Benzline Auto Pte Ltd v Supercars Lorinser Pte Ltd

JurisdictionSingapore
CourtCourt of Three Judges (Singapore)
JudgeSundaresh Menon CJ,Andrew Phang Boon Leong JA,Judith Prakash JA
Judgment Date08 January 2018
Date08 January 2018
Docket NumberCivil Appeal No 103 of 2016

[2018] SGCA 2

Court of Appeal

Sundaresh Menon CJ, Andrew Phang Boon Leong JA and Judith Prakash JA

Civil Appeal No 103 of 2016

Benzline Auto Pte Ltd
and
Supercars Lorinser Pte Ltd and another

Leslie Yeo (Sterling Law Corporation) for the appellant;

Ho May Kim and Harry Zheng (Selvam LLC) for the respondent.

Case(s) referred to

Alwie Handoyo v Tjong Very Sumito [2013] 4 SLR 308 (refd)

Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 (refd)

Gribbon v Lutton [2002] QB 902; [2002] 2 WLR 842 (refd)

Lee Chee Wei v Tan Hor Peow Victor [2007] 3 SLR(R) 537; [2007] 3 SLR 537 (refd)

Max Media FZ LLC v Nimbus Media Pte Ltd [2010] 2 SLR 677 (refd)

Mok Kwong Yue v Ding Leng Kong [2012] 1 SLR 737 (refd)

Rowland v Divall [1923] 2 KB 500 (refd)

Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68 (refd)

Skandinaviska Enskilda Banken AB (Publ), Singapore Branch v Asia Pacific Breweries (Singapore) Pte Ltd [2011] 3 SLR 540 (refd)

United Artists Singapore Theatres Pte Ltd v Parkway Properties Pte Ltd [2003] 1 SLR(R) 791; [2003] 1 SLR 791 (refd)

Restitution — Failure of consideration — Total failure of consideration — Payor making payment in advance of conclusion of contract — Payment channelled to third party as deposit on shipment of cars needed by payor — Whether subsequent failure of parties to enter into contract amounted to total failure of consideration

Facts

The appellant (“Benzline”) was a company which held the Singapore master dealership rights for Lorinser cars, which were Mercedes-Benz cars manufactured by Daimler AG and then modified by another German company known as Lorinser. The respondents (collectively, “Supercars”) were car dealers who entered into negotiations with Benzline with a view toward acting as the exclusive sub-dealers of Lorinser cars in Singapore and possibly also Thailand.

While negotiations toward an exclusive sub-dealership agreement (“the Exclusive Sub-Dealership Agreement”) were ongoing, Supercars placed certain orders (“the Planning Orders”) with or through Benzline which were stated to be “for planning purposes”. These were to be followed a later date by more specific orders (“the Purchase Orders”), which would have to be accompanied by a deposit to be paid to Daimler AG before Daimler AG would begin manufacturing the base Mercedes-Benz cars. Supercars placed a Purchase Order and transferred a sum of $300,000 (“the Payment”) to Benzline at Benzline's request. It did so after receiving the first draft of the agreement between Benzline and Lorinser (“the First Draft Agreement”), which the parties intended to form the basis of the Exclusive Sub-Dealership Agreement (as the two agreements were intended to be back-to-back). The Payment was paid on to Lorinser and subsequently to Daimler AG as a deposit on an order of base Mercedes-Benz cars.

Ultimately, the parties failed to reach agreement on the Exclusive Sub-Dealership Agreement due to disagreements regarding, in particular, a clause requiring Supercars to provide a stand-by letter of credit (“standby LC”) to Lorinser. Benzline instead granted the exclusive sub-dealership to a different company, Regal Motors Pte Ltd (“Regal”).

Supercars commenced proceedings in the High Court to recover the Payment on grounds including total failure of consideration/failure of basis (specifically, the failure of the parties to reach agreement on the Exclusive Sub-Dealership). Benzline argued that the Payment was part-payment for Supercars' order of Lorinser cars and was non-refundable. Benzline also counter-claimed for breach of contract, claiming as damages, among other things, lost sales in Singapore and Thailand and losses incurred by Benzline in having to pay for and store the cars ordered under the first Purchase Order.

The judicial commissioner (“the Judge”) who heard the case took the view that the Payment was intended to demonstrate Supercars' good faith and seriousness, and was therefore refundable when the Exclusive Sub-Dealership Agreement failed to materialise. The Judge ordered the Payment to be refunded and dismissed Benzline's counter-claim.

On appeal, Benzline argued, among other things, that the Judge had misunderstood the purpose of the Payment, that Supercars had been aware of the requirement for a standby LC when they made the Payment, and that the Planning Orders formed a binding contract.

Held, allowing the appeal in part:

(1) A claim in unjust enrichment required enrichment of the defendant at the expense of the plaintiff in circumstances which made the enrichment unjust. The inquiry into whether the unjust factor of failure of consideration, also known as failure of basis, was present had two parts: first, what was the basis of the transfer, and second, did that basis fail: at [45] and [46].

(2) “Consideration” in the context of unjust enrichment meant either the performance of a counter-promise, to be distinguished from the counter-promise itself, or the fulfilment of a non-promissory contingent condition, meaning an expected event or state of affairs which neither party was responsible for bringing about: at [48] to [50].

(3) Not every expectation which a party had in making a transfer would form part of the basis of that transfer. The basis of a transfer had to be objectively determined based on what was communicated between the parties. Even where a basis was implied instead of expressed, that implication had to be based on objective features of the transfer and its context, and not merely on a fortuitous overlap between the unexpressed expectations of the parties: at [51].

(4) Although it was usual and convenient to refer to the basis of a transfer, a transfer might have more than one basis. The question would be whether a fundamental component of the basis had failed: at [52].

(5) The failure had to be total and not partial, the exception, if it could be called one, being where a contract was divisible such that it could be said that there had been a total failure of the consideration for/basis of a discrete part of that contract: at [53].

(6) In cases of advance payment on a contract, availability of restitution often depended on whether such a payment was characterised as a deposit or only a part payment. The basis for the payment of a deposit was to serve as an earnest for the payor's performance, ie, as a disincentive to the payor's breach. Termination by the payee for the payor's repudiatory breach would not entitle the payor to recover the deposit because, among other things, ordering restitution in such circumstances would allow the payor to profit from his own breach: at [55] and [56].

(7) The Judge erred in finding that the purpose of the Payment was to demonstrate Supercars' good faith and seriousness. Supercars' good faith and seriousness had never been in doubt. Instead, the evidence showed that the Payment had been requested because Daimler had been pressing Lorinser to pay the deposit on the Purchase Order for the first batch of cars, and Lorinser in turn had been pressing Benzline to pay or procure the money for the deposit to enable Lorinser to pay Daimler. The Payment was made to avoid future delay, not to show good faith and seriousness: at [60], [61] and [65].

(8) Although the parties had expected and assumed that the Exclusive Sub-Dealership Agreement would materialise, that expectation/assumption had never been communicated as forming the basis of the Payment. It also could not be objectively implied. The basis to be implied had to be fundamental to the transaction, or otherwise obvious to an objective observer. It was inherently unlikely that Benzline would be willing to place in Supercars' hands the ability to claw back the Payment simply by refusing to sign the Exclusive Sub-Dealership Agreement later. That interpretation would also come close to allowing Supercars to be rewarded for its own wrong, and would create a perverse incentive to withdraw that would cut against both parties' intentions for the venture to succeed. Moreover, Supercars had made the Payment having had sight of the First Draft Agreement. Objectively, this had to indicate that the terms in that agreement were, in the main, acceptable to Supercars. It would make little sense for Supercars to be able subsequently to back out and retrieve the Payment due to disagreement with a term already in the First Draft Agreement: at [66] and [67].

(9) The true implied basis for the Payment was not that the parties would enter into the Exclusive Sub-Dealership Agreement, but that Benzline would offer Supercars the Exclusive Sub-Dealership on terms which would correspond in material ways to the First Draft Agreement. Since it was Supercars that had thrown a spanner in the works by refusing to provide a standby LC, and since the clause requiring the standby LC had been included in the First Draft Agreement, the basis of the Payment had not failed: at [69].

(10) Although the Payment had no doubt been intended to be used to pay a deposit to Daimler, it was less clear whether it had also been intended to be a deposit as between Supercars and Benzline. Regardless, it was for a plaintiff seeking restitution to identify the basis of a transfer and show that it had failed, and not for a defendant to positively establish its nature and continuing validity. For that reason, Supercars' claim failed: at [70].

(11) With regard to Benzline's counterclaim, the contents of the First Draft Agreement and e-mail correspondence between the parties and Lorinser's representative showed that the Planning Orders did not form a binding contract. Only the Purchase Orders were understood to be contractually binding. As for the Thai market, not even Planning Orders had been submitted. Benzline also could not show that it had sustained any loss in respect of the Purchase Orders as, on Benzline's own evidence, it had managed to...

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