Tribunal: The General Division of the High Court of the Republic of Singapore.

Date of the decision: September 20, 2023.

Plaintiff: Seatrium New Energy Ltd. (formerly known as Keppel FELS Ltd.) (hereinafter referred to as “Shipbuilder”). Shipbuilder is a Singapore-based company involved in the business of designing and building mobile offshore rigs and vessels.

Defendant: HJ Shipbuilding & Construction Co. Ltd. (formerly known as Hanjin Heavy Industries and Construction Co. Ltd.) (hereinafter referred to as “Subcontractor”). Subcontractor is a Korea-based company involved in the business of manufacturing various types of vessels and providing, among other things, ship repair and logistical services.

Claim: This claim arises out of the dispute between Shipbuilder and Subcontractor regarding the defects discovered in the portions of the vessel built by the latter. Although the court recognized the existence of the defects, it did not hold Subcontractor liable based on the contract between Shipbuilder and Subcontractor.

Factual history

On August 17, 2012, Shipbuilder entered into the contract with Floatel, according to which Shipbuilder agreed to design, engineer, construct, build, launch, test, sell, and deliver the vessel to Floatel.

On January 17, 2013, Shipbuilder appointed Subcontractor for the project, specifically for the fabrication, assembly, and erection of the pontoons and lower columns of the vessel.

On October 30, 2013, the works under the sub-contract were to be completed. However, Subcontractor could not meet this deadline. In light of this, Shipbuilder took over part of the works, with the value of these works to be set off against the amount payable to Subcontractor. This agreement is hereinafter referred to as the “Side Letter.”

On April 16, 2015, the vessel was completed by Shipbuilder and delivered to Floatel.

In August 2016, Floatel notified Shipbuilder of welding defects in the pontoons of the vessel.

On August 24, 2016, Shipbuilder notified Subcontractor of the defects.

Shipbuilder repaired the vessel at its own cost.

Shipbuilder and Subcontractor could not resolve their disputes over responsibility for the defects and the repair costs. Eventually, communications between the two ceased.

Shipbuilder submits that the works delivered by Subcontractor were defective, and consequently Subcontractor breached duties owed to Shipbuilder under the subcontract. Shipbuilder further argues that Subcontractor owed Shipbuilder a duty of care in tort to carry out the works with due skill, care, and diligence—a duty it also clearly breached.

Subcontractor denies that the works were defective. Subcontractor submits that the subcontract only required it to carry out the works in compliance with the relevant Det Norske Veritas (DNV) standards, and that it had done so. It also denies that it owes any separate duty of care in tort to Shipbuilder. More significantly, Subcontractor says that the subcontract was varied by the Side Letter. The variation was such that Shipbuilder was not entitled to make any claim whatsoever in respect of the defects save for calling on Subcontractor’s warranty obligations under cl 16.3 of the subcontract, and that even those warranty obligations had ended upon the expiry of the 12-month warranty period prescribed in cl. 16.3.

Issues

(a) Whether the works were defective.

(b) Whether Subcontractor breached its contractual duties.

(c) Whether Subcontractor owed and breached a separate duty of care in tort.

(d) Whether Shipbuilder’s claim is precluded by the Side Letter.

Rulings & Rationale

(a) Based on the expert evidence, the court concluded that on a balance of probabilities the works were defective.

(b) The court found that Subcontractor breached its contractual duties in the performance of the works. Subcontractor was required to carry out the works under the subcontract in compliance with the requirements of the subcontract and contract between Shipbuilder and Floatel (which contained detailed technical specifications for the vessel, including the environmental conditions in which it would have to operate). Subcontractor had to ensure that the works, when carried out or performed, would fully comply with the requirements of DNV (and other regulatory bodies). Furthermore, it was required to perform the works with such standard of workmanship such that the relevant parts of the vessel constructed by Subcontractor, when delivered, would be in all respects a first class product capable of operating or functioning under its intended conditions. In light of these provisions, the court did not accept Subcontractor’s contention that the subcontract clauses are vague and insufficiently particularized. The works, having been performed, were not fully compliant with DNV’s requirements.

(c) The tortious duty of care which Shipbuilder sought to impose was co-terminous and no different in content from the contractual duty of care already owed by Subcontractor pursuant to the subcontract. The court therefore saw no reason to depart from the general policy against superimposing tortious duties of care on a contractual framework. Accordingly, the court rejected Shipbuilder’s claim that Subcontractor also owed it a tortious duty of care.

To impose a tortious duty of care, the Spandeck test requires that a claimant first satisfy the court, as a threshold requirement, that the damage it suffered is factually foreseeable. If that threshold is crossed, the claimant must then establish, first, that there is sufficient legal proximity between the claimant and defendant for a duty of care to arise; and second, that such a duty of care is not negated by policy considerations. Moreover, a duty of care has to be established incrementally through reference to decided cases in analogous situations.

The court found the criteria of damage and proximity being satisfied. However, a duty of care was negated by policy considerations, specifically by a policy that a duty of care should not be superimposed on a contractual framework.

(d) The court found that Shipbuilder’s claim was precluded by the terms of the Side Letter and that consequently, Subcontractor was not liable to Shipbuilder.

The Side Letter states:

“Builder is agreeable to take delivery of the Sub-Contract Works to the extent completed by the Sub-Contractor on [27] December 2013. Sub-Contractor and Builder agree that however, as at [27] December 2013, certain incomplete or outstanding work items (‘Outstanding Items’) remain to the Sub-Contract Works. The Outstanding Items are set out in Appendix 1 to the Protocol of Delivery & Acceptance.

Sub-Contractor and Builder agree that, taking into account the original sub-contract price, the additional work carried out by Sub-Contractor, the reduction / credit required for Builder to complete the Outstanding Items, and the payments already received by the Sub-Contractor from Builder, the balance amount of USD 2,716,711.96 (‘Balance Amount’) remains payable by [Builder] to [Sub-Contractor] in connection to the Works Order and the Sub-Contract Works.

Upon [Builder’s] payment of the Balance Amount to [Sub-Contractor], the [Sub-Contractor] acknowledges and agrees that there is no other or further amount due or outstanding from the Builder in connection to the Works Order or the Sub-Contract Works, and that Builder shall not have any further or other claims whatsoever against [Sub-Contractor] in connection to the Works Order or the Sub-Contract Works.

In consideration for Sub-Contractor’s acknowledgement and agreement above, Builder acknowledges and agrees that, save for Sub-Contractor’s warranty obligations for the Sub-Contract Works which it has carried out, Builder shall not have any claims whatsoever against [Sub-Contractor] for the works which will have to be carried out by Builder to complete/remedy the Sub-Contract Works”.

The court found that Shipbuilder agreed that it would have no claims against Subcontractor for the works the former would have to carry out to complete/remedy the “Sub-Contract Works,” not just the “Outstanding Items.”

The “Sub-Contract Works” are defined in the sub-contract as follows:

“‘Sub Contract Works’ means the work to be performed by the Sub Contractor under the Sub Contract as set out in the Works Order as may be supplemented from time to time by Plans and Specifications and any Variations of such work”.

Accordingly, Shipbuilder agreed that it would have no claims “whatsoever” for the works it would have to carry out to either complete or remedy all the work already performed or meant to be performed by Subcontractor under the subcontract.

The court held that Shipbuilder had no recourse against Subcontractor. ■