at the material time, many rig builders did not have the capacity to construct a customised WPU unit within the short time required by PCSB.

  13. [10] Meanwhile, COSL tried to search for a replacement rig builder and a new party to collaborate with BRE for the PCSB project. In October 2005, COSL’s Director of Marketing, Lim Hong Khun (“LHK”), approached KSE’s Executive Director, Tan Fuh Gih (“TFG”), to assist in the search for a replacement builder for the WPU. Around November 2005, LHK introduced Wee Khen Peng (“WKP”), a director of BRE, to TFG and KSE’s Managing Director, Chew Thiam Keng (“CTK”), with a view to negotiating a joint venture with BRE for the PCSB project.

  14. [11] KSE is a company incorporated in Singapore and listed on the main board of the Singapore Exchange (“SGX”). At the relevant time, KSE was a leading one-stop energy services provider to the global oil, gas, marine and petrochemical industries, having been involved in more than eight rig projects from 2004 to 2006. In 2006, KSE part-owned and chartered out three rigs in China and the Gulf of Mexico. KSE had also been involved in the management of an offshore accommodation rig and a project to upgrade a rig in Shajar.

  15. [12] On 21 November 2005, BRE received PCSB’s official letter of award (“Letter of Award”), which stipulated, amongst other things, that the WPU was to be delivered to Labuan, East Malaysia, by 120 days from the date of award, ie, 21 March 2006. On 30 November 2005, BRE wrote to PCSB proposing Oderco as the replacement rig builder. Oderco, a rig builder based in Abu Dhabi, was willing to build the customised WPU within six months. In its letter, BRE also sought: (a) an extension of the delivery date by six months; and (b) an upward adjustment of the rates from its original pricing.

  16. [13] On 8 December 2005, PCSB advised BRE that there was already a binding contract in place with the issuance of the Letter of Award on 21 November 2005 to BRE. PCSB rejected the proposal for a price change, but, without prejudice to its rights, revised the delivery date of the WPU to no later than 180 days from 21 November 2005, ie, 21 May 2006 (“the PCSB first delivery date”). BRE tried to persuade PCSB to give it 180 days from 9 December 2005, but this request was turned down. BRE signed the Letter of Award on 9 December 2005 with the delivery date of the WPU revised to 21 May 2006. For each day of late delivery, liquidated damages of US$4,000 per day (up to a maximum of 30 days, ie, up to 20 June 2006) were payable. PCSB could terminate the PCSB Contract for late delivery after 20 June 2006.

  17. The rig building contract between Oderco and KSE

  18. [14] The Managing Director of Oderco was Samir Ghalayini (“Samir”). The other person with whom KSE communicated was Hedian Ghalayini (“Hedian”), who was Samir’s wife and the Office Manager of Oderco. The rig building contract between KSE and Oderco was signed by TFG on behalf of KSE and by Samir on behalf of Oderco.

  19. [15] The exact relationship between KSE and COSL was unclear. Some references in the documents suggested a possible business relationship involving the charter of KSE’s liftboat, the Dixie Patriot, in the PCSB project at the time COSL was in the picture.

  20. [16] There is a dispute as to who found and recommended Oderco. KSE said that LHK recommended Oderco to TFG. BRE’s pleaded case is that KSE found Oderco and that KSE’s Executive Director, TFG, had strongly recommended Oderco to BRE. WKP testified that BRE had relied on KSE’s recommendation in the belief that Oderco was qualified and able to construct the WPU within five months, with an additional one month for delivery of the WPU to Labuan. Consequently, on 30 November 2005, which was BRE’s deadline for responding to PCSB’s Letter of Award of 21 November 2005, BRE wrote to PCSB advising it that Oderco would be the replacement builder for the WPU, and asked for a longer delivery date (see [12] above).

  21. [17] It is also not disputed that the initial intention of the parties was to incorporate BRO and to have it sign the rig building contract with Oderco. However, in December 2005, BRO was not yet incorporated, and there was a pressing need to confirm Oderco’s appointment. Under the circumstances, one of the joint venture partners would have to contract with Oderco, and KSE put itself forward. On 12 December 2005, CTK sent an internal e-mail to KSE’s Chief Business Development Officer, Goh Boon Chye (“GBC”), copied to TFG, stating that KSE, and not BRE, should issue the purchase order for the WPU to Oderco so that KSE would not “lose control over the process”. On 18 December 2005, BRE agreed to KSE entering into the rig building contract with Oderco.

  22. [18] KSE duly signed the rig building contract with Oderco on 21 December 2005 (“the Oderco Contract”). Delivery of the WPU ex-Abu Dhabi was 165 days (ie, five and a half months) from 21 December 2005, ie, by 4 June 2006 (“the June 4 date”).

  23. [19] It is worth bearing in mind that the June 4 date was two weeks later than the PCSB first delivery date. Moreover, by the time the Oderco Contract was signed, one month had already passed under the PCSB Contract, which came into existence on 21 November 2005 when PCSB issued the Letter of Award to BRE.

  24. The JVA

  25. [20] As mentioned at [5] above, BRE and KSE signed a LOI on 9 December 2005. By this LOI, the parties agreed to negotiate the terms of a joint venture to provide the WPU to fulfil the PCSB Contract.

  26. [21] The JVA was signed on 13 December 2005. It was later amended by a supplemental agreement on 28 April 2006. Under the JVA, the JVC (ie, BRO) was to be incorporated in Labuan, and both BRE and KSE were to hold shares in it.

  27. [22] The business of the JVC was for the “acquisition and chartering out of the WPU and the provision of related services” (see clause 2.1 of the JVA). By clause 2.2, each party was “to use its reasonable endeavours to promote and develop the business of the JVC to the best advantage of the JVC”.

  28. [23] The WPU was defined in clause 1.1 of the JVA as the “workover pulling unit to be constructed in accordance with clause 6.1”. The governing law of the JVA was Singapore law.

  29. [24] KSE’s role as a joint venture partner can be found in the preamble of the JVA under the heading “Background”. Clause (C) provided as follows:

  30. [25] BRE’s role is spelled out in clause 6.5 of the JVA (see [26] below). Counsel for KSE, Mr Chan Hock Keng (“Mr Chan”), confirmed at the trial that BRE was not contractually obliged under the JVA to provide technical support in the course of the construction of the WPU.

  31. [26] The main obligations in contention are set out in clause 6 of the JVA, which relates to the “Procurement of WPU, Charter Agreement and Petronas Contract [ie, the PSCB Contract]”:

  32. [27] The initial intention was for all the contracts required under the JVA to be signed on 13 December 2005 at the same time as the JVA itself, but BRO was not yet incorporated. After BRO was incorporated on 3 March 2006, the following contracts were signed. On 10 March 2006, BRO entered into a contract with KSE (“the Purchase Contract”) for BRO to buy the WPU from KSE. Clause B(3) of the Purchase Contract provided for delivery of the WPU within six months from 18 December 2005, ie, by 17 June 2006. On 10 March 2006, BRE also entered into an agreement with BRO to lease the WPU from BRO (“the Charter Agreement”). Clause 3.3 of the Charter Agreement provided, inter alia, that BRO was to procure the delivery of the WPU within six months of the date of the agreement, ie, six months from 10 March 2006, which was 9 September 2006. The apparent discrepancies in the delivery dates will be discussed in due course.

  33. Termination of the PCSB Contract and the JVA

  34. [28] As stated above, the PCSB first delivery date was 21 May 2006. BRE’s pleaded case is that the WPU was not delivered despite three extensions of time granted by PCSB for the WPU to be delivered by 25 July 2006, 4 September 2006 and 26 October 2006 respectively. Eventually, by its letter to BRE dated 12 April 2007, PCSB terminated the PCSB Contract on the grounds that, inter alia, BRE had failed to deliver the WPU by 26 October 2006 (“the PCSB last delivery date”).

  35. [29] On 17 April 2007, BRE asked PCSB to reconsider its cancellation of the PCSB Contract. However, BRE’s appeal was rejected by PCSB on 4 May 2007. BRE subsequently terminated the JVA on 26 December 2007 for KSE’s failure to deliver the WPU for more than a year and for the loss of the PCSB Contract.

  36. Overview of BRE’s case

  37. [30] Counsel for BRE, Mr Ling Tien Wah (“Mr Ling”), contended that KSE was in repudiatory breach of the JVA for its failure to procure the construction and delivery of the WPU. As such, BRE’s termination of the JVA was not wrongful. KSE was in breach of clause 6.2 in that it had failed to use all reasonable endeavours to procure the construction and delivery of the WPU, whether by 17 June 2006 (being the date stipulated in the Purchase Contract), or by 9 September 2006 (being six months after the Charter Agreement was executed), or by the other revised delivery dates granted by PCSB, in particular, the PCSB last delivery date, or within a reasonable time thereafter. As a result, BRE failed to deliver the WPU to PCSB, which terminated the PCSB Contract in April 2007.

  38. [31] KSE had not discharged its obligation to use all reasonable endeavours to procure the construction and delivery of the WPU by reason of the following matters:

  39. (a) the entire rig building project was poorly organised, mismanaged, and lacked proper professional supervision by KSE;

  40. (b) in recommending Oderco as the builder of the WPU, KSE failed to take reasonable steps to select an appropriate rig builder;

  41. (c) KSE failed to take reasonable steps to monitor and ensure that the necessary equipment for the WPU (“WPU equipment”) was ordered by Oderco and delivered in a timely manner;

  42. (d) KSE failed to take reasonable steps to ensure that the WPU manager whom it appointed was getting the necessary information and updates from Oderco regarding the progress of the project;

  43. (e) KSE failed to take reasonable steps to ensure that adequate or qualified staff were sent to monitor or supervise Oderco;

  44. (f) KSE failed to use reasonable endeavours to ensure that Oderco provided the necessary manpower and resources to support the rig building project in a timely manner;

  45. (g) KSE failed to take reasonable steps to require Oderco to catch up on or otherwise remedy its delays; and

  46. (h) KSE failed to take reasonable steps to find another rig builder to construct and deliver the WPU when it became obvious that Oderco was not likely to deliver the WPU on time.

  47. [32] Arguments (b) and (h) can be dealt with quickly. Vis-à-vis argument (h), the factual and expert witnesses all agree that terminating the Oderco Contract before termination of the PCSB Contract was never a realistic option as it was difficult to find a suitable alternative rig builder given the prevailing industry conditions. There is thus no merit in BRE’s claim apropos argument (h). Besides, termination of the Oderco Contract was never contemplated. As such, the contention (implicit in argument (h)) that the feasibility of terminating the Oderco Contract was an option which should have been explored by KSE in consultation with BRE and PCSB was illusory. With regard to argument (b) that no reasonable steps (eg, conduct due diligence) were carried out before the appointment of Oderco as the rig builder, that contention is equally untenable for the same reason as argument (h). It is not disputed that Oderco was the only replacement rig builder available at that time (after RG pulled out of its collaboration with BRE) that was willing to construct and deliver the WPU within six months.

  48. Overview of KSE’s case

  49. [34] Furthermore, Mr Chan argued, even if KSE were in breach of the JVA, the breach did not cause BRE’s alleged loss in that there was no causal link between KSE’s alleged breach and the cancellation of the PCSB Contract. In addition, Mr Chan relied on the indemnity in clause 6.6 of the JVA to absolve KSE from BRE’s claim for damages.

  50. [35] As regards its counterclaim, KSE alleged that BRE’s termination of the JVA was wrongful. The counterclaim was for damages for wrongful termination of the JVA and BRE’s failure to contribute a shareholder’s loan of US$400,000 to BRO.

  51. Issues

  52. [36] The issues which arise for determination are as follows:

  53. (a) Was KSE in breach of clause 6.2 of the JVA in the manner pleaded by BRE?

  54. (b) If so, was KSE’s breach repudiatory?

  55. (c) If BRE was not entitled to rescind the JVA, would BRE be liable to KSE on the latter’s counterclaim?

  56. [37] There are two further issues relating to question (a), namely: (i) what standard the parties intended to set by the “all reasonable endeavours” provision in clause 6.2 of the JVA; and (ii) the application of that standard in the circumstances of the case (see Angela Swan & Jakub Adamski, Canadian Contract Law (LexisNexis, 3rd Ed, 2012) (“Canadian Contract Law”) at para 8.95).

  57. [38] In this judgment, I will be considering the following questions, namely:

  58. (a) is an obligation to use “all reasonable endeavours” less stringent than one to use “best endeavours”;

  59. (b) what does an “all reasonable endeavours” clause actually require; and

  60. (c) how far must KSE actually go to meet the required standard to discharge this obligation to use “all reasonable endeavours”.

  61. [39] The phrases “reasonable endeavours”, “all reasonable endeavours” and “best endeavours” are various formulations of a contractual obligation to do something, and are often seen in commercial contracts. Each formulation, properly worded, usually imposes an obligation to do something and is capable of giving rise to a legally binding obligation (hereafter known as a “non-absolute obligation”). The difficulty, however, is to determine in any given case whether there has been a breach of such an obligation. Under a non-absolute obligation in a contract, the party who has to fulfil the obligation (the obligor) agrees to try to achieve the result stipulated, as opposed to an absolute obligation, where the obligor agrees to achieve a result (such as to complete work by a particular date). In the latter scenario, in general terms, it is usually not difficult to determine whether or not the absolute obligation in question has been satisfied. However, where the contractual obligation is to use “reasonable”, “all reasonable” or “best” endeavours, things are likely to be more complicated in that the parties have incorporated into their contracts standards of conduct which may have to be tested. This brings me to the two related issues identified at [37] above, viz: (a) the standard which the parties intended to set by the “all reasonable endeavours” provision in clause 6.2 of the JVA; and (b) the application of that standard in the circumstances of this case.

  62. [40] Generally, an obligation requiring the use of “best endeavours” denotes a higher standard than one requiring the use of “reasonable endeavours” (see the English High Court decision of Jolley v Carmel Ltd [2000] 2 EGLR 153 (“Jolley”), which was affirmed by the appellate court in [2000] 3 EGLR 68; see also the decision of Julian Flaux QC (sitting as a Deputy Judge) in Rhodia International Holdings v Huntsman International [2007] 2 All ER (Comm) 577 (“Rhodia”)). The “reasonable endeavours” formulation is also different from the “all reasonable endeavours” formulation. An obligation to use “reasonable endeavours” only requires the obligor to take one reasonable course of action and not all of them, unlike in the case of an obligation to use “all reasonable endeavours”. In Jolley, three different standards depending on the formulation of the obligation were recognised. Kim Lewison QC (sitting as a Deputy Judge) held (at 159):

  63. [41] Our courts have examined the obligation to use “best endeavours”. Our Court of Appeal in Travista Development Pte Ltd v Tan Kim Swee Augustine and others [2008] 2 SLR(R) 474 (“Travista”) has this to say on the standard of obligation imposed by a “best endeavours” clause (at [22]):

  64. [42] It will be useful to summarise the applicable principles from the above passage in the following manner:

  65. (a) An undertaking to use best endeavours is not a warranty to produce the desired results, nor does it require the obligor to make heroic efforts to do everything conceivable. However, it does require the obligor to do everything known to be usual, necessary and proper for ensuring the success of the endeavour (see Canadian Contract Law at para 8.96.1).

  66. (b) A “best endeavours” clause obliges the obligor to take all those reasonable steps in good faith which a prudent and determined man, acting in his own interests and anxious to obtain the required result within the time allowed, would have taken. It has been said that the obligor must leave “no stone unturned” (see Sheffield District Railway Company v Great Central Railway Company [1911] Times LR 451 at 452), subject to the limits of reason, to achieve the objective or carry the process to its logical conclusion.

  67. (c) Whether the “best endeavour” test has been satisfied is a question of fact in each case.

  68. (d) The test to determine whether an obligor has exercised its best endeavours is an objective one. It is, however, also a composite test in that the obligor may also take into account its own interests.

  69. [43] It is useful to add, by way of amplification to the principles summarised above in [42], other statements of principle summarised by the British Columbia Supreme Court in Atmospheric Diving Systems Inc v International Hard Suits Inc and another [1994] 5 WWR 719 (“Atmospheric Diving Systems”) and conveniently reproduced in Canadian Contract Law at para 8.96.1:

  70. [44] The parties here have not referred to any local cases where the obligation to use “all reasonable endeavours” was considered. Thus, the question in the present case is whether the test articulated by the Court of Appeal in Travista of what is required to satisfy a “best endeavours” obligation is directly applicable to the obligation to use “all reasonable endeavours”. This determination depends on whether “best” endeavours may be equated with “all reasonable” endeavours in the circumstances of a particular case.

  71. [45] In Rhodia, Deputy Judge Flaux opined that “best” endeavours might be equated with “all reasonable” endeavours. He said at [33]:

  72. [47] CPC Group Ltd v Qatar Diar Real Estate Ltd [2010] All ER (D) 222 was a case involving the redevelopment of the Chelsea Barracks site in London. The court, amongst other issues, was required to consider the nature of the obligation requiring the obligor to use “all reasonable but commercially prudent endeavours” to secure planning permission for the proposed redevelopment. Vos J made clear that an obligation to use “all reasonable endeavours” did not represent the same thing as “best endeavours” in every case (even without the “commercially prudent” proviso in the contractual clause concerned):

  73. [48] Mr Ling referred to the Australian case of Centennial Coal Company Limited v Xstrata Coal Pty Ltd (2009) 76 NSWLR 129. In that case, the court treated both phrases (ie, “best” endeavours and “all reasonable” endeavours) identically. See also Waters Lane & Another v Sweeney & Others [2007] NSWCA 200 (16 August 2007).

  74. [49] I now come to the comments of Richard Christou, Boilerplate: Practical Clauses (Sweet & Maxwell, 6th Ed, 2012) at paras 2-123–2-129 on the apparent inconsistent English decisions. The author made the following observations:

  75. [50] The caveat mentioned in para 2-128 of Boilerplate: Practical Clauses is Deputy Judge Flaux’s caveat in Rhodia, which is discussed at [35] of that judgment. The caveat states as follows:

  76. [51] For now, there is no hard and fast rule as to when an obligation that is couched in terms of “all reasonable endeavours” is as onerous as a “best endeavours” obligation. The discernible approach is to decide the matter on a case-to-case basis as each case would invariably turn on its own facts and circumstances. As such, previous decisions on the effect of the same words used in a different context must be viewed with caution. The emphasis should be on the objective of the “endeavours” clause in question, as gathered from the clause, the contractual context (ie, the circumstances in which the obligation was imposed and/or undertaken) and such other relevant terms as may exist in the contract (see point (4) of para 8.96.1 of Canadian Contract Law (reproduced at [43] above)).

  77. [52] Whether the relevant standard in a contractual obligation has been met is a question of fact in each case. The Court of Appeal in Chan Ah Beng v Liang and Sons Holdings (S) Pte Ltd [2012] 3 SLR 1088 reiterated (at [35]):

  78. Discussion and decision

  79. [53] Before considering in detail the parties’ rival submissions as to whether, on the facts, KSE did use all reasonable endeavours to procure the construction and delivery of the WPU, there are two matters that have to be addressed first, namely: (a) the standard which the parties intended to set in clause 6.2 of the JVA; and (b) the date by which KSE was obliged to procure the construction and delivery of the WPU.

  80. (1) The standard imposed by the “all reasonable endeavours” obligation in clause 6.2 of the JVA

  81. [54] Mr Ling submits that in the context of clause 6.2 of the JVA, there is little or no difference in standard between the formulations “best” endeavours and “all reasonable” endeavours. In contrast, Mr Chan’s contention is that the parties’ intention was to treat clause 6.2 as less onerous than a “best” endeavours obligation in the light of the three-tier hierarchy of obligations set out in the JVA (see [33] above). With the commentaries in Boilerplate: Practical Clauses at paras 2-124 and 2-128 in mind (see [49] above), from a legal standpoint, the use of three different formulations in the JVA is not in itself determinative of the standard imposed by the “all reasonable endeavours” obligation in clause 6.2, and the chosen formulation is still susceptible to review by the court. The surer way for parties to define the nature of the obligation imposed by an “all reasonable endeavours” clause is to actually specify the steps to be taken as part of the process of exercising “all reasonable endeavours”.

  82. [55] I hold that to all intents and purposes in this case, there is little or no relevant difference between the standard constituted by the formulation “all reasonable endeavours” and that constituted by the formulation “best endeavours”. This view is reinforced by the circumstances in which the JVA was entered into, the circumstances in which KSE entered into the Oderco Contract, the critical importance of the PCSB Contract to the parties and the fact that the purpose of the JVA was to fulfil the specific requirements of the PCSB Contract within known time constraints imposed by PCSB for the construction and delivery of the WPU. Put another way, in the present case, the obligation to use “all reasonable endeavours” is as onerous as an obligation to use “best endeavours”. It follows that in the present case, the test articulated by Chan Sek Keong CJ in Travista of what is required to satisfy the obligation to use “best endeavours” is directly applicable to KSE’s obligation to use “all reasonable endeavours” under clause 6.2 of the JVA.

  83. (2) The date by which KSE was obliged to procure the construction and delivery of the WPU

  84. [56] Clause 6.2 of the JVA provided that KSE was to use all reasonable endeavours to procure the construction and delivery of the WPU within six months after the Charter Agreement was executed, ie, by 9 September 2006. In this action, BRE has also sought rectification of clause 3.3 of the Charter Agreement by deleting the words “within six months after the date of this agreement” and replacing them with the words “within six months from 18 December 2005”. I pause here to refer to Mr Ling’s explanation in BRE’s closing submissions (at para 48) on the significance of the date 18 December 2005:

  85. [57] BRE contends that it was the common intention of both KSE and BRE that the actual delivery date of the WPU was to be 17 June 2006, and not 9 September 2006, and that there was a mistake in clause 3.3 of the Charter Agreement. As explained at [27] above, the initial intention was for all the contracts required under the JVA to be executed at the same time as the JVA. However, BRO executed the Charter Agreement only on 10 March 2006, and by clause 3.3 thereof, six months from the date of that agreement would be 9 September 2006. On 10 March 2006, BRO also contracted to buy the WPU from KSE. Clause B(3) of the Purchase Contract provided for delivery of the WPU to be within six months from 18 December 2005, which was 17 June 2006.

  86. [58] KSE’s pleaded case and answer to the interrogatories served by BRE was that the relevant date by which KSE had to procure the construction and delivery of the WPU was 9 September 2006. Mr Chan argued that the rectification sought by BRE was misconceived. KSE was not a party to the Charter Agreement, which was entered into between BRE and BRO. More importantly, a rectification of clause 3.3 of the Charter Agreement did not assist BRE, whose case against KSE was predicated solely on clause 6.2 of the JVA. Any rectification would also require clause 6.2 of the JVA to be corrected by deleting the words “within six months after the Charter Agreement is executed” and substituting them with the words “within six months from 18 December 2005”. BRE had not, however, sought to rectify clause 6.2 of the JVA in this manner.

  87. [59] Notwithstanding the discrepancies described as to when the WPU was to be delivered, it was repeatedly demonstrated in numerous contemporaneous documents and by the conduct of KSE that the parties had carved out and embarked upon a different course of action in December 2005 before the Oderco Contract was signed. The sequence of the scheme in clause 6.1 of the JVA could not be followed in December 2005 for two reasons. First, BRO was not yet incorporated, and it was imperative to secure a confirmed contract with Oderco. Second, the unity of purpose in terms of the aim of BRE and KSE was undeniably to fulfil (on an “all reasonable endeavours” basis on KSE’s part) the PCSB Contract as early as possible in June 2006 (and, at the latest, on a date prior to the PCSB cancellation date of 21 June 2006), and not by the 9 September 2006 date prescribed in the Charter Agreement. That was why the ex-works delivery date of the WPU under the Oderco Contract was set as 4 June 2006. For convenience, all subsequent references hereafter to delivery of the WPU “in June 2006” should be understood to mean delivery in June 2006 on a date prior to the PCSB cancellation date of 21 June 2006.

  88. [60] I find no evidence pointing to the parties, after 10 March 2006, reverting to and applying the scheme set out in clause 6.1 of the JVA. Significantly, in the witness box, GBC (KSE’s Chief Business Development Officer) confirmed that it was the intention of both BRE and KSE to deliver the WPU to PCSB in June 2006. Under the circumstances, an order for rectification is quite unnecessary to resolve the main dispute between the parties.

  89. [61] It is helpful to highlight certain salient contemporaneous documents that address the delivery of the WPU being scheduled for June 2006. First, KSE’s final draft SGX announcement sent to BRE on 4 January 2006 expressly confirmed that the WPU would be delivered in mid-June 2006 (the actual announcement was not produced at the trial and the parties treated the final draft as the actual version of the announcement that both parties had previously approved):

  90. [62] Second, I note that the minutes of site meetings at Oderco’s yard in Abu Dhabi attended by representatives from PCSB, KSE and BRE indicated that KSE was aware that the construction and delivery of the WPU was to meet PCSB’s delivery schedule. For instance, there were meetings during PCSB’s first site visit on 8 and 9 February 2006 for PCSB’s representatives to review the construction schedule and the delivery schedule. The minutes recorded the following discussion:

  91. The discussion on a five-month instead of seven-month delivery period for certain critical WPU equipment was in connection with the delivery of the WPU being in June 2006.

  92. [63] Third, there were inquiries about shipping the WPU to Labuan around the end of May 2006. Gwen Toh (“Gwen”), KSE’s General Manager, made inquiries on 13 February 2006 for freight rates with a view to shipping the WPU from Abu Dhabi to Labuan around the end of May 2006. On 22 February 2006, Gwen sought Oderco’s confirmation that the construction schedule that she had received complied with the agreed five-month delivery date.

  93. [64] Fourth, the expiry date of the letter of credit which KSE instructed KBC Bank NV to issue in favour of Oderco was on 12 June 2006.

  94. [65] Fifth, there were related communications on the subject of building the WPU to PCSB’s specifications. Any change to the specifications would have been a variation of the PCSB Contract that had to be approved by PCSB, and would also have impinged on the construction schedule of the PCSB project and the PCSB first delivery date. I begin with an e-mail of 26 January 2006 where KSE reminded BRE’s Managing Director, Abdul Yazid bin Aziz (“Yazid”), that KSE’s responsibility was to build the WPU according to the specifications given by BRE. On behalf of KSE, GBC wrote:

  95. [66] A few months later, in early April 2006, a possible change to PCSB’s approved specifications was raised and discussed at a site meeting attended by representatives from PCSB, KSE, BRE and Oderco. After that meeting, Yazid wrote to GBC on 11 April 2006 to report on the outcome of his further discussions with PCSB’s representatives on the subject of a change to PCSB’s specifications. He clarified:

  96. [67] On the same date, GBC wrote to inform Samir that Oderco was to continue building the WPU based on the existing approved drawings. On 13 April 2006, GBC reminded Samir not to stop work on the WPU based on the existing specifications unless instructed otherwise by KSE.

  97. [68] There are other relevant e-mails on the parties’ aim to deliver the WPU in June 2006. However, to avoid repetition, I propose to comment on their relevance in another part of the judgment.

  98. (3) Did KSE discharge its contractual obligation to use all reasonable endeavours?

  99. [69] With the various principles set out above in mind, I turn now to examine whether KSE discharged its obligation under clause 6.2 of the JVA to use “all reasonable endeavours” to procure the construction and delivery of the WPU in June 2006. The answer to this question turns on the facts of this case. In considering BRE’s contentions listed at [31] above in relation to KSE’s alleged failure to use all reasonable endeavours in this regard, I have to determine on the facts whether KSE took all reasonable steps in good faith which a prudent and determined company, acting in its own commercial interests and anxious to obtain the required result within the time allowed, would have taken (ie, the test set out in Travista at [41] above). As stated earlier, BRE is not required to show that KSE did not act in good faith (see [43] above). The test is to be applied in the context of what KSE was being confronted with at the material time as that was the context in which all reasonable endeavours had to be directed. KSE had alleged that Samir was a difficult individual to work with. In KSE’s dealings with Samir, Samir was found to be uncooperative and unprofessional in his work ethics. He was a source of frustration to KSE. Be that as it may, the question of KSE’s liability is not answered by Samir’s intransigence, limited cooperation or lack of professionalism, but by the answer to the question whether KSE used “all reasonable endeavours” in the particular circumstances of this case.

  100. [70] Mr Ling submitted that after taking an overall view of the situation, the very fact that Oderco missed the June 4 date was evidence of KSE’s failure to use all reasonable endeavours during the critical period from January 2006 to May 2006 (see [91] below).

  101. [71] In my judgment, although no particular aspect is conclusive, the evidence looked at cumulatively shows that KSE failed to discharge its obligation to use all reasonable endeavours to procure the construction of the WPU for delivery in June 2006. Significantly, the evidence demonstrated that construction of the WPU was already irremediably delayed by the time of the PCSB first delivery date (ie, 21 May 2006) because of KSE’s failure to use all reasonable endeavours, such that KSE’s subsequent efforts from July 2006 to October 2006 to catch up on the delays in construction (which efforts, according to KSE, included paying for the change order approved by PCSB in respect of the multi-tier modular system (see [33] above)) were belated and futile. It was due to KSE’s mismanagement of the Oderco Contract that BRE missed the two critical delivery dates imposed by PCSB (ie, the PCSB first delivery date and the PCSB last delivery date) and the WPU was never completed by Oderco. Alas, even when the PCSB Contract was terminated on 12 April 2007, some sixteen months after that contract was awarded to BRE, the WPU was not completed or ready for delivery ex-works Abu Dhabi.

  102. [72] What follows are my detailed reasons for holding that KSE failed to discharge its “all reasonable endeavours” obligation on the facts and circumstances of this case.

  103. KSE’s role in the contractual context

  104. [73] There are several important undisputed factual matters to bear in mind. Both KSE and BRE knew that the PCSB first delivery date (ie, 21 May 2006) was very difficult to achieve. Yet, KSE agreed to joined forces with BRE and they signed the LOI on 9 December 2005. Again, after KSE decided to be BRE’s joint venture partner, KSE wanted control over the subject matter of the venture (ie, the PCSB project involving a purpose-built WPU for the PCSB Contract), and control included entering into the Oderco Contract as the buyer of the WPU to be custom-built.

  105. [74] KSE’s discharge of its obligation to use all reasonable endeavours to procure the construction and delivery of the WPU must be examined and assessed with this control over the construction of the WPU in mind. KSE was able to get Oderco to agree to the June 4 date as the delivery date ex-works Abu Dhabi knowing that the WPU would have to be completed and delivered to Labuan before the PCSB cancellation date of 21 June 2006. Again, it must not be forgotten that KSE contracted with Oderco because it wanted to give itself and not BRE “control over the process” (see [17] above). I find no credence in KSE’s submission that “[a]s BRO could not be incorporated in time, in the interest of the joint venture, KSE proceeded to contract with Oderco first and fulfilled its obligations under Clause 6.1” [emphasis added].

  106. [75] The overall contractual objective of the “all reasonable endeavours” obligation in clause 6.2 of the JVA was therefore to procure the construction and delivery of the WPU in June 2006.

  107. [76] The prevailing state of affairs in December 2005 was that time had already started to run under the PCSB Contract, ie, from 21 November 2005, when PCSB issued the Letter of Award to BRE. One month had already passed under the PCSB Contract before the Oderco Contract was signed between KSE and Oderco on 21 December 2005, and the parties were aware that any extra time beyond 20 June 2006 (the last day of the liquidated damages period) would have to come from or be due to change orders approved by PCSB. I pause here to make two points. First, I do not and cannot see how KSE’s reference to extra time for change orders in an e-mail of 17 December 2005 warranted KSE’s assertion that this e-mail pointed to a discussion or the existence of a strategy between the joint venture partners to “persuade PCSB … to initiate change orders (as required) to buy extensions of time”. Second, this strategy as described was not KSE’s pleaded defence.

  108. [77] It is now appropriate to mention the relevant e-mails in question.

  109. [78] I refer to an internal e-mail dated 12 December 2005 with the subject heading “Petronas Workover Pulling Unit”. This internal e-mail was sent by CTK to GBC, copied to TFG, only one day before the JVA was signed. CTK wrote:

  110. [79] This is an important internal e-mail which KSE papered over in its submissions. On 18 December 2005, BRE agreed to KSE entering into the rig building contract (ie, the Oderco Contract) with Oderco.

  111. [80] Another e-mail indicated that KSE was fully aware of the time pressure and wanted more time for the construction and delivery of the WPU, seeing that the PCSB first delivery date started to run from the date of the Letter of Award issued by PCSB to BRE. TFG’s e-mail of 9 December 2005 to LHK of COSL with the subject heading “Workover Pulling Unit Project – LOI” reads:

  112. [81] As alluded to earlier (at [13] above), BRE’s letter of appeal dated 9 December 2005 to PCSB for an extension of the delivery date was rejected. Significantly, even before receiving PCSB’s reply to its request for an extension of the delivery date, BRE proceeded to sign the LOI with KSE on 9 December 2005. On the same day, Yazid (on behalf of BRE) also signed the Letter of Award issued by PCSB to BRE.

  113. [82] On 16 December 2005, three days after the JVA was signed, TFG sent an e-mail to LHK about the two main risks in the PCSB Contract that had to be managed and taken into consideration in the Oderco Contract that KSE was going to sign on 21 December 2005: first, the possibility of late delivery that could result in up to 50 days’ worth of liquidated damages in the sum of US$200,000; and second, the risk of cancellation of the PCSB Contract. PCSB had allowed 30 days for late delivery, subject to payment of liquidated damages, and PCSB could cancel the PCSB Contract for delay exceeding 30 days from 21 May 2006, ie, for delay beyond 20 June 2006. TFG stressed that Oderco’s delivery date ex-works must not be later than 21 June 2006. TFG’s e-mail to LHK, which was copied to WKP, CTK, GBC and Gwen, reads:

  114. [83] At the risk of repetition, by clause 3 of the Oderco Contract, the delivery date ex-works was stated as “within 165 days from date of Contract”, ie, by 4 June 2006.

  115. [84] As mentioned earlier, KSE’s desire to have control over the PCSB project led to its entering into the Oderco Contract to ensure that Oderco kept to its promise to deliver the WPU on time. A reasonable inference to be drawn from the contemporaneous documentary evidence is that KSE became involved in the PCSB project because of the possibility of earning US$5m in net profit from the WPU (GBC confirmed this figure on the stand) as well as the possibility of hiring out its liftboat, the Dixie Patriot, for use with the WPU. On 22 November 2005, LHK wrote to TFG in these terms:

  116. [85] The tight delivery schedule, coupled with the strong demand for rigs and oil and gas equipment, meant that fabrication of the structure of the WPU and procurement of critical WPU equipment must be undertaken in tandem. The need to ensure prompt supply of such equipment was noted in TFG’s e-mail of 25 October 2005 to LHK. TFG wrote:

  117. [86] Having regard to the overall undisputed facts and the circumstances described above, there is little to commend in KSE’s contention that its role under clause 6.2 of the JVA was merely to liaise with Oderco during the course of the construction of the WPU and to facilitate communications between Oderco and BRE on technical matters. For the same reason, I do not accept KSE’s submission that its role as BRE’s joint venture partner was only to negotiate and sign the Oderco Contract and to act as a liaison with Oderco. There is also no credence in KSE’s contention that it was only the financier in the joint venture. KSE further argued that it was not required to act as “Project Managers” during the construction process. It is clear that KSE’s assertions as to its roles are not supported by the contemporaneous documentary evidence. In my view, in the context of what KSE was being confronted with at the material time, which was the context in which all reasonable endeavours were to be used by KSE, the discharge of the “all reasonable endeavours” obligation in clause 6.2 of the JVA required KSE to not only put pressure on Oderco, but to also put its available resources to bear on Oderco in order to realise KSE’s right (as the buyer of the WPU under the Oderco Contract) to have the WPU delivered by the June 4 date.

  118. [87] As stated, KSE’s idea of control over the PCSB project was to contract with Oderco. By doing so, KSE clearly undertook to manage the construction and delivery of the WPU by Oderco within 165 days from the date of the Oderco Contract, ie, by 4 June 2006, so as not to fall foul of the PCSB cancellation date of 21 June 2006. In the circumstances, KSE could not simply take a hands-off approach and leave Oderco to fulfil the Oderco Contract, especially when, amongst other things, KSE was repeatedly confronted with signs that Oderco was not performing the contract as expected. For instance, Oderco was not responsive to queries, and KSE received questionable reports on the actual progress of the construction of the WPU that showed constant changes to the delivery schedule.

  119. The urgency confronting the parties in this case

  120. [88] GBC was the person to whom the task of overseeing the Oderco Contact was delegated. He was assisted by Gwen, who did not testify at the trial. Francis Tan (“Francis”), who was appointed by KSE as Country Manager in charge of Business Development (see further [109] below), was called as a witness of fact for KSE, but his involvement came very much later in December 2006. GBC was the main witness of fact for KSE.

  121. [89] I should mention here that BRE’s witnesses of fact were Yazid, WKP and Andrias Ewat (“Andrias”), the WPU manager appointed by BRE on 17 February 2006 (see further [108] below). It was Yazid who liaised with PCSB and he was also in contact with GBC.

  122. [90] The state of affairs confronting KSE at the time it signed the Oderco Contract on 21 December 2005 was one of immense urgency. One month had already passed under the PCSB Contract by the time Oderco came on board. Despite having secured the June 4 date as the delivery date ex-works Abu Dhabi under the Oderco Contract, KSE did not manage the Oderco Contract properly and the June 4 date passed without Oderco delivering the WPU.

  123. [91] Between January 2006 and May 2006, one particular factual circumstance facing KSE was Oderco’s lack of or slow response to KSE’s queries and demands for information and key documents. As early as 13 January 2006, Gwen complained that she was unable to contact Oderco as Samir’s phone had been switched off and she did not have Hedian’s telephone number. It was also apparent to KSE that Oderco was consistently late in producing key documents and drawings. The evidence showed that GBC and Gwen continued to send e-mails and make telephone calls to Oderco to chase it for items such as the construction schedule, weekly progress reports and the status report on the top drive system (“TDS”) and the blow-out preventer (“BOP”). Mr Ling submitted that the evidence pointed to February and March 2006, when it became clear that KSE was unable to get the purchase orders for the TDS and the BOP, as the period when the question of whether the purchase orders had even been placed should have been asked. He further submitted that by March 2006, the PCSB project was in trouble. In cross-examination, Mr Ling questioned GBC whether more should have been done in March 2006, for example, by placing someone at Oderco’s yard to get better information from Oderco. GBC’s answer was astonishing:

  124. [92] GBC’s answer exemplified the typical lackadaisical attitude of KSE towards the management and administration of the Oderco Contract. GBC lacked the urgency of a prudent and determined director-in-charge who was under time pressure to use all reasonable endeavours to procure the construction and delivery of the WPU in June 2006. Contemporaneous documentary evidence confirmed that GBC knew of the limited amount of time which the joint venture partners had to construct and deliver the customised WPU to PCSB. Given these circumstances, it is inexplicable that GBC adopted a “soft” approach towards Oderco, and did not change tack to overcome Oderco’s unresponsiveness by taking other measures.

  125. [93] The same approach of only sending e-mail chasers and making telephone calls to Oderco continued despite uneasy news from Woo Peng Kong (“PK Woo”), a former Executive Director of KSE, of the following: (a) manpower shortage in Oderco’s office in March 2006; and (b) doubts as to whether Oderco had provided the correct construction schedule. PK Woo’s e-mail dated 3 April 2006 to GBC and Gwen highlighted likely errors in the construction schedule which Oderco had sent on 2 April 2006. Whilst Samir had confirmed previously that he had placed the order for the BOP, the construction schedule for the BOP system as at 2 April 2006 showed 0% completion, meaning that the item had not even been purchased yet. Similarly, the construction schedule for the TDS also showed 0% completion status as at 2 April 2006. At the same time, Gwen was alerted by Andrias in an e-mail dated 3 April 2006 that most of the percentages in Oderco’s weekly progress schedules “were going backwards and time has dragged towards end May or early June 2006”. PCSB made the same point as Andrias and sought an explanation.

  126. [94] The fact remains, and I so find, that for the longest time, KSE was content to confine and limit its efforts to sending e-mail chasers and making telephone calls to Oderco despite the time pressure to meet the June 4 date and ostensible signs that the PCSB project was not progressing well.

  127. [95] From February 2006 onwards, at least after the site meetings on 8 and 9 February 2006, it would have been obvious to GBC and Gwen that things were not going according to plan for a June 2006 delivery. For instance, Oderco’s report of 25 February 2006 showed delivery in Week 24, ie, in end-June 2006. As early as 18 March 2006, Samir was talking about completion of the WPU only in Week 26, ie, by July 2006. In the month of April 2006, it was again apparent that Oderco was going to miss the June 4 date. On 21 April 2006, Oderco’s updated construction schedule showed that delivery had moved to the third week of July 2006. Later, on 3 May 2006, Oderco’s updated construction schedule showed that delivery had slipped behind by another two weeks to 10 August 2006, which was well after the ex-works delivery date of 4 June 2006. On the same day, PK Woo highlighted to GBC that the updated construction schedule still showed “procurement of TDS” as zero. On 4 May 2006, Gwen asked Oderco why the updated construction schedule showed delivery only on 10 August 2006, which was after the original delivery deadline of 4 June 2006. It was then that GBC wrote to Oderco on 5 May 2006 requesting that Samir attend a meeting in Singapore on 9 and 10 May 2006. Although this initiative and GBC’s subsequent site visit to Oderco between 27 June and 3 July 2006 were further steps taken by KSE to monitor the construction of the WPU apart from sending e-mails and making telephone calls to Oderco, these initiatives were taken rather late in the day, and were ineffective to procure delivery of the WPU in June 2006. In fact, the delivery dates in Oderco’s subsequent updated construction schedules moved further into September 2006 and beyond.

  128. [96] GBC claimed that he took Oderco’s progress reports at face value. All the more, the alarm bells should have started to ring in February 2006 and should have continued ringing as the delivery date ex-works Abu Dhabi moved further and further away from the June 4 date. I accept (and KSE’s expert witness, Mr Matthew Jonathan Wills (“Mr Wills”), agreed), that one of the steps that KSE ought to have taken was to try to find out what was actually causing the delay. Yet, GBC allowed precious months to slip by without attempting to discover the cause of the delay.

  129. [97] Another sign that the PCSB project was not progressing well came from the procurement of critical WPU equipment. KSE had asked Oderco for purchase orders for such equipment, but had not received them. The experts on both sides said that they had not seen purchase orders, but reckoned that they would have been very few. BRE’s expert witness, Mr Ian Craven (“Mr Craven”), opined that purchase orders for critical WPU equipment should have been placed in January 2006 so that there would be a chance of the WPU being completed in June 2006. KSE should have questioned whether purchase orders had even been placed when it was unable to obtain the purchase orders from Oderco, and this should have been obvious to KSE in February and March 2006. Besides the matter of the purchase orders, there is also evidence that Oderco’s progress reports, which gave the impression that the project was at an advanced stage, did not tally with the schedule of multiple milestone payments to be made by KSE for the WPU. I will deal with the multiple milestone payments below (see [110]–[116]).

  130. [98] Given the situation in February and March 2006, KSE should and could have taken other steps then to chase Oderco on the construction of the WPU. I will elaborate on these steps in due course. Suffice it to say at this point that in practical terms, the obligation to use all reasonable endeavours in this case may be benchmarked against the actions expected of a reasonably competent director in GBC’s position endeavouring to “claw the project schedule back” on track in an endeavour to save the PCSB project from the time already lost. Metaphorically speaking, KSE was faced with the same pressure as the captain of a sinking ship. KSE was required to, but did not, take steps that were necessary and proper to maximise its chance of procuring the completion and delivery of the WPU ex-works by the June 4 date. As a result of KSE doing nothing more than sending e-mail chasers and making telephone calls between January 2006 and May 2006 coupled with KSE’s contentment to wait, the PCSB project became irremediably delayed as a consequence.

  131. [99] My conclusion is reinforced by an undisputed e-mail report of 18 September 2006. This is the report which GBC received on 18 September 2006 from Michael Connolly (“Connolly”), who had been employed by KSE on 2 July 2006 as its representative at Oderco’s yard. Connolly had described himself in one of his e-mails as “Client’s Rep” and his presence at Oderco’s yard was said to “protect the interest of KSE/BRO”. Earlier, Connolly had reported on 4 September 2006 that Oderco did not have all the necessary WPU equipment and had yet to issue the requisite purchase orders to local suppliers as it was still sourcing for such equipment at this late stage of the construction. Following on from this, Connolly’s e-mail report of 18 September 2006 similarly indicated that Oderco had started working on the WPU too late and was so much behind schedule that it was not possible to meet the PCSB last delivery date of 26 October 2006. The relevant part of Connolly’s e-mail report reads:

  132. [100] Connolly’s report was not disputed by KSE back then or at anytime thereafter, including at the trial proper. Significantly, Connolly’s report discloses the reason for the unsatisfactory state of affairs in September 2006: had Oderco done most of the work on the WPU before July 2006, the construction of the WPU would have reached the testing and commissioning stage by September 2006 and Oderco would have been able to meet the PCSB last delivery date of 26 October 2006. This tied in with my finding (at [71] above) that the construction of the WPU was already irremediably delayed by the time of the PCSB first delivery date of 21 May 2006 because of KSE’s laissez-faire attitude towards the management and administration of the Oderco Contract between January 2006 and May 2006 such that its efforts after June 2006 to claw back the time lost were too late and futile.

  133. [101] I have summarised the limited steps taken by KSE to procure the construction and delivery of the WPU in June 2006. I now come to other efforts that KSE could have taken earlier, but did not, to satisfy its obligation under clause 6.2 of the JVA.

  134. KSE’s failure to adequately supervise and manage the PCSB project via monitoring the Oderco Contract

  135. [102] The experts on both sides agreed that if Oderco could not manage the PCSB project suitably well, on-site supervision would be needed. It was not seriously disputed that after the first site meeting on 8 and 9 February 2006, Oderco was found to be disorganised, and was failing to manage the construction of the WPU properly. Although the Oderco Contract did not expressly provide for on-site supervision, given the pressing circumstances of this case, I accept the opinion of BRE’s expert, Mr Craven, that on-site supervision should have been provided by KSE from the outset regardless of the contractual requirements set out in the Oderco Contract as on-site supervision was necessary to safeguard KSE’s investment and ensure that Oderco kept to the tight construction schedule. Mr Craven’s explanation, which I accept as eminently sensible, was as follows:

  136. [103] KSE’s expert witness, Mr Wills, also agreed that on-site supervision from the outset would have been ideal in this case, especially after the February 2006 site visit by PCSB. Yet, KSE only appointed Connolly on 2 July 2006, well after the June 4 date had passed. As Connolly’s e-mail of 18 September 2006 revealed, it was difficult to catch up on construction in September 2006 when work (viz, fabrication of the structure of the WPU and procurement of WPU equipment) that should have been done before July 2006 had not yet been done (see [99] above).

  137. [104] As a prudent and determined buyer, KSE ought to have appointed qualified personnel to closely monitor and supervise the rig building project on-site. KSE should have been anxious to ensure that the customised WPU was constructed and delivered on time so as not to jeopardise the PCSB Contract, which could be cancelled after 20 June 2006. On-site monitoring would have been necessary to, inter alia: (a) monitor and verify the actual progress of the construction against Oderco’s progress reports; (b) monitor and verify that the necessary WPU equipment (especially the critical items) was ordered at the earliest possible time and that the deliveries were on schedule; and (c) ensure that payment was disbursed to Oderco in accordance with the milestones set out in the Oderco Contract.

  138. [105] In fact, the evidence showed that KSE was reluctant to appoint someone to supervise the construction of the WPU on-site. The first occasion when on-site supervision was mentioned was shortly after the 8 and 9 February 2006 site visit. GBC, reporting on that visit, wrote in his e-mail to TFG:

  139. This e-mail demonstrates that KSE did not want to appoint its own personnel to supervise the construction of the WPU at Oderco’s yard and chose to deflect this responsibility to BRE instead.

  140. [106] That KSE was not prepared to appoint a qualified representative on-site to manage the Oderco Contact is also evident from an internal e-mail dated 22 March 2006, where TFG chastised GBC for his earlier recommendation to Samir that an employee of BRE be stationed at Oderco’s yard as the Project Manager. TFG wrote:

  141. [107] One argument raised by KSE was that since BRE had appointed a representative to monitor Oderco, there was no need for KSE to do so. BRE’s appointment of a WPU manager (this terminology was used interchangeably with the expression “Rig Manager” in the documents) was intended to be KSE’s answer for not stationing a representative at Oderco’s yard. With respect, this argument misses the point. The WPU manager appointed by BRE was required under the PCSB Contract, and had nothing to do with the discharge of KSE’s “all reasonable endeavours” obligation under clause 6.2 of the JVA. In fact, the WPU manager was not supposed to be appointed before the delivery of the WPU; the appointment was accelerated only to appease PCSB, which had queried BRE on 6 February 2006 on the absence of COSL in the PCSB project contrary to BRE’s tender (see [8] above). Yazid had then suggested appointing a WPU manager to assuage PCSB after the latter’s discovery of the collaboration between BRE and KSE.

  142. [108] The fact that Andrias was employed as the WPU manager did not relieve KSE of its contractual obligation under the JVA. Andrias was employed as the WPU manager by BRE on 17 February 2006 and PCSB was notified of his appointment on 6 March 2006. Andrias was responsible for providing “technical advice and running of the operation of the WPU under construction”, and had to familiarise himself with the WPU. In addition, Andrias was to act as a bridge between PCSB and BRE in respect of the construction of the WPU, and also assist in the coordination of the shipping of the WPU from the Oderco’s yard in Abu Dhabi to Labuan. However, the obligation to manage the PCSB project via monitoring the Oderco Contract continued to rest upon KSE, and it is not sufficient for KSE to argue that BRE had also appointed a representative to monitor Oderco’s progress.

  143. [109] KSE eventually appointed Connolly and, later, Francis to monitor the construction of the WPU on-site. However, this came much later in the day, after the construction of the WPU had already become irremediably delayed. Connolly’s appointment was first mentioned on 30 June 2006 when GBC visited Oderco’s yard, and GBC’s intention then was only to engage Connolly for one month initially and to decide later if KSE needed his services for a longer period. Connolly was only appointed on 2 July 2006 after the June 4 date had passed. Francis was appointed in December 2006 after Connolly resigned. Francis explained that his role was to update KSE’s management on the progress of the construction, and to help expedite the PCSB project in terms of delivery of the necessary WPU equipment. Between December 2006 and March 2007, to a certain extent, Francis chased Samir down on the delivery of cable plugs and high-pressure values equipment. This evidence demonstrates that on-site representation had some effect on Samir.

  144. KSE’s failure to notice that milestone payments under the Oderco Contract were not triggered

  145. [110] Under the Oderco Contract, KSE agreed to make the following milestone payments under clause M:

  146. [111] Apart from the 10% down payment, the other milestone payments were based on the actual progress of the construction of the WPU in accordance with the milestones as described. Based on KSE’s own evidence the following sums were disbursed:

  147. (a) The 10% down payment was made on 3 January 2006.

  148. (b) The next milestone payment of 15% corresponding to the issuance of the fabrication drawings for the mast, sub-structure and skid beam of the WPU was made on 14 June 2006.

  149. (c) The third milestone payment of 25% was also made on 14 June 2006.

  150. (d) The fourth milestone payment of 20% was made on 1 September 2006.

  151. (e) The payment of 10% for “BOP and all handling equipment”, amounting to a total of US$300,000, was advanced as loans to Oderco on 22 and 29 September 2006.

  152. (f) The 10% payable on “Completion of Pump, Draw-work and VFD [variable frequency drive]”, amounting to a total of US$690,000, was paid directly to Oderco’s suppliers on 24 November 2006.

  153. (g) The 7.5% payable upon “Rig Completion, Rig-Up and Rig Acceptance in Abu Dhabi”, amounting to US$300,000, was advanced as a loan to Oderco on 2 February 2007, and a further US$400,000 was advanced as a loan on 2 March 2007.

  154. [112] I digress to mention Mr Craven’s explanation that there are three phases in the construction of a WPU. The first phase is the fabrication of the structure of the WPU itself. The second phase entails the purchasing, delivery and installation of the necessary WPU equipment. The third phase is commissioning. The first two phases have to be borne in mind when reading Oderco’s progress reports. Hence, even if Oderco had fabricated the structure of the WPU as at 17 April 2006 (which was what Oderco claimed it could do (see [115] below)), it was still necessary to have the requisite WPU equipment purchased, delivered and installed (ie, the second phase).

  155. [113] The progress made on the first two phases in the construction of the WPU was clarified by the parties’ experts by looking at the photographs of the structure of the WPU. Mr Craven opined that as at around 21 March 2006, less than 5% of the overall construction (ie, the first and second phases of construction) had been completed, and that as at 15 April 2006, about 5 to 10% of the overall construction (ie, the first and second phases of construction) had been completed. The experts on both sides opined that in April 2006, fabrication of the structure of the WPU based on the original specifications (ie, the first phase of construction) was about 60% completed, and Mr Wills further opined that this phase of construction was about 95% completed in July 2006.

  156. [114] Returning to the schedule of milestone payments to be made by KSE to Oderco under the Oderco Contract, the timing of the instalment payments set out at [110] above should have alerted KSE that things were not proceeding according to plan for the delivery of the WPU in June 2006. It is apparent from the above schedule of instalment payments that apart from the 10% down payment made in January 2006, milestone payments (b) to (d) were all made after Oderco had already missed the June 4 date (see [111] above). Given that the deadline for Oderco to deliver the WPU was 4 June 2006, red flags should have been raised when no milestone payments were made to Oderco for more than four months after the January 2006 10% down payment. If KSE had investigated and queried Oderco as to why it had not asked for any of the subsequent milestone payments after that 10% down payment, KSE would have discovered the discrepancies in Oderco’s progress reports, such as the 15 April 2006 progress report where Oderco stated that “the WPU [was] going to be completed soon”, that “Oderco [was] a bit ahead of schedule”, that “the project was 75% complete” and that the WPU should be finished by 31 May 2006”.

  157. [115] Notably, PK Woo commented to GBC on 17 April 2006 that Oderco’s 15 April 2006 progress report did not mention the progress of procurement of the necessary WPU equipment, nor did it confirm the placement of an order for the TDS despite KSE’s queries. Prior to that, on 3 April 2006, Oderco had sent Progress Report No 4 dated 2 April 2006. In that report, Oderco had stated that the assembly of the mast and sub-structure of the WPU would be completed by 17 April 2006, and that most of the necessary WPU equipment had been procured or ordered, but it did not disclose the delivery date of these items to Abu Dhabi. It was therefore incomprehensible that over a 13-day period (viz, from 2 April 2006 to 15 April 2006), 75% of the overall construction of the WPU could have been completed. Yet, GBC did not take issue with this discrepancy in Progress Report No 4 (nor with the discrepancies in Oderco’s other progress reports).

  158. [116] It is plain that KSE was not closely monitoring the progress of the construction of the WPU via the various milestone payments which it was to make under the Oderco Contract. If KSE had done so, it would have found out about the delay in construction and should have assisted as quickly as possible so as to try to meet the planned delivery of the WPU in June 2006.

  159. Lack of purchase orders and delay in procuring WPU equipment

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