Stratech Systems Ltd v Guthrie Engineering (S) Pte Ltd

Choo Han Teck J:

[1] The plaintiff is a public company whose business was described as that of providing “information technology consultancy and information technology professional services”. The defendant is a company described as “special trade contractors”. These descriptions, as we shall see, do not explain very well what they actually do in the context of their claim and counterclaim against each other. The details of the contracts and work are technical, and I shall only refer to such portions as are relevant to the issues at trial. Unless specifically indicated otherwise, the recital of facts in this judgment constitutes my findings of fact. Some facts were not in dispute, some could not seriously be disputed, and some were a little more problematic, but if a finding were required of those facts, they would, of course, be established on a balance of probabilities.

[2] The background to this suit is best understood from events which occurred in late 1997. At that time, the Land Transport Authority of Singapore (“LTA”) was desirous of co-ordinating the electronic collection of tolls from foreign registered cars. At that time, collection of tolls was done manually at three points of entry, namely, the Causeway, the Second Link at Tuas, and the Changi Ferry Terminal. The plaintiff and defendant collaborated to obtain the award of tender from the LTA to design and set up this electronic system for the collection of tolls. Their collaboration was encapsulated in a contract between them called the Exclusive Teaming Agreement, dated 24 November 1997.

[3] On 12 March 1999, the LTA awarded the contract to the defendant. The contract sum was $9,192,472. Under the contract, the defendant was to design, build, and install a complex Vehicular Entry Permit/Toll System known as VEPS. The system was intended to enable the tracking of foreign registered vehicles entering Singapore and to facilitate the collection of tolls from these vehicles. The LTA also signed a post-warranty maintenance agreement with the defendant. On 1 April 1999, the defendant entered into an agreement with the plaintiff. This is referred to as the “sub-contract”. The sub-contract for design, supply and other related work amounted to $5,872,674.78.

[4] The plaintiff’s claim in this suit was for:

[5] The defendant denied that these monies were due, and in turn, counterclaimed on the ground that it was entitled to deduct various items from the plaintiff’s overall claim. The five items claimed as deductions by the defendant were:

[7] The dispute concerning the goods and services (including the engagement of manpower, provided for in the plaintiff’s $245,582.92 claim) was mainly on the issue of whether these were provided as part of the plaintiff’s existing contractual duty or as additional requirements, and whether the plaintiff was in breach of contract by stopping work. The plaintiff’s case was that they were variation claims because they were provided at the LTA’s request, after the original work had been commissioned. Mr Goh, counsel for the defendant, submitted that they were part of the contracted work for which, under the terms of the sub-contract read with the main contract, the plaintiff was obliged to perform. As such, the plaintiff would have been paid as and when the LTA had paid the defendant. Counsel further submitted that the LTA is still withholding a sum of $459,623.60 from the defendant because of the plaintiff’s failure to finish some of the sub-contract work. The plaintiff alleged that it stopped work on the project on 25 March 2003 and stopped on-going maintenance work from 28 March 2003 because it had not been paid. The defendant averred that these stoppages constituted a breach of contract on the part of the plaintiff. On the balance, I am of the view, even in the absence of evidence from the LTA at trial, that the goods and services constituting the $245,582.92 claim were not part of the main contract but were additional items that the plaintiff was entitled to claim as variations.

[8] I shall now refer to Mr Goh’s submission regarding the items that the defendant said ought to be deducted from the plaintiff’s claim. I shall deal with the issue of the deduction of the $110,950 in liquidated damages first. This was the money the LTA had deducted from the defendant on account of delay in the commissioning of the VEPS system. So far as the LTA was concerned, its contract was with the defendant only. Therefore, it was not obliged to determine whose delay it was. The issue was strictly between the plaintiff and the defendant. Mr Sreenivasan, counsel for the plaintiff, submitted that as at 1 April 2000, the plaintiff had completed its work under the sub-contract because the LTA had conducted and passed the User Acceptance Test (“UAT”) on 25 February 2000. He argued that the plaintiff was, therefore, entitled to the sums of $25,640 and $245,582.92. The evidence showed that the commissioning date was delayed till 9 May 2000. What caused the delay was less clear. The plaintiff claimed that it had completed its job, and passing the UAT was proof of that. Furthermore, in a letter to the LTA dated 8 May 2000, the defendant blamed a third party referred to as “NETS” for the delay. In contrast, on 20 October 2000, Foong Siew Peng, the senior project executive of the defendant company, wrote a letter as well as a telefax to the plaintiff stating that the LTA had given a list of “outstanding works” to the plaintiff and asked it to verify and substantiate the work done. There appeared to be no response to this straightforward request.

[9] Counsel for the defendant emphasised time and again that the sub-contract must be read with the main contract and that the terms of the main contract shall apply as between the plaintiff and defendant in the same way it applied between the LTA and the defendant. In so far as liquidated damages were concerned, the fact that the defendant was liable to pay the LTA did not, by that fact alone, mean that, correspondingly, the plaintiff had to pay the defendant. A liquidated damages clause is not an indemnity clause. The relevant passage from the sub-contract stipulated as follows:

However, in my view, the liquidated damages clause at para 38 of the main contract also applied between the plaintiff and defendant, even though applying the same rate might not be fair considering that the plaintiff was only the sub-contractor and the plaintiff itself had its own portion of work to do for the LTA in the same project. A detailed formula for the apportionment of such liquidated damages was probably one of those details that was overlooked. It was, naturally, incumbent upon the defendant to first prove that the plaintiff caused the delay before it could claim liquidated damages from the plaintiff. I had taken into account the fact that no one from the LTA was called to support the defendant’s case that the delay was caused by the plaintiff. On the balance, I am satisfied that the defendant had proved that the plaintiff had caused the delay. I accept that the defendant might have contributed to some part of the delay, but there is inadequate evidence for me to apportion any specific amount to it save that it was the plaintiff that largely caused the delay that resulted in the LTA holding back the commissioning of the system. On the whole, I am satisfied that the defendant’s claim as to the liquidated damages of $110,950 was justified. The letters exchanged between the parties at the material time indicated that the defendant had made its claim clear to the plaintiff at the material times, but there had been no satisfactory response from the latter.

[10] I am, however, unable to accept the defendant’s claim to deduct $182,400 as Omission Variation Orders on the ground that I am not satisfied with the manner in which this claim was “proved”. There were copies of instructions stating the specified omissions, but neither the LTA nor the defendant’s own engineer who signed them, testified. These documents were adduced in the middle of the trial without a satisfactory explanation. Hence, I would prefer to accept the plaintiff’s case that it did not know about such instructions. Although copies of documents purported to be variation orders issued by the LTA were adduced in evidence by the defendant, these documents were not sufficiently clear. These documents might have been useful if explained by the LTA. However, since there was no oral evidence from the LTA, I am unable, in this instance (unlike as regards the liquidated damages issue where other evidence was available), to accept that these documents have any reasonable connection with or correspond to the engineering instructions produced by the defendant.

[13] I now turn to the third main issue, namely, the plaintiff’s claim for maintenance work, which it said was done after the post-warranty period. The defendant pleaded a variety of possible bases for a post-warranty maintenance contract between the plaintiff and the defendant. The importance of proving a contract was that it would form the basis of a breach by the plaintiff. The terms of the Exclusive Teaming Agreement do not support such a claim. On the contrary, cl 5(f) made it clear that the maintenance contract that might come into being, would be one that the parties might agree to at a later stage. The defendant then sought to show that the parties had, in fact, concluded a contract. Unfortunately, the evidence indicated that there was no express contract because the basic offer and acceptance requirements were absent. It is of no consequence why the plaintiff did not assent to the defendant’s offers, or why the defendant did not pursue the matter. It appears to me that although there was no clear agreement on a maintenance contract, the parties allowed the matter to ride through the 12-month defects liability period through lack of attention to this small but important aspect. The plaintiff’s case was that, contrary to the defendant’s assertion, there was no maintenance contract. It alleged that the works were done “at the defendant’s requests”. The plaintiff denied any specific, written contract providing for maintenance of the VEPS. Nonetheless, the plaintiff had maintained the system at the request of the defendant. Hence, although rejecting a formal contract, the plaintiff relied on an implied contract by conduct. But the statement of claim does not support this. The relevant passage reads as follows:

[14] The fact that the defendant might have been aware that maintenance work had been done by the plaintiff does not explain the basis of the plaintiff’s claim for those works done. On the evidence, I am prepared to accept the plaintiff’s proof as to the details of the maintenance work done, but I do not accept that the plaintiff was entitled to claim for it all. The 12-month defects liability period commenced on 9 May 2000. The plaintiff would be entitled to be paid for maintenance work done by it from 9 May 2001 onwards only. Since there was no specific written contract for the maintenance work, the only basis for the plaintiff’s entitlement would be implied from conduct or on a quantum meruit basis. In the usual course, damages based on quantum meruit have to be assessed. In this case, there seemed to be no challenge from the defendant as to the itemised account of work done. I, therefore, think that it would not be necessary for an inquiry into that account. In the circumstances, and on the facts as I found above, I am of the view that the plaintiff was entitled to stop work on account of it not being paid. Consequently, the defendant was not entitled to a set-off against work outstanding. The plaintiff would thus be allowed its claim for maintenance work from 9 August 2001.

[15] The principal witnesses were David Chew and Sam David for the plaintiff, and Ong Kin Bee and Foong Siew Peng for the defendant. Although David Chew and Ong Kin Bee were the senior officers of the respective parties, I was more impressed by the evidence of Sam David and Foong Siew Peng. They appeared to be forthright and knew their jobs well. The evidence of Chew and Ong, though more so Ong than Chew, required closer scrutiny because they were both more partisan in their manner and approach; probably because they felt more strongly about the case than their respective managers, Sam David and Foong Siew Peng. On the balance, I find the narratives and accounts of David Chew and Sam David to be more plausible. The evidence of all four witnesses indicated that the parties had a mutually dependent relationship at the incipient stage as well as during the development of the project. The plaintiff, who had the larger technical expertise, subsequently increased its bargaining power against the defendant (in respect of their working relationship); but the defendant controlled the income from the LTA. Neither party, however, paid sufficient attention to the legal formalities of contract. That resulted in vague or incomplete agreements such that many issues arose that required an objective appraisal as to what it was that the parties had intended.