SICC Continues to Grow International Construction Law Jurisprudence

Recently, the Singapore International Commercial Court (SICC) handed down its final decision in Teras Offshore Pte Ltd v Teras Cargo Transport (America) LLC.[1] This proceeding had already been the subject of a decision of the SICC, in which it held that the dispute constituted an ‘offshore case’ and was therefore within the SICC’s jurisdiction.[2]

Interestingly, this most recent decision is another instance of the SICC drawing on the expertise of one of the International Judges on its panel, with Sir Henry Bernard Eder (a former Judge of the High Court of England and Wales) handing down this decision.

Despite being in its infancy, the SICC is proving to be a key contributor to international construction law jurisprudence, no doubt aided by the high calibre of the international judges on it’s panel.

In this latest instalment, the Court primarily considered a large back-charge claim made pursuant to sub-contracts for three major Australian Liquefied Natural Gas (LNG) projects. The judgment delivered provides an analysis of pay-when-paid clauses in the context of international authorities, notably Australia, Malaysia, Hong Kong and Singapore.

What was the dispute?

The dispute concerned works and services provided by Teras Offshore (Offshore) in relation to the construction of three LNG plants on Curtis Island – the APLNG, GLNG and QCLNG projects.[3]

Teras Cargo Transport (Cargo Transport) entered into separate contracts with Bechtel for these projects, whereby it agreed to provide ‘tugs and barges, administrative, technical and professional services in the performance of marine transportation operations.’[4] This work was subcontracted to Offshore on back-to-back terms under separate corresponding subcontracts.[5] The works broadly involved the provision of tugs and barges and related services to transport large modules for use in the construction works at the LNG plants.

Offshore claimed USD$3.5M for advance payments made to Cargo Transport and USD$25M in back-charges for work done and services provided in relation to the LNG projects (which were claimed in debt and damages in the alternative).[6] Cargo Transport denied the claims, and counterclaimed for approximately USD$14M.[7]

Cargo Transport sought to put in evidence thousands of documents that were originally annexed to the affidavits of witnesses it proposed to call, but subsequently elected, not to do so. [8] Following the Court’s refusal to accept this evidence, Cargo Transport admitted Offshore’s USD$3.5M claim and withdrew its set-off and counterclaim.[9]

What remained for determination was Offshore’s US$25M back-charge.

Offshore’s back-charge claim

In essence, Offshore’s primary claim was that:

• it performed works and services pursuant to the three subcontracts;

• the works and services it performed were beyond scope, and performed at Cargo Transport’s request or with its agreement; and

• pursuant to such requests, it submitted invoices to Cargo Transport, which were accepted without any protest or query, or otherwise not rejected.[10]

The contentious aspect of these claims lay in whether the works and services were out of scope and whether Cargo Transport was obliged to pay these amounts under the subcontracts. It was not in issue whether the works and services related to the three sub-contracts had been performed, or that invoices were issued and received by Offshore or Cargo Transport.[11]

The Court noted that Offshore’s entitlement to judgment for the full amount claimed by back-charge was subject to whether:

• the sub-contracts and corresponding main contacts were ‘all inclusive’; and

• there was only an obligation for Cargo Transport to pay if it was paid a corresponding amount by Bechtel under the main contract.[12]

The Court considered these issues in turn.

The Court’s decision

It was plain, according to the Court, that while the scopes of works under the main and sub contracts were wide, they were not ‘all-encompassing’.

This was particularly clear by clause 4 of Exhibit D of the main contracts titled ‘WORK NOT INCLUDED,’ the effect of which was to carve out work from the scopes of work in the main and sub contracts.

There were also other provisions in the main contracts which limited the works to be provided. While the Court examined the works and services performed by Offshore and identified and accepted some of it as being out of scope, it was not prepared to accept that these were all recoverable on this basis alone. The Court viewed this entitlement to recovery as a separate issue to the finding that the work or services were out of scope.[13]

The Court found that Offshore had to establish that the work or services were out of scope and further that they had been performed or provided ‘pursuant to some special agreement … or, at the very least, at the express or implied request of [Cargo Transport].’[14] These ‘dual related questions’ were to be considered by reference to the various categories of claims set out in the Scott Schedule annexed to the affidavit of one of Offshore’s witnesses.[15]

While there were some significant issues that the Court identified within each category, on balance it was satisfied that Offshore had satisfied its burden subject to the second point of principle,[16] which was that Cargo Transport’s liability only arose if a similar obligation for it to be paid existed under the main contracts with Bechtel (i.e. a pay when paid obligation).

The Court proceeded on the assumption that when properly construed, the contracts gave rise to an obligation for Cargo Transport to only pay Offshore the back-charges when it received equivalent payment from Bechtel.[17] Unlike leading authorities on this issue, the Court described this case as unique in that there was no disclosure by Cargo Offshore about its dealings with Bechtel, and likewise the lack of witness testimony to this effect caused by Cargo Transport choosing not to call any of its witnesses.[18]

The Court identified a significant threshold issue regarding the burden of proof, stating that it was rightly with Cargo Transport to establish that it had not received the relevant payments from Bechtel in order for it to rely on the pay when paid provision in the sub-contracts.[19]

As it had not taken steps to do so, the Court found Offshore’s claims to succeed in full.