Benzline Auto Pte Ltd v Supercars Lorinser Pte Ltd and another

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 08 January 2018
• Neutral Citation: [2018] SGCA 2
• Plaintiff Counsel: Leslie Yeo (Sterling Law Corporation)
• Date: 08 January 2018
• Docket Number: Civil Appeal No 103 of 2016
• Hearing Date: 16 August 2017
• Subject Matter: Restitution,Total failure of consideration,Failure of consideration
• Year: 2018
• Defendant Counsel: Ho May Kim and Harry Zheng (Selvam LLC)
• Court: Court of Appeal (Singapore)
• Citation: [2018] SGCA 2
• Published date: 25 January 2018

Judith Prakash JA (delivering the judgment of the court): Introduction

This appeal arises from a dispute over a payment of $300,000 made by the respondents to the appellant (“the Payment”) while the parties were negotiating a contract of sub-dealership. The negotiations eventually failed and the respondents sued for the restitution of the Payment. The central question before the High Court judge (“the Judge”) was whether the retention of the Payment was conditional on the conclusion of the sub-dealership agreement. The Judge found for the respondents and ordered that the Payment be refunded. He also dismissed the appellant’s counterclaim for breach of contract. This is our decision on the appellant’s appeal against the Judge’s decision on both the claim and the counterclaim.

Background The parties and other dramatis personae

The appellant, Benzline Auto Pte Ltd (“Benzline”), is in the business of retail sale and wholesale of car parts and accessories, and of providing modification services using those parts and accessories. It also engages in the parallel importation of cars. Benzline’s representatives during the period in which this dispute arose were Mr Ng Seng Keong (“Mr Ng”, also known as “Kevin”), who was and is Benzline’s managing director, and Mr Chong Ban Cheong (“Mr Chong”, also known as “George”), who was then Benzline’s marketing and business development manager. By the time of the trial, Mr Chong had left Benzline and he appeared at the trial as a witness for the respondents.

The second respondent, Supercars Singapore Pte Ltd (“Supercars Singapore”), is a car retailer. The first respondent, Supercars Lorinser Pte Ltd (“Supercars Lorinser”), was incorporated by the second respondent as a conduit for the intended retail sale of a specific brand of cars, which we shall discuss shortly. For convenience, we refer to them as a collective entity, “Supercars”, except where the context requires a distinction to be drawn. Supercars’ representatives were Mr Chua Yeow Kang (“Mr Chua”, also known as “Marcus”), a director of both respondents, and Mr Yu Ming Yong (“Mr Yu”), a shareholder of Supercars Singapore.

Looming large in the background of this dispute are two German entities which are not parties to these proceedings. Daimler AG (“Daimler”) is the automobile manufacturer which produces, among others, the Mercedes-Benz line of cars. It does so through subsidiaries bearing the Mercedes-Benz name, but for ease of reference, we shall refer simply to Daimler as a collective entity. One of Daimler’s customers is Sportservice Lorinser Sportliche Autoausrustung GmbH (“Lorinser”). Lorinser is in the business of customising and tuning Mercedes-Benz cars for sale to consumers. It orders Mercedes-Benz cars, modifies them using its own parts (“Lorinser car parts”), and sells the modified cars (“Lorinser cars”) under the Lorinser brand. It also sells the Lorinser car parts separately. Lorinser’s principal was Mr Marcus Lorinser and its main representative in its dealings with Benzline and Supercars was its export sales manager, Mr Evangelos Hatzikoitsis (“EH”). No witnesses from Daimler or Lorinser gave evidence in these proceedings.

What follows is a brief outline of the facts. Especially pertinent details will be explored in greater depth at the appropriate points of our analysis.

The relationship between Benzline and Lorinser

Benzline and Lorinser have a long history of business dealings. In 1993, Benzline was appointed the master dealer of Lorinser car parts in Singapore. In 2006, Benzline and Lorinser concluded a similar agreement in respect of Lorinser cars, and for a time Benzline actively pursued the importation and sale of Lorinser cars. Benzline’s efforts were impeded by one major obstacle: Daimler’s international consumer warranty (“the Daimler Warranty”), which in Singapore was provided through Cycle & Carriage, only applied to direct imports of Mercedes-Benz cars. Since the Lorinser cars were considered parallel imports, they were not covered by the Daimler Warranty in Singapore. This meant that any warranty would have to be provided by Benzline itself at an added fee charged to its customers, making Lorinser cars a markedly less attractive value proposition. Benzline sold about 60 Lorinser cars before abandoning the experiment in 2007. Thereafter, it continued to hold the master dealership rights, but in practice restricted itself (as far as Lorinser’s products were concerned) mainly to selling Lorinser car parts and customisation services, although it would occasionally order Lorinser cars at the special request of individual customers.

This state of affairs continued until 2013, when EH informed Mr Ng and Mr Chong that Lorinser had concluded an agreement with Daimler to extend the Daimler Warranty to Lorinser cars, provided they were sold by an authorised dealer. A dealer wishing to participate in this new arrangement (hereinafter referred to as the “Special Project”) would have to enter into a fresh agreement with Lorinser for that purpose. EH mentioned that negotiations with a possible dealer in Thailand had fallen through. He then suggested that Benzline consider applying to be Lorinser’s authorised dealer for Thailand, Malaysia, and/or Singapore for the purposes of the Special Project. Benzline was intrigued by the Special Project, but was not inclined to be the direct retailer of Lorinser cars due to its relative lack of car retail expertise and human resources. Benzline hence considered that it would be more advantageous to find another party to assume the role of sub-dealer, allowing Benzline to make some profits (essentially as a middleman) without having to develop its own retail capabilities.

Negotiations between Benzline and Supercars

It so happened that Mr Chong and Mr Chua were neighbours and had known each other for some years. Mr Chong was aware of Mr Chua’s role in Supercars, and he decided to inform the latter of the opportunity as well as to recommend Supercars to Mr Ng. The recommendation was well received by Mr Ng, and the three men began discussions with a view toward Benzline and Supercars entering into an exclusive sub-dealership agreement for the purposes of the Special Project (“the Exclusive Sub-Dealership Agreement”). Many of these discussions involved Lorinser as well.

At least initially, Supercars was interested in being the exclusive sub-dealer of Lorinser cars in Thailand as well as Singapore. Somewhere along the way, talk of operations in Thailand petered out, and the parties focused their discussions on the Singapore market. In late 2013, the discussions appeared to be going well, and both parties were confident that the Exclusive Sub-Dealership Agreement would materialise in due course. However, the decision was not entirely in their hands as Lorinser had the power to accept or reject a proposed sub-dealer. For this among other reasons (see [29]–[30] below), the terms of the Exclusive Sub-Dealership Agreement were dependent on the terms of a new master dealership agreement between Benzline and Lorinser (“the Benzline–Lorinser Agreement”), which was to cover the Special Project. As a consequence, the parties could not attempt to finalise the Exclusive Sub-Dealership Agreement until April 2014, when the final draft of the Benzline–Lorinser Agreement was produced.

Scheduling complications and the making of the Payment

During this waiting period, discussions continued regarding certain orders which had to be placed with Daimler (and which therefore first had to be placed with Lorinser). Daimler expected its buyers to provide it with projected yearly orders for planning purposes (“Planning Orders”). In order to actually obtain cars, buyers would subsequently have to place monthly orders (“Purchase Orders”) accompanied by a 30% deposit on each order.

In January 2014, EH reminded the parties that if the deposit on Supercars’ first Purchase Order (“the First Purchase Order”) was not placed soon, there could be a lengthy delay in the eventual delivery of the Lorinser cars, and this would hinder Supercars’ achievement of its sales target for the year 2014. The course of their correspondence on this matter was as follows: On 17 January 2014, EH sent an e-mail to Mr Chua (copied to Mr Ng, Mr Chong, and Marcus Lorinser) to request Mr Chua to submit two things: an amended Planning Order for 2014 and “the [P]urchase [O]rders for the first order for May production (total[ling] 7x units)”. EH further requested that Mr Chua “transfer the deposit of 30% directly to [Lorinser’s] account”. On 21 January 2014, EH sent an e-mail to Mr Ng containing the first draft of the Benzline–Lorinser Agreement (“the First Draft Agreement”) as an attachment. He requested that Mr Ng circulate the contents of the draft to Mr Chua and Mr Yu and “ask them to study it”. That was done and Mr Chua and Mr Yu then reviewed the First Draft Agreement. The terms of the First Draft Agreement are discussed in detail at [33]–[34] below. On 22 January 2014, having discussed the matter with Mr Chua, Mr Yu met Mr Ng and, on behalf of Supercars, gave him a personal cheque for $300,000 drawn in favour of Benzline (ie, the Payment), accompanied by a payment voucher filled in by Mr Yu (“the Payment Voucher”) which stated the payment to be a “30% deposit for New Mercedes as attached”. Mr Ng signed and returned the Payment Voucher. On 27 January 2014, Mr Chong sent an e-mail to EH (copied to Mr Ng) to place an order for nine cars (ie, the First Purchase Order). The e-mail stated the names and codes of the cars as well as the codes for the various customisation options to be applied to each car. These nine cars were described as being “for the initial launching”. On 6 February 2014, EH sent an e-mail to Mr Ng (copied to Mr Chong) regarding some problems with the First Purchase Order. He informed Mr Ng that some of the models in that order were unavailable, and...