Checkpoint Fluidic Systems International Ltd v Marine Hub Pte Ltd and Another Appeal

Chao Hick Tin JA:

[1] This is an appeal against the decision of the district judge (“the DJ”) in District Court Suit No 21 of 2006 and Summons No 5169 of 2008. The DJ in Northern Laboratories Pte Ltd v Marine Hub Pte Ltd v Checkpoint Fluidic Systems International Ltd [2008] SGDC 256 (“the GD”) had found the appellant, Checkpoint Fluidic Systems International Ltd, liable to indemnify the respondent, Marine Hub Pte Ltd, for liabilities incurred under a contract between the respondent, and Northern Laboratories Pte Ltd (“Northern Labs”) for the hiring of certain pressure testing equipment.

[2] The respondent is in the business of selling and manufacturing marine and marine related hardware and products. The appellant is in the business of manufacturing and selling chemical injection pumps for use in the oil and gas industry. The respondent was, at the material time, the appellant’s exclusive agent responsible for selling and marketing the appellant’s products for the oil and gas industry. This relationship commenced on 2 October 2004. Under this agency arrangement, the respondent would receive a 10% commission on sales to the appellant’s existing clients and additionally, profits from marking-up product prices for clients developed by the respondent. The appellant’s Asia Pacific manager and representative, Steve Pratt (“Pratt”), works out of an office space which it has rented in the respondent’s premises.

[3] On 4 February 2005, Pratt suggested a plan to the respondent’s managing director, Eddie Ewe Soon Ee (“Ewe”), for the respondent to lease certain pressure testing equipment from Northern Labs, and, in turn to rent it out to Advance Marine Services Sdn Bhd (“AMS”) at a 20% mark-up in price. Ewe agreed. It is not disputed that this transaction fell outside the scope of the existing agency agreement between the parties. Pratt issued a purchase order (Purchase Order no. MH 014730) on the same day using the stationery of the respondent and where Pratt signed at two spaces “Issued by” and “Requested by”. The purchase order did not bear the respondents’ signed approval. The equipment was leased the very next day, on 5 February 2005. Pratt directed Northern Labs to deliver the equipment to HL Engineering in Lumut, Malaysia where AMS was conducting pressure testing. Eventually, on 2 March 2005, only one piece of the equipment was returned by Pratt to Northern Labs.

[5] Through the third party proceedings, the respondent sought to recover the abovementioned sums from the appellant. In addition, the respondent also amended its statement of claim by way of Summons No 5169 of 2008 so as to include in its claim the sum of $24,239.25 which it had earlier paid Northern Labs for chart paper and for the rental of the equipment from 4 February to 30 April 2005.

[6] The central issue in the third party action is whether the respondent entered into the lease agreement with Northern Labs in its own right or as agent for the appellant. The parties have given conflicting accounts of the events which led to the institution of the suit by Northern Labs. I will now set these out briefly.

[7] Pratt testified that he was introduced to one Gordon Fraser (“Fraser”) of AMS by a friend where he learnt that AMS required pressure testing equipment. Pratt offered to help Fraser source for a supplier. Pratt decided to introduce this business opportunity to Ewe because Ewe had been kind to him and had taken care of him since his arrival in Singapore. Pratt then discussed the plan with Ewe and the respondent’s senior manager at the time, William Ho (“Ho”). Ewe and Ho agreed to the plan and asked Pratt to deal with Northern Labs and AMS. While Pratt proposed the mark-up in price, the final figure was decided by Ewe. On 4 February 2005, Pratt issued a purchase order (referred to above at [3]), using the stationery of the respondent, to Northern Labs and directed that the equipment be delivered to HL Engineering where AMS was doing pressure testing. That, according to Pratt, was the last of his involvement.

[8] However, in a supplemental affidavit, Pratt added that the respondent’s driver, Jamaluddin Bin Bujang (“Jamaluddin”), had informed him that one piece of the equipment was returned to the respondent. Pratt then discussed the matter with Ho and they assumed that it was returned by AMS. Pratt offered to bring that piece of equipment to Northern Labs because his former superior from Scotech International Services Ltd, Northern Labs’ principal, was in town and Pratt intended to meet him. That was how that piece of the equipment was returned to Northern Labs on 2 March 2005.

[9] Pratt maintained that his role in the transaction was entirely for the respondent’s benefit and not the appellant’s. In particular, he pointed out that he was actually trying to do Ewe a favour. He relied on the fact that at no time did the respondent back-charge the appellant for the payment the respondent had made to Northern Labs and that this was proof that the lease arrangement with Northern Labs was on the respondent’s own account.

[10] Ewe testified that on 4 February 2005, Pratt came to see him to discuss the aforementioned plan and Pratt had proposed the mark-up in price. Ho denied being present at this discussion between Ewe and Pratt. On cross-examination, Ewe stated that they agreed that the respondent would receive 10% commission as an administrative fee and in return, the respondent would allow Pratt to use its facilities, including stationery, to do the paperwork for the transaction. As for the events surrounding the return of the equipment to Northern Labs, both Jamaluddin and Ho denied having spoken to Pratt about it.

[11] With regard to the failure to back-charge the appellant in respect of payments made to Northern Labs, the respondent’s advisory board executive, Ong Geok Quee, testified that the respondent paid Northern Labs without back-charging the appellant by mistake because the accounts department thought that the appellant had already been back-charged. After discovering this, Ong said that she intended to back-charge the appellant all payments made to Northern Labs but chose not to do so because it appeared that the case was going to proceed to court.

[12] In the totality, the respondent’s position was that it had only facilitated the transaction and that the transaction was entered into for the account of the appellant and not the respondent. In support, the respondent also pointed to two emails sent by Pratt to show that the latter had orchestrated the transaction for the appellant’s benefit: first, in a 4 February 2005 email to Fraser(“Email of 4 February 2005”) to quote the rental price of the equipment, Pratt stated that the “Invoice will be from my distributor here in Singapore Marinehub”; second, in an 18 November 2005 email to one Ken of HL Engineering seeking assistance in locating the equipment rented to AMS, Pratt stated the following without any reference to the respondent:

[13] Despite the ambiguity of the term “we”, the respondent’s submission is that Pratt’s failure to mention the respondent in either email is consistent with the fact that the transaction was entered into for the appellant’s account and not for the respondent’s account, notwithstanding that the respondent’s letterhead was used by Pratt to effect the transaction.

[14] The DJ made the following material findings of fact:

(1) Pratt proposed the transaction to Ewe for commercial considerations and not as a favour to the latter;

(2) Ewe agreed to the transaction because the respondent would receive 10% commission being administrative charge;

(3) Pratt proposed the mark-up price for the quote to AMS;

(4) Pratt conducted all negotiations with Northern Labs and AMS;

(5) Pratt prepared and signed the purchase order issued to Northern Labs; and

(6) Pratt arranged for the delivery of the equipment to AMS.

[15] The DJ found, in the light of the foregoing facts, coupled with the Email of 4 February 2005, that the transaction was entered into for the benefit of the appellant and not the respondent. In coming to this finding, the DJ also preferred Ho’s testimony that he had no knowledge of the piece of equipment being returned to the respondent’s premises and that he had not attended the discussion between Ewe and Pratt. She also found, contrary to the assertion of Pratt, that his role went beyond that of merely facilitating the transaction. She found that he played a pivotal rule in the transaction.

[16] The DJ held that on the facts, a right of indemnity in equity had arisen in favour of the respondent against the appellant for the liabilities it had incurred under the contract with Northern Labs. In coming to this conclusion, the DJ relied very much on the following passage of Lord Wrenbury in the Privy Council case of Eastern Shipping Co v Quah Beng Kee [1924] AC 177 (“Eastern Shipping Co.”) at p 182 to 183:

[17] The DJ found that while there was no contract between the parties, in light of the fact that the transaction was entered into by the respondent for the benefit of the appellant, a right of indemnity in equity had arisen in favour of the respondent against the appellant.

[18] The DJ accordingly allowed the respondent’s claim except for the replacement value of the equipment. She found that the settlement with Northern Labs in respect of the replacement value was unreasonable because, had the matter proceeded to trial, Northern Labs would only have been awarded nominal damages in that regard.

[19] The appellant has appealed against the whole of the DJ’s decision.

[20] The appellant raised six arguments on appeal: first, the respondent had failed to prove that the equipment had been delivered to AMS; second, the transaction was not entered into for the benefit of the appellant; third, the cause of action for an indemnity was not properly pleaded; fourth, the terms of settlement between Northern Labs and the respondent were not reasonable; fifth, the respondent failed to mitigate its losses; and sixth, it was prejudiced by the DJ’s decision to allow the late amendment to the respondent’s statement of claim to include the claim for the $24,239.25 which the respondent had paid Northern Labs.

[21] From these arguments, the issues raised on appeal can be categorised under the following heads:

(a) Whether the equipment had indeed been delivered to AMS;

(b) Whether the DJ correctly found that the transaction was entered into for the account of the appellant with the result that a right of indemnity had arisen in favour of the respondent against the appellant;

(c) Whether the cause of action for an indemnity was sufficiently pleaded;

(d) Whether the loss claimed by the respondent was reasonable and in this regard, whether the respondent had mitigated its losses and had come to a reasonable settlement with Northern Labs; and

(e) Whether the DJ erred in allowing the amendment to the respondent’s statement of claim to include the claim for the $24,239.25 it had paid Northern Labs.

[22] This issue raised the question as to whether the respondent has proved that the equipment had been delivered to AMS. It is true that the position taken by the respondent before the settlement with Northern Labs was that the equipment had not been delivered by Northern Labs to AMS. That position taken by the respondent before is wholly irrelevant. If one were to take that line of argument, one could also say that by settling the claim the respondent realised the untenability of the position. In any case, as far as the appellant was concerned, it had not in its defence filed to the third party claim, put in issue the question whether the equipment had been delivered to AMS. Its entire defence is that Pratt entered into the leasing arrangement with Northern Labs as agent for the respondent. In para 9 of its defence, the appellant stated that “Pratt was duly authorised by the [respondent] to act as the [respondent’s] agent in making arrangements for the delivery of goods from [Northern Labs] to [AMS].” It was not asserted by the appellant that the equipment was never delivered to AMS. Even in his affidavit of evidence-in-chief, all that Pratt said (at [33]) was as follows:

[23] It would be seen that even on Pratt’s evidence it was not really asserted that the equipment was never delivered to AMS but that it had not been returned. That was the basis on which the trial proceeded. Here, I must underscore the fact that no complaint from AMS or Fraser (who needed the equipment urgently which was the reason why the whole transaction was wrapped up so quickly) was received by Pratt or by anyone at the respondent that the equipment had not arrived. On the contrary, there is the evidence that one piece of the equipment had been returned from AMS which Pratt personally handed over to Northern Labs. In fact, the DJ stated at [1] of her Grounds of Decision (“GD”) that “Pratt had also requested that the [equipment] be delivered to a site in Malaysia and the equipment [was] duly delivered”. The following passage at [46] of the GD of the DJ is germane:

I agree with this finding.

Whether the DJ correctly found that the transaction was entered into for the account of the appellant with the result that a right of indemnity had arisen in favour of the respondent against the appellant

[24] I now turn to the second issue which is the central issue in this appeal. This concerns the DJ’s finding that the transaction which the respondent entered into with Northern Labs was in fact one entered into for the account of the appellant. In coming to this conclusion, the DJ had carefully weighed the evidence adduced by both parties, and decided it on a balance of probabilities. By this finding it is clear to me that what the DJ meant was that, although the transaction was on the face of it entered into by the respondent (as its letterhead was used by Pratt to issue the purchase order) with Northern Labs, the respondent was doing so no more than as an agent of the appellant. In the light of the evidence before the DJ, this was a finding of fact which she was entitled to make.

[25] I appreciate that the evidence adduced by both parties does not all point to one direction or the other, though the preponderance would appear to favour the respondent’s position. The main factors in favour of the position contended for by the appellant are the following: first, the purchase order issued to Northern Labs was on the stationery of the respondent. Second, Pratt claimed that he had brought this business to the respondent as a favour to the respondent so that the respondent could make some money out of it. Third, the respondent paid up two bills from Northern Labs in relation to the lease of the equipment without immediately back-charging the amounts to the appellant. Indeed, on 16 June 2005 Pratt emailed Usha Rani of the Accounts Department of the respondent asking her not to raise any charges to the appellant in relation to the lease of the equipment. Here, I must add a counter-argument from the respondent, which is, that Pratt sent this email only after it was brought to his attention that the respondent had difficulties in getting AMS to fill up the credit application.Fourth, it may be asked why, if this transaction was the appellant’s, did the respondent fail to back-charge the appellant straight away after making payment to Northern Labs in June 2005.

[26] On the other hand, the following circumstances would favour the position of the respondent. First, the quotation from Northern Labs was addressed to the appellant for the attention of Pratt and not the respondent. Second, in Pratt’s email of 4 February 2005 to Fraser of AMS where he stated that the daily rate was $355 (subject to a minimum of four days), Pratt also stated that the “[i]nvoice will be from my distributor here in Singapore MarineHub”. Third, the respondent is totally unfamiliar with the line of business relating to pressure testing equipment. But here I should pause to add that the appellant made the point that acting as the middleman was the business of the respondent and it should not matter whether the equipment is something the respondent is familiar with.Fourth, the equipment was being supplied by Pratt’s previous employer to Northern Labs for the purpose of onward leasing to the respondent. Fifth, this transaction was brought to the attention of the respondent by Pratt and the respondent had no inkling who Northern Labs and AMS were. Pratt claimed that he did not know AMS or its top man there, Fraser, personally. Yet AMS contacted Pratt to source for the equipment and, in turn, Pratt contacted Northern Labs whom he knew could supply the equipment. Moreover, in his email of 4 February 2005, Pratt called Fraser by his first name “Gordon”. Whatever may be the true position, Pratt certainly knew AMS and Fraser better than the respondent. The only understanding reached between Pratt and Ewe that day was that the respondent would get a commission for allowing the appellant to use the respondent’s facilities to effect the transaction. Here the respondent also explained why it had allowed the appellant to use its letterhead to effect the transaction – because the appellant had then not yet been registered to carry out any business. On this last aspect, the appellant countered that the purchase order could be issued from its head office in USA. In response, the respondent argued that the appellant had to use its letterhead at the time because this was a transaction that had to be effected quickly. Sixth, all the arrangements with Northern Labs, including the terms of the lease and delivery to AMS, were done by Pratt and it was also Pratt who had liaised with Fraser of AMS. Seventh, Pratt prepared and signed the purchase order as the “Asia Pacific Manager” of the appellant. Here, I should add that Pratt had asserted that the purchase order was prepared by Ho who asked him to sign it. The DJ did not accept Pratt’s claim that it was Ho who prepared the purchase order and asked him to sign. Eight, one piece of the equipment which was returned by AMS to the premises of the respondent was, on 2 March 2005, personally returned by Pratt to Northern Labs. He did not inform the respondent about his returning the one piece of equipment to Northern Labs. I have set out above (in [8]) his explanation as to why he did so return the piece of equipment to Northern Labs.

[27] I should further mention that Pratt also claimed in his oral evidence in court that he had discussed the question of mark-up with Ewe for the purpose of quoting to AMS. However, the DJ did not accept this evidence because it was not set out in his affidavits of evidence-in-chief. Neither was the point put to Ewe in cross-examination.

[28] As this finding by the DJ that the transaction, which the respondent had entered into with Northern Labs, was really a transaction of the appellant and is a finding of fact which the DJ made after hearing oral evidence of the witnesses for the parties and assessing their veracity, this court should be slow to disturb such a finding unless it is plainly wrong as being against the weight of the evidence : see Seah Ting Soon t/a Sing Meng Co Wooden Cases Factory v Indonesian Tractors Co Pte Ltd [2001] 1 SLR 521 at [22]; Clarke v Edinburgh & District Tramways (1919) SC(HL) 35 at 36 . In my opinion, I do not think one can justifiably say that this finding is plainly wrong. On the contrary, I would say there were reasonable bases for the DJ to come to that conclusion.

[29] On the basis of this finding, even though the parties did not specifically address the question of indemnity and had only reached an understanding on the commission which the respondent would receive for facilitating the arrangement, it would be reasonable to imply an undertaking to indemnify (see Eastern Shipping Co per Lord Wrenbury at 182-183 quoted in [16] above).

[30] This issue concerns one of pleading. The point which the appellant makes is that the facts pleaded in the amended statement of claim (No. 2) are insufficient to constitute a cause of action in indemnity. I will now set out the pertinent parts of the pleadings.

Specifically, the appellant contends that the respondent did not allege that the appellant had requested it to enter into the contract with Northern Labs on the appellant’s behalf. All that was alleged in the pleadings is that the appellant should be liable for Northern Labs’ claim because the leasing contract for the equipment was really between Northern Labs and the appellant and the respondent had nothing to do with it.

[31] It is trite law that indemnity can arise from contract, express or implied, or by conduct. A right to indemnity arises where the relationship between the parties is such that either in law or in equity there is an obligation upon one party to indemnify the other. I have already quoted the speech of Lord Wrenbury in Eastern Shipping Co (in [16] above), where he enunciated this principle. This principle is also stated in Bullen & Leake & Jacob’s Precedents of Pleadings (London: Sweet & Maxwell, 13 Ed., 1990) at 457:

[32] In the present case, what the respondent has set out in its statement of claim are the essential facts upon which its claim for indemnity is based. While I may agree that the position could have been made clearer if for instance, at para 10 of the statement of claim, it had further expressly stated to the effect that “for the reasons set out in para 3, the respondent had allowed the appellant to use the respondent’s stationery to issue the purchase order to Northern Labs”, I do not think that the statement of claim was so inadequate or defective such that the appellant did not know what was the cause of action it had to meet with the result that I ought to throw out the claim and set aside the judgment. It must be remembered that the need for clarity and precision in pleadings is so as to ensure that parties are not taken by surprise at trial (see Asia Hotel v Malayan Insurance (M) [1992] 2 MLJ 615 at 620 and Boustead Trading (1985) v Arab-Malaysian Merchant Bank [1995] 3 MLJ 331 at 341 (“Boustead Trading”)). In this case, while the respondent’s pleadings could have been clearer and more precise, its case was still reasonably set out and the appellant was thus not taken by surprise at trial. The DJ addressed this pleading point (at [38] of the GD) when she stated that the respondent “had pleaded the facts on which such rights had arisen sufficiently”. She also added (in the same paragraph) that the respondent “are not required to plead the law”. The appellant knew at the trial below what was the case it had to meet and did meet it head-on by placing its version of the events before the district court although eventually the DJ did not accept its version.

[33] At the end of the day the question to be asked is whether there is injustice on account of the inadequacy in the pleadings. In this regard, it is vital to bear in mind the object of pleadings. Here I will quote the following statement of Isaacs and Rich JJ made in the Australian High Court case of Gould & Biebwxk and Bacon v Mount Oxide Mines Ltd (In Liquidation) [1916] 22 CLR 490 AT 517 (High Court of Australia):

[34] Another instructive passage may be found in the Privy Council decision in Sri Mahant Govind Rao v Sita Ram Kesho [1897-98] 25 Ind App 195 where their Lordships stated at p 207:

[35] I would reiterate that while I have stated in [32] that the drafting of the statement of claim in the present case could have been better, its senses, particularly having regard to paras 9 to 11, are reasonably clear. From the defence, as well as the affidavits of evidence-in-chief filed by the appellant, it is clear to me that the appellant knew exactly the case it had to meet. Had the appellant entertained any real doubt as to the cause of action it had to meet or that the statement of claim was so defective, it would have applied to strike out the action or asked for further and better particulars. The fact that the appellant did not do either showed that it had no real problem with the statement of claim. I do not see any prejudice or injustice caused to the appellant on account of the pleadings (see Boustead Trading; Siti Aisha binti Ibrahim v Goh Cheng Hwai [1982] 2 MLJ 124; Chua Gek Kuon v Seow Chai Seng [1992] 1 SLR 270).

[36] Accordingly I find that this technical issue raised by the appellant is wholly without merit.

Whether the loss claimed by the respondent was reasonable and in this regard, whether the respondent had mitigated its losses and had come to a reasonable settlement with Northern Labs

[38] Obviously, the respondent has the burden of showing that the terms of settlement reached with Northern Labs were reasonable. In determining the question of reasonableness, the DJ was guided very much by the following opinion of Singleton LJ in Biggin v Permanite [1951] 2 KB 314 at 325 (“Biggin”):

[39] Reference may also be made, in this regard, to the observations by Judge of the Technology and Construction Court, Peter Bowsher QC in the English High Court decision of P & O Developments Ltd v Guy’s and St Thomas’ National Health Service [1999] BLR 3 (at [43]):

From these authorities, it is clear that in determining whether a settlement is reasonable, the court is concerned with the big picture and will not be caught up in scrutinising the details of the settlement (see also Mirant Asia-Pacific Construction (Hong Kong) Ltd v Ove Arup Partners International Ltd and another [2007] EWHC 918; John F Hunt Demolition Ltd v ASME Engineering Ltd [2007] EWHC 1507).

[41] Turning to the point on mitigation, the first circumstance which the appellant complains about is that while the respondent had made some payments to Northern Labs in June, it did not forthwith bill AMS for the rental due until November and if the respondent had billed AMS for the rental on a regular basis, the equipment that had gone missing would probably have been uncovered much earlier and rental would not have been incurred over such an extended period of time. Here I would quote the views of the DJ (at [53] of her GD):

[42] As the leasing transaction with Northern Labs was found by the DJ to be to the account of the appellant, then it was its duty to bill AMS or Pratt should have asked the staff of the respondent to assist. Pratt knew that some payments were made by the respondent to Northern Labs in June 2005. Yet, as the DJ so aptly observed, again quoting from [53] of her GD:

[43] Of course, ordinarily, in the course of their interactions within the scope of the agency arrangement, the appellant would not have to handle invoicing and track payment by customers. Pratt sought to say that besides Ewe, Ho also knew of this transaction. But, as indicated earlier (at [10]), Ho denied it. Be that as it may, while the evidence is in conflict, it does indicate that no request was made by Pratt to the staff of the respondent that he would require assistance in that regard.

Whether the DJ erred in allowing the amendment to the respondent’s statement of claim to include the claim for the $24,239.25 it had paid Northern Labs

[45] The fifth issue before me is the subject of District Court Appeal No. 22 of 2008/W. The respondent had in June paid Northern Labs the sum of $24,239.25 for chart paper and for rental of the equipment from 4 February to 30 April 2005. It had, however, failed to include this sum in its original statement of claim. After the suit between Northern Labs and the respondent was settled on 2 February 2007, the respondent applied for leave to amend its statement of claim to take into account the settlement. Leave was given on 19 March 2007 and the respondent amended its statement of claim but again it failed to include the claim for the $24,239.25. Subsequently, after written closing submissions were tendered, the DJ invited the respondent to file an application to amend its statement of claim to include the claim for the $24,239.25 and it was only then that the respondent applied to do so by way of Summons No 5169 of 2008.

[46] The appellant argued that the DJ erred in inviting the respondent to amend its pleadings and in allowing the amendment. It claimed to have been prejudiced by the DJ’s decision to allow the amendment for two reasons: first, the appellant had relied on the respondent’s failure to claim the $24,239.25 as an admission of its liability for the transaction with Northern Labs; and second, the amendment was made at a very late stage in the proceedings.

[48] On a more technical point, the appellant argued that the DJ ought not to have allowed the application because the respondent had failed to file a supporting affidavit. In my view, the DJ was fully cognisant of the reasons for which the amendment had to be made and did not require a supporting affidavit to help her decide whether to allow the amendment. After all, it was the DJ who had invited the respondent to amend the pleadings in the first place. Further, it was also fairly obvious (as explained above at [44]) that the claim for the $24,239.25 was a logical consequence of the respondent’s claim for indemnity. For the foregoing reasons, I find that the DJ did not err in allowing the amendment.

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Record of Appeal Vol III p 725.

Record of Appeal Vol III p 580.

Record of Appeal Vol II p 356 at 359.

Record of Appeal Vol III p 725.

Record of Appeal Vol II at 550.