Car & Cars Pte Ltd v Volkswagen AG and Another

• Court: High Court (Singapore)
• Judge: Saqib Alam AR
• Judgment Date: 03 April 2009
• Neutral Citation: [2009] SGHC 77
• Citation: [2009] SGHC 77
• Published date: 09 April 2009
• Plaintiff Counsel: Koh Kia Jeng and Vanessa Yong (Rodyk & Davidson LLP)
• Defendant Counsel: Chan Kia Pheng and Ang Keng Ling (KhattarWong)
• Subject Matter: Arbitration

3 April 2009 Judgment reserved.

Saqib Alam AR:

1 This is an application by the 2^nd defendant, Volkswagen Group Singapore Pte Ltd, to stay all further proceedings in the plaintiff’s action that relate to itself, in favour of arbitration.

2 The plaintiff, Car & Cars Pte Ltd, is a company incorporated in Singapore which is in the business of automobile dealership. The plaintiff carried out its business at 247 Alexandra Road, Singapore (“the Premises”). The 1^st defendant, Volkswagen Aktiengesellschaft is a German automobile manufacturing group, headquartered in Wolfsburg, Germany. Sometime in May 1999, the plaintiff and the 1^st defendant entered into an agreement (the “Importer Agreement”) where the plaintiff was granted the right to import into Singapore, and distribute products of the Volkswagen marque, including, but not limited to, Volkswagen passenger cars.

3 On 2 November 2004, the 1^st defendant entered into a Memorandum of Understanding (“the MOU”) with the plaintiff. The MOU outlined generally the principal terms of the plaintiff’s role as importer that would be transferred from the plaintiff to the 2^nd defendant. Clause 2 of the MOU provided that the plaintiff would be the single Volkswagen dealer with effect from 1 January 2005 and would get a standard Volkswagen dealer contract with agreed sales quotas subject to review based on market conditions. Clause 3 of the MOU provided that the parties would “on good faith and best endeavor basis (sic) negotiate and conclude all terms and condition (sic) and enter into a definitive agreement in respect hereof within 4 weeks from the date of [the MOU]”, failing which the MOU would expire. The MOU also provided that upon expiry, the parties would be under no obligation to proceed further.

4 The MOU expired in due course and was superseded by a formal written agreement entered into by the plaintiff and the 1^st defendant on 9^th December 2004 (the “9^th December Agreement”). Under the 9^th December Agreement, the plaintiff and the 1^st defendant mutually agreed to terminate the Importer Agreement with regard to Volkswagen passenger cars on the terms and conditions contained therein, which took effect on 31 December 2004. Accordingly, by the 9^th December Agreement, the 2^nd defendant, as of 1 January 2005 became the importer of Volkswagen passenger cars in Singapore and the plaintiff acted as the authorised dealer of Volkswagen passenger cars. This arrangement between the plaintiff and the 2^nd defendant was partly by conduct and partly in writing (together, the “Dealership Agreement”). The Dealership Agreement only related to Volkswagen passenger cars: the plaintiff continued to import and distribute Volkswagen products other than passenger cars.

5 By a mutual agreement between the plaintiff and the 2^nd defendant, the Dealership Agreement was terminated on 31 January 2007. The Importer Agreement was also terminated by mutual agreement between the plaintiff and the 1^st defendant on 31 January 2007. Initially, the 2^nd defendant gave the plaintiff a 12-month notice of termination for the Dealership Agreement (the “12-month notice period”) by way of a letter dated 16 November 2006. However the plaintiff and the 2^nd defendant mutually decided to terminate the Dealership Agreement before the expiry of the 12-month notice period. With the discontinuance of the Dealership Agreement and the Importer Agreement, the plaintiff was no longer going to import or deal with any products bearing the Volkswagen marque from 1 February 2007.

6 To this end, the 1^st defendant and the 2^nd defendant (collectively, the “defendants”) and the plaintiff entered into four written agreements (collectively “the settlement agreements”) to govern the amicable parting of ways between them. Two of the agreements (listed (c) and (d) below) had another Singapore company, Group Exklusiv Pte Ltd (“GEPL”) as a party. The plaintiff is a subsidiary of GEPL. Mr Peter Kwee, one of the protagonists in this saga, who led the negotiations for the plaintiff, is a director of both GEPL and the plaintiff. The settlement agreements were as follows:

(a) an agreement made between the plaintiff and the 1^st defendant in respect of the termination of the Importer Agreement (the “Termination of Importer Agreement”) dated 31 January 2007;

(b) an agreement made between the plaintiff and the 2^nd defendant in respect of the termination of the Dealership Agreement (the “Termination of Dealership Agreement”) dated 31 January 2007;

(c) a Sale of Assets and VW Parts Agreement (the “Sale of Assets and VW Parts Agreement”) made between the plaintiff, GEPL and the 2^nd defendant dated 31 January 2007;

(d) an Assignment of Lease (the “Assignment of Lease”) of certain units in the Premises made between GEPL and the 2^nd defendant dated 1 February 2007.

The settlement agreements were executed and the material term for payment of settlement sums was timed to take place on 1 February 2007 to coincide with the “clean break” timing and date of 2359 hours (Singapore time) on 31 January 2007. Accordingly, as of 1 February 2007, the 2^nd defendant has been the importer and dealer of Volkswagen products in Singapore.

7 As part of the settlement, the 1^st defendant was to pay the plaintiff $1.2m under the Termination of Importer Agreement, and the 2^nd defendant was to pay the plaintiff $800,000 under the Termination of Dealership Agreement. By the payment of these sums, the parties agreed that “neither Party shall have any claim against the other Party for any breach, default, contravention or other non-observance of any nature whatsoever of any term…” (contained in cl 3 of Termination of Importer Agreement as between the plaintiff and the 1^st defendant; and cl 3 of the Termination of Dealership Agreement as between the plaintiff and the 2^nd defendant).

8 Clause 3 of the Termination of Importer Agreement and cl 3 of the Termination of Dealership Agreement also provided that the payment of the $1.2m and $800,000 respectively was to be made to Volkswagen Financial Services Singapore Pte Ltd (“VFS”) to set off an outstanding sum owed by the plaintiff to VFS in the sum of $3 million.

9 On 2 February 2007, after the 1^st defendant and the 2^nd defendant did not make payment to VFS, the plaintiff made arrangements to pay $3m to VFS to settle the sum owed by the plaintiff to VFS. On 6 February 2007, the 2^nd defendant paid S$800,000 to the plaintiff. The cheque for the sum of S$1.2million was not given by the 1^st defendant to the plaintiff until 20 March 2007. By this time, the plaintiff had already elected to treat the 1^st defendant’s failure to render payment of the said sum as repudiatory conduct and did not present the cheque for payment^{[note: 1]}.

10 In the present action (Suit 960 of 2008), the plaintiff alleges that the failure of the 1^st defendant to pay the S$1.2 million timeously was a repudiation of the “global settlement” reached between the parties. As a result of this repudiation, the plaintiff alleges that its rights against the defendants before the “global settlement” was reached were restored viz it could, once again, make claims against the defendants because the terms of the settlement did not matter anymore. On this basis, the plaintiff mounts its claim for inter alia, loss and damages arising from the breach of the Importer Agreement and in the alternative, loss and damages arising from the breach of an agreement to appoint the plaintiff as exclusive/sole dealer.^{[note: 2]}

11 I should add at this juncture that only the plaintiff referred to the settlement agreements as a “global settlement”. The 2^nd defendant disagreed with the plaintiff’s choice of nomenclature. The 2^nd defendant’s position was that the four agreements did not amount to a “global settlement”, and were merely four contracts entered into in order to effect a “clean break” between the parties.

12 For the plaintiff to be able to mount its claim against the defendants, the issue to be determined was whether the late payment of the $1.2m constituted a repudiation of the settlement agreements which restores the plaintiff’s rights against the defendants as they were before they entered the settlement agreements.

13 In the present summons, the issue I have to determine is whether the alleged repudiation, as it relates to the 2^nd defendant only, should be referred to arbitration under the arbitration agreement in the Termination of Dealership Agreement. This was the 2^nd defendant’s application; the 1^st defendant was not represented at the hearing. In fact, the plaintiff had only just been granted leave to serve the writ on the 1^st defendant in Germany about 2 weeks before the hearing.

14 Before determining whether the current proceedings should be stayed in favour of arbitration, I shall first examine the dispute resolution clauses in detail.

The dispute resolution clauses

15 Of the four agreements entered into, only two agreements (namely, the Termination of Importer Agreement and Termination of Dealership Agreement listed (a) and (b) at [6] above) are relevant for present purposes. The “Sale of Assets and VW Parts Agreement and the Assignment of Lease continue to form the backdrop of the settlement reached between the parties; however as they involved GEPL (who was not a party to the present proceedings), the parties only made passing references to them in their submissions before me.

16 Interestingly, the Termination of Importer Agreement and Termination of Dealership Agreement contained different dispute resolution clauses. For clarity, I shall reproduce them:

(a) In the Termination of Importer Agreement, the relevant clause is cl 6. Clause 6 reads:

This agreement herein shall be governed by and its provision interpreted in accordance with the law of the Federal Republic of Germany. The courts in Wolfsburg shall have exclusive jurisdiction of any disputes arising out of or in connection with the agreement herein.

(b) In the Termination of Dealership Agreement, the relevant...